UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-9496
BODDIE-NOELL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 56-1574675
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/944-0100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common Stock, par value $.01 per share American Stock Exchange
- -------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 22, 1999 was approximately $67,405,000.
The number of shares of Registrant's Common Stock outstanding on March
22, 1999, was 5,991,551.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Proxy Statement for the Registrant's Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
within 120 days after the end of the year covered by this Form 10-K, are
incorporated by reference in Part III, Items 10, 11, 12 and 13 of this Form
10-K.
Index to exhibits at page 50
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BODDIE-NOELL PROPERTIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. FINANCIAL INFORMATION Page No.
<S> <C> <C>
PART I
1 Business 3
2 Properties 6
3 Legal Proceedings 10
4 Submission of Matters to a Vote of Security Holders 10
X Executive Officers of the Registrant 10
PART II
5 Market for Registrant's Common Equity and Related Stockholder
Matters 11
6 Selected Financial Data 12
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
7A Quantitative and Qualitative Disclosures About Market Risk 25
8 Financial Statements and Supplementary Data 25
9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 25
PART III
10 Directors and Executive Officers of the Registrant 25
11 Executive Compensation 26
12 Security Ownership of Certain Beneficial Owners and Management
26
13 Certain Relationships and Related Transactions 26
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K 26
</TABLE>
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PART I
ITEM 1. BUSINESS
Company Profile
Boddie-Noell Properties, Inc. (the "Company") is a self-administered
and self-managed real estate investment trust that owns and operates apartment
communities in North Carolina and Virginia. We currently own and operate 15
apartment communities containing 3,440 units, and have the right to acquire one
additional apartment community containing 108 units. We also own 47 restaurant
properties, which we lease to a third party under a master lease on a triple-net
basis. We manage four other apartment communities through an unconsolidated
subsidiary.
As of March 22, 1999, we have 5,991,551 shares of common stock and
1,579,027 Operating Partnership minority units outstanding, owned by
approximately 8,000 beneficial owners. Our shares are listed on the American
Stock Exchange, trading under the symbol "BNP."
Our executive offices are located at 3850 One First Union Center,
Charlotte, North Carolina 28202-6032, telephone 704/944-0100.
History and Development of Boddie-Noell Properties, Inc.
The Company was originally incorporated in the state of Delaware in
1987. Beginning in 1987, we elected to be taxed as a REIT under the Internal
Revenue Code. As such, the Company generally is not, and will not be, subject to
federal or state income taxes on net income. As a REIT, we are subject to a
number of organizational and operational requirements, including a requirement
that we currently distribute at least 95% of our REIT taxable income as
dividends.
In 1987, we purchased 47 existing restaurant properties for an
aggregate purchase price of $43.2 million. From 1987 through 1992, our assets
primarily consisted of these 47 restaurant properties. During this period we
operated as an externally administered and externally managed REIT. We leased
the restaurants to Boddie-Noell Enterprises, Inc. ("Enterprises"), a Hardee's
franchisee, under a master lease on a triple-net basis. A master lease is a
single lease that covers multiple properties, while a triple-net lease is one
where the lessee pays all operating expenses, maintenance, property insurance
and real estate taxes.
In 1993, in order to provide for growth in funds from operations and
enhance shareholder value, we began to change our focus from restaurant
properties to apartment communities. We acquired Paces Commons in June 1993,
followed by Oakbrook in June 1994.
Both of these apartment communities are located in Charlotte, North Carolina.
In October 1994, we continued our diversification with our acquisition
of BT Venture Corporation, an integrated real estate management, development and
acquisition company, which we acquired from two of our affiliates. With this
acquisition, we became a self-administered and self-managed REIT. BT Venture
Corporation owned Latitudes in Virginia Beach, Virginia, and managed 12
apartment communities (including Latitudes and the two that we owned) and three
retail shopping centers.
After the acquisition of BT Venture Corporation, we also acquired
Harris Hill, in Charlotte, in December 1994, and Paces Village, located in
Greensboro, North Carolina, in May 1996.
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In May 1995, we reorganized our third-party management operations to
better enable us to comply with certain IRS regulations that limit the amount of
revenues that a REIT can earn from third-party property management contracts. We
transferred all of our third-party management contracts to our newly formed
management company, BNP Management, Inc., an unconsolidated taxable subsidiary
of the Company. In exchange we received a 95% economic interest in BNP
Management, represented by 100% of the non-voting equity and 1% of the voting
equity of BNP Management. Because we do not control the voting stock of the
Management Company, we account for this investment using the equity method of
accounting. This means that we show our 95% interest in the net income of the
Management Company as a line item on our income statement, and the amount we
have invested in the Management Company as a line item on our balance sheet.
Restaurant sales and restaurant rental income have been declining since
1992, reflecting the increased competition and widespread price discounting in
the fast food industry. In August 1997, CKE Restaurants, Inc. purchased Hardee's
Food Systems, Inc., the restaurant franchisor. CKE is the owner and operator of
"Carl's Jr.," a fast food hamburger chain with approximately 850 restaurants.
While the rate of decline in restaurant sales has slowed in recent years, we
have not seen improvement in restaurant sales to date.
Recent Developments
In 1997, we reincorporated in the state of Maryland and reorganized to
an UPREIT structure. 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, a Delaware limited partnership, which we refer to as the Operating
Partnership. We are the sole general partner and own a controlling interest in
the Operating Partnership, through which we conduct all of our operations. We
refer to the limited partners of the Operating Partnership as "minority
unitholders" or "minority interest."
Prior to the reorganization, most property owners who sold us
properties recognized gain on their sale. However, through our UPREIT structure,
we can acquire properties in exchange for Operating Partnership units and
trigger no immediate tax obligation for certain sellers. We believe that our
conversion to an UPREIT will therefore enable us to acquire properties not
otherwise available or at lower prices because of the tax advantages to certain
property sellers of receiving limited partnership interests instead of cash as
consideration. Minority unitholders 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. Distributions of cash from the Operating
Partnership are allocated between the REIT and the minority unitholders based on
their respective unit ownership.
In September 1997, we signed an agreement to acquire a portfolio of
seven apartment communities located in Greensboro, Winston-Salem, and
Burlington, North Carolina. We refer to this acquisition as the "Chrysson
acquisition," and to the sellers as the "Chrysson Parties." Under the terms of
the acquisition agreement, we will have a right of first refusal to purchase any
project developed in the future by the development entity owned by the Chrysson
Parties.
On December 1, 1997, we acquired four communities from the Chrysson
Parties. We issued 950,032 Operating Partnership units in December 1997 in
relation to the first four communities, and deferred issuing 100,000 additional
units until December 1998, and 100,000 units until December 1999.
In December 1997, we completed a common stock offering and issued
2,500,000 shares of common stock. In January 1998, we issued 200,000 additional
shares for the underwriters' over-allotment in this offering. We used proceeds
of this offering to retire long-term debt. This common stock offering almost
doubled the number of the Company's common shares outstanding.
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During June through September 1998, we acquired two more Chrysson
communities as well as three additional apartment communities. We issued 582,995
Operating Partnership units in relation to these acquisitions, and deferred
issuing an additional 36,666 units until August 1999.
In January 1999, we acquired one additional apartment community in a
direct purchase for cash and assumption of long-term debt.
Current Operations
We conduct all of our operations through the Operating Partnership. We
currently own approximately 79% of the outstanding Operating Partnership units.
We currently own and operate 15 apartment communities. These
communities are located in North Carolina and Virginia, and contain a total of
3,440 apartment units. Upon completion of our acquisition of all of the Chrysson
properties, we will also own an additional apartment community with 108
apartment units in Winston-Salem, North Carolina. We also own the 47 restaurant
properties that we lease to Enterprises under a triple-net master lease.
We have 133 employees, including management, accounting, legal,
acquisitions, development, property management, leasing, maintenance and
administrative personnel.
Business Strategy
Our principal investment objectives are to provide our shareholders
with current income and to increase the value of the Company's common stock. We
focus on increasing long-term growth in funds from operations and funds
available for distribution per share, and on increasing the value of our
portfolio through effective management, growth, financing, and investment
strategies. We expect to implement our strategies primarily through the
acquisition, operation, leasing and management of apartment communities.
We seek to acquire apartment properties in areas within the
southeastern United States exhibiting substantial economic growth and an
expanding job base in which we can establish a significant market presence in
the apartment community marketplace. Through our UPREIT structure, we have the
ability to acquire apartment communities by issuing Operating Partnership units
in tax-deferred exchanges with owners of such properties. We expect that we will
finance future acquisitions of apartment communities principally with such units
as well as loans and funds from additional offerings of common stock, preferred
stock or debt.
Our residents are typically mid- to high-end "residents by
necessity"--individuals or families with moderate to high-income level that live
in apartments by necessity. They include retirees, young professionals,
manager-level white-collar workers, medical personnel, teachers, and members of
the military and young families.
We strongly emphasize on-site property management. We seek
opportunities and have developed internal programs to increase rents, reduce
resident turnover, raise average occupancy rates and control costs. On-site
community managers report directly to regional managers who are locally based.
This flat organization provides for efficient staffing levels, reduces overhead
expenses, and enables us to respond to the needs of residents and on-site
employees. In an effort to reduce long-term operating costs, we annually review
each apartment community and promptly attend to maintenance and recurring
capital needs. Our employees supervise all renovation and repair activities,
which are generally completed by outside contractors.
5
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As a consequence of our focus on apartments, we may elect to sell our
restaurant properties and reinvest the proceeds in additional apartment
communities. However, no sale of the restaurants is pending, and we intend to
divest the restaurants only when we believe such a transaction will enhance
shareholder value.
ITEM 2. PROPERTIES
Apartment Communities
Through the Operating Partnership, we own and manage 15 apartment
communities consisting of 3,440 apartment units (including Chason Ridge which we
acquired effective January 1, 1999.) The average age of the apartment
communities is approximately 6.8 years. For the fourth quarter of 1998, our
average economic occupancy rate was 94.2%, and average revenue per occupied unit
was $736. The buildings in our apartment communities are generally wood framed,
two and three story buildings, with exterior entrances, individually metered gas
and electric service, and individual heating and cooling systems. Our apartment
units are comprised of 33.3% one bedroom units, 59.3% two bedroom units, and
7.4% three bedroom units. The units average 1,001 square feet in area and are
well equipped with modern appliances and other conveniences. Our communities
generally include swimming pools, tennis courts and clubrooms, and most have
exercise facilities. The communities are held subject to loans, discussed in the
notes to the financial statements.
The table on page 8 summarizes information about each of our apartment
communities.
Restaurant Properties
We lease the 47 restaurant properties on a triple-net basis to
Enterprises under a master lease. The master lease, as amended in December 1995,
has a primary term expiring in December 2007, but grants Enterprises three
five-year renewal options. Under the amended lease, annual rent in 1998, 1997,
and 1996 was equal to the greater of $4.5 million or 9.875% of food sales from
the restaurants. Under certain conditions as defined in the lease agreement,
both the Company and Enterprises have the right to substitute another restaurant
property for a property covered by the lease. After December 31, 2007,
Enterprises has the right to terminate the lease on up to five restaurant
properties per year by offering to purchase them under specified terms.
In addition, we entered into a separate agreement with Enterprises
that, after December 31, 1997, allows Enterprises to purchase, under specified
terms, up to seven restaurant properties deemed to be uneconomic. In 1999,
Enterprises notified us of its intention to purchase one restaurant in May 1999
and two additional restaurants in June 1999. After sale of these three
restaurant properties to Enterprises, we expect that minimum rent will be
approximately $4.3 million in 1999 and $4.2 million per year thereafter. We
expect to receive approximately $2 million proceeds from these property sales
(their net book value), which we will apply to reduce the line of credit secured
by them.
The average price of the restaurant properties was approximately
$920,000 per property. The restaurant properties are operated by Enterprises as
Hardee's restaurants pursuant to franchise agreements with Hardee's Food
Systems, Inc. These agreements require that the properties conform to a standard
design specified by Hardee's. The current design consists of a one-story brick,
stucco or wood building that embodies a contemporary style with substantial
plate glass window areas. The buildings average 3,400 square feet and are
located on sites averaging 1.2 acres. The buildings are suitable for conversion
to a number of uses, but the exteriors would have to be substantially modified
prior to their use in non-restaurant applications. Hardee's owns a design patent
on certain elements of the building and requires franchisees to make certain
exterior modifications if the location is discontinued as a Hardee's restaurant.
6
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Enterprises is responsible for all aspects of the operation,
maintenance and upkeep of the restaurant properties. In addition, Enterprises is
responsible for the cost of any improvement, expansion, remodeling or
replacement required to keep the properties competitive or in conformity with
Hardee's building standards. The decision to modify a particular restaurant
property is based on a number of factors, including the date of its last
modification and the number, age and design features of competing restaurants
located in the market area of the particular property.
The locations of the Company's 47 restaurant properties are listed on
page 9 of this Annual Report.
7
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INFORMATION ABOUT APARTMENT COMMUNITIES
<TABLE>
<CAPTION>
Total Apartment Weighted
No. of Rentable Unit Type Average
Apt. Year Date Total Area 1 2 3 Apt. Size
Community Location Units Compl Acquired Acreage (Sq. Ft.) BR BR BR (Sq. Ft.)
- ------------------ ------------------ ------ -------- ---------- --------- ---------- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communities owned through 1997:
Harris Hill Charlotte, NC 184 1988 12/94 18.4 167,920 67 117 - 912
Latitudes Virginia Beach, 448 1989 10/94 24.9 358,700 269 159 20 800
VA
Oakbrook Charlotte, NC 162 1985 6/94 16.4 178,668 32 120 10 1,100
Paces Commons Charlotte, NC 336 1988 6/93 24.8 322,046 154 142 40 958
Paces Village Greensboro, NC 198 1988 4/96 15.5 167,886 88 110 - 848
Communities acquired December 1997 (2):
Abbington
Place (3) Greensboro, NC 360 1997 12/97 37.4 400,728 96 216 48 1,113
Pepperstone Greensboro, NC 108 1992 12/97 10.1 113,076 - 108 - 1,047
Savannah Place Winston-Salem, NC 172 1991 12/97 15.4 182,196 44 128 - 1,059
Waterford Place Greensboro, NC 240 1997 12/97 20.6 277,296 72 120 48 1,155
Communities acquired in 1998 (4):
Allerton Place Greensboro, NC 228 1998 9/98 19.2 241,842 54 126 48 1,061
Madison Hall Clemmons, NC 128 1997 8/98 10.5 110,352 42 86 - 862
Oak Hollow Cary, NC 220 1983 7/98 30.0 215,960 56 164 - 982
Summerlyn
Place Burlington, NC 140 1998 9/98 12.1 156,756 48 84 8 1,120
Woods Edge Durham, NC 264 1985 6/98 32.4 268,620 66 198 - 1,018
Community acquired in January 1999:
Chason Ridge Fayetteville, NC 252 1994 1/99 21.9 246,886 56 164 32 980
Chrysson Community under construction (5):
Brookford Place Winston-Salem, NC 108 - - 6.3 103,392 36 72 - 957
</TABLE>
<TABLE>
<CAPTION>
Average
No. of Average Economic Monthly Revenue
Apt. Occupancy Percent(1) per Occupied Unit
Community Location Units 1998 1997 1996 1998 1997 1996
- ------------------ ------------------ ------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Communities owned through 1997:
Harris Hill Charlotte, NC 184 96.0 95.5 93.4 $720 $708 $717
Latitudes Virginia Beach, 448 95.5 94.6 93.8 665 659 637
VA
Oakbrook Charlotte, NC 162 95.9 95.6 93.8 775 768 780
Paces Commons Charlotte, NC 336 93.2 97.0 95.4 705 706 685
Paces Village Greensboro, NC 198 93.8 93.5 93.5 672 684 693
Communities acquired December 1997 (2):
Abbington
Place (3) Greensboro, NC 360 93.6 91.8 - 781 785 -
Pepperstone Greensboro, NC 108 97.1 92.4 - 682 675 -
Savannah Place Winston-Salem, NC 172 97.6 96.9 - 777 782 -
Waterford Place Greensboro, NC 240 92.4 93.7 - 867 878 -
Communities acquired in 1998 (4):
Allerton Place Greensboro, NC 228 94.8 - - 804 - -
Madison Hall Clemmons, NC 128 91.7 - - 650 - -
Oak Hollow Cary, NC 220 95.9 - - 728 - -
Summerlyn
Place Burlington, NC 140 94.0 - - 846 - -
Woods Edge Durham, NC 264 95.6 - - 742 - -
Community acquired in January 1999:
Chason Ridge Fayetteville, NC 252 - - - - - -
Chrysson Community under construction (5):
Brookford Place Winston-Salem, NC 108 - - - - - -
<FN>
(1) Average economic occupancy is calculated as gross potential rent less
vacancy, divided by gross potential rent.
(2) Added as Phase I of the Chrysson acquisition. Average economic occupancy and
average monthly rental per occupied unit for December 1997.
(3) Phase I of this community, containing 240 units, was completed in 1994.
Phase II, containing 120 units, was completed in 1997.
(4) For properties acquired in 1998, average economic occupancy and average
monthly rental per occupied unit computed from date acquired.
(5) To be acquired upon completion and lease up.
</FN>
</TABLE>
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RESTAURANT PROPERTIES LOCATIONS
<TABLE>
<S> <C> <C>
Virginia (28 properties) Orange Chapel Hill
200 Madison Road 213 West Franklin Street
Ashland
106 North Washington Hwy. Petersburg Denver
1865 Crater Road, South Route 1
Blackstone
North Main Street Richmond Eden
921 Myers Street 202 West Kings Highway
Bluefield 6850 Forest Hill Avenue
701 South College Street 7917 Midlothian Pike Fayetteville
3505 Ramsey Street
Chester Roanoke 360 North Eastern Blvd.
12401 Jefferson Davis Hwy. 4407 Abenham Avenue, SW 5224 Bragg Boulevard
3401 Hollins Road
Clarksville Gastonia
916 Virginia Avenue Rocky Mount 816 East Franklin Street
322 Tanyard Road, NE 1525 North Chester Street
Clintwood
U.S. Highway 83 Smithfield Hillsborough
Smithfield Shopping Center 380 S. Churton Street
Dublin
208 College Avenue Staunton Kinston
1201 Greenville Avenue 200 West Vernon Street
Franklin 1404 Richlands Street
105 North Mechanic Street Verona
160 East Route 612 Mt. Airy
Galax 507 Willow Street
425 Main Street Virginia Beach
4261 Holland Road Newton
Hopewell 1951 Lynnhaven Parkway South Ashe & North "D" St.
East City Point Road
Wise Siler City
Lebanon US Highway 23, Business Chatham Shopping Center
Route 1
Spring Lake
Lynchburg North Carolina 400 South Main Street
8411 Timberlake Road (19 properties)
2231 Langhorne road Thomasville
Bessemer City 1116 East Main Street
Norfolk Route 1 Randolph Street
3908 Princess Anne Road
Burlington
2712 Alamance Road
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
We are a party to a variety of legal proceedings arising in the
ordinary course of business. We do not expect any of these matters, individually
and in aggregate, to have a material adverse impact on the Company.
In the event a claim were successful, we believe that we are adequately
covered by insurance and indemnification agreements. We have insurance coverage
on each of our apartment communities. Our restaurant properties are subject to
an indemnification agreement whereby Enterprises, the lessee, is responsible for
all claims arising from a restaurant property. In addition, Enterprises is
required to provide insurance, which identifies the Company as a named insured,
on each restaurant property. Each apartment property that we manage but do not
own is covered by an insurance policy under which we are a named insured. As to
claims to which we have become a successor party-in-interest to BT Venture
Corporation, we received, as part of the acquisition of BT Venture Corporation,
an indemnification agreement from the shareholders of BT Venture Corporation
which, subject to certain limitations, indemnifies us from loss arising out of a
claim against BT Venture Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1998.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
We have set forth below a listing and brief biography of each of the
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position Officer Since
- ------------------------------ ------- --------------------------------------------------- ------------------
<S> <C> <C> <C>
D. Scott Wilkerson 41 Director, President and October 1994
Chief Executive Officer
Philip S. Payne 47 Director, Executive Vice President, October 1994
Treasurer and Chief Financial Officer
Pamela B. Bruno 45 Vice President, Controller and October 1994
Chief Accounting Officer
Douglas E. Anderson 51 Vice President, Secretary April 1987
</TABLE>
D. Scott Wilkerson--Director, President and Chief Executive Officer.
Mr. Wilkerson joined BT Venture Corporation in 1987 and served in various
officer level positions, including Vice President of Administration and Finance
and Vice President for Acquisitions and Development, before becoming President
of BT Venture in January 1994. He was named our Chief Executive Officer in April
1995, and a Director in December 1997. From 1980 to 1986, Mr. Wilkerson was with
Arthur Andersen LLP, in Charlotte, North Carolina, serving as tax manager from
1985 to 1986. His specialization was in the representation of real estate
syndicators, developers and management companies. Mr. Wilkerson received a B.S.
degree in accounting from the University of North Carolina at Charlotte in 1980.
He is a licensed certified public accountant and licensed real estate broker. He
serves on the boards of directors of the National Multifamily Housing Council
and the Apartment Association of North Carolina, and he is a vice president of
the Charlotte Apartment Association. He is active in various professional, civic
and charitable activities.
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Philip S. Payne--Director, Executive Vice President, Treasurer and
Chief Financial Officer. Mr. Payne joined BT Venture Corporation in 1990 as Vice
President of Capital Market Activities and became Executive Vice President and
Chief Financial Officer of BT Venture in January 1993. He was named our
Treasurer in April 1995 and a Director in December 1997. From 1987 to 1990 he
was a principal in Payne Knowles Investment Group, a financial planning firm.
From 1983 to 1987 he was a registered representative with Legg Mason Wood
Walker. From 1978 to 1983, Mr. Payne practiced law, and he currently maintains
his license to practice law in Virginia. He received a B.S. degree from the
College of William and Mary in 1973 and a J.D. degree in 1978 from the same
institution. Mr. Payne is a member of the Editorial Board of The REIT Report, a
publication of the National Association of Real Estate Investment Trusts. He
serves on the board of directors of the National Multifamily Housing Council.
Pamela B. Bruno--Vice President, Controller and Chief Accounting
Officer. Ms. Bruno joined BT Venture Corporation in 1993 as Controller and
became our Vice President and Chief Accounting Officer in October 1994. From
1984 to 1993, Ms. Bruno was with Ernst & Young LLP, in Charlotte, North
Carolina, and Anchorage, Alaska, serving as audit manager from 1987 through
1993. She received a B.S. degree in accounting from the University of North
Carolina at Charlotte in 1984. She is a licensed certified public accountant.
Douglas E. Anderson--Vice President and Secretary. Mr. Anderson has
served as Vice President and Secretary since our inception in 1987. He has been
with Enterprises since 1977 and is currently a director, executive vice
president and secretary of Enterprises. Mr. Anderson is also president of BNE
Land and Development Company, the real estate development division of
Enterprises. He serves as a director of Wachovia Bank of Rocky Mount, North
Carolina. He received a B.S. degree in finance and accounting from the
University of North Carolina at Chapel Hill in 1970.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividends
Our common stock is traded on the American Stock Exchange under the
symbol "BNP." There were approximately 2,000 shareholders of record on March 22,
1999. The table below shows, for the periods indicated, the range of high, low,
and closing sale prices of our common stock as reported by the American Stock
Exchange and the dividends paid per share. As of March 22, 1999, the closing
price of the Company's common stock was $11 1/4 per share.
Dividends
Stock Price Paid
High Low Close Per Share
------------- ------------- -------------- -------------
1998
Fourth quarter $12 1/4 $ 9 7/8 $10 7/16 $0.31
Third quarter 14 5/16 11 1/16 11 3/4 0.31
Second quarter 15 1/8 12 3/4 13 3/8 0.31
First quarter 15 1/8 13 3/4 15 1/16 0.31
11
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Dividends
Stock Price Paid
High Low Close Per Share
------------- ------------- -------------- -------------
1997
Fourth quarter $17 1/8 $13 3/4 $13 7/8 $0.31
Third quarter 16 1/2 12 1/2 16 1/2 0.31
Second quarter 13 11 7/8 12 7/8 0.31
First quarter 13 1/8 12 3/8 12 5/8 0.31
We have paid regular quarterly dividends to holders of our common stock
since our inception, and we intend to continue to do so. We anticipate that we
will pay all dividends from current funds from operations. We expect to continue
to pay a dividend of $0.31 per quarter. On an annualized basis, this would be
$1.24 per share. We expect distributions to substantially exceed the 95% annual
distribution requirement for a REIT.
We have a dividend reinvestment plan that is available to all
shareholders of record. Under this plan, as amended in July 1996, the plan
administrator, First Union National Bank of North Carolina, reinvests dividends
on behalf of plan participants in our common stock. First Union will either
issue new shares or purchase shares on the open market, at our direction. In
addition, shareholders who participate in the plan may elect to make direct cash
investments or supplement their reinvestment program with additional cash
investments of any amount from $25 to $10,000 per quarter. Participants do not
pay any commissions on stock purchased under the plan.
Sales of Unregistered Securities
In January 1998, we issued 43,438 shares of our common stock to the
former shareholders of BT Venture Corporation in final payment for additional
consideration related to the 1994 BT Venture Corporation acquisition. We issued
16,300 shares of common stock in 1997, and 38,700 shares of common stock in
1996, pursuant to this acquisition agreement. The shares were issued to the
former shareholders of BT Venture Corporation, B. Mayo Boddie and Nicholas B.
Boddie. B. Mayo Boddie is a Director of the Company.
In May 1998, we issued 65,648 shares of our common stock to retire a
note payable to Boddie Investment Company.
The shares were issued pursuant to the exemption from the registration
requirements of the Securities Act of 1933 set forth at Section 4(2) of the Act.
All purchasers were accredited investors, and the offers were not accompanied by
any form of general solicitation.
ITEM 6. SELECTED FINANCIAL DATA
We present below selected financial information. We encourage you to
read the financial statements and the notes accompanying the financial
statements in this Annual Report. This information is not intended to be a
replacement for the financial statements.
This financial information includes all apartment communities and
restaurant properties that we owned. While the number of restaurant properties
has remained constant, you should note in reviewing this information that we
acquired apartment properties throughout the periods presented. Therefore, the
information is not comparable between periods.
12
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996 1995 1994
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
Operating data:
Revenue:
Apartment rental income $ 21,925 $ 11,197 $ 9,791 $ 8,476 $ 3,889
Restaurant rental income 4,500 4,500 4,500 4,649 5,047
Equity and other income 715 555 217 600 322
------------- -------------- ------------- -------------- -------------
Total revenue 27,140 16,251 14,508 13,726 9,258
Expenses:
Depreciation 5,406 2,686 2,440 2,204 1,415
Amortization 531 580 535 405 233
Apartment operations 7,181 3,546 2,977 2,481 1,101
Corporate administration 1,333 1,000 894 1,286 887
Interest 8,209 6,487 5,946 5,362 2,802
Write-off of deferred costs - - - 359 518
------------- -------------- ------------- -------------- -------------
Total expenses 22,660 14,299 12,792 12,097 6,956
------------- -------------- ------------- -------------- -------------
Income before minority
interest of Unitholders 4,480 1,953 1,716 1,628 2,302
Minority interest in
Operating Partnership 742 39 - - -
------------- -------------- ------------- -------------- -------------
Income before
extraordinary item $ 3,738 $ 1,913 $ 1,716 $ 1,628 $ 2,302
============= ============== ============= ============== =============
Net income $ 3,686 $ 1,730 $ 1,716 $ 1,628 $ 2,302
============= ============== ============= ============== =============
Basic earnings per share (1) $ 0.62 $ 0.54 $ 0.57 $ 0.54 $ 0.80
============= ============== ============= ============== =============
Diluted earnings per share (1) $ 0.62 $ 0.52 $ 0.56 $ 0.54 $ 0.80
============= ============== ============= ============== =============
Dividends per share $ 1.24 $ 1.24 $ 1.24 $ 1.24 $ 1.24
============= ============== ============= ============== =============
Balance Sheet data:
Real estate assets (before
accumulated depreciation)
Apartment communities $ 188,539 $ 128,050 $ 66,610 $ 55,316 $ 54,724
Restaurant properties 43,205 43,205 43,205 43,205 43,205
Real estate assets, net 212,192 157,108 98,354 89,500 91,101
Total assets 221,121 166,112 103,436 94,352 95,954
Total debt 140,524 93,436 77,352 67,162 66,884
Minority interest 20,681 12,346 - - -
Shareholders' equity 56,749 55,785 24,902 26,200 27,968
Apartment Property data:
Apartment communities
owned at year end 14 9 5 4 3
Apartment units owned
at year end 3,188 2,208 1,328 1,130 946
Average apartment
economic occupancy 94.7% 95.3% 94.1% 95.3% 94.6%
Average monthly revenue
per occupied unit $ 737 $ 698 $ 684 $ 657 $ 624
Other data:
EBITDA $ 18,626 $ 11,706 $ 10,637 $ 9,600 $ 6,751
Funds from operations (2) 10,292 4,916 4,472 4,450 4,291
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996 1995 1994
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
Funds available
for distribution (2) 9,178 4,349 3,835 3,961 4,253
Net cash provided by
(used in):
Operating activities $ 9,420 $ 5,007 $ 4,800 $ 4,476 $ 4,496
Investing activities (43,862) (48,095) (11,020) (832) (18,729)
Financing activities 32,473 44,705 6,361 (3,895) 15,063
Weighted average number of
shares outstanding 5,924 3,180 3,027 3,006 2,855
Weighted average number of
Operating Partnership minority
units outstanding 1,192 81 - - -
<FN>
(1) Earnings per share amounts prior to 1997 have been restated to comply with
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
For further discussion of earnings per share and the impact of Statement
128, see the notes to the financial statements.
(2) Funds from operations and funds available for distribution amounts for
1998 and 1997 reflect measurements for the Operating Partnership
(before deduction for minority interest).
Funds from operations is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance
with generally accepted accounting principles), excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures."
We define funds available for distribution as funds from operations plus
non-cash expense for amortization of loan costs, less scheduled principal
payments on our debt and less recurring capital expenditures.
We consider funds from operations and funds available for distribution to
be useful in evaluating potential property acquisitions and measuring the
operating performance of an equity REIT because, together with net income
and cash flows, funds from operations and funds available for distribution
provide investors with additional measures to evaluate the ability of the
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. Funds from operations and funds available for distribution
do not represent net income or cash flows from operations as defined by
generally accepted accounting principles. You should not consider funds
from operations or funds available for distribution:
- to be alternatives to net income as reliable measures of the Company's
operating performance, or
- to be alternatives to cash flows as measures of
liquidity.
Funds from operations and funds available for distribution do not measure
whether cash flow is sufficient to fund all of our cash needs, including
principal amortization, capital improvements and distributions to
shareholders. Funds from operations and funds available for distribution
do not represent cash flows from operating, investing or financing
activities as defined by generally accepted accounting principles.
Further, funds from operations and funds available for distribution as
disclosed by other REITs may not be comparable to our calculation of funds
from operations or funds available for distribution.
</FN>
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of federal securities law. You can identify such statements by the use
of forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information.
Although we believe that our plans, intentions, and expectations
reflected in or suggested by these forward-looking statements are reasonable, we
cannot assure you that we will achieve our plans, intentions or expectations.
When you consider such forward-looking statements, you should keep in mind the
following important factors that could cause our actual results to differ
materially from those contained in any forward-looking statement:
-our markets could suffer unexpected increases in the development of
apartment, other rental, or competitive housing alternatives;
-general economic conditions could cause the financial condition of a large
number of our tenants to deteriorate;
-we may not be able to complete development, acquisition or joint venture
projects as quickly or on as favorable terms as anticipated;
-we may not be able to lease or re-lease apartments quickly or on as
favorable terms as under existing leases;
-we may have incorrectly assessed the environmental condition of our
properties;
-an unexpected increase in interest rates could increase our debt service
costs;
-we may not be able to meet our long-term liquidity requirements on
favorable terms;
-we could lose key executive officers; and
-our concentrated markets may suffer an unexpected decline in economic
growth or increase in unemployment rates.
Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to publicly release
the results of any revision to these forward-looking statements that may be made
to reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
You should read the discussion in conjunction with the financial
statements and notes thereto included in this Annual Report.
Overview
This discussion analyzes our operations for the full years of 1998,
1997, and 1996. During the fourth quarter of 1997 and the first three quarters
of 1998, we experienced a number of significant changes that resulted in a
marked increase in our total assets, revenues, and expenses,
15
<PAGE>
and significant changes in our equity and debt. In reading this discussion, it
might help if you keep certain key events and general trends in mind:
-Effective December 1, 1997, we acquired Abbington Place Apartments,
Pepperstone Apartments, Savannah Place Apartments, and Summerlyn Place
Apartments, which contain a total of 880 units, for approximately $60.9
million.
-Effective June 1, 1998, we acquired Woods Edge Apartments, which contains
264 units, for approximately $14.1 million.
-Effective July 27, 1998, we acquired Oak Hollow Apartments, which contains
220 units, for approximately $12.3 million.
-Effective August 22, 1998, we acquired Madison Hall Apartments, which
contains 128 units, for approximately $6.4 million.
-Effective September 2, 1998, we acquired Summerlyn Place Apartments, which
contains 140 units, for approximately $10.4 million.
-Effective September 9, 1998, we acquired Allerton Place Apartments, which
contains 228 units, for approximately $16.0 million.
-Effective December 1, 1997, we converted to an UPREIT structure. In
conjunction with our December 1997 apartment acquisition, we issued 950,000
Operating Partnership units that represented an approximate 15% minority
interest. During 1998 we issued 629,000 additional Operating Partnership
units in conjunction with apartment acquisitions. Minority ownership of the
Operating Partnership increased to approximately 21% by the end of 1998.
-In mid-December 1997, we completed a common stock offering of 2.5 million
shares of our common stock. In January 1998, we issued 200,000 additional
shares when the underwriters exercised part of their over-allotment option.
Net proceeds of this offering were $34.9 million.
-We applied the net proceeds of the common stock offering to retire
outstanding debt, including $25.3 million of debt that existed before our
December 1997 apartment acquisition. We financed the 1997 and 1998
apartment acquisitions with fixed-rate deed of trust loans totaling $77.4
million, draws on our line of credit totaling $12.0 million, and issuance
of Operating Partnership units.
-These transactions significantly changed our capital and operating
structure:
-We increased the number of apartments we own by approximately 140%, and
increased our real estate investments by approximately 110%.
-We increased our recorded shareholders' equity by approximately 140%,
and increased our number of shares outstanding by approximately 90%.
-We increased our long-term debt and reduced our weighted-average
interest rate on outstanding debt. As of December 31, 1998, the ratio
of our debt to real estate assets at cost was 60.6%. Prior to the
December 1997 transactions, this ratio was 71.2%.
We receive revenue from two principal sources--apartment rents and
restaurant rents. In addition, we have other income that consists primarily of
revenue from the Management Company and interest income. As a result of our
apartment acquisitions, our total revenue has increased significantly. In
addition, the percentage of our total revenue that comes from apartments has
increased.
16
<PAGE>
Results of Operations
1998 Compared to 1997
Net income
Net income available to common shareholders in 1998 was $3.7 million,
an increase of 113.0% over 1997. This increase was primarily attributable to the
acquisition of four apartment communities in December 1997 and the acquisition
of five apartment communities between June and September 1998.
Revenues
Total revenue for 1998 was $27.1 million, an increase of 67.0% over
1997. This increase is primarily attributable to apartment community
acquisitions in 1997 and 1998. Apartment rental income accounted for 80.8% of
our total revenue in 1998 compared to 68.9% in 1997.
Apartment rental income for 1998 was $21.9 million, an increase of
95.8% over 1997. This increase is primarily the result of apartment community
acquisitions.
On a same-units basis (i.e., for the five apartment communities owned
throughout both 1998 and 1997, plus December revenues for the four apartment
communities acquired December 1, 1997), apartment rental income remained
relatively constant, declining by only 0.4%. For 1998, overall average economic
occupancy at our apartment communities was 94.7%, and average monthly revenue
per occupied unit was $737.
Restaurant rental income was the minimum rent for both 1998 and 1997.
Under the terms of the lease agreement, restaurant rental income was the greater
of the minimum rent of $4.5 million per year or 9.875% of food sales. For 1998,
sales at our restaurant properties totaled $43.8 million, a decrease of 0.9%
compared to 1997. For rent payments based on percentage rent to resume, sales
would have to increase by 4.0% over 1998 sales levels.
Our interest in the net income of the Management Company decreased by
45.2% to $115,000 in 1998 as compared to 1997. This decrease reflects the effect
of the sale of two managed properties in the first quarter of 1997 and the loss
of management fees from Woods Edge and Oak Hollow. (The Management Company
fee-managed these communities before we acquired them.) We do not expect the
operations of the Management Company to have a significant effect on our
financial position, operating results or cash flows in future periods.
Interest and other income increased by 74.0% to $600,000 in 1998 as
compared to 1997. This increase was primarily due to $360,000 interest and fees
(compared to $164,000 interest and fees in 1997) earned on loans made to
facilitate the rehabilitation of The Villages of Chapel Hill, for which we have
advanced $2.5 million through December 1998. During 1998, we incurred interest
expense of approximately $176,000 on the borrowings we used to fund these
advances.
Expenses
Total expenses for 1998 were $22.7 million, an increase of 58.5% over
1997. This increase is primarily due to apartment community acquisitions in 1997
and 1998.
Apartment operations expense was $7.2 million in 1998, an increase of
102.6% over 1997. This increase reflects the impact of apartment acquisitions in
1997 and 1998, along with an overall increase in apartment operations expense.
Apartment operations expense totaled 32.8% of related income in 1998 compared to
31.7% in 1997.
17
<PAGE>
On a same-units basis (i.e., for the five apartment communities owned
throughout both 1998 and 1997, plus December expenses for the four apartment
communities acquired December 1, 1997), apartment operations expense increased
by 10.2%. For these communities, apartment operations expense totaled 34.4% of
related income in 1998 compared to 31.7% in 1997.
We continue to experience increased costs associated with attracting
and retaining residents in an increasingly competitive apartment market. We also
experienced significant increases in property insurance premiums effective
November 1997 as a result of a 1996 fire loss. In addition, we experienced
increased payroll costs in 1998, primarily due to increased maintenance labor
rates.
Operating expenses for restaurant properties are insignificant because
of the restaurant properties' triple-net lease arrangement that requires the
lessee to pay virtually all of the expenses associated with the restaurant
properties.
Depreciation expense was $5.4 million in 1998, an increase of 101.3%
over 1997. The increase in depreciation expense is primarily attributable to
apartment community acquisitions.
Amortization expense was $531,000 in 1998, a decline of 8.6% from 1997.
The decrease in amortization expense reflects reduced amortization of deferred
financing costs after significant debt retirements in December 1997.
Administrative expense was $1.3 million in 1998, an increase of 33.3%
over 1997. The increased expenses for 1998 compared to 1997 are generally
attributable to additional corporate level staff and overhead costs resulting
from the addition of apartment communities. We expect that administrative costs
will continue to increase as and when we acquire additional apartment
communities.
Interest expense was $8.2 million in 1998, an increase of 26.6% over
1997. The increased expense in 1998 reflects the effect of debt issued related
to apartment acquisitions, offset by the significant impact of retirements of
higher rate debt.
Weighted average interest rates were 7.5% in 1998 compared to 8.0% in 1997.
1997 Compared to 1996
Net income
Net income available to common shareholders was $1.7 million in 1997,
as compared to $1.7 million in 1996. Income in 1997 before a $183,000
extraordinary charge for early extinguishment of debt was $1.9 million, an
increase of 11.5% over 1996. The increase was primarily the result of improved
apartment revenues and the substantial increase in equity and other income.
Revenues
Total revenue for 1997 was $16.3 million, an increase of 12.0% over
1996. This increase is primarily due to the acquisition of four apartment
communities in December 1997 and the acquisition of one apartment community in
April 1996. Apartment rental income accounted for 68.9% of our total revenue in
1997 as compared to 67.5% in 1996.
Apartment rental income for 1997 was $11.2 million, an increase of
14.4% over 1996. While this increase is primarily the result of apartment
community acquisitions, apartment operations also showed improvement. For the
four apartment communities owned for the full year in both 1997 and 1996,
apartment rental income increased by 3.1%. On a same-units basis, average
economic occupancy improved by 1.3%, while average monthly revenue per occupied
unit increased by 1.5%. For 1997, overall average economic occupancy at our
apartment communities was 95.3% and average monthly revenue per occupied unit
was $698.
18
<PAGE>
Restaurant rental income was the $4.5 million minimum rent for 1997 and
1996. For 1997, sales at our restaurant properties totaled $44.2 million, a
decrease of 1.7% compared to 1996.
Our interest in the net income of the Management Company increased by
40.6% to $210,000 in 1997 as compared to 1996. This increase was primarily due
to the Management Company's receipt during the first quarter of 1997 of
refinancing fees from two managed properties and certain one-time sales
commissions from two managed properties. Also contributing to the increase were
fees the Management Company received for its planning and supervision of a
substantial rehabilitation project at The Villages of Chapel Hill, one of its
managed properties.
Interest and other income increased by 408.8% to $345,000 in 1997 as
compared to 1996. This increase was primarily due to approximately $164,000
interest fees earned on loans made to facilitate the rehabilitation of The
Villages of Chapel Hill, for which we advanced approximately $1.9 million in
1997. During 1997, we incurred interest expense of approximately $71,000 on the
borrowings we used to fund these advances. In addition, we earned fees of
$98,000 in 1997 for arranging refinancing for Woods Edge Apartments, a property
managed by our Management Company.
Expenses
Total expenses for 1997 were $14.3 million, an increase of 11.8% over
1996. This increase is due to the acquisition of four apartment communities in
December 1997 and the acquisition of one apartment community in April 1996,
along with an overall increase in apartment operations expense.
Apartment operations expense was $3.5 million in 1997, an increase of
19.1% over 1996. Apartment operations expense totaled 31.7% of related income in
1997 as compared to 30.4% in 1996. These increases reflect the impact of
apartment acquisitions in 1997 and 1996, as well as increased costs associated
with attracting and retaining residents in a more competitive apartment market.
Operating expenses for restaurant properties are insignificant because
of the restaurant properties' triple-net lease arrangement that requires
Enterprises to pay virtually all of the expenses associated with the restaurant
properties.
Depreciation expense was $2.7 million in 1997, an increase of 10.1%
over 1996. The increase in depreciation expense is primarily attributable to
apartment community acquisitions in 1997 and 1996.
Amortization expense was $580,000 in 1997, an increase of 8.5% over
1996. The increase in amortization expense is primarily attributable to
quarterly additions to the intangible asset related to the earn-out provision of
the 1994 BT Venture Corporation acquisition agreement. The earn-out period
related to this acquisition agreement ended September 1997, and there will be no
further additions to this intangible asset.
Administrative expense was $1.0 million in 1997, an increase of 11.8%
over 1996. This increase reflects additions to property management corporate
staff along with a one-time charge of approximately $50,000 related to our
reincorporation in Maryland in 1997.
Interest expense totaled $6.5 million in 1997, an increase of 9.1% over
1996. The increase in interest expense is primarily due to the addition of debt
related to apartment acquisitions. Weighted average interest rates were 8.0% in
1997 and 1996.
Funds from Operations
Funds from operations and funds available for distribution are defined
in footnote 2 on page 14. We calculated funds from operations as follows (all
amounts in thousands):
19
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Income before minority interest
and extraordinary item $ 4,480 $1,953 $1,716
Depreciation 5,406 2,686 2,440
Amortization of management intangible 406 380 315
Write-off of deferred costs - - -
Non-recurring equity income items - (103) -
--------------- -------------- --------------
Funds from operations before minority interest
in Operating Partnership $10,292 $4,916 $4,472
=============== ============== ==============
</TABLE>
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Funds from operations before minority interest
in Operating Partnership $10,292 $4,916 $4,472
Amortization of loan costs 124 200 219
Scheduled debt principal payments (482) (495) (460)
Recurring capital expenditures (757) (375) (396)
Non-recurring equity income items - 103 -
--------------- -------------- --------------
Funds available for distribution $ 9,178 $4,349 $3,835
=============== ============== ==============
</TABLE>
Other information about our historical cash flows follows (all amounts
in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 9,420 $ 5,006 $ 4,800
Investing activities (43,862) (48,095) (11,020)
Financing activities 32,473 44,705 6,361
Dividends and distributions paid to:
Shareholders $ 7,340 $ 3,854 $ 3,751
Minority unitholders in Operating Partnership 1,105 - na
Non-recurring capital expenditures:
Acquisition improvements and replacements $ 426 $ 71 $ 143
Other apartment property improvements 179 221 22
Weighted average common shares outstanding 5,924 3,180 3,027
Weighted average Operating Partnership
minority units outstanding 1,192 81 na
</TABLE>
The additions of apartment communities and improvement in apartment
operations have more than offset the decline in restaurant rental income,
producing increases in funds from operations. Funds from operations in 1998 (net
of minority interest) totaled $8.6 million, an increase of 78.4% over 1997.
Funds from operations in 1997 (net of minority interest) totaled $4.8 million,
an increase of 7.4% over 1996.
20
<PAGE>
Capital Resources and Liquidity
Capital Resources
In December 1997, we completed a common stock offering and issued
2,500,000 shares of common stock. In January 1998, we issued 200,000 additional
shares for the underwriters' over-allotment in this offering. We used proceeds
of this offering to retire long-term debt (discussed below).
During 1998 we issued 38,069 shares through the Dividend Reinvestment
and Stock Purchase Plan. During 1997 we issued 39,828 shares through the DRIP
Plan, and during 1996 we issued 19,207 shares through the Plan.
During 1997, 1996 and 1995, we issued 80,750 shares of common stock as
additional consideration for the 1994 acquisition of BT Venture Corporation. The
earn-out period for this acquisition ended in September 1997. In January 1998,
we issued 43,438 shares of our common stock to the former shareholders of BT
Venture Corporation in final payment for additional consideration.
In addition, in May 1998, we issued 65,648 shares of common stock to
retire a $956,000 variable rate note payable to an affiliate.
We issued 950,032 Operating Partnership units in December 1997, and
628,995 Operating Partnership units during 1998, in conjunction with the
acquisitions of nine apartment communities, and have deferred until 1999 issuing
an additional 136,666 units related to these acquisitions. Under the terms of
the acquisition agreement for a community that is currently under construction,
we will issue up to 140,000 units. Holders of Operating Partnership units will
generally be able to redeem their units for cash or, at our option, for shares
of our common stock on a one-for-one basis after one year following issuance.
In December 1997, we financed the purchase of four apartment
communities with fixed rate first deed of trust loans totaling $38.1 million and
an unsecured loan of $8.8 million. We applied proceeds of the common stock
offering to retire the $8.8 million unsecured loan, to retire a $1.4 million
variable rate second deed of trust, and to pay down $22.0 million of a fixed
rate line of credit with a bank.
In January 1998, we applied $1.9 million proceeds of the common stock
offering underwriters' over-allotment proceeds to pay off the outstanding
balance of the line of credit. In June 1998, we modified this line of credit
agreement to make it a revolving line of credit and to provide for variable
interest at 30-day LIBOR plus 1.75%. We subsequently modified the agreement to
extend the maturity date to January 2001.
During June through September 1998, we financed apartment acquisitions
with fixed rate deed of trust loans totaling $39.3 million and draws on our line
of credit totaling $12.0 million.
In February 1997, we entered into a participating loan agreement with
The Villages of Chapel Hill Limited Partnership. Under the terms of the
agreement, we committed to loan The Villages up to $2.6 million to fund a
substantial rehabilitation of its apartment community. We also guaranteed a $1.5
million bank loan. In exchange, we receive minimum interest at the greater of
12.5% or the 30-day LIBOR rate plus 6.125%. We also receive 25% participation in
increased revenues and appreciation of the property.
We fund advances to the Villages through draws on an existing credit
facility, which currently bears interest at the 30-day LIBOR rate plus 2.25% and
is secured by deeds of trust on two of our apartment communities. Through
December 31, 1998, we had advanced The Villages $2.5 million, of which $1.9
million was repaid in February 1999. Under this arrangement, we earned interest
at a rate higher than we could otherwise obtain from the investment of funds in
the ownership of apartment
21
<PAGE>
communities and at a rate in excess of our borrowing rate under our credit
facility. We will continue to participate in revenues and appreciation of the
community through February 2004.
We have described these transactions in more detail in the notes to our
financial statements included in this Annual Report.
In January 1999, we acquired an apartment community for an estimated
total cost of approximately $12.4 million. In conjunction with this acquisition,
we made cash payments of $1.7 million and assumed long-term debt and related
liabilities totaling $10.7 million.
We intend to pursue our growth strategy through the utilization of our
flexible capital structure. This may include the issuance of units, common stock
and/or preferred stock, and additional debt. We may use our line or credit of
fixed-rate, long-term debt to acquire apartment communities.
Cash Flows and Liquidity
Net cash flows from operating activities were $9.4 million in 1998,
compared to $5.0 million in 1997 and $4.8 million in 1996. These increases
reflect our growth in apartment operations. Investing and financing activities
focused primarily on apartment acquisitions described in this Annual Report,
along with payments of dividends and distributions. In 1998, we advanced
$330,000 to the Management Company, primarily to fund expansion of the
computerized information and communications system that serves our corporate
needs as well as our apartment communities and those under third-party
management.
We capitalize expenditures if we make them to acquire a new asset, to
materially enhance the value of an existing asset, or to substantially extend
the useful life of an existing asset. We generally funded additions to apartment
properties from cash provided by operating activities and proceeds of common
stock issued through our DRIP Plan.
We paid dividends of $0.31 per share per quarter in each quarter of
1998, 1997 and 1996. Our dividend payout ratio (the ratio of dividends paid to
funds from operations) was 85.5% in 1998, 80.2% in 1997, and 83.9% in 1996. We
intend to pay dividends quarterly, expect that these dividends will
substantially exceed the 95% distribution requirement for REITs, and anticipate
that all dividends will be paid from current funds from operations.
Short- and Long-Term Liquidity Requirements
A summary of scheduled principal payments on long-term debt is included
in the notes to the financial statements in this Annual Report. Significant
scheduled balloon payments include maturities of:
-a note payable to an affiliate in May 1999 ($6.1 million);
-a note payable secured by a deed of trust on Latitudes in January 2000
(balloon of approximately $12.5 million); and
-our credit line in January 2001 (up to $25.5 million, $12.0 million
outstanding at December 31, 1998).
We continue to produce sufficient cash flow to fund our regular
dividend and have positioned the Company for future growth. We generally expect
to meet our short-term liquidity requirements through net cash provided by
operations and utilization of credit facilities. We believe that net cash
provided by operations is, and will continue to be, adequate to meet the REIT
operating requirements in both the short and the long term. We anticipate
funding our future acquisition activities primarily by using short-term credit
facilities as an interim measure, to be replaced by funds from equity offerings
or long-term debt. We expect to meet our long-term liquidity requirements, such
as scheduled debt maturities and repayment
22
<PAGE>
of short-term financing of possible property acquisitions, through long-term
secured and unsecured borrowings and the issuance of debt securities or
additional equity securities. We believe we have sufficient resources to meet
our short-term liquidity requirements.
We received approximately 16.6% of our revenue in 1998, as compared to
27.7% in 1997 and 31.0% in 1996, from Enterprises' payment of rent for the use
of our restaurant properties. In addition, Enterprises is responsible for all of
the costs associated with the maintenance and operations of these properties.
Over time, we expect that restaurant rental income will continue to represent a
decreasing percent of our total revenue. However, we expect that restaurant rent
will exceed 10% of our revenue in 1999.
Enterprises is a privately owned company with total assets exceeding
$250 million and net equity of approximately $85 million. Enterprises' principal
line of business is the operation of approximately 350 Hardee's restaurants. We
have had extensive discussions with management of Enterprises and have reviewed
Enterprises' financial statements, cash flow analysis, restaurant contribution
analysis, sales trend analysis and projections. We believe that Enterprises will
have sufficient liquidity and capital resources to meet its obligations under
the master lease as well as its general corporate operating needs.
Inflation
We do not believe that inflation poses a material risk to the Company.
The leases at our apartment properties are short-term in nature. None are longer
than two years. The restaurant properties are leased on a triple-net basis,
which places the risk of rising operating and maintenance costs on the lessee.
Environmental Matters
Phase I environmental studies performed on the apartment communities
did not identify any problems that we believe would have a material adverse
effect on our results of operations, liquidity or capital resources.
Environmental transaction screens for each of the restaurant properties in 1995
did not indicate existence of any environmental problems that warranted further
investigation. Enterprises has indemnified us for environmental problems
associated with the restaurant properties under the master lease.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
will require the recognition of all derivatives on the our consolidated balance
sheet at fair value. We do not anticipate that the adoption of this Statement
will have a material impact on our results of operations or financial position.
Year 2000 Issues
The Year 2000 issue refers to the inability of certain computer systems
to accurately store and use dates after 1999. If not corrected, this could
result in the failure of the information technology systems that we use in our
business operations, such as computer programs related to property management,
leasing, financial reporting and employee benefits. In addition, computerized
systems and microprocessors are embedded in a variety of products used in our
operations and properties, such as HVAC controls, thermostats, elevators,
alarms, smoke detectors, sprinklers and phones.
We have completed our assessment of our core computer information
system. Our hardware and operating system are currently Year 2000 compliant. Our
current primary use of software systems is our corporate accounting system. Our
accounting software is widely used in the real estate industry. The
23
<PAGE>
primary components of the accounting software system - the general ledger,
resident subsidiary ledger, and accounts payable subsidiary ledger - are all
currently Year 2000 compliant. In addition, the software provider is currently
developing Windows-based versions of these modules that are also Year 2000
compliant. We plan to convert to the new versions by mid-1999, once satisfactory
testing of those versions has been completed.
In the meantime, we have moved ahead with previously planned expansions
and enhancements of our information system. All new hardware and software is
Year 2000 compliant. During 1998, our Management Company has invested
approximately $225,000 in hardware and software upgrades to accommodate the
growth and expansion of our information system. We expect to invest
approximately $50,000 more during the next 6 to 12 months as we complete our
wide area network communications system. These expenditures were previously
planned and were not accelerated due to Year 2000 issues. We do not expect the
cost of Year 2000 remediation to be material. We will continue to monitor for
Year 2000 compliance of all software installed on company-owned hardware.
In addition, our property management group has completed its assessment
of other systems, such as telecommunications, security, HVAC, elevators, fire
and safety systems, which may include embedded technology such as
microcontrollers for which the Year 2000 issue may exist. We have found no
equipment for which Year 2000 issues exist. Based on our knowledge of our
properties and systems and the results of our assessments to date, we do not
believe that the Year 2000 issue will have a material impact on our operations.
We rent our apartments to individuals, and we do not have a single
customer or group of customers who rent a significant number of apartments. With
the exception of utility providers, our primary purchases are building-related
products and services from numerous suppliers. Our core computer information
system does not interface with any tenants, third-party vendors or suppliers. We
have requested information regarding Year 2000 readiness from our utility
providers, significant vendors and suppliers, and have received responses from
significantly all requests. To date, no suppliers have indicated Year 2000
issues that could materially impact our operations. However, we cannot give
assurance that third parties will be Year 2000 ready; nor can we determine the
effect of non-compliance by third parties.
We rent our restaurants to a single operator under a triple-net master
lease. That tenant has represented to us that both its point-of-sale and core
financial information systems are currently Year 2000 compliant. That company
has also undertaken a comprehensive plan for Year 2000 readiness, and is in the
process of obtaining information and assessing Year 2000 issues with regard to
both internal and external sources of information, products and services. Based
on our discussions with that tenant, we do not believe that there is a
significant risk that Year 2000 issues affecting that company will have a
material impact on our operations. However, we cannot give assurance with
respect to the timing of their efforts or the potential effect of their failure
to resolve any significant Year 2000 issues that may arise.
To date there has been no indication that any significant Year 2000
issues must be resolved. We currently have not formalized a contingency plan in
the event that we or a significant third-party supplier do not resolve any
material Year 2000 issues that may arise. We will review our status on a
quarterly basis to determine if such a plan is necessary.
Various of our disclosures and announcements concerning our Year 2000
programs are intended to constitute "Year 2000 Readiness Disclosures" as defined
in the recently enacted Year 2000 Information and Readiness Disclosure Act. The
Act provides added protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection from liability for certain types of Year 2000 disclosures made after
January 1, 1996, and before the date of enactment of the Act.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A summary of long-term debt as of December 31, 1998 and 1997, is
included in the notes to the financial statements in this Annual Report. At
December 31, 1998, total long-term debt was $140.5 million, including $119.9
million notes payable at fixed interest rates ranging from 6.35% to 8.55%, and
$20.6 million at variable rates indexed on 30-day LIBOR rates. The weighted
average interest rate on debt outstanding was 7.2% at December 31, 1998,
compared to 7.6% at December 31, 1997. A 1% increase in variable interest rates
would increase our annual interest expense by approximately $206,000, while a 1%
decrease in variable rates would decrease our annual interest expense by
$206,000.
The table below provides information about our long-term debt
instruments and presents expected principal maturities and related weighted
average interest rates on those instruments (all amounts in thousands):
<TABLE>
<CAPTION>
Expected maturity dates
1999 2000 2001 2002 2003 Later Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate notes $ 492 $12,779 $ 311 $337 $365 $105,652 $119,937
Average interest rate 8.3% 8.4% 8.2% 8.2% 8.2% 7.1% 7.2%
Variable rate notes 8,637 - 11,950 - - - 20,587
Average interest rate 6.9% 6.9% 6.9%
</TABLE>
We estimate the fair value of fixed-rate and variable-rate notes using
discounted cash flow analysis, based on our current incremental borrowing rates.
The carrying amounts for notes payable approximate fair value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item
14(a) and filed as part of this Annual Report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section under the heading "Election of Directors" of the Proxy
Statement for Annual Meeting of Shareholders to be held May 20, 1999, (the
"Proxy Statement") is incorporated herein by reference for information on
Directors of the Registrant. See Item X in Part I of this Annual Report for
information regarding Executive Officers of the Registrant.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section entitled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Security Ownership of Certain Beneficial
Owners and Management" of the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions"
of the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules listed below are filed as part
of this Annual Report on the pages indicated.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements and Notes:
Report of Independent Auditor 29
Consolidated Balance Sheets as of December 31, 1998 and 1997 30
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 31
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 32
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 33
Notes to Consolidated Financial Statements 34
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 46
</TABLE>
The financial statements and schedules are filed as part of this
report. All other schedules are omitted because they are not applicable or the
required information is included in the financial statements or notes thereto.
26
<PAGE>
(a) 3. Exhibits
The Registrant agrees to furnish a copy of all agreements related to
long-term debt upon request of the Commission.
Exhibit No.
3.1* Articles of Incorporation (filed as Exhibit 3.1 to Boddie-Noell
Properties, Inc., Current Report on Form 8-K dated March 17,
1999, and incorporated herein by reference)
3.2* By-Laws (filed as Exhibit 3.2 to Boddie-Noell Properties, Inc.,
Current Report on Form 8-K dated March 17, 1999, and
incorporated herein by reference)
4* Rights Agreement, dated March 18, 1999, between the Company and
First Union National Bank (filed as Exhibit 4 to Boddie-Noell
Properties, Inc. Current Report on Form 8-K dated March 17,
1999, and incorporated herein by reference)
10.1 Amended and Restated Agreement of Limited Partnership of Boddie-
Noell Properties Limited Partnership
10.2 Form and description of Incentive Stock Option Agreements dated
June 30, 1998, and November 1, 1998, between the Company and
certain officers
10.3 Form and description of Nonqualified Stock Option Agreements
dated June 30, 1998, and November 1, 1998, between the Company
and certain officers
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule (electronic filing)
* Incorporated herein by reference
Exhibits 10.2 and 10.3 are management contracts or compensatory plans.
(b) Reports on Form 8-K.
None
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BODDIE-NOELL PROPERTIES, INC.
Date: March 29, 1999 /s/ Philip S. Payne
------------------------------------
Philip S. Payne
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature: Title: Date:
<S> <C> <C>
/s/ D. Scott Wilkerson President and Chief Executive March 29, 1999
- -------------------------------
D. Scott Wilkerson Officer, Director
/s/ Philip S. Payne Executive Vice President, Treasurer March 29, 1999
- -------------------------------
Philip S. Payne and Chief Financial Officer, Director
/s/ Pamela B. Bruno Vice President, Controller March 29, 1999
Pamela B. Bruno and Chief Accounting Officer
/s/ B. Mayo Boddie Chairman of the Board of Directors March 29, 1999
- -------------------------------
B. Mayo Boddie
/s/ Paul G. Chrysson Director March 29, 1999
- -------------------------------
Paul G. Chrysson
/s/ W. Michael Gilley Director March 29, 1999
- -------------------------------
W. Michael Gilley
/s/ Donald R. Pesta, Jr. Director March 29, 1999
- -------------------------------
Donald R. Pesta, Jr.
/s/ William H. Stanley Director March 29, 1999
- -------------------------------
William H. Stanley
</TABLE>
28
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Boddie-Noell Properties, Inc.
We have audited the accompanying consolidated balance sheets of Boddie-Noell
Properties, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boddie-Noell
Properties, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina January 13, 1999,
except for Note 11 as to which the
date is February 26, 1999
29
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------------- ------------------
<S> <C> <C>
Assets
Real estate investments at cost:
Apartment properties $188,538,645 $128,049,529
Restaurant properties 43,205,075 43,205,075
------------------- ------------------
231,743,720 171,254,604
Less accumulated depreciation (19,552,177) (14,146,933)
------------------- ------------------
212,191,543 157,107,671
Cash and cash equivalents 489,694 2,458,565
Rent and other receivables 189,452 65,537
Prepaid expenses and other assets 1,580,482 757,567
Investment in and advances to Management Company 659,715 214,761
Notes receivable 2,536,812 1,909,007
Other assets, net of accumulated amortization:
Intangible related to acquisition of management operations 2,333,688 2,739,888
Deferred financing costs 1,139,224 858,687
------------------- ------------------
Total assets $221,120,610 $166,111,683
=================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $134,423,621 $ 86,380,177
Notes payable to affiliates 6,100,000 7,056,300
Accounts payable and accrued expenses 121,330 290,303
Accrued interest on mortgage and other notes payable 735,322 509,517
Accrued interest on notes payable to affiliates 107,885 130,522
Additional consideration due for acquisitions 1,849,990 3,172,136
Escrowed security deposits and deferred revenue 352,049 442,096
------------------- ------------------
143,690,197 97,981,051
Minority interest in Operating Partnership 20,681,152 12,345,663
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 5,977,930 shares
issued and outstanding at December 31, 1998,
5,630,775 shares issued and outstanding at December 31, 1997 59,779 56,308
Additional paid-in capital 72,117,636 67,503,012
Dividend distributions in excess of net income (15,428,154) (11,774,351)
------------------- ------------------
Total shareholders' equity 56,749,261 55,784,969
------------------- ------------------
Total liabilities and shareholders' equity $221,120,610 $166,111,683
=================== ==================
</TABLE>
See accompanying notes.
30
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31
1998 1997 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues
Apartment rental income $21,924,722 $11,196,762 $ 9,790,713
Restaurant rental income 4,500,000 4,500,000 4,500,000
Equity in income of Management Company 114,954 209,867 149,298
Interest and other income 600,411 345,002 67,813
----------------- ----------------- ----------------
27,140,087 16,251,631 14,507,824
Expenses
Depreciation 5,406,005 2,685,718 2,440,417
Amortization 530,688 580,344 534,663
Apartment operations 7,181,402 3,545,555 2,976,876
Administrative 1,332,923 1,000,302 894,360
Interest on notes payable to affiliates 460,112 510,731 499,676
Interest - other 7,749,277 5,976,127 5,446,017
----------------- ----------------- ----------------
22,660,407 14,298,777 12,792,009
----------------- ----------------- ----------------
Income before minority interest and extraordinary item 4,479,680 1,952,854 1,715,815
Minority interest in Operating Partnership 741,961 39,407 -
----------------- ----------------- ----------------
Income before extraordinary item 3,737,719 1,913,447 1,715,815
Extraordinary item - loss on early extinguishment of debt 51,335 182,999 -
----------------- ----------------- ----------------
Net income $ 3,686,384 $ 1,730,448 $ 1,715,815
================= ================= ================
Per share data:
Basic earnings per share --
Income before extraordinary item $ 0.63 $ 0.60 $ 0.57
Extraordinary item (0.01) (0.06) -
----------------- ----------------- ----------------
Net income $ 0.62 $ 0.54 $ 0.57
================= ================= ================
Diluted earnings per share --
Income before extraordinary item $ 0.63 $ 0.59 $ 0.56
Extraordinary item (0.01) (0.07) -
----------------- ----------------- ----------------
Net income $ 0.62 $ 0.52 $ 0.56
================= ================= ================
Dividends declared $ 1.24 $ 1.24 $ 1.24
================= ================= ================
Weighted average shares outstanding 5,923,798 3,180,266 3,026,901
================= ================= ================
</TABLE>
See accompanying notes.
31
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Dividend
Additional distributions
Common Stock paid-in in excess of
Shares Amount capital net income Total
------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,016,740 $30,167 $33,785,335 $ (7,615,564) $26,199,938
Common stock issued 57,907 579 737,481 - 738,060
Dividends paid - - - (3,751,375) (3,751,375)
Net income - - - 1,715,815 1,715,815
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 1996 3,074,647 30,746 34,522,816 (9,651,124) 24,902,438
Common stock issued 2,556,128 25,562 32,980,196 - 33,005,758
Dividends paid - - - (3,853,675) (3,853,675)
Net income - - - 1,730,448 1,730,448
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 1997 5,630,775 $56,308 $67,503,012 $(11,774,351) $55,784,969
Common stock issued 347,155 3,471 4,614,624 - 4,618,095
Dividends paid - - - (7,340,187) (7,340,187)
Net income - - - 3,686,384 3,686,384
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 1998 5,977,930 $59,779 $72,117,636 $(15,428,154) $56,749,261
============= ================ ================ ================ ===============
</TABLE>
See accompanying notes.
32
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1998 1997 1996
--------------- ----------------- ----------------
<S> <C> <C> <C>
Operating activities
Net income $ 3,686,384 $ 1,730,448 $ 1,715,815
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item - loss on early extinguishment of debt 51,335 182,999 -
Minority interest in Operating Partnership 741,961 39,407 -
Equity in income of Management Company (114,954) (209,867) (149,298)
Depreciation and amortization 5,936,693 3,266,062 2,975,080
Changes in operating assets and liabilities:
Rent and other receivables (121,902) (52,842) 232,122
Prepaid expenses and other assets (445,537) (193,270) (58,783)
Accounts payable and accrued expenses (280,812) 318,405 (54,574)
Security deposits and deferred revenue (33,443) (75,281) 139,941
--------------- ----------------- ----------------
Net cash provided by operating activities 9,419,725 5,006,061 4,800,303
Investing activities
Acquisitions of apartment communities (41,545,571) (45,772,106) (10,666,580)
Additions to apartment communities (1,358,143) (667,108) (561,114)
Investment in and advances to Management Company (330,000) 100,000 49,835
Dividends received from Management Company - 153,307 158,293
Investment in notes receivable (627,805) (1,909,007) -
--------------- ----------------- ----------------
Net cash used in investing activities (43,861,519) (48,094,914) (11,019,566)
Financing activities
Net proceeds from issue of common stock 3,089,960 32,932,322 243,628
Distributions to Operating Partnership minority unitholders (1,105,286) - -
Payment of dividends (7,340,187) (3,853,675) (3,751,375)
Proceeds from notes payable 49,122,805 48,765,007 10,650,000
Principal payments on notes payable (10,829,662) (32,680,787) (459,528)
Payment of deferred financing costs (464,707) (458,053) (321,721)
--------------- ----------------- ----------------
Net cash provided by financing activities 32,472,923 44,704,814 6,361,004
--------------- ----------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,968,871) 1,615,961 141,741
Cash and cash equivalents at beginning of year 2,458,565 842,604 700,863
--------------- ----------------- ----------------
Cash and cash equivalents at end of year $ 489,694 $ 2,458,565 $ 842,604
=============== ================= ================
</TABLE>
See accompanying notes.
33
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
Notes to Consolidated Financial Statements
December 31, 1998
Note 1. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of Boddie-Noell
Properties, Inc. (the "Company") and Boddie-Noell Properties Limited Partnership
(the "Operating Partnership"). The Company is the general partner and owns a
majority interest in the Operating Partnership. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
We are a self-administered and self-managed real estate investment trust
("REIT") that owns and operates apartment communities in North Carolina and
Virginia. On December 31, 1998, we owned 14 apartment communities containing
3,188 apartments and had the right to acquire one additional apartment
community, containing 108 apartment units, which is currently under
construction. In January 1999, we acquired an additional apartment community
containing 252 apartments. We also own 47 restaurant properties, which we lease
to Boddie-Noell Enterprises, Inc. ("Enterprises") under a master lease on a
triple-net basis.
The Operating Partnership has a 1% voting interest and 95% economic interest in
BNP Management, Inc. (the "Management Company"). We use the equity method to
record this investment. The Management Company manages four apartment
communities, containing 891 apartment units, and a shopping center that are
owned by other parties.
UPREIT Structure
In 1997 we converted to an UPREIT structure where the Company is the Operating
Partnership's sole general partner. UPREIT stands for "umbrella partnership real
estate investment trust." We contributed our real estate properties and all
other assets and liabilities to a limited liability company wholly owned by the
Operating Partnership in exchange for ownership units of the Operating
Partnership. We currently own approximately 80% of the units. Other unitholders
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 generally structured so that distributions of cash from the
Operating Partnership are allocated between the REIT and the other limited
partners based on their respective unit ownership.
Real Estate Investments
Real estate investments are stated at cost less accumulated depreciation. We
compute depreciation using the straight-line method over the estimated useful
lives of the related assets, generally 40 years for buildings, 20 years for land
improvements, 10 years for fixtures and equipment, and five years for carpet and
vinyl replacements. We expense ordinary repairs and maintenance costs at
apartment communities. We capitalize significant improvements, renovations and
replacements at apartment communities. Costs of repairs and maintenance and
capital improvements at restaurant properties are borne by Enterprises.
Cash and Cash Equivalents
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
Deferred Costs
We amortize the intangible asset related to the acquisition of management
operations using the straight-line method over ten years. Accumulated
amortization on this asset was $1,400,000 at December 31, 1998, and $1,010,000
at December 31, 1997.
34
<PAGE>
We defer costs incurred in connection with proposed acquisition of properties
and stock offerings until the proposed transactions are consummated. If we
determine that the proposed transaction is not probable, we charge these costs
to expense.
We defer financing costs and amortize them using the straight-line method over
the terms of the related notes. If we pay down or pay off notes prior to their
maturity, we write off the related unamortized financing costs. Accumulated
amortization on these assets was $305,000 at December 31, 1998, and $221,000 at
December 31, 1997.
Advertising Costs
We expense advertising costs as they are incurred. Advertising expense totaled
$211,000 in 1998, $101,000 in 1997, and $61,000 in 1996.
Income Taxes
We operate as, and elect to be taxed as, a REIT under the Internal Revenue Code.
Accordingly, we will not be subject to federal or state income taxes on amounts
distributed to shareholders, provided we distribute at least 95% of our REIT
taxable income and meet certain other requirements for qualifying as a REIT. We
have made no provision for federal or state income taxes.
Earnings Per Share
We calculate earnings per share based on the weighted average number of shares
outstanding during each year.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. The Statement will require
the recognition of all derivatives on our consolidated balance sheet at fair
value. We do not anticipate that the adoption of this Statement will have a
material impact on our results of operations or financial position.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. Statement
131 uses a management approach to report financial and descriptive information
about a company's operating segments. Operating segments are revenue-producing
components of the enterprise for which separate financial information is
produced internally for the company's management. Under this definition, we
operated, for all periods presented, as a single segment (apartment operations).
See Note 5 for discussion of restaurant rental income.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. Statement 130 requires that total comprehensive
income and comprehensive income per share be disclosed with equal prominence as
net income and earnings per share. Comprehensive income is defined as changes in
shareholders' equity exclusive of transactions with owners such as capital
contributions and dividends. We adopted this standard in 1998. We did not report
any comprehensive income items in any of the years presented.
Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued Statement No. 123,
Accounting for Stock-Based Compensation, which established financial accounting
and reporting standards for stock-based compensation plans. As permitted by the
statement, we continue to measure compensation cost for stock option plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Accordingly, no compensation cost has been recognized for
our fixed stock option plans. Had we determined compensation cost for our fixed
stock option plans consistent with the fair
35
<PAGE>
value method outlined in Statement 123, the impact on our net income and
earnings per share would not have been material.
Fair Values of Financial Instruments
The carrying amount reported on the balance sheet for cash and cash equivalents
approximates fair value.
We estimate the fair value of fixed rate mortgage notes and variable rate notes
using discounted cash flow analysis, based on our current incremental borrowing
rates. The carrying amounts reported on the balance sheet for notes receivable
and notes payable approximate fair value.
Use of Estimates
We are required to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes in order to prepare
them in accordance with generally accepted accounting principles. Depreciation
amounts included in these financial statements reflect our estimate of the life
and related depreciation rates for rental properties. In addition, the carrying
amount of the intangible asset related to acquisition of management operations
reflects our evaluation of the continuing value and useful life of this asset.
Actual results could differ from these estimates.
Note 2. Real Estate Investments
Real estate investments consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Apartment properties
Land $ 18,220,291 $ 13,222,291
Buildings and land improvements 157,787,430 105,493,497
Fixtures, equipment and other personal property 12,530,924 9,333,741
less accumulated depreciation (10,438,347) (5,811,512)
----------------- -----------------
178,100,298 122,238,017
Restaurant properties
Land 12,068,737 12,068,737
Buildings and land improvements 31,136,338 31,136,338
less accumulated depreciation (9,113,830) (8,335,421)
----------------- -----------------
34,091,245 34,869,654
----------------- -----------------
$212,191,543 $157,107,671
================= =================
</TABLE>
We acquired 10 of our apartment communities during 1998, 1997, and 1996. The
results of operations of these apartment communities are included in the
financial statements from the dates of acquisition, as follows:
-Woods Edge Apartments acquired effective June 1, 1998, for a total cost of
approximately $14.1 million. We acquired a majority interest in Woods Edge
Apartments Limited Partnership for cash payments totaling $2.3 million and
issued 186,282 Operating Partnership units with an imputed value of $2.7
million. The Woods Edge Partnership subsequently liquidated. We received a
liquidating distribution that included the Woods Edge apartment community,
subject to a $9.75 million first deed of trust loan, and $822,000 of
current assets in excess of current liabilities, including $585,000 of
cash. We incurred other direct costs of $100,000 to acquire Woods Edge.
-Oak Hollow Apartments acquired effective July 27, 1998, for a total cost of
approximately $12.3 million. We acquired a majority interest in Oak Hollow
Apartments Limited Partnership for cash payments totaling $2.3 million and
issued 106,124 Operating Partnership units with an imputed value of $1.5
million. We also made additional cash investments in the Oak Hollow
Partnership of $533,000 to help fund liquidating distributions. The Oak
Hollow Partnership subsequently liquidated. We received a liquidating
distribution that included the Oak Hollow apartment
36
<PAGE>
community, subject to first and second deed of trust loans totaling $7.8
million, and $63,000 of current liabilities in excess of current assets. We
incurred other direct costs of $112,000 to acquire Oak Hollow. We
subsequently refinanced the long-term debt related to Oak Hollow.
-Madison Hall Apartments acquired effective August 22, 1998, for a total
cost of approximately $6.4 million. We issued 36,667 Operating Partnership
units with an imputed value of $550,000, and made cash payments of $5.2
million to retire existing mortgages and other liabilities related to the
community. We will issue an additional 36,666 Operating Partnership units
with an imputed value of $550,000 in August 1999. We incurred other direct
costs of $107,000 to acquire Madison Hall.
-Summerlyn Place Apartments acquired effective September 2, 1998, for a
total cost of approximately $10.4 million. We issued 100,588 Operating
Partnership units with an imputed value of $1.3 million, and made cash
payments of $8.9 million to retire existing mortgages and other liabilities
related to the community. We incurred other direct costs of $171,000 to
acquire Summerlyn Place.
-Allerton Place Apartments acquired effective September 9, 1998, for a total
cost of approximately $16.0 million. We made cash payments totaling $1.4
million and issued 99,334 Operating Partnership units with an imputed value
of $1.3 million. In addition, we made cash payments of $13.1 million to
retire existing mortgages and other liabilities related to the community.
We incurred other direct costs of $234,000 to acquire Allerton Place.
-Abbington Place Apartments, Pepperstone Apartments, Savannah Place
Apartments and Waterford Place Apartments acquired effective December 1,
1997, for a total cost of approximately $60.9 million. We issued 950,032
Operating Partnership Units in December 1997, and 100,000 Operating
Partnership units in December 1998, with an imputed value of $13.7 million,
and made cash payments in December 1997 of $44.9 million to retire existing
mortgages and other liabilities related to the communities. We will issue
an additional 100,000 Operating Partnership units with an imputed value of
$1.3 million in December 1999. We incurred other direct costs of
approximately $1.0 million to acquire these four apartment communities.
-Paces Village Apartments acquired effective April 29, 1996, for a total
cost of approximately $10.7 million. We financed the purchase primarily
through bank and mortgage borrowings.
The following unaudited pro forma summary information does not include the
operations, depreciation, or financing expense for Madison Hall, Summerlyn
Place, or Allerton Place until their respective acquisition dates in 1998
because these communities were acquired immediately upon their attainment of
"stabilized" status. In addition, the unaudited pro forma summary information
does not include the operations, depreciation, or financing expense for
Waterford Place Apartments and the second phase of Abbington Place Apartments
until these properties reached "stabilized" status in October 1997. An apartment
community is considered stabilized when construction of all buildings has been
completed and the community has attained 90% occupancy for 90 days. Under the
terms of the acquisition agreements for these properties and the financing for
their purchases, these conditions must be met before purchase of the property.
Otherwise, the unaudited pro forma summary information presents the results of
operations as if the acquisitions described above had occurred on January 1 of
each year presented. These pro forma amounts may not represent how we would have
performed if these purchases had really occurred on those dates. In addition,
they do not purport to project our results of operations for any future period.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total revenue $29,204,000 $24,853,000 $23,510,000
Income before extraordinary item 3,867,000 2,511,000 2,163,000
Net income 3,818,000 2,346,000 2,163,000
Earnings per share 0.64 0.74 0.71
</TABLE>
37
<PAGE>
Note 3. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
Line of credit with a bank in the principal sum of up to $25.5
million, due January 2001, secured by deeds of trust on 47 restaurant
properties and assignment of rents for those restaurants. In June
1998, we modified this line of credit agreement to make it a revolving
line of credit with a variable interest rate of 30-day LIBOR plus
1.75% (6.81% at December 31, 1998), interest-only payments on the
outstanding balance due monthly. Prior to the June 1998 modification,
interest was due monthly at an effective fixed rate of 8.11%. At
December 31, 1998, $13.5 million funds were available under the
revolving line of credit. $ 11,950,000 $ 1,900,000
Variable-rate notes payable to affiliates due May 1999, interest at
the lower of 30-day LIBOR plus 1.50% (6.56% at December 31, 1998) or
8%, payable quarterly. One of these two notes was retired in May 1998. 6,100,000 7,056,300
Variable-rate note payable to a bank in the principal amount of up to
$2,625,000 due May 1999, interest on the outstanding principal balance
at 30-day LIBOR plus 2.25% (7.31% at December 31, 1998) payable
monthly. Secured by deeds of trust and assignments of rents of two
apartment communities. 2,536,812 1,909,007
Fixed-rate notes payable comprised of four loans, payable in monthly
installments totaling approximately $287,000 including principal and
interest at rates ranging from 7.86% to 8.55%, with maturities in 2000
(balloon of approximately $12.5 million) through 2025. Secured by
deeds of trust and assignments of rents of four apartment communities. 35,571,309 36,024,379
Fixed-rate notes payable comprised of 10 loans, interest rates ranging
from 6.34% to 6.97%, payable in interest-only monthly installments
totaling approximately $478,000, with maturities in 2007 and 2008.
Secured by deeds of trust and assignments of rents of 10 apartment
communities. At December 31, 1997, four of these loans were
outstanding. 84,365,500 38,070,500
Variable-rate note, payable in monthly installments of $6,511
principal plus interest at 30-day LIBOR plus 1.75%. Secured by deeds
of trust and assignment of rents of three apartment communities. This
note was retired in March 1998. - 8,476,291
------------------ ----------------
$140,523,621 $93,436,477
================== ================
</TABLE>
As of December 31, 1998, scheduled principal payments were approximately as
follows: 1999 - $9,129,000; 2000 - $12,779,000; 2001 - $12,261,000; 2002 -
$337,000; 2003 - $365,000; thereafter - $105,652,000.
38
<PAGE>
In January 1998, we applied $1.9 million proceeds from a common stock offering
to pay off the outstanding balance of our fixed-rate $25.5 million line of
credit with a bank. In conjunction with this payoff, we wrote off unamortized
loan costs of $17,000. We have reflected this write-off, net of minority
interests' share, in the financial statements as an extraordinary item. In June
1998, we modified this line of credit agreement to make it a revolving line of
credit and to provide for variable interest at 30-day LIBOR plus 1.75%. In
December 1998, we modified this agreement to extend the maturity date from
December 1999 to January 2001. During June through December 1998 we drew $12.0
million against this line of credit to fund our acquisition activities.
In March 1998, we applied $7.0 million proceeds from a fixed-rate loan and
operating cash to retire an $8.5 million variable-rate mortgage note secured by
deeds of trust on and assignment of rents of three apartment communities. A deed
of trust on and assignment of rents of Paces Village Apartments secure the new
loan. The note payable provides for interest at 6.73% payable in monthly
interest-only installments of $39,000 and matures in 2008. In conjunction with
this refinancing, we wrote off unamortized loan costs of $43,000. We have
reflected this write-off, net of minority interests' share, in the financial
statements as an extraordinary item.
In June 1998, in conjunction with the acquisition of Woods Edge Apartments, we
assumed a loan in the amount of $9.75 million that is secured by a deed of trust
on and assignment of rents of the apartment community. The note payable provides
for interest at 6.95% payable in monthly interest-only installments of $56,000
and matures in 2007.
In August and September 1998, in conjunction with the acquisition of Oak Hollow,
Madison Hall, Summerlyn Place, and Allerton Place, we issued notes payable
totaling $29.5 million secured by deeds of trust and assignments of rents of the
apartment communities. The notes provide for interest at rates ranging from
6.345% to 6.65% payable in monthly interest-only installments totaling $160,000
and mature in 2008.
In December 1997, in conjunction with the acquisition of Abbington Place,
Pepperstone, Savannah Place, and Waterford Place Apartments, we issued notes
payable totaling $38.1 million secured by deeds of trust and assignments of
rents of the apartment communities. The notes provide for interest at 6.97%
payable in monthly interest-only installments totaling $221,000 and mature in
2007. We also applied proceeds of a short-term $8.8 million unsecured loan to
finance these acquisitions.
Also in December 1997, we applied proceeds of a common stock offering to retire
the $8.8 million unsecured loan, to retire a $1.4 million variable-rate second
deed of trust, and to pay down $22.0 million of the $25.5 million fixed-rate
note payable to a bank. In conjunction with these prepayments, we wrote off
unamortized loan costs of $227,000. We have reflected this write-off, net of
minority interests' share, in the financial statements as an extraordinary item.
During 1996, we financed the purchase of Paces Village Apartments through
variable-rate first and second deed of trust loans totaling $10.0 million and a
draw of $650,000 from our existing credit facility. These deed of trust loans
were retired in December 1997 and March 1998.
Interest payments were as follows:
1998 1997 1996
--------------- --------------- ---------------
Payments to affiliates $ 482,750 $ 505,728 $ 506,389
Payments to other lenders 7,579,941 5,799,841 5,379,519
--------------- --------------- ---------------
$8,062,691 $6,305,569 $5,885,908
=============== =============== ===============
39
<PAGE>
The loan agreement related to the line of credit includes covenants and
restrictions relating to, among other things, specified levels of debt service
coverage, leverage and net worth. To date, we have met all applicable
requirements.
Note 4. Shareholders' Equity
Authorized Capital Stock
Our bylaws and certificate of incorporation allow the Board of Directors to
authorize the issuance of up to 100 million shares of common stock and 10
million shares of preferred stock, issuable in series whose characteristics
would be set by the Board of Directors. No preferred shares have been issued.
Approximately 2.7 million authorized shares of common stock are reserved for
future issuance under the Company's Stock Option and Incentive Plan, Dividend
Reinvestment and Stock Purchase Plan, and for conversion of Operating
Partnership units issued for acquisitions of apartment communities.
Common Stock Offering
In December 1997, we completed a common stock offering and issued 2,500,000
shares of common stock at a price of $14.125 per share. Net proceeds of the
offering were approximately $32.3 million. In January 1998, the underwriters
exercised their over-allotment option for 200,000 shares, and we received
additional proceeds of $2.6 million.
Dividend Reinvestment and Stock Purchase Plan
In July 1996, we amended our Dividend Reinvestment and Stock Purchase Plan
("DRIP Plan") to allow the Company, at its option, to issue shares directly to
Plan participants. We issued 38,069 shares through the DRIP Plan in 1998. We
issued 39,828 shares through the Plan in 1997, and 19,207 shares in 1996.
Dividend Payments
We paid dividend distributions totaling $1.24 per share during 1998, 1997 and
1996. The allocation between non-taxable return of capital and taxable ordinary
dividend income to shareholders was as follows.
1998 1997 1996
----------- ----------- ----------
Non-taxable return of capital 44.8% 45.8% 43.7%
Taxable ordinary dividend income 55.2% 54.2% 56.3%
The Board of Directors declared a regular quarterly dividend of $.31 per share
on January 21, 1999, payable on February 15, 1999, to shareholders of record on
February 1, 1999.
Earnings per Common Share
We calculated basic and diluted earnings per share using the following amounts:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Numerators:
Numerator for basic earnings per share -
Income before extraordinary item $3,737,719 $1,913,447 $1,715,815
Extraordinary item (51,335) (182,999) -
----------------- ----------------- -----------------
Net income $3,686,384 $1,730,448 $1,715,815
================= ================= =================
Numerator for diluted earnings per share -
Income before extraordinary item (1) $4,479,680 $1,952,854 $1,715,815
Extraordinary item (1) (59,682) (227,000) -
----------------- ----------------- -----------------
Net income (1) $4,419,998 $1,725,854 $1,715,815
================= ================= =================
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Denominators:
Denominator for basic earnings per share -
Weighted average shares outstanding 5,923,798 3,180,266 3,026,901
Effect of dilutive securities:
Contingent stock - acquisition 1,785 29,234 33,519
Convertible Operating Partnership units 1,191,312 80,688 -
Stock options (2) 15,430 24,968 2,362
----------------- ----------------- -----------------
Dilutive potential common stock 1,208,527 134,890 35,881
----------------- ----------------- -----------------
Denominator for diluted earnings per share -
Adjusted weighted average shares and
assumed conversions 7,132,325 3,315,156 3,062,782
================= ================= =================
<FN>
(1) Assumes conversion of Operating Partnership units to common shares; minority
interest in income before extraordinary item and minority interest in
extraordinary item have been eliminated.
(2) Options to purchase 120,000 shares of common stock at $13.125, and options
to purchase 60,000 shares of common stock at $11.25, were outstanding during
1998 but were not included in the calculation of diluted earnings per share. The
exercise price of these options was greater than the average market price of the
common shares, and the effect would be anti-dilutive.
</FN>
</TABLE>
Stock Option and Incentive Plan
We have reserved 570,000 shares of the Company's common stock for issuance under
our employee Stock Option and Incentive Plan. Options have been granted to
employees at prices equal to the fair market value of the stock on the dates the
options were granted or repriced. Options are generally exercisable in four
annual installments beginning one year after the date of grant, and expire 10
years after the date of grant.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Remaining Number of Number of
Contractual Options Options
Life (Years) Outstanding Exercisable
----------------- ----------------- -----------------
<S> <C> <C> <C>
Exercise price $11.25 per share 9.83 60,000 -
Exercise price $13.125 per share 9.50 120,000 -
Exercise price $12.25 per share 8.33 110,000 27,500
Exercise price $12.50 per share 5.88 140,000 140,000
----------------- -----------------
8.07 430,000 167,500
================= =================
</TABLE>
We calculated the fair value of each option grant on the date of grant using the
Black-Scholes option-pricing model. We used the following assumptions to
estimate the fair value of options granted:
1998 1997 1996*
-------------- ------------- -------------
Weighted average fair value $ 0.17 $ 0.23 $ 0.06
Weighted average exercise price 12.50 12.25 12.50
Weighted average dividend yield 9.97% 10.12% 9.92%
Expected volatility 0.152 0.144 0.088
41
<PAGE>
1998 1997 1996*
-------------- ------------- -------------
Weighted average risk-free interest rate 4.88% 6.76% 6.55%
Expected vesting period 4 years 4 years 4 years
*Options originally granted in 1994 at $13.75 per share, repriced in 1996
Changes in outstanding stock options were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 250,000 $12.39 150,000 $12.50 160,000 $12.50
Granted 180,000 12.50 110,000 12.25 - -
Exercised - - - - - -
Repurchased - - (10,000) 12.50 - -
Forfeited - - - - (10,000) -
------------- ------------ ------------- ------------ ------------- ------------
Ending balance 430,000 $12.44 250,000 $12.39 150,000 $12.50
============= ============ ============= ============ ============= ============
Exercisable at the end of
the year 167,500 $12.46 112,500 $12.50 75,000 $12.50
============= ============ ============= ============ ============= ============
</TABLE>
Note 5. Rental Operations
Apartment Properties
We lease our residential apartments under operating leases with monthly payments
due in advance. Terms of the apartment leases are generally one year or less,
with none longer than two years. We record rental and other revenues as they are
earned.
Restaurant Properties - Master Lease Agreement
The lease agreement with Enterprises has a primary term expiring in December
2007, but grants Enterprises three five-year renewal options. Enterprises pays
annual rent equal to the greater of $4.5 million or 9.875% of food sales from
the restaurants. Under certain conditions as defined in the agreement, both
Enterprises and the Company have the right to substitute another restaurant
property for a property covered by the lease. After December 31, 2007,
Enterprises has the right to terminate the lease on up to five restaurant
properties per year by offering to purchase them under specified terms. In
addition, we entered into a separate agreement with Enterprises that, after
December 31, 1997, allows Enterprises to purchase, under specified terms, up to
seven restaurant properties deemed to be uneconomic.
The lease requires Enterprises to pay monthly installments of minimum rent and
quarterly payments calculated based on the percentage rent, subject to an annual
calculation of the greater of minimum or percentage rent. We received the
minimum rent of $4.5 million in 1998, 1997 and 1996.
Note 6. Management Company
In May 1995, we formed the Management Company to provide management services to
non-Company owned properties. We contributed approximately $119,000, primarily
in office equipment, to the formation of the Management Company, and transferred
the rights to certain third-party property leasing and management contracts to
the Management Company. In exchange we received a 95% economic
42
<PAGE>
interest and a 1% voting interest in the Management Company. Officers of the
Management Company, who are also officers of the Company or its affiliates, own
the remaining equity interests.
During 1998, we advanced a total of $330,000 to the Management Company. Accrued
interest on these advances, at 12%, totaled $20,000 in 1998. During 1995, we
advanced a total of $150,000 to the Management Company, which was repaid in 1996
and 1997. Interest on these advances, also accrued at 12%, totaled $4,000 in
1997 and $10,000 in 1996.
We do not expect the operations of the Management Company to have a significant
impact on our financial position, operating results or cash flows.
Note 7. Related Party Transactions
Certain directors and officers of the Company hold similar positions with
Enterprises and Boddie Investment Company and held similar positions with BT
Venture Corporation. We purchased the 47 restaurant properties from BNE Realty
Partners, Limited Partnership (an affiliate of Enterprises) for $43.2 million in
1987.
We derived approximately 16.6% of our revenue in 1998 from Enterprises' payment
of rent for the use of our restaurant properties. In addition, Enterprises is
responsible for all taxes, utilities, renovations, insurance and maintenance
expenses relating to the operation of the restaurant properties.
Certain current and former directors of the Company were the sole shareholders
and directors of BT Venture Corporation. In October 1994, we acquired BT Venture
Corporation for cash, 134,610 shares of our common stock and relief from certain
debt and other obligations, for a total value of approximately $23.2 million. In
addition, we recorded additional consideration totaling $1.7 million through
1997 related to this acquisition. We paid the additional consideration by
issuing a total of 130,568 shares of common stock during 1994 through 1998,
including 43,438 shares issued in January 1998.
In connection with the acquisition of BT Venture Corporation, we assumed a note
payable to Enterprises in the amount of $6,100,000 and a note payable to Boddie
Investment Company in the amount of $956,000. In May 1998, we issued 65,648
shares of our common stock to retire the note payable to Boddie Investment
Company.
In September 1997, we signed an agreement to acquire a portfolio of seven
apartment communities. We refer to these acquisitions as the "Chrysson
acquisitions" and to the former owners as the "Chrysson Parties." Certain
current directors of the Company were shareholders and officers in the Chrysson
Parties. We have issued 1,249,954 Operating Partnership units through December
31, 1998, and will issue an additional 100,000 Operating Partnership units on
December 1, 1999, in conjunction with acquisitions of six of the apartment
communities. We will issue approximately 139,000 units to acquire one remaining
Chrysson apartment community when it has reached certain performance standards
specified in the agreement.
In February 1997, we signed a participating loan agreement with The Villages of
Chapel Hill Limited Partnership, a limited partnership whose general partner is
Boddie Investment Company. Under the terms of the agreement, we committed to
loan The Villages up to $2,625,000 to fund a substantial rehabilitation of its
apartment community. We also guaranteed a $1,500,000 bank loan. In exchange we
receive minimum interest on our loan at the greater of 12.5% or the 30-day LIBOR
rate plus 6.125%. We also receive 25% participation in increased rental revenue
for seven years and 25% participation in the increase in value of the property
at the end of seven years or upon its sale. Through December 31, 1998, we
advanced $2.5 million under the loan agreement. We received interest and
participation income of $323,000 in 1998 and $120,000 in 1997. In addition, we
received guarantee fees of $37,500 in 1998 and in 1997.
43
<PAGE>
The Management Company provides fee management of five limited partnerships and
the apartment communities and shopping centers owned by those partnerships. The
general partner of these partnerships is Boddie Investment Company.
Note 8. Profit Sharing Plan
The employees of the Company are participants in a profit sharing plan pursuant
to Section 401 of the Internal Revenue Code. We make limited matching
contributions based on the level of employee participation as defined.
Note 9. Commitments and Contingencies
We have agreements with three of our executive officers that provide for cash
compensation and other benefits if we terminate them without cause or if a
change in control of the Company occurs.
The Company is a party to a variety of legal proceedings arising in the ordinary
course of its business. We believe that such matters will not have a material
effect on the financial position of the Company.
Note 10. Quarterly Financial Data (Unaudited)
We present below selected financial data (unaudited) for the years ended
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Income before
Extraordinary Item
Revenues Total Per Share Net Income
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1998
First quarter $ 5,916,257 $1,095,480 $0.19 $1,044,145
Second quarter 6,084,239 1,095,244 0.18 1,095,244
Third quarter 7,133,498 679,675 0.11 679,675
Fourth quarter 8,006,093 867,320 0.15 867,320
----------------- ----------------- ----------------- -----------------
$27,140,087 $3,737,719 $0.63 $3,686,384
================= ================= ================= =================
1997
First quarter $ 3,852,615 $ 470,783 $0.15 $ 470,783
Second quarter 3,866,339 382,805 0.12 382,805
Third quarter 3,890,301 438,882 0.14 438,882
Fourth quarter 4,642,376 620,977 0.18 437,978
----------------- ----------------- ----------------- -----------------
$16,251,631 $1,913,447 $0.59 $1,730,448
================= ================= ================= =================
</TABLE>
Note 11. Subsequent Events
In January 1999, we acquired Chason Ridge Apartments for a total cost of
approximately $12.4 million. In conjunction with the acquisition, we made cash
payments of $1.7 million and assumed long-term debt and related liabilities
totaling $10.7 million.
In February 1999, The Villages of Chapel Hill Limited Partnership reduced the
outstanding principal balance of its note payable to us to $625,000. We applied
the $1.9 million proceeds to reduce our variable-rate note payable to a bank to
$625,000.
44
<PAGE>
In 1999, Enterprises notified us of its intention to purchase three restaurant
properties. We expect to receive approximately $2 million proceeds from these
property sales (their book value), which we will apply to reduce the line of
credit secured by them. After sale of these restaurant properties to
Enterprises, we expect that minimum rent will be $4.3 million in 1999 and $4.2
million per year thereafter through 2007. This annual amount does not include
percentage rent that may be earned in addition to minimum rent.
45
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
----------- ------- ------------- ------------------------------
Buildings & Subsequent Buildings &
Land Improvem'ts to Land Improvem'ts Total
Acquisition
<S> <C> <C> <C> <C> <C> <C> <C>
Apartment Properties:
North Carolina:
Paces Commons, Charlotte $10,496,702 $ 1,430,158 $ 12,871,424 $ 753,927 $ 1,430,158 $ 13,625,351 $ 15,055,509
Oakbrook, Charlotte 6,359,158 848,835 8,523,384 442,431 848,835 8,964,156 9,812,991
Harris Hill, Charlotte 5,994,465 1,003,298 7,867,857 500,539 1,003,298 8,368,396 9,371,694
Paces Village, Greensboro 7,000,000 1,250,000 9,416,580 265,687 1,250,000 9,682,267 10,932,267
Abbington Place, Greensboro 15,785,250 2,302,000 23,598,676 100,451 2,302,000 23,699,127 26,001,127
Pepperstone, Greensboro 3,883,750 552,000 5,015,153 127,714 552,000 5,142,867 5,694,867
Savannah Place, Winston-Salem 7,312,500 790,000 10,032,721 134,768 790,000 10,167,489 10,957,489
Waterford Place, Greensboro 11,089,000 1,686,000 16,745,972 49,062 1,686,000 16,795,034 18,481,034
Woods Edge, Durham 9,750,000 994,000 13,061,195 127,962 994,000 13,189,156 14,183,156
Oak Hollow, Cary 8,385,000 1,480,000 10,808,689 51,473 1,480,000 10,860,162 12,340,162
Madison Hall, Clemmons 4,245,000 303,000 6,054,307 64,726 303,000 6,119,032 6,422,032
Summerlyn Place, Burlington 6,645,000 837,000 9,559,115 6,232 837,000 9,565,347 10,402,347
Allerton Place, Greensboro 10,270,000 1,384,000 14,650,428 12,724 1,384,000 14,663,152 16,047,152
------------------------------------------------------------------------------
14,860,291 148,205,500 2,637,695 14,860,291 150,841,536 165,701,827
Virginia:
Latitudes, Virginia Beach 12,720,986 3,360,000 18,606,667 872,970 3,360,000 19,476,818 22,836,818
--------------------------------------------------------------------------------------------
Total Apartment Properties 119,936,810 18,220,291 166,812,167 3,510,665 18,220,291 170,318,354 188,538,645
</TABLE>
<TABLE>
<CAPTION>
Description
-----------
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C>
Apartment Properties:
North Carolina:
Paces Commons, Charlotte $2,087,434 1988 Jun-93 40
Oakbrook, Charlotte 1,141,953 1985 Jun-94 40
Harris Hill, Charlotte 1,024,305 1988 Dec-94 40
Paces Village, Greensboro 781,643 1988 Apr-96 40
Abbington Place, Greensboro 968,115 1997 Dec-97 40
Pepperstone, Greensboro 189,188 1992 Dec-97 40
Savannah Place, Winston-Salem 366,249 1991 Dec-97 40
Waterford Place, Greensboro 681,590 1997 Dec-97 40
Woods Edge, Durham 217,736 1985 Jun-98 40
Oak Hollow, Cary 126,895 1983 Jul-98 40
Madison Hall, Clemmons 64,022 1997 Aug-98 40
Summerlyn Place, Burlington 98,951 1998 Sep-98 40
Allerton Place, Greensboro 169,779 1998 Sep-98 40
------------
7,917,859
Virginia:
Latitudes, Virginia Beach 2,520,488 1989 Oct-94 38
------------------------------------
Total Apartment Properties 10,438,347
</TABLE>
<TABLE>
<CAPTION>
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
----------- ------- ------------- ------------------------------
Buildings & Subsequent Buildings &
Land Improvem'ts to Land Improvem'ts Total
Acquisition
<S> <C> <C> <C> <C> <C> <C> <C>
Restaurant Properties:
North Carolina:
Bessemer City (1) 152,079 391,060 - 152,079 391,060 543,139
Burlington (1) 162,411 417,629 - 162,411 417,629 580,040
Chapel Hill (1) 273,556 703,430 - 273,556 703,430 976,986
Denver (1) 275,484 708,387 - 275,484 708,387 983,871
Eden (1) 253,282 651,296 - 253,282 651,296 904,578
Fayetteville (Ramsey) (1) 260,135 668,919 - 260,135 668,919 929,054
Fayetteville (N.Eastern) (1) 308,271 792,696 - 308,271 792,696 1,100,967
Fayetteville (Bragg) (1) 235,951 606,730 - 235,951 606,730 842,681
Gastonia (E. Franklin) (1) 230,421 592,511 - 230,421 592,511 822,932
</TABLE>
<TABLE>
<CAPTION>
Description
-----------
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C>
Restaurant Properties:
North Carolina:
Bessemer City 114,467 Nov-77 Apr-87 40
Burlington 122,242 Oct-85 Apr-87 40
Chapel Hill 205,899 Aug-64 Apr-87 40
Denver 207,350 Jul-83 Apr-87 40
Eden 190,639 Jun-73 Apr-87 40
Fayetteville (Ramsey) 195,798 Oct-73 Apr-87 40
Fayetteville (N.Eastern) 232,028 Sep-83 Apr-87 40
Fayetteville (Bragg) 177,595 Jan-85 Apr-87 40
Gastonia (E. Franklin) 173,432 Apr-63 Apr-87 40
</TABLE>
46
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
----------- ------- ------------- ------------------------------
Buildings & Subsequent Buildings &
Land Improvem'ts to Land Improvem'ts Total
Acquisition
<S> <C> <C> <C> <C> <C> <C> <C>
Gastonia (N. Chester) (1) 199,133 512,055 - 199,133 512,055 711,188
Hillsborough (1) 290,868 747,948 - 290,868 747,948 1,038,816
Kinston (W. Vernon) (1) 237,135 609,777 - 237,135 609,777 846,912
Kinston (Richlands) (1) 231,678 595,743 - 231,678 595,743 827,421
Mt. Airy (1) 272,205 699,955 - 272,205 699,955 972,160
Newton (1) 223,453 574,594 - 223,453 574,594 798,047
Siler City (1) 268,312 689,945 - 268,312 689,945 958,257
Spring Lake (1) 218,925 562,949 - 218,925 562,949 781,874
Thomasville (E. Main) (1) 253,716 652,411 - 253,716 652,411 906,127
Thomasville (Randolph) (1) 327,727 842,726 - 327,727 842,726 1,170,453
------------------------------------------------------------------------------
4,674,742 12,020,761 - 4,674,742 12,020,761 16,695,503
Virginia:
Ashland (1) 296,509 762,452 - 296,509 762,452 1,058,961
Blackstone (1) 275,565 708,596 - 275,565 708,596 984,161
Bluefield (1) 205,700 528,947 - 205,700 528,947 734,647
Chester (1) 300,165 771,852 - 300,165 771,852 1,072,017
Clarksville (1) 211,545 543,972 - 211,545 543,972 755,517
Clintwood (1) 222,673 572,588 - 222,673 572,588 795,261
Dublin (1) 364,065 936,168 - 364,065 936,168 1,300,233
Franklin (1) 287,867 740,230 - 287,867 740,230 1,028,097
Galax (1) 309,578 796,057 - 309,578 796,057 1,105,635
Hopewell (1) 263,939 678,701 - 263,939 678,701 942,640
Lebanon (1) 266,340 684,876 - 266,340 684,876 951,216
Lynchburg (Langhorne) (1) 249,865 642,509 - 249,865 642,509 892,374
Lynchburg (Timberlake) (1) 276,153 710,107 - 276,153 710,107 986,260
Norfolk (1) 325,822 837,829 - 325,822 837,829 1,163,651
Orange (1) 244,883 629,699 - 244,883 629,699 874,582
Petersburg (1) 357,984 920,531 - 357,984 920,531 1,278,515
Richmond (Forest Hill) (1) 196,084 504,216 - 196,084 504,216 700,300
Richmond (Midlothian) (1) 270,736 696,179 - 270,736 696,179 966,915
Richmond (Myers) (1) 321,946 827,861 - 321,946 827,861 1,149,807
Roanoke (Hollins) (1) 257,863 663,076 - 257,863 663,076 920,939
</TABLE>
<TABLE>
<CAPTION>
Description
-----------
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C>
Gastonia (N. Chester) 149,882 Jan-78 Apr-87 40
Hillsborough 218,929 Mar-78 Apr-87 40
Kinston (W. Vernon) 178,486 Jul-62 Apr-87 40
Kinston (Richlands) 174,378 Dec-81 Apr-87 40
Mt. Airy 204,882 May-73 Apr-87 40
Newton 168,189 Mar-76 Apr-87 40
Siler City 201,952 May-79 Apr-87 40
Spring Lake 164,779 Mar-76 Apr-87 40
Thomasville (E. Main) 190,966 Feb-66 Apr-87 40
Thomasville (Randolph) 246,671 Apr-74 Apr-87 40
----------
3,518,563
Virginia:
Ashland 223,176 Apr-87 Apr-87 40
Blackstone 207,412 Sep-79 Apr-87 40
Bluefield 154,826 Feb-85 Apr-87 40
Chester 225,927 May-73 Apr-87 40
Clarksville 159,225 Oct-85 Apr-87 40
Clintwood 167,600 Jan-81 Apr-87 40
Dublin 274,023 Jul-83 Apr-87 40
Franklin 216,671 Feb-75 Apr-87 40
Galax 233,011 Jun-74 Apr-87 40
Hopewell 198,661 Jun-78 Apr-87 40
Lebanon 200,469 Jun-83 Apr-87 40
Lynchburg (Langhorne) 188,066 Sep-82 Apr-87 40
Lynchburg (Timberlake) 207,853 Aug-83 Apr-87 40
Norfolk 245,238 Aug-84 Apr-87 40
Orange 184,317 Aug-74 Apr-87 40
Petersburg 269,447 Mar-74 Apr-87 40
Richmond (Forest Hill) 147,588 Nov-74 Apr-87 40
Richmond (Midlothian) 203,776 Jan-74 Apr-87 40
Richmond (Myers) 242,321 Apr-83 Apr-87 40
Roanoke (Hollins) 194,088 Feb-73 Apr-87 40
</TABLE>
47
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
----------- ------- ------------- ------------------------------
Buildings & Subsequent Buildings &
Land Improvem'ts to Land Improvem'ts Total
Acquisition
<S> <C> <C> <C> <C> <C> <C> <C>
Roanoke (Abenham) (1) 235,864 606,507 - 235,864 606,507 842,371
Rocky Mount (1) 248,434 638,829 - 248,434 638,829 887,263
Smithfield (1) 223,070 573,608 - 223,070 573,608 796,678
Staunton (1) 260,569 670,035 - 260,569 670,035 930,604
Verona (1) 191,631 492,765 - 191,631 492,765 684,396
Virginia Beach (Lynnhaven) (1) 271,570 698,322 - 231,731 698,322 930,053
Virginia Beach (Holland) (1) 277,943 714,710 - 277,943 714,710 992,653
Wise (1) 219,471 564,355 - 219,471 564,355 783,826
------------------------------------------------------------------------------
7,433,834 19,115,577 - 7,393,995 19,115,577 26,509,572
-------------------------------------------------------------------------------------------
Total Restaurant Properties 11,950,000 12,108,576 31,136,338 - 12,068,737 31,136,338 43,205,075
-------------------------------------------------------------------------------------------
Total Real Estate $131,886,810 $30,328,867 $197,948,505 $3,510,665 $30,289,028 $201,454,692 $231,743,720
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Description
-----------
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C>
Roanoke (Abenham) 177,529 Nov-82 Apr-87 40
Rocky Mount 186,989 May-80 Apr-87 40
Smithfield 167,899 Apr-77 Apr-87 40
Staunton 196,125 Sep-83 Apr-87 40
Verona 144,235 Jan-85 Apr-87 40
Virginia Beach (Lynnhaven) 204,404 Jun-80 Apr-87 40
Virginia Beach (Holland) 209,201 Aug-83 Apr-87 40
Wise 165,190 Jun-80 Apr-87 40
-------------
5,595,267
-------------
Total Restaurant Properties 9,113,830
-------------
Total Real Estate $19,552,177
=============
<FN>
(1) Indicates the 47 restaurants encumbered by the bank term loan of up to
$25,500,000; $11,950,000 outstanding at 12/31/98
(2) Aggregate cost at December 31, 1998, for federal income tax purposes was
approximately $208.3 million
</FN>
</TABLE>
48
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year $ 171,254,604 $ 109,815,123 $ 98,520,761
Additions during year
Acquisitions by merger
- - -
Other acquisitions
59,131,734 60,722,522 10,666,580
Improvements, etc.
1,361,940 718,459 627,782
Deductions during year
(4,558) (1,500) -
--------------------------------------------------------------
Balance at close of year $ 231,743,720 $ 171,254,604 $ 109,815,123
==============================================================
Accumulated depreciation:
Balance at beginning of year $ 14,146,933 $ 11,461,365 $ 9,020,948
Provision for depreciation
5,406,005 2,685,718 2,440,417
Deductions during year
(761) (150) -
--------------------------------------------------------------
Balance at close of year $ 19,552,177 $ 14,146,933 $ 11,461,365
==============================================================
</TABLE>
49
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
Page
<S> <C> <C>
3.1* Articles of Incorporation (filed as Exhibit 3.1 to Boddie-Noell Properties, Inc.,
Current Report on Form 8-K dated March 17, 1999, and incorporated herein by
reference) -
3.2* By-Laws (filed as Exhibit 3.2 to Boddie-Noell Properties, Inc., Current Report on
Form 8-K dated March 17, 1999, and incorporated herein by reference) -
4* Rights Agreement, dated March 18, 1999, between the Company and First Union National
Bank (filed as Exhibit 4 to Boddie-Noell Properties, Inc. Current Report on Form 8-K
dated March 17, 1999, and incorporated herein by reference) -
10.1 Amended and Restated Agreement of Limited Partnership of Boddie-Noell Properties
Limited Partnership 51
10.2 Form and description of Incentive Stock Option Agreements dated June 30, 1998, and
November 1, 1998, between the Company and certain officers 133
10.3 Form and description of Nonqualified Stock Option Agreements dated
June 30, 1998, and November 1, 1998, between the Company and
certain officers 137
21 Subsidiaries of the Registrant 141
23 Consent of Ernst & Young LLP 142
27 Financial Data Schedule (electronic filing) -
</TABLE>
* Incorporated herein by reference
50
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
BODDIE-NOELL PROPERTIES LIMITED PARTNERSHIP
51
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINED TERMS..............................................................................1
ARTICLE 2 ORGANIZATIONAL MATTERS.....................................................................12
Section 2.1 Organization and Continuation..................................................13
Section 2.2 Name...........................................................................13
Section 2.3 Registered Office and Agent; Principal Office..................................13
Section 2.4 Power of Attorney..............................................................13
Section 2.5 Term...........................................................................15
ARTICLE 3 PURPOSE....................................................................................15
Section 3.1 Purpose and Business...........................................................15
Section 3.2 Powers.........................................................................15
ARTICLE 4 CAPITAL CONTRIBUTIONS......................................................................16
Section 4.1 Capital Contributions of the Partners..........................................16
Section 4.2 Issuances of Additional Partnership Interests..................................16
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares............................18
Section 4.4 No Preemptive Rights...........................................................18
ARTICLE 5 DISTRIBUTIONS..............................................................................19
Section 5.1 Requirement and Characterization of Distributions..............................19
Section 5.2 Amounts Withheld...............................................................19
Section 5.3 Distributions Upon Liquidation.................................................20
Section 5.4 Revisions to Reflect Issuance of Partnership Interests.........................20
ARTICLE 6 ALLOCATIONS................................................................................20
Section 6.1 Allocations For Capital Account Purposes.......................................20
Section 6.2 Other Allocation Rules.........................................................22
Section 6.3 Revisions to Allocations to Reflect Issuance of Partnership Interests..........22
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS......................................................22
Section 7.1 Management.....................................................................22
Section 7.2 Certificate of Limited Partnership.............................................26
Section 7.3 Restrictions on General Partner Authority......................................26
Section 7.4 Reimbursement of the General Partner...........................................27
Section 7.5 Outside Activities of the General Partner......................................28
Section 7.6 Contracts with Affiliates......................................................28
Section 7.7 Indemnification................................................................29
Section 7.8 Liability of the General Partner...............................................31
Section 7.9 Other Matters Concerning the General Partner...................................32
Section 7.10 Title to Partnership Assets....................................................33
Section 7.11 Reliance by Third Parties......................................................33
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................................33
Section 8.1 Limitation of Liability........................................................33
Section 8.2 Management of Business.........................................................34
Section 8.3 Outside Activities of Limited Partners.........................................34
Section 8.4 Return of Capital..............................................................34
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.5 Rights of Limited Partners Relating to the Partnership.........................34
Section 8.6 Redemption Right...............................................................35
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS.....................................................37
Section 9.1 Records and Accounting.........................................................37
Section 9.2 Partnership Year...............................................................37
Section 9.3 Reports........................................................................37
ARTICLE 10 TAX MATTERS.............................................................................38
Section 10.1 Preparation of Tax Returns.....................................................38
Section 10.2 Tax Elections..................................................................38
Section 10.3 Tax Matters Partner............................................................38
Section 10.4 Organizational Expenses........................................................40
Section 10.5 Withholding....................................................................40
ARTICLE 11 TRANSFERS AND WITHDRAWALS...............................................................41
Section 11.1 Transfer.......................................................................41
Section 11.2 Transfer of General Partner's Partnership Interests............................41
Section 11.3 Limited Partners' Rights to Transfer...........................................41
Section 11.4 Substituted Limited Partners...................................................42
Section 11.5 Assignees......................................................................42
Section 11.6 General Provisions.............................................................43
ARTICLE 12 ADMISSION OF PARTNERS...................................................................44
Section 12.1 Admission of Successor General Partner.........................................44
Section 12.2 Admission of Additional Limited Partners.......................................44
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership..................45
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION................................................45
Section 13.1 Dissolution....................................................................45
Section 13.2 Winding Up.....................................................................46
Section 13.3 Negative Capital Accounts......................................................47
Section 13.4 Deemed Distribution and Recontribution.........................................47
Section 13.5 Rights of Limited Partners.....................................................47
Section 13.6 Notice of Dissolution..........................................................48
Section 13.7 Termination of Partnership and Cancellation of
Certificate of Limited Partnership.............................................48
Section 13.8 Reasonable Time for Winding-Up.................................................48
Section 13.9 Waiver of Partition............................................................48
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............................................48
Section 14.1 Amendments.....................................................................48
Section 14.2 Meetings of the Partners.......................................................50
ARTICLE 15 CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE GENERAL PARTNER..........................51
Section 15.1 Trigger Events.................................................................51
Section 15.2 From and After the Occurrence of a Trigger Event...............................51
Section 15.3 Additional Issuer Covenants....................................................56
Section 15.4 Application to Later Transactions..............................................57
Section 15.5 Waivers and Amendments.........................................................57
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 16 PARTNER RIGHTS PLAN.....................................................................57
Section 16.1 Purpose and Interpretation.....................................................57
Section 16.2 Issuance of Preferred Unit Purchase Right......................................57
Section 16.3 Exercise of Rights.............................................................58
Section 16.4 Final Expiration Date..........................................................58
Section 16.5 Adjustment of Purchase Price...................................................58
Section 16.6 Right to Purchase Common Units at a Discount...................................58
Section 16.7 Redemption.....................................................................58
Section 16.8 Exchange.......................................................................59
Section 16.9 Transfer.......................................................................59
Section 16.10 Nullification of Rights of Acquiring Person....................................59
Section 16.11 Amendments.....................................................................59
ARTICLE 17 GENERAL PROVISIONS......................................................................60
Section 17.1 Addresses and Notice...........................................................60
Section 17.2 Titles and Captions............................................................60
Section 17.3 Pronouns and Plurals...........................................................60
Section 17.4 Further Action.................................................................60
Section 17.5 Binding Effect.................................................................60
Section 17.6 Creditors......................................................................60
Section 17.7 Waiver.........................................................................61
Section 17.8 Counterparts...................................................................61
Section 17.9 Applicable Law.................................................................61
Section 17.10 Invalidity of Provisions.......................................................61
Section 17.11 Entire Agreement...............................................................61
Section 17.12 Withdrawal of Organizational Limited...........................................61
EXHIBIT A PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS..........................................1
EXHIBIT B CAPITAL ACCOUNT MAINTENANCE................................................................1
EXHIBIT C SPECIAL ALLOCATION RULES...................................................................1
EXHIBIT D VALUE OF CONTRIBUTED PROPERTY..............................................................1
EXHIBIT E NOTICE OF REDEMPTION.......................................................................1
EXHIBIT F INDEMNIFICATION UNDER SECTION 7.7(I).......................................................1
EXHIBIT G DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF THE
SERIES C PREFERRED PARTNERSHIP UNITS.......................................................1
EXHIBIT H FORM OF ELECTION TO PURCHASE...............................................................1
</TABLE>
54
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
BODDIE-NOELL PROPERTIES LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
BODDIE-NOELL PROPERTIES LIMITED PARTNERSHIP (the "Agreement"), dated as of March
17, 1999, integrates into one document (i) the First Amended and Restated
Agreement of Limited Partnership, dated as of December 1, 1997, by and among
Boddie-Noell Properties, Inc., a Maryland corporation, as the General Partner,
and the Persons whose names were set forth on Exhibit A thereto, as the Limited
Partners, and (ii) the amendment made hereby. The amendment made hereby is made
pursuant to Section 14.1.B.
NOW THEREFORE, it is agreed:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquiring Person" has the meaning set forth in the Rights Agreement.
Although reference must be made to the Rights Agreement for the precise meaning
of "Acquiring Person" as it is used in this Agreement, the term generally means
a Person who owns 15% or more of the outstanding Common Shares of the General
Partner.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.2 hereof and who is shown as such on
the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and (ii)
decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5), and (6). The foregoing definition of Adjusted
Capital Account is intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
55
<PAGE>
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), (iii) above.
"Agreed Value" means (i) in the case of any Contributed Property set
forth in Exhibit D and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in Exhibit D, which value shall
reflect any liabilities either assumed by the Partnership upon such contribution
or to which such property is subject when contributed, (ii) in the case of any
Contributed Property not set forth in Exhibit D and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed, and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the General Partner filed in the State of Maryland on April 18,
1997 and amended or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the case may
be) for such period;
(b) Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period;
(c) the amount of any reduction in the reserves of the
Partnership referred to in clause (ii)(f) below (including, without
limitation, reductions resulting because the General Partner determines
such amounts are no longer necessary);
56
<PAGE>
(d) the excess of proceeds from the sale, exchange,
disposition, or refinancing of Partnership property for such period
over the gain, if any, recognized from such sale, exchange,
disposition, or refinancing during such period (excluding Terminating
Capital Transactions); and
(e) all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss for such
period;
(ii) less the sum of:
(a) all principal debt payments made by the Partnership during
such period;
(b) capital expenditures made by the Partnership during such
period;
(c) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in
clause (ii)(a) or (ii)(b);
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period;
(e) any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period;
(f) the amount of any increase in reserves during such period
which the General Partner determines to be necessary or appropriate in
its sole and absolute discretion;
(g) the amount of any working capital accounts and other cash
or similar balances which the General Partner determines to be
necessary or appropriate, in its sole and absolute discretion; and
(h) the amount which is not available for distribution due to
regulatory, legal or other restrictions.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such
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Partner's Capital Account computed as if it had been maintained strictly in
accordance with federal income tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Sections
4.1, 4.2, or 4.3 hereof.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the contribution of or adjustment with respect to
such Property, and (ii) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Exhibit B hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.
"Certificate" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Delaware Secretary of State, as
amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Common Partnership Unit" means a Partnership Unit that is not a
Preferred Partnership Unit.
"Common Shares" means shares of common stock, $.01 par value per share,
of the General Partner.
"Consent" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership on termination and reconstitution thereof pursuant to Section
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708 of the Code). Once the Carrying Value of a Contributed Property is adjusted
pursuant to Exhibit B hereof, such property shall no longer constitute a
Contributed Property for purposes of Exhibit B hereof, but shall be deemed an
Adjusted Property for such purposes.
"Conversion Factor" means 1.0 (one REIT Share for one Partnership
Unit), provided that in the event that the General Partner (i) declares or pays
a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution
to all holders of its outstanding REIT Shares in REIT Shares; (ii) subdivides
its outstanding REIT Shares; or (iii) combines its outstanding REIT Shares into
a smaller number of REIT Shares, the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by a fraction, the numerator of which shall be
the number of REIT Shares issued and outstanding on the record date for such
dividend, distribution, subdivision or combination assuming for such purpose
that such dividend, distribution, subdivision or combination has occurred as of
such time, and the denominator of which shall be the actual number of REIT
Shares (determined without the above assumption) issued and outstanding on the
record date for such dividend, distribution, subdivision or combination.
Notwithstanding the foregoing, no adjustment shall be made to the Conversion
Factor on account of the issuance of REIT Shares under the Shareholder Rights
Plan. Any adjustment to the Conversion Factor shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event, it being intended that (x) adjustments to the Conversion Factor
are to be made to avoid unintended dilution or anti-dilution as a result of
transactions in which REIT Shares are issued, redeemed or exchanged without a
corresponding issuance, redemption or exchange of Partnership Units and (y) if a
Specified Redemption Date shall fall between the record date and the effective
date of any event of the type described above, that the Conversion Factor
applicable to such redemption shall be adjusted to take into account such event.
"Deemed Value of the Partnership Interests" means, as of any date with
respect to any class of Partnership Interests, (i) the total number of shares of
capital stock of the General Partner corresponding to such class of Partnership
Interests issued and outstanding as of the close of business on such date
(excluding any treasury shares) multiplied by the Value of a share of such
capital stock on such date; (ii) divided by the Percentage Interest of the
General Partner in such class of Partnership Interests on such date. For
purposes of calculating Deemed Value of Partnership Interest with respect to any
class or series of Preferred Partnership Units, "Value" shall mean the stated
liquidation preference or value of the corresponding class or series of
Preferred Shares, unless otherwise provided in the Partnership Unit Designation
of such class or series of Preferred Partnership Units.
"Depreciation" means, for each Partnership Year an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
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"Dissolution Event" has the meaning set forth in Section 13.1.
"Distribution Date" has the meaning set forth in the Rights Agreement.
Although reference must be made to the Rights Agreement for the precise meaning
of "Distribution Date" as it is used in this Agreement, the term generally
refers to the earlier of (i) the tenth day after the General Partner or an
Acquiring Person publicly announces that an Acquiring Person has become such or
(ii) the tenth Business Day after the commencement of (or announcement of the
intention to commence) a tender or exchange offer that would result in any
Person becoming an Acquiring Person.
"General Partner" means Boddie-Noell Properties, Inc., in its capacity
as the general partner of the Partnership, or its successors as general partner
of the Partnership.
"General Partner Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest. A General Partner
Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such
natural Person's spouse and such natural Person's natural or adoptive parents,
descendants, nephews, nieces, brothers, and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof, (g) the appointment
without the Partner's consent or
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acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within ninety (90) days of such appointment, or (h) an appointment referred to
in clause (g) which has been stayed is not vacated within ninety (90) days after
the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of (A) his status as the General Partner, or a director or officer of the
Partnership or the General Partner, or (B) his or its liabilities, pursuant to a
loan guarantee or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
assets subject to), and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended from time to time, or
any Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner in the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidator" has the meaning set forth in Section 13.2.
"Net Income" means, for any Partnership Year or any portion of a
Partnership Year, the excess, if any, of the Partnership's items of income and
gain for such Partnership Year over the Partnership's items of loss and
deduction for such Partnership Year. The items included in the calculation of
Net Income shall be determined in accordance with Exhibit B. Once an item of
income, gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to the special allocation rules in
Exhibit C, Net Income or the resulting Net Loss, whichever the case may be,
shall be recomputed without regard to such item.
"Net Loss" means, for any Partnership Year, the excess, if any, of the
Partnership's items of loss and deduction for such Partnership Year over the
Partnership's items of income and gain for such Partnership Year. The items
included in the calculation of Net Loss shall be determined in accordance
Exhibit B. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Exhibit C, Net Loss or the resulting Net Income, whichever
the case may be, shall be recomputed without regard to such item.
"New Securities" has the meaning set forth in Section 4.2.B.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the
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amount of any taxable gain that would be allocated to the Partners pursuant to
Section 2.B of Exhibit C if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-l(a)(2).
"Notice of Election to Purchase" means the Notice of Election to
Purchase substantially in the form of Exhibit H to this Agreement.
"Notice of Redemption" means the Notice of Redemption substantially in
the form of Exhibit E to this Agreement.
"Original Agreement" means the Agreement of Limited Partnership of
Boddie-Noell Properties Limited Partnership, dated as of September 19, 1997,
between the General Partner and Philip S. Payne.
"Organizational Limited Partner" means Philip S. Payne.
"Original Limited Partner" means a Limited Partner, other than the
General Partner, who was a Partner on December 1, 1997 and who owns one or more
Original Limited Partnership Units on the date action is called for under any of
the provisions hereof.
"Original Limited Partnership Unit" means a Partnership Unit held by an
Original Limited Partner on December 1, 1997 and held by such Original Limited
Partner on the date action is called for under any of the provisions hereof.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
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"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement and any successor thereto.
"Partnership Interest" means a Limited Partner Interest or a General
Partner Interest and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
Year shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner (i) for the distribution of Available Cash pursuant to Section
5.1 hereof, which record date shall be the same as the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such distribution or (ii) if applicable, for determining the
Partners entitled to vote on or consent to any proposed action for which the
consent or approval of the Partners is sought pursuant to Section 14.2 hereof.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3. The number of Partnership Units outstanding and the Percentage Interest in
the Partnership represented by such Units are set forth in Exhibit A attached
hereto, as such Exhibit may be amended from time to time. The ownership of
Partnership Units shall be evidenced by such form of certificate for Units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.
Fractional Units may be held and counted by the General Partner as necessary to
meet the requirements of Section 4.1.
"Partnership Unit Designation" shall have the meaning set forth in
Section 4.2.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year, or any portion of any calendar year for which the
Partnership is required to allocate Net Income, Net Loss, and any other items of
Partnership income, gain, loss, or deduction pursuant to Article 6.
"Percentage Interest" means, as to a Partner holding a class or series
of Partnership Interests, its interest in such class or series, determined by
dividing the Partnership Units of such class or series owned by such Partner by
the total number of Partnership Units of such class or series then outstanding
as specified in Exhibit A, as such exhibit may be amended from time to time,
multiplied by the aggregate Percentage Interest allocable to such class or
series of Partnership Interests. If the Partnership shall at any time have
outstanding more than one class or series of Partnership Interests,
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the Percentage Interest attributable to each class or series of Partnership
Interests shall be determined as set forth in Section 4.2.C.
"Person" means an individual or a corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Preferred Partnership Unit" means any Partnership Unit issued from
time to time pursuant to Section 4.2 hereof that is designated by the General
Partner at the time of its issuance as a Preferred Partnership Unit.
"Preferred Shares" means a share of capital stock of the General
Partner now or hereafter authorized or reclassified that has rights different
from a Common Share.
"Recapture Income" means any gain recognized by the Partnership upon
the disposition of any property or asset of the Partnership, which gain is
characterized for federal income tax purposes as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6 hereof.
"Redemption Right" shall have the meaning set forth in Section 8.6
hereof.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT Share" shall mean a share of capital stock of the General
Partner. REIT Shares may be issued in one or more classes or series in
accordance with the terms of the Articles of Incorporation of the General
Partner. If there is more than one class or series of REIT Shares, the term
"REIT Shares" shall, as the context requires, be deemed to refer to the class or
series of REIT Shares that correspond to the class or series of Partnership
Interests for which reference to REIT Shares is made. When used with reference
to Common Partnership Units, the term "REIT Shares" refers to Common Shares,
when used with reference to Series A Preferred Partnership Units, the term "REIT
Shares" refers to Series A Preferred Shares and when used with reference to any
other class or series of Preferred Partnership Units, the term "REIT Shares"
refers to the corresponding class or series of Preferred Shares.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor, provided that in the event the
General Partner issues to all holders of REIT Shares rights, options, warrants
or convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the
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"rights"), then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"Replacement Share" has the meaning set forth in Section 15.2 of this
Agreement.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.l(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Right" has the meaning set forth at Section 16.2.
"Rights Agreement" means the Rights Agreement dated as of March 18,
1999 between the General Partner and First Union National Bank, as rights agent.
"Series A Preferred Partnership Unit" means a Preferred Partnership
Unit issued by the Partnership to the Partners pursuant to Article 16 of this
Agreement, having the voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions as are set forth in the Partnership Unit Designation Attached
hereto as Exhibit G . It is the intention of the General Partner, in
establishing the Series A Preferred Partnership Units, that each Series A
Preferred Partnership Unit shall be substantially the economic equivalent of a
Series A Preferred Share.
"Series A Preferred Shares" means the Series A Junior Participating
Preferred Shares, par value $.01 per share, issuable by the General Partner
pursuant to the Shareholder Rights Plan.
"704(c) Value" of any Contributed Property means the value of such
property as set forth in Exhibit D or if no value is set forth in Exhibit D, the
fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt. Subject to Exhibit B hereof, the General Partner
shall, in its sole and absolute discretion, use such method as it deems
reasonable and appropriate to allocate the aggregate of the 704(c) Values of
Contributed Properties in a single or integrated transaction among the separate
properties on a basis proportional to their respective fair market values.
"Shareholder Rights Plan" means the General Partner's issuance of
preferred share purchase rights, with such terms as are set forth in the Rights
Agreement.
"Specified Redemption Date" means the tenth (10th) Business Day after
receipt by the General Partner of a Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of either (i) the voting power
of the voting equity securities or (ii) the outstanding equity interests is
owned, directly or indirectly, by such Person.
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"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B hereof) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to Exhibit B hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Exhibit B
hereof) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B hereof) as of such date.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to any share of capital stock of the
General Partner, the average of the daily market price for the ten (10)
consecutive trading days immediately preceding the Valuation Date. The market
price for each such trading day shall be: (i) if the REIT Shares are listed or
admitted to trading on any securities exchange or the NASDAQ-National Market
System, the closing price, regular way, on such day, or if no such sale takes
place on such day, the average of the closing bid and asked prices on such day;
(ii) if the REIT Shares are not listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System, the last reported sale price on
such day or, if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reliable quotation source
designated by the General Partner; or (iii) if the REIT Shares are not listed or
admitted to trading on any securities exchange or the NASDAQ-National Market
System and no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reliable quotation source designated by the General
Partner, or if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than ten (10) days prior to the date in question) for which prices
have been so reported; provided that if there are no bid and asked prices
reported during the ten (10) days prior to the date in question, the Value of
the REIT Shares shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate. In the event the REIT Shares Amount includes
rights that a holder of REIT Shares would be entitled to receive, then the Value
of such rights shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
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Section 2.1 Organization and Continuation
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in the
Original Agreement. The Partners hereby continue the Partnership and amend and
restate the Original Agreement in its entirety as of the date hereof. Except as
expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
Section 2.2 Name
The name of the Partnership shall be Boddie-Noell Properties Limited
Partnership. The Partnership's business may be conducted under any other name or
names deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The name and address of the registered agent for service of process on
the Partnership in the State of North Carolina is D. Scott Wilkerson, 3850 One
First Union Center, Charlotte, North Carolina 28202 and the name and address of
the registered agent for service of process on the Partnership in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington County of
New Castle. The principal office of the Partnership shall be located at 3850 One
First Union Center, Charlotte, North Carolina 28202, or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those
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acting singly, in each case with full power of substitution, as its true and
lawful agent and attorney-in-fact, with full power and authority in its name,
place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners have
limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may
or plans to conduct business or own property; (b) all
instruments that the General Partner deems
appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement
in accordance with its terms; (c) all conveyances and
other instruments or documents that the General
Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation
of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments
relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other
events described in, Articles 11, 12 or 13 hereof or
the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments
relating to the determination of the rights,
preferences and privileges of a Partnership Interest;
and
(2) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates
and other instruments appropriate or necessary, in
the sole and absolute discretion of the General
Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by
the Partners hereunder or is consistent with the
terms of this Agreement or appropriate or necessary,
in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of
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such Limited Partner's or Assignee's Partnership Units and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be bound
by any representation made by the General Partner or any Liquidator, acting in
good faith pursuant to such power of attorney, and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner or any Liquidator, taken
in good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term
The term of the Partnership commenced on September 18, 1997, the date
the Certificate was filed in the office of the Secretary of State of Delaware in
accordance with the Act, and shall continue until December 31, 2097, unless the
Partnership is dissolved sooner pursuant to the provisions of Article 13 or as
otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT, unless the General
Partner ceases to qualify as a REIT for reasons other than the conduct of the
business of the Partnership, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or to own
interests in any entity engaged in any of the foregoing, and (iii) to do
anything necessary or incidental to the foregoing. In connection with the
foregoing, and without limiting the General Partner's right, in its sole
discretion, to cease qualifying as a REIT, the Partners acknowledge the General
Partner's current status as a REIT inures to the benefit of all of the Partners
and not solely the General Partner.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the General Partner to continue to qualify as a REIT, (ii) could
subject the General Partner to any additional taxes under Section 857 or Section
4981 of the Code, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the General Partner or its
securities, unless such action (or inaction) shall have been specifically
consented to by the General Partner in writing.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
As of the date hereof, the Partners have made Capital Contributions as
set forth in Exhibit A to this Agreement. The Partners shall own Partnership
Units in the amounts set forth for each such Partner in Exhibit A and shall have
a Percentage Interest in the Partnership as set forth in Exhibit A, which
Percentage Interest shall be adjusted in Exhibit A from time to time by the
General Partner to the extent necessary to reflect accurately redemptions,
Capital Contributions, the issuance of additional Partnership Units, or similar
events having an effect on any Partner's Percentage Interest. The number of
Partnership Units held by the General Partner (equal to one percent (1%) of all
outstanding Partnership Units from time to time) shall be deemed to be the
General Partner Interest. Except as provided in Sections 4.2, 7.7(I) and 10.5,
the Partners shall have no obligation to make any additional Capital
Contributions or loans to the Partnership. The General Partner shall maintain
the information set forth in Exhibit A to the Agreement, as such information
shall change from time to time, in such form as the General Partner deems
appropriate for the conduct of the Partnership affairs, and Exhibit A shall be
deemed amended from time to time to reflect the information so maintained by the
General Partner, whether or not a formal amendment to the Agreement has been
executed amending such Exhibit A. Such information shall reflect (and Exhibit A
shall be deemed amended from time to time to reflect) the issuance of any
additional Partnership Units to the General Partner or any other Person, the
transfer of Partnership Units and the redemption of any Partnership Units, all
as contemplated in the Agreement.
Section 4.2 Issuances of Additional Partnership Interests
A. The General Partner is hereby authorized to cause the Partnership
from time to time to issue to the Partners (including the General Partner) or
other Persons additional Partnership Units or other Partnership Interests in one
or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including rights, powers and duties senior to Limited
Partner Interests, all as shall be determined by the General Partner in its sole
and absolute discretion subject to Delaware law and as shall be set forth in a
written document thereafter attached to and made an exhibit to this Agreement
(each, a "Partnership Unit Designation"), including, without limitation, (i) the
allocations of items of Partnership income, gain, loss, deduction and credit to
each such class or series of Partnership Interests; (ii) the right of each such
class or series of Partnership Interests to share in Partnership distributions;
and (iii) the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that no such additional
Partnership Units or other Partnership Interests shall be issued to the General
Partner or an Affiliate of the General Partner unless either
(a)(1) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares or other shares by the
General Partner, which shares have designations, preferences and other
rights such that the economic interests attributable to such shares are
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substantially similar to the designations, preferences and other rights
of the additional Partnership Interests issued to the General Partner
in accordance with this Section 4.2.A, and (2) the General Partner
shall make a Capital Contribution to the Partnership in an amount equal
to the proceeds raised in connection with the issuance of such shares
of the General Partner; or
(b) the additional Partnership Units are issued to all
Partners in proportion to their respective Percentage Interests.
In addition, the General Partner may acquire Units from other Partners pursuant
to this Agreement. In the event that the Partnership issues Partnership
Interests pursuant to this Section 4.2.A, the General Partner shall make such
revisions to this Agreement (without any requirement of receiving approval of
the Limited Partners) including but not limited to the revisions described in
Section 5.4, Section 6.1 and Section 8.6, as it deems necessary to reflect the
issuance of such additional Partnership Interests and the special rights, powers
and duties associated therewith.
Without limiting the foregoing, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units for less than
fair market value, so long as the General Partner concludes in good faith that
such issuance is in the best interests of the General Partner and the
Partnership (for example, and not by way of limitation, the issuance of
Partnership Units pursuant to an employee purchase plan providing for employee
purchases of Partnership Units at a discount from fair market value or employee
options that have an exercise price that is less than the fair market value of
the Partnership Units, either at the time of issuance or at the time of
exercise).
B. The General Partner shall not issue any additional REIT Shares
(other than REIT Shares issued pursuant to Section 8.6), or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase REIT Shares (collectively "New Securities") other than
to all holders of REIT Shares unless (i) the General Partner shall cause the
Partnership to issue to the General Partner Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially similar to those of the New Securities, and (ii) the
General Partner contributes to the Partnership the proceeds from the issuance of
such New Securities and from the exercise of rights contained in such New
Securities or (y) such REIT Shares or New Securities are issued in exchange for
assets to be held directly by the General Partner within the limitations set
forth at Section 7.5 of this Agreement. Without limiting the foregoing, the
General Partner is expressly authorized to issue New Securities for less than
fair market value, and the General Partner is expressly authorized to cause the
Partnership to issue to the General Partner corresponding Partnership Interests,
so long as (x) the General Partner concludes in good faith that such issuance is
in the best interests of the General Partner and the Partnership (for example,
and not by way of limitation, the issuance of REIT Shares and corresponding
Units pursuant to an employee stock purchase plan providing for employee
purchases of REIT Shares at a discount from fair market value or employee stock
options that have an exercise price that is less than the fair market value of
the REIT Shares, either at the time of issuance or at the time of exercise), and
(y) the General Partner contributes all proceeds from such issuance and exercise
to the Partnership. This Section 4.2.B shall not prohibit the General Partner's
issuance of preferred share purchase rights under the Shareholder
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Rights Plan.
C. Upon the acceptance of Capital Contributions in exchange for
Partnership Units and if the Partnership shall have outstanding more than one
class of Partnership Interests, the Percentage Interest related thereto shall be
equal to a fraction, the numerator of which is equal to the amount of cash, if
any, plus the Agreed Value of Contributed Property, if any, contributed with
respect to such additional Partnership Units and the denominator of which is
equal to the sum of (i) the Deemed Value of the Partnership Interests for all
outstanding classes (computed as of the Business Day immediately preceding the
date on which the additional Capital Contributions are made (an "Adjustment
Date") plus (ii) the aggregate amount of additional Capital Contributions
contributed to the Partnership on such Adjustment Date in respect of such
additional Partnership Units. The Percentage Interest of each other Partner
holding Partnership Interests not making a full pro rata Capital Contribution
shall be adjusted to a fraction the numerator of which is equal to the sum of
(i) the Deemed Partnership Interest Value of such Limited Partner (computed as
of the Business Day immediately preceding the Adjustment Date) plus (ii) the
amount of additional Capital Contributions (such amount being equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
so contributed), if any, made by such Partner to the Partnership in respect of
such Partnership Interest as of such Adjustment Date and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of all outstanding classes (computed as of the Business Day immediately
preceding such Adjustment Date) plus (ii) the aggregate amount of the additional
Capital Contributions contributed to the Partnership of such Adjustment Date in
respect of such additional Partnership Interests.
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares
In connection with any issuance of REIT Shares or New Securities
pursuant to Section 4.2, the General Partner shall contribute to the Partnership
any proceeds (or a portion thereof) raised in connection with such issuance;
provided that if the proceeds actually received by the General Partner are less
than the gross proceeds of such issuance as a result of any underwriter's
discount or other expenses paid or incurred in connection with such issuance,
then the General Partner shall be deemed to have made a Capital Contribution to
the Partnership in the amount equal to the sum of the net proceeds of such
issuance plus the amount of such underwriter's discount and other expenses paid
by the General Partner. In the case of employee acquisitions of New Securities
at a discount from fair market value or for no value in connection with a grant
of New Securities, the amount of such discount representing compensation to the
employee, as determined by the General Partner, shall be treated as an expense
of the issuance of such New Securities.
Section 4.4 No Preemptive Rights
No Person shall have any preemptive, preferential or other similar
right with respect to (i) additional Capital Contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
The General Partner shall distribute at least quarterly an amount equal
to 100% of Available Cash generated by the Partnership during such quarter or
shorter period to the Partners who are Partners on the Partnership Record Date
with respect to such quarter or shorter period in the following order of
priority:
(1) first, at the time and in the manner set forth in the
applicable Partnership Unit Designation, to each holder of Partnership
Interests of a class or series that is entitled to a preference in
distribution, in accordance with the rights of such class or series of
Partnership Interests (and, within such class or series, pro rata in
proportion to the respective Partnership Interests on such Partnership
Record Date); and
(2) second, to the extent there is Available Cash after
payment of any preference in distribution under the foregoing clause
(1), to the holders of Partnership Interests that are not entitled to
any preference in distribution, pro rata to each class or series in
accordance with the terms of such class or series (and within each
class or series pro rata in proportion to their respective Percentage
Interests on such Partnership Record Date).
Unless otherwise specifically agreed to by the General Partner,
distributions payable with respect to any Partnership Units that were not
outstanding during the entire annual or shorter period in respect of which
distribution is made shall be prorated based on the portion of the period that
such Units were outstanding. Notwithstanding anything to the contrary contained
herein, in no event shall a Partner receive a distribution of Available Cash
with respect to a Partnership Unit if such Partner is entitled to receive a
distribution out of such Available Cash with respect to a REIT Share for which
such Partnership Unit has been redeemed or exchanged. The General Partner shall
take such reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with its qualification as a REIT, to distribute
Available Cash to the Limited Partners so as to preclude any such distribution
or portion thereof from being treated as part of a sale of property to the
Partnership by a Limited Partner under Section 707 of the Code or the
Regulations thereunder; provided that the General Partner and the Partnership
shall not have liability to a Limited Partner under any circumstances as a
result of any distribution to a Limited Partner being so treated. Unless
otherwise expressly provided for herein or in an agreement at the time a new
class or series of Partnership Interests is created in accordance with Article
4, no Partnership Interest shall be entitled to a distribution in preference to
any other Partnership Interest.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
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Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
Section 5.4 Revisions to Reflect Issuance of Partnership
Interests
If the Partnership issues Partnership Interests directly or indirectly
to the General Partner or any Additional Limited Partner pursuant to Article 4
hereof, the General Partner shall make such revisions to this Article 5 and
Exhibit A as it deems necessary to reflect the issuance of such additional
Partnership Interests without the requirements for any other consents or
approvals.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each Partnership Year as provided hereinbelow.
A. Net Income. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to the
General Partner until the cumulative Net Income allocated pursuant to this
clause (i) of Section 6.1.A equals the aggregate Net Loss previously allocated
to the General Partner pursuant to clause (4) of Section 6.1.B; (ii) second, to
the holders of any class or series of Partnership Interests that are entitled to
a preference upon liquidation, in the order of the priorities of each such class
or series (and, within such class or series, in proportion to their share of the
Net Loss previously allocated pursuant to clause (3) of Section 6.1.B), until
the cumulative Net Income allocated to such holders pursuant to this clause (ii)
in Section 6.1.A equals the aggregate amount of previous Net Loss allocated
pursuant to clause (3) of Section 6.1.B; (iii) third, to the holders of any
class or series of Partnership Interests that are entitled to any preference in
periodic distributions of Available Cash under Section 5.1 in accordance with
the rights of any such class or series until each such Partnership Interest has
been allocated, on a cumulative basis pursuant to this clause (iii) of Section
6.1.A, Net Income equal to the amount of distributions received in respect of
such preference (and within such class or series, pro rata in proportion to the
respective Percentage Interests in such class or series as of the last day of
the period for which such allocation is being made); and (iv) thereafter, Net
Income shall be allocated to the classes and series of Partnership Interests
that are not entitled to any preference in periodic distributions of Available
Cash under Section 5.1, pro rata to each such class or series in accordance with
the terms of such class or series (and within each such class or series pro rata
in proportion to the respective Percentage Interests of each Partner in such
class or series as of the last day for which such allocation is being made).
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B. Net Loss. After giving effect to the special allocations set forth
in Section 1 of Exhibit C, Net Loss shall be allocated to the Partners in the
following order:
(1) First, to the Partners, in proportion to
their share of the Net Income previously allocated
pursuant to clause (iv) of Section 6.1.A until the
cumulative Net Loss allocated to them pursuant to
this clause (1) equals the aggregate amount of such
previous Net Income allocations;
(2) Second, with respect to classes or
series of Partnership Interests that are not entitled
to any preferences upon liquidation, pro rata to each
such class or series in accordance with the terms of
such class or series (and within such class or
series, pro rata in proportion to their respective
Percentage Interests as of the last day of the period
for which such allocation is being made); provided,
that Net Loss shall not be allocated to any Partner
pursuant to this clause (2) of Section 6.1.B to the
extent that such allocation would cause such Partner
to have an Adjusted Capital Account Deficit (or to
increase an existing Adjusted Capital Account
Deficit) at the end of such period;
(3) Third, to the holders of any class or
series of Partnership Interests that are entitled to
a preference upon liquidation, in reverse order of
the priorities of each such class or series (and
within such class or series, pro rata in proportion
to their respective Percentage Interests as of the
last day of the period for which such allocation is
being made); provided that Net Loss shall not be
allocated to any Partner pursuant to this clause (3)
of Section 6.1.B to the extent that such allocation
would cause such Partner to have an Adjusted Capital
Account Deficit (or to increase an existing Capital
Account Deficit) at the end of such period;
(4) Fourth, 100% to the General Partner.
C. Terminating Capital Transactions. Upon the occurrence of a
Terminating Capital Transaction or otherwise upon the commencement of a
liquidation of the Partnership, after giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Income or Net Loss shall be allocated
among the Partners in accordance with Section 6.1.A or 6.1.B, as the case may
be; provided, however, that holders of any class or series of Partnership
Interests that are entitled to a preference upon liquidation shall be specially
allocated Net Income or Net Loss (or, if necessary, items of income, gain, loss
or deduction) until their Adjusted Capital Accounts equal the amounts of their
liquidation preference, in accordance with the terms of such class or series, to
be distributed under clause (4) of Section 13.2.A. (before giving effect to such
distribution).
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Section 6.2 Other Allocation Rules
A. Excess Nonrecourse Liabilities. Solely for purposes of determining a
Partner's proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3), such
"excess nonrecourse liabilities" first shall be allocated to those Partners who
have, and in an amount equal to, such Partners' built-in gain under Regulations
Section 1.704-3(a)(3)(ii) less any Nonrecourse Built-in Gain, and then shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
B. Recapture Income. Recapture Income shall be allocated in accordance
with Regulations Sections 1.1245-1(e) or 1.1250-1(f) as applicable.
Section 6.3 Revisions to Allocations to Reflect Issuance of
Partnership Interests.
If the Partnership issues Partnership Interests directly or indirectly
to the General Partner or any Additional Limited Partner pursuant to Article IV
hereof, the General Partner shall make such revisions to this Article VI and
Exhibit A as it deems necessary to reflect the terms of the issuance of such
Partnership Interests, including making preferential allocations to classes of
Partnership Interests that are entitled thereto. Such revisions shall not
require the consent or approval of any other Partner.
ARTICLE 7
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted to a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the General
Partner (so long as the General Partner qualifies as
a REIT) to avoid the payment
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of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of
the Code) and to make distributions to the General
Partner such that the General Partner can distribute
to its shareholders amounts sufficient to permit the
General Partner to maintain REIT status), the
assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of
evidence of indebtedness (including the securing of
same by deed to secure debt, mortgage, deed of trust
or other lien or encumbrance on the Partnership's
assets) and the incurring of any obligations it deems
necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets
of the Partnership (including the exercise or grant
of any conversion, option, privilege or subscription
right or other right available in connection with any
assets at any time held by the Partnership) or the
combination of the Partnership with or into another
entity (all of the foregoing subject to any prior
approval only to the extent required by Section 7.3
hereof);
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on
any terms it sees fit, including, without limitation,
the financing of the conduct of the operations of the
General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the
Subsidiaries of the Partnership and/or the General
Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person
in which it has an equity investment, and the making
of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any
real property or improvements owned by the
Partnership or any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under
this Agreement, including contracting with
contractors, developers, consultants, accountants,
legal counsel, other professional advisors
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and other agents and the payment of their expenses
and compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and
other assets of the Partnership;
(9) the collection and receipt of revenues and income of
the Partnership;
(10) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees
of the Partnership, any division of the Partnership,
or the General Partner (including, without
limitation, employees having titles such as
"president," "vice president," "secretary" and
"treasurer" of the Partnership, any division of the
Partnership, or the General Partner), and agents,
outside attorneys, accountants, consultants and
contractors of the General Partner or the Partnership
or any division of the Partnership, and the
determination of their compensation and other terms
of employment or hiring;
(11) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems
necessary or appropriate;
(12) the formation of, or acquisition of an interest in,
and the contribution of property to, any further
limited or general partnerships, joint ventures or
other relationships that it deems desirable
(including, without limitation, the acquisition of
interests in, and the contributions of property to,
its Subsidiaries and any other Person in which it has
an equity investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the
settlement, compromise, submission to arbitration or
any other form of dispute resolution, or abandonment
of, any claim, cause of action, liability, debt or
damages, due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other
forms of dispute, resolution, and the representation
of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other
forms of dispute resolution, the incurring of legal
expense, and the indemnification of any Person
against liabilities and contingencies to the extent
permitted by law;
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(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as the General Partner
may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited
power of attorney, of any right, including the right
to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or
in connection with any Subsidiary of the Partnership
or any other Person in which the Partnership has a
direct or indirect interest, or jointly with any such
Subsidiary or other Person;
(18) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any
Person in which the Partnership does not have an
interest pursuant to contractual or other
arrangements with such Person; and
(19) the making, execution and delivery of any and all
deeds, leases, notes, deeds to secure debt,
mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments
or agreement in writing necessary or appropriate in
the judgment of the General Partner for the
accomplishment of any of the powers of the General
Partner enumerated in this Agreement.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other applicable
law. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not constitute a breach by the General Partner of any duty that the General
Partner may owe the Partnership or the Limited Partners or any other Persons
under this Agreement or of any duty stated or implied by law or equity.
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C. At all times from and after the date hereof, the General Partner may
cause the Partnership to obtain and maintain (i) casualty, liability and other
insurance on the properties of the Partnership and (ii) liability insurance for
the Indemnitees hereunder.
D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
E. In exercising its authority under this Agreement and except as
provided at Section 5.1, the General Partner may, but shall be under no
obligation to, take into account the tax consequences to any Partner of any
action taken by it. The General Partner and the Partnership shall not have
liability to a Limited Partner under any circumstances as a result of an income
tax liability incurred by such Limited Partner as a result of an action (or
inaction) by the General Partner pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The General Partner has previously filed the Certificate with the
Secretary of State of Delaware as required by the Act. The General Partner shall
use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state or the
District of Columbia in which the Partnership may elect to do business or own
property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner Authority
The General Partner may not sell, exchange, transfer or otherwise
dispose of all or substantially all of the Partnership's assets in a single
transaction or a series of related transactions (including by way of merger,
consolidation or other combination with any other Person) without the Consent of
Partners holding 50% or more of the Common Partnership Units and compliance with
the other provisions hereof.
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Section 7.4 Reimbursement of the General Partner
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses that it incurs relating to the ownership and
operation of, or for the benefit of, the Partnership; provided that the amount
of any such reimbursement shall be reduced by any interest earned by the General
Partner with respect to bank accounts or other instruments or accounts held by
it on behalf of the Partnership as permitted in Section 7.5.A. The Limited
Partners acknowledge that, for purposes of this Section 7.4.B, all expenses of
the General Partner are deemed incurred for the benefit of the Partnership. Such
reimbursements shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 7.7 hereof.
C. As set forth in Section 4.3, the General Partner shall be treated as
having made a Capital Contribution in the amount of all expenses that it incurs
relating to the organization and/or reorganization of the Partnership and the
General Partner, and any other issuance of additional Partnership Interests or
REIT Shares pursuant to Section 4.2 hereof.
D. In the event that the General Partner elects to purchase from the
shareholders of the General Partner REIT Shares for the purpose of delivering
such REIT Shares to satisfy an obligation under any dividend reinvestment
program adopted by the General Partner, any employee stock purchase plan adopted
by the General Partner, or any similar obligation or arrangement undertaken by
the General Partner in the future, the purchase price paid by the General
Partner for such REIT Shares and any other expenses incurred by the General
Partner in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursed to the General Partner, subject to the
condition that: (i) if such REIT Shares subsequently are to be sold by the
General Partner, the General Partner shall pay to the Partnership any proceeds
received by the General Partner for such REIT Shares (provided that a transfer
of REIT Shares for Units pursuant to Section 8.6 would not be considered a sale
for such purposes); and (ii) if such REIT Shares are not retransferred by the
General Partner within 30 days after the purchase thereof, the General Partner
shall cause the Partnership to cancel a number of Partnership Units held by the
General Partner equal to the quotient obtained by dividing the number of such
REIT Shares by the Conversion Factor.
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Section 7.5 Outside Activities of the General Partner
A. The General Partner shall not directly or indirectly enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests as a General Partner or Limited Partner
and the management of the business of the Partnership, and such activities as
are incidental thereto. The General Partner shall not hold any assets other than
Partnership Interests as a General Partner or Limited Partner, and other than
such bank accounts or similar instruments or accounts as it deems necessary to
carry out its responsibilities contemplated under this Agreement and its
organizational documents; provided, however, that if the General Partner
believes that it is in the best interest of the Partnership, the General Partner
may hold, other than through the Partnership, up to 1% of the economic interests
in another issuer. The General Partner and any Affiliates of the General Partner
may acquire Limited Partner Interests and shall be entitled to exercise all
rights of a Limited Partner relating to such Limited Partner Interests.
B. Except as provided in Section 7.4.D, in the event the General
Partner exercises its rights under Article VI of its Articles of Incorporation
to purchase REIT Shares, then the General Partner shall cause the Partnership to
purchase from it that number of Common Partnership Units equal to the quotient
obtained by dividing the number of REIT Shares to be purchased by the General
Partner by the Conversion Factor on the same terms and for the same aggregate
price that the General Partner purchased such REIT Shares.
Section 7.6 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law as
the General Partner, in its sole and absolute discretion, believes are
advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable and no less favorable to the Partnership
than would be obtained from an unaffiliated third party.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt on behalf of the
Partnership employee benefit plans, stock option plans, and similar plans funded
by the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
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respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. Except as provided at Section 7.7(I), hereof, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership, the General Partner as set
forth in this Agreement in which such Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, unless it is established
that: (i) the act or omission of the Indemnitee was material to the matter
giving rise to the proceeding and either was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty or otherwise for any indebtedness of the Partnership or any Subsidiary
of the Partnership (including without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), and the General Partner is hereby authorized and empowered, on behalf of
the Partnership, to enter into one or more indemnity agreements consistent with
the provisions of this Section 7.7 in favor of any Indemnitee having or
potentially having liability for any such indebtedness. The termination of any
proceeding by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct set forth in this
Section 7.7.A with respect to the subject matter of such proceeding. The
termination of any proceeding by conviction of an Indemnitee or upon a plea of
nolo contendere or its equivalent by an Indemnitee, or an entry of an order of
probation against an Indemnitee prior to judgment, creates a rebuttable
presumption that such Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership, and neither the General Partner
nor any Limited Partner shall have any obligation to contribute to the capital
of the Partnership or otherwise provide funds, to enable the Partnership to fund
its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in Section 7.7.A. has been met, and (ii) a written undertaking by or
on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
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C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity unless otherwise provided in a written agreement pursuant
to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust of other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7 unless such liabilities
arise as a result of (i) such Indemnitee's intentional misconduct or knowing
violations of the law, or (ii) any transaction in which such Indemnitee received
a personal benefit in violation or breach of any provision of this Agreement or
applicable law.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification, or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. The Partners hereby acknowledge that, in conjunction with the
financing and the refinancing of the property owned by the Partnership, the
General Partner may agree to guarantee part or all of such debt. The Partners
understand that, pursuant to Regulations Section 1.752-(2)(b)(3)(i), such
guaranty obligation would, absent the indemnification provided hereinafter,
serve to increase the General Partner's share of such debt pursuant to
Regulations Section 1.752-2(a). Inasmuch as, notwithstanding such guaranty
obligation, each of the Limited Partners desires to
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increase his share of such debt and the General Partner desires to decrease its
share of such debt (for purposes of Regulations Section 1.752-2(a)), each of the
Limited Partners, to the extent provided in Exhibit F, attached hereto, hereby
agrees to indemnify the General Partner in the event and to the extent that the
General Partner both is required to make a payment to the lender under any such
guaranty obligation and is unable to sell any or all of the assets of the
Partnership for money or moneys worth to make the General Partner whole on
account of such payment. This indemnification is effective only at the time, in
the event and to the extent that upon a dissolution and liquidation of the
Partnership, the General Partner is a creditor of the Partnership due to its
guaranty of Partnership debt and the proceeds of sale in such dissolution and
liquidation are insufficient to reimburse the General Partner for any amounts
paid on such guaranty obligation as contemplated in this Section 7.7(I). As
provided in Exhibit F, this indemnification is limited on a per Unit basis to
Units owned by an indemnifying Limited Partner at the time an indemnification is
due to the General Partner as provided by this Section 7.7(I), such that each
Limited Partner's obligation is reduced upon a redemption of Units as provided
in Section 8.6 or upon any other transfer or disposition of Units. In addition,
any and all indemnification as provided by this Section 7.7(I) shall terminate
in full as to each and every Limited Partner in the event that both (i) the
General Partner receives from tax counsel an opinion that the Original Limited
Partners will be allocated an amount of excess nonrecourse liabilities under the
provisions of Section 6.2(A) hereof and Regulations Section 1.752-3(a)(3) equal
to or greater than the amount of the indemnification requirement indicated on
Exhibit F, and (ii) upon a vote of the Original Limited Partners, Units
representing more than 50% of the Original Limited Partnership Units are voted
in favor of terminating the indemnification required by this Section 7.7(I).
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership, any Partners or any Assignees for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
General Partner acted in good faith and with due care and loyalty.
B. The Limited Partners expressly acknowledge that the General Partner
is acting on behalf of the Partnership and the General Partner's shareholders
collectively, that the General Partner is under no obligation, except as
provided at Section 5.1, to consider the separate interests of the Limited
Partners (including, without limitation, the tax consequences to Limited
Partners or Assignees) in deciding whether to cause the Partnership to take (or
decline to take) any actions, and that the General Partner shall not be liable
for monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by the General Partner in good faith.
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D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to avoid the General Partner incurring any taxes
under Section 857 or Section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.
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Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner or such nominee or
Affiliate for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, however, that the General Partner shall
use its best efforts to cause beneficial and record title to such assets to be
vested in the Partnership as soon as reasonably practicable. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Sections 7.7(I) and
10.5 hereof, or under the Act.
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Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the Partnership or a Subsidiary, any Limited Partner (other than the
General Partner) and any officer, director, employee, agent, trustee, Affiliate
or shareholder of any Limited Partner (other than the General Partner) shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee. None of the Limited Partners (other
than the General Partner) nor any other Person shall have any rights by virtue
of this Agreement or the Partnership relationship established hereby in any
business ventures of any other Person (other than the General Partner to the
extent expressly provided herein) and such Person shall have no obligation
pursuant to this Agreement to offer any interest in any such business ventures
to the Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided by Exhibit C hereof or as permitted by Section 4.2.B, or
otherwise expressly provided in this Agreement, no Limited Partner or Assignee
shall have priority over any other Limited Partner or Assignee either as to the
return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the
Partnership
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably
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related to such Limited Partner's interest as a limited partner in the
Partnership, upon written demand with a statement of the purpose of such demand
and at such Limited Partner's own expense (including such copying and
administrative charges as the General Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the General Partner pursuant
to the Securities Exchange Act of 1934;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the
amount of cash and a description and statement of any
other property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on which each
became a Partner.
B. The Partnership shall notify each Limited Partner upon request of
the then current and applicable Conversion Factor.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or its business or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
Section 8.6 Redemption Right
A. Subject to Sections 8.6.B and 8.6.C, each Limited Partner, other
than the General Partner, shall have the right (the "Redemption Right") to
require the Partnership to redeem on a Specified Redemption Date all or a
portion of the Partnership Units held by such Limited Partner at a redemption
price equal to and in the form of the Cash Amount to be paid by the Partnership.
The Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the redemption right (the "Redeeming Partner");
provided, however, that the Partnership shall not be obligated to satisfy such
Redemption Right if the General Partner elects to purchase the Partnership Units
subject to the
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Notice of Redemption pursuant to Section 8.6.B. A Limited Partner may not
exercise the Redemption Right for less than one thousand (1,000) Partnership
Units or, if such Limited Partner holds less than one thousand (1,000)
Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any Partnership distributions paid on or after the
Specified Redemption Date. The Assignee of any Limited Partner may exercise the
rights of such Limited
Partner pursuant to this Section 8.6, and such Limited Partner shall be
deemed to have assigned such rights to such Assignee and shall be bound by the
exercise of such rights by such Assignee. In connection with any exercise of
such rights by such Assignee on behalf of such Limited Partner, the Cash Amount
shall be paid by the Partnership directly to such Assignee and not to such
Limited Partner.
B. Notwithstanding the provisions of Section 8.6.A, a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell the
Partnership Units described in the Notice of Redemption to the General Partner
and the General Partner may, in its sole and absolute discretion, elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as elected by the
General Partner (in its sole and absolute discretion), on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Redeeming Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.6.B with respect to a Notice of Redemption, it shall so
notify the Redeeming Partner within five (5) Business Days after the receipt by
the General Partner of such Notice of Redemption. Unless the General Partner (in
its sole and absolute discretion) shall exercise its right to purchase
Partnership Units from the Redeeming Partner pursuant to its right to purchase
Partnership Units under this Section 8.6.B, the General Partner shall not have
any obligation to the Redeeming Partner or the Partnership with respect to the
Redeeming Partner's exercise of the Redemption Right. In the event the General
Partner shall exercise its right to purchase Partnership Units with respect to
the exercise of a Redemption Right in the manner described in the first sentence
of this Section 8.6.B, the Partnership shall have no obligation to pay any
amount to the Redeeming Partner with respect to such Redeeming Partner's
exercise of such Redemption Right, and each of the Redeeming Partner, the
Partnership, and the General Partner shall treat the transaction between the
General Partner and the Redeeming Partner for federal income tax purposes as a
sale of the Redeeming Partner's Partnership Units to the General Partner. Each
Redeeming Partner agrees to execute such documents as the General Partner may
reasonably require in connection with the issuance of REIT Shares upon exercise
of the Redemption Right.
C. Notwithstanding the provisions of Section 8.6.A and Section 8.6.B, a
Partner shall not be entitled to exercise the Redemption Right pursuant to
Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified
Redemption Date by the General Partner pursuant to Section 8.6.B
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(regardless of whether or not the General Partner would in fact exercise its
rights under Section 8.6.B) would be prohibited under the Articles of
Incorporation.
D. Preferred Partnership Units shall be redeemed, if at all, only in
accordance with such redemption rights or options as are set forth with respect
to such Preferred Partnership Units (or class or series thereof) in the
instruments designating such Preferred Partnership Units (or class or series
thereof).
E. In the event that the Partnership issues additional Partnership
Interests pursuant to Section 4.2.A, the General Partner shall make such
revisions to this Section 8.6 as it determines are necessary to reflect the
issuance of such additional Partnership Interests.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Sections 8.5.A and 9.3 hereof. Any records maintained by or on behalf of the
Partnership in the regular course of its business may be kept on, or be in the
form of, punch cards, magnetic tape, photographs, micrographics or any other
information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with generally accepted
accounting principles, or such other basis as the General Partner determines to
be necessary or appropriate.
Section 9.2 Partnership Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner, as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for such Partnership Year, presented in
accordance with generally
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accepted accounting principles, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the General
Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner, as of the last day of the calendar quarter, a report containing
unaudited financial statements of the Partnership or of the General Partner, if
such statements are prepared solely on a consolidated basis with the General
Partner, and such other information as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall use its reasonable best efforts to arrange
for the preparation and timely filing of all returns of Partnership income,
gains, deductions, losses and other items required of the Partnership for
federal and state income tax purposes and shall use all reasonable efforts to
furnish, within ninety (90) days of the close of each taxable year, the tax
information reasonably required by Limited Partners for federal and state income
tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. The General Partner shall have the right to seek to revoke
any such election (including, without limitation, the election under Section 754
of the Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; provided,
however, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings
for the adjustment of Partnership items required to
be taken into account by a Partner for income tax
purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial
proceedings
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being referred to as "judicial review"), and in the
settlement agreement the tax matters partner may
expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall
not bind any Partner (i) who (within the time
prescribed pursuant to the Code and Regulations)
files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter
into a settlement agreement on behalf of such Partner
or (ii) who is a "notice partner" (as defined in
Section 6231(a)(8) of the Code) or a member of a
"notice group" (as defined in Section 6223(b)(2) of
the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item
required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition
for readjustment with the Tax Court or the filing of
a complaint for refund with the United States Claims
Court or the District Court of the United States for
the district in which the Partnership's principal
place of business is located;
(3) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment
with the IRS and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken into account by a
Partner for tax purposes, or any item affected by
such item; and
(6) to take any other action on behalf of the Partners or
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. Nothing herein shall be construed
to restrict the Partnership from engaging an accounting firm to assist the tax
matters partner in discharging its duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
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Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any such
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such repayment must be made, unless (i) the Partnership withholds
such repayment from a distribution which would otherwise be made to the Limited
Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such repayment may be satisfied out of the available funds of
the Partnership which would, but for such repayment, be distributed to the
Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i) or
(ii) shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner. Without limitation, in such event the General
Partner (i) shall have the right to receive distributions that would otherwise
be distributable to such defaulting Limited Partner until such time as such
loan, together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan and
(ii) shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Any amounts payable by a Limited Partner hereunder
shall bear interest at the lesser of (A) the base rate on corporate loans at
large United States money center commercial banks, as published from time to
time in the Wall Street Journal, plus four (4) percentage points, or (B) the
maximum lawful rate of interest on such obligation, such interest to accrue from
the date such amount is due (i.e., fifteen (15) days after demand) until such
amount is paid in full. Each Limited Partner shall take such actions as the
Partnership or the General Partner shall request in order to perfect or enforce
the security interest created hereunder.
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ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer", when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any redemption of Partnership Interests by the
Partnership from a Limited Partner or any acquisition of Partnership Units from
a Limited Partner by the General Partner pursuant to Section 8.6.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interests
A. The General Partner may not transfer any of its General Partner
Interest or Limited Partner Interests or withdraw as General Partner except as
provided in Section 11.2.B or Article 15.
B. The General Partner may transfer Limited Partner Interests held by
it either to the Partnership in accordance with Section 7.5.B hereof or to a
purported holder of REIT Shares in accordance with the provisions of Article VI
of the Articles of Incorporation.
C. If the General Partner is the surviving entity of a merger, it shall
contribute substantially all of the assets acquired in the merger to the
Partnership as a Capital Contribution in exchange for Partnership Units with a
fair market value, as reasonably determined by the General Partner, equal to the
704(c) Value of the assets so contributed; provided that this requirement shall
not be applicable if such merger is a Trigger Event as defined in Section 15.
Section 11.3 Limited Partners' Rights to Transfer
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, 11.4
and 11.5, a Limited Partner may transfer, with or without the consent of the
General Partner, all or any portion of its Partnership Interest, or any of such
Limited Partner's economic rights as a Limited Partner.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
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C. The General Partner may prohibit any transfer by a Limited Partner
of its Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would (i) require filing of a registration statement under the
Securities Act of 1933; (ii) otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Unit; or
(iii) cause the Partnership to register the Partnership Units under Section
12(g) of the Securities Exchange Act of 1934, as amended, or any successor
provision.
D. No transfer by a Limited Partner of its Partnership Units may be
made to any Person if (i) in the opinion of legal counsel for the Partnership,
it would result in the Partnership being treated as an association taxable as a
corporation, or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market" (or the substantial equivalent
thereof) within the meaning of Section 7704 of the Code.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability, without the consent of the General Partner, in its sole
and absolute discretion, provided that as a condition to such consent the lender
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Cash Amount any Partnership Units
in which a security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee
as a Limited Partner in his place. The General Partner shall, however, have the
right to consent to the admission of a transferee of the interest of a Limited
Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which
consent may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
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If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any other items, gain, loss deduction and credit of the
Partnership attributable to the Partnership Units assigned to such transferee,
but shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
In the event any such transferee desires to make a further assignment of any
such Partnership Units, such transferee shall be subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of its Partnership Units
in a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substituted Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to a redemption of all of its Partnership
Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first
day of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership Year in compliance with the provisions of
this Article 11 or redeemed or transferred pursuant to Section 8.6, on any day
other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items attributable to such interest for such
Partnership Year shall be divided and allocated between the transferor Partner
and the transferee Partner by taking into account their varying interests during
the Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method. Solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
assignment occurs shall be allocated to the transferee Partner, and none of such
items for the calendar month in which a redemption occurs shall be allocated to
the Redeeming Partner. All distributions of Available Cash attributable to such
Partnership Unit with respect to which the Partnership Record Date is before the
date of such transfer, assignment, or redemption shall be made to the transferor
Partner or the Redeeming Partner, as the case may be, and in the case of a
transfer or assignment other than a redemption, all distributions of Available
Cash thereafter attributable to such Partnership Unit shall be made to the
transferee Partner.
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ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
A. After the admission to the Partnership of the Original Limited
Partners on December 1, 1997, a Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assigns including such Additional Limited
Partner. All distributions of Available Cash with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner and
all distributions of Available Cash thereafter shall be made to all of the
Partners and Assignees including such Additional Limited Partner.
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Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Dissolution Events"):
A. the expiration of its term as provided in Section 2.5 hereof.
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless within ninety (90) days after such
event of withdrawal a majority in interest of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor General Partner;
C. from and after the date of this Agreement through December 31, 2043,
an election to dissolve the Partnership made by the General Partner, unless (i)
at the time of such election, Original Limited Partners hold at least 10% of the
Limited Partnership Units, including such Units held by the General Partner, and
(ii) Original Limited Partners owning a majority of the Original Limited
Partnership Units object in writing to such dissolution within thirty (30) days
of receiving written notice of such election from the General Partner;
D. on or after January 1, 2044 an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;
E. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
F. the sale of all or substantially all of the assets and properties of
the Partnership; or
G. a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
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federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
Section 13.2 Winding Up
A. Upon the occurrence of a Dissolution Event or a Terminating Capital
Transaction, the Partnership shall continue solely for the purposes of winding
up its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors and Partners. No Partner shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner, or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the General Partner or such other Person being referred to
herein as the "Liquidator"), shall be responsible for overseeing the winding up
and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include shares of stock in the General Partner) shall be applied and
distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General
Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other
Partners; and
(4) The balance, if any, after giving effect to all
contributions, distributions, and allocations for all
periods, to those Partners with positive Capital
Account balances, to the extent of such positive
Capital Account balances.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership, the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including those to Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith
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judgment of the Liquidator, such distributions in kind are in the best interest
of the Partners, and shall be subject to such conditions relating to the
disposition and management of such properties as the Liquidator deems reasonable
and equitable and to any agreements governing the operation of such properties
at such time. The Liquidator shall determine the fair market value of any
property distributed in kind using such reasonable method of valuation as it may
adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of
the General Partner and Limited Partners for the
purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or
obligations of the Partnership or the General Partner
arising out of or in connection with the Partnership.
The assets of any such trust shall be distributed to
the General Partner and Limited Partners from time to
time, in the reasonable discretion of the Liquidator,
in the same proportions as the amount distributed to
such trust by the Partnership would otherwise have
been distributed to the General Partner and Limited
Partners pursuant to this Agreement; or
(2) withheld or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise)
and to reflect the unrealized portion of any
installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall
be distributed to the General Partner and Limited
Partners in the manner and order of priority set
forth in Section 13.2.A as soon as practicable.
Section 13.3 Negative Capital Accounts
No Partner, General or Limited, shall be liable to the Partnership or
to any other Partner for any negative balance outstanding in each such Partner's
Capital Account, whether such negative Capital Account results from the
allocation of Net Losses or other items of deduction and loss to such Partner or
from distributions to such Partner.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event
the Partnership is considered liquidated within the meaning of Regulations
Section 1.704-l(b)(2)(ii)(g), but no Dissolution Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or
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power to demand or receive property other than cash from the Partnership. Except
as otherwise provided in this Agreement, no Limited Partner shall have priority
over any other Partner as to the return of its Capital Contributions,
distribution or allocations.
Section 13.6 Notice of Dissolution
In the event a Dissolution Event occurs or an event occurs that would,
but for the provisions of an election or objection by one or more Partners
pursuant to Section 13.1, result in a dissolution of the Partnership, the
General Partner shall provide within thirty (30) days thereafter written notice
thereof to each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of
Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
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A. Amendments to this Agreement may be proposed by the General Partner
or by any Limited Partners holding ten percent (10%) or more of the Partnership
Interests. Following such proposal, the General Partner shall submit any
proposed amendment to the Limited Partners. The General Partner shall seek the
written vote of the Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than fifteen (15)
days, and failure to respond in such time period shall constitute a vote which
is consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 7.3.A, 13.1.C, 14.1.B, 14.1.C or 14.1.D,
a proposed amendment shall be adopted and be effective as an amendment hereto if
it is approved by the General Partner and it receives the Consent of Partners
holding a majority of the Percentage Interests of the Limited Partners
(including Limited Partner Interests held by the General Partner).
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for
the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination,
or withdrawal of Partners in accordance with this
Agreement;
(3) to set forth the designations, rights, powers,
duties, and preferences of the holders of any
additional Partnership Interests issued pursuant to
Section 4.2.A hereof;
(4) to reflect a change that is of an inconsequential
nature and does not adversely affect the Limited
Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in
this Agreement not inconsistent with law or with
other provisions, or make other changes with respect
to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of
this Agreement; and
(5) to satisfy any requirements, conditions, or
guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state
agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement
shall not be amended without the Consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a General Partner Interest, (ii) modify the limited
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liability of a Limited Partner in a manner adverse to such Limited Partner,
(iii) alter rights of the Partner to receive distributions pursuant to Article 5
or Article 13, or the allocations specified in Article 6 (except as permitted
pursuant to Section 4.2 and Section 14.1.B(3) hereof), (iv) alter or modify the
Redemption Right and REIT Shares Amount as set forth in Section 8.6, and the
related definitions, in a manner adverse to such Partner, (v) cause the
termination of the Partnership prior to the time set forth in Sections 2.5 or
13.1, or (vi) amend this Section 14.1.C. Further, no amendment may alter the
restrictions on the General Partner's authority set forth in Section 7.3 without
the Consent specified in that section.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General
Partner shall not amend Article 15 or Sections 4.2.A, 7.5, 7.6, 11.2, 14.1.A or
14.2 without the Consent of 75% of the Percentage Interests of the Limited
Partners excluding Limited Partners Interests held by the General Partner.
Section 14.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Limited Partners holding twenty percent (20) or more of the Percentage
Interests. The call shall state the nature of the business to be transacted and
notice of any such meeting shall be given to all Partners not less than seven
(7) days nor more than thirty (30) days prior to the date of such meeting.
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of the Partners is permitted or required under this Agreement, such vote
or Consent may be given at a meeting of the Partners or may be given in
accordance with the procedure prescribed in Section 14.1A hereof. Except as
otherwise expressly provided in this Agreement, the Consent of holders of a
majority of the Percentage Interests held by Limited Partners (including Limited
Partnership Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by 75% of the Percentage Interests of the Partners (or
such other percentage as is expressly required by this Agreement). Such consent
may be in one instrument or in several instruments and shall have the same force
and effect as a vote of 75% of the Percentage Interests of the Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for
him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
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D. Each meeting of the Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate. Without limitation, meetings of Partners may be conducted in
the same manner as meetings of the shareholders of the General Partner and may
be held at the same time, and as part of, meetings of the shareholders of the
General Partner.
ARTICLE 15
CONSOLIDATION, MERGER OR SALE OF ASSETS OF THE GENERAL PARTNER
Section 15.1 Trigger Events
For the purposes of this Article 15, each of the following events shall
be deemed to be a "Trigger Event": (w) if the General Partner consolidates with,
or merges into, any other Person, and the General Partner is not the continuing
or surviving corporation of such consolidation or merger, (x) if any Person
consolidates with, or merges into, the General Partner, and the General Partner
is the continuing or surviving corporation of such consolidation or merger and,
in connection with such consolidation or merger, all or part of the outstanding
REIT Shares are converted into or exchanged for stock or other securities of any
other Person or cash or any other property, or (y) if the General Partner sells
or otherwise transfers (or one or more of its Subsidiaries sells or otherwise
transfers) to any Person or Persons, in one or more transactions, 50% or more of
the assets or earning power of the General Partner or the Partnership.
Section 15.2 From and After the Occurrence of a Trigger Event
Effective on the date of each Trigger Event, the Redemption Right shall
be adjusted as provided in this Section 15.2.
A. From and after the occurrence of a Trigger Event (each such
occurrence, a "Trigger Occurrence") and until the occurrence, if any, of a
subsequent Trigger Event (in which case a further adjustment shall be made
pursuant to this Section 15.2), each and every reference contained in this
Agreement to a "REIT Share" or "REIT Shares" shall be deemed to be a reference
to a share or shares, respectively (each, a "Replacement Share"; collectively,
"Replacement Shares"), of: (i) if, as a result of any Trigger Event, all of the
REIT Shares are converted solely into Registered Common Stock (as hereinafter
defined), such Registered Common Stock and (ii) in all other cases, the common
stock, or, if such Person shall have no common stock, the equity securities or
other equity interest having power to control or direct the management (the
"Common Stock") of (a) in the event of a Trigger Event described in clause (w)
or (x) of the first sentence of Section 15.1, (1) the Person that is the issuer
of any securities into which the REIT Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer who has the
highest Market Capitalization (as hereinafter defined) and (2) if no securities
are so issued, the Person that is the other party to such merger or
consolidation, or if there is more than one such Person, the Person who has the
highest Market Capitalization or (b) in the event of a Trigger Event described
in clause (y) of the first sentence of Section 15.1, the Person that is the
party receiving the largest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if the Person receiving the
largest portion of the assets or earning power cannot be determined, whichever
Person
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has the highest Market Capitalization; provided, however, that in any such case,
(1) if the Common Stock of such Person is not at such time and has not been
continuously over the preceding 12-month period registered ("Registered Common
Stock") under Section 12 of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), or such Person is neither a corporation nor a real estate
investment trust, and such Person is a direct or indirect Subsidiary of another
Person that has Registered Common Stock outstanding, "Replacement Shares" shall
mean shares of the Common Stock of such other Person; (2) if the Common Stock of
such Person is not Registered Common Stock or such Person is neither a
corporation nor a real estate investment trust, and such Person is a direct or
indirect Subsidiary of another Person but is not a direct or indirect Subsidiary
of another Person which has Registered Common Stock outstanding, "Replacement
Shares" shall mean shares of the Common Stock of the parent entity having the
highest Market Capitalization; (3) if the Common Stock of such Person is not
Registered Common Stock or such Person is neither a corporation nor a real
estate investment trust, and such Person is directly or indirectly controlled by
more than one Person, and one of such other Persons has Registered Common Stock
outstanding, "Replacement Shares" shall mean shares of the Common Stock of
whichever of such other Persons is the issuer having the highest Market
Capitalization; and (4) if the Common Stock of such Person is not Registered
Common Stock or such Person is neither a corporation nor a real estate
investment trust, and such Person is directly or indirectly controlled by more
than one Person, and none of such other Persons have Registered Common Stock
outstanding, "Replacement Shares" shall mean shares of the Common Stock of
whichever ultimate parent entity is the corporation or real estate investment
trust having the highest aggregate shareholders' equity or, if no such ultimate
parent entity is a corporation or a real estate investment trust, shall be
deemed to refer to shares of the Common Stock of whichever ultimate parent
entity is the entity having the greatest net assets. Any issuer of "Replacement
Shares" shall be referred to as an "Issuer." "Market Capitalization" means the
dollar figure equal to the product of the number of shares of Common Stock
issued and outstanding on the date of the Trigger Occurrence in question, on a
fully diluted basis, not held by Affiliates (as defined under the Exchange Act)
multiplied by the Average Trading Price (as hereinafter defined).
B. From and after a Trigger Occurrence, the "Conversion Factor" shall
be adjusted by multiplying the "Conversion Factor" existing on the day
immediately prior to such Trigger Occurrence as follows: (i) if the REIT Shares,
as a result of the Trigger Occurrence, have been converted solely into the right
to receive Registered Common Stock, by the number of shares of Registered Common
Stock which the holder of a single REIT Share was entitled to receive as a
result of the Trigger Occurrence or (ii) in all other cases, by a fraction, the
numerator of which shall be the Average Trading Price of a REIT Share as of such
Trigger Occurrence and the denominator of which shall be the Average Trading
Price of a Replacement Share as of such Trigger Occurrence. Following a Trigger
Occurrence, the Conversion Factor shall be further adjusted as set forth in the
definition of "Conversion Factor" contained in Article 1 of this Agreement and
as provided in this Section 15.2.
C. For the purpose of any computation hereunder, the "Average Trading
Price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such shares for the ten consecutive
trading days immediately prior to the third trading day prior to such date;
provided, however, in the event the Trigger Event occurs as part of a series of
related transactions which also includes a tender offer, the ten trading day
period shall be the ten consecutive trading day period immediately prior to the
day REIT Shares are accepted for payment pursuant to
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such tender offer; provided, however, further, if prior to the expiration of
such requisite ten trading day period the issuer announces either (A) a dividend
or distribution on such shares payable in such shares or securities convertible
into such shares or (B) any subdivision, combination or reclassification of such
shares, then, following the ex-dividend date for such dividend or the record
date for such subdivision, as the case may be, the "Average Trading Price" shall
be properly adjusted to take into account such event. The closing price for each
day shall be, if the shares are listed and admitted to trading on a national
securities exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such shares are listed or admitted to trading or,
if such shares are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the high bid price in the
over-the-counter market, as reported by the NASDAQ National Market System or
such other system then in use, or, if on any such date such shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in such shares
selected by the holders of a majority of the Partnership Units held by the
Limited Partners (excluding the Partnership Units held by the General Partner
and its Affiliates). If such shares are not publicly held or not so listed or
traded or if, for the ten days prior to such date, no market maker is making a
market in such shares, the Average Trading Price of such shares on such date
shall be deemed to be the fair value of such shares as determined as set forth
in Section 15.2.D. The term "trading day" shall mean, if such shares are listed
or admitted to trading on any national securities exchange, a day on which the
principal national 'securities exchange on which such shares are listed or
admitted to trading is open for the transaction of business or, if such shares
are not so listed or admitted, a Business Day.
D. In the event that on the date of a Trigger Occurrence, the shares of
a Person are not publicly held or not so listed or traded or if, for the ten
days prior to such date, no market maker is making a market in the shares of a
Person, the Average Trading Price of the shares of such Person shall be the fair
value of the shares as determined in good faith by the holders of a majority of
the Partnership Units held by the Limited Partners (excluding the Partnership
Units held by the General Partner and its Affiliates) and the General Partner,
which determination shall be binding on all of the Limited Partners. If the
holders of a majority of the Partnership Units held by the Limited Partners
(excluding the Partnership Units held by the General Partner and its Affiliates)
and the General Partner have not agreed on the fair value of the shares and
executed and delivered between them an agreement setting forth the same within
twenty (20) days after the Trigger Occurrence in question, then either the
General Partner or the holders of a majority of the Partnership Units held by
the Limited Partners (excluding the Partnership Units held by the General
Partner and its Affiliates) may notify the other that they or it desire to
invoke the following arbitration procedure:
(1) Notice of the holders of a majority of the
Partnership Units held by the Limited Partners
(excluding the Partnership Units held by the General
Partner and its Affiliates) or the General Partner of
such parties' intention to seek arbitration shall be
delivered to the other parties within ten (10) days
after which all parties shall, in good faith, attempt
to agree on a single arbitrator to determine the fair
value of the shares (the "Arbitrator"). If the
holders of a majority of the Partnership Units held
by the Limited Partners (excluding the Partnership
Units held by the General Partner and its Affiliates)
and the
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General Partner have not agreed on the Arbitrator
within ten (10) days after the giving of the
Arbitration Notice, then either, on behalf of both,
may apply to the local office of the American
Arbitration Association or any organization which is
the successor thereof (the "AAA") for appointment of
the Arbitrator, or, if the AAA shall not then exist
or shall fail, refuse or be unable to act such that
the Arbitrator is not appointed by the AAA within ten
(10) days after application therefor, then either
party may apply to any court of competent
jurisdiction in the State of North (the "Court") for
the appointment of the Arbitrator and the other party
shall not raise any question as to the Court's full
power and jurisdiction to entertain the application
and make the appointment. The date on which the
Arbitrator is appointed, by the agreement of the
parties, by appointment by the AAA or by appointment
by the Court, is referred to herein as the
"Appointment Date." If any Arbitrator appointed
hereunder shall be unwilling or unable, for any
reason, to serve, or continue to serve, a replacement
arbitrator shall be appointed in the same manner as
the original Arbitrator.
(2) The arbitration shall be conducted in accordance with
the then prevailing commercial arbitration rules of
the AAA, modified as follows:
(i) To the extent that any statute imposes
requirements different than those of the AAA
in order for the decision of the Arbitrator
to be enforceable in the courts of the State
of Delaware, such requirements shall be
complied with in the arbitration.
(ii) The Arbitrator shall be disinterested and
impartial, shall not be affiliated with the
Limited Partners or the General Partner and
shall have at least ten (10) years
experience in the market in which the
applicable Person transacts the majority of
its business.
(iii) Before hearing any testimony or receiving
any evidence, the Arbitrator shall be sworn
to hear and decide the controversy
faithfully and fairly by an officer
authorized to administer an oath and a
written copy thereof shall be delivered to
each of the Limited Partners and the General
Partner.
(iv) Within twenty (20) days after the
Appointment Date, the holders of a majority
of the Partnership Units held by the Limited
Partners (excluding the Partnership Units
held by the General Partner and its
Affiliates) and the General Partner shall
deliver to the Arbitrator two (2) copies of
their respective written determinations of
the fair value of the shares (each, a
"Determination") together with such
affidavits,
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appraisals, reports and other written
evidence relating thereto as the submitting
party deems appropriate. After the
submission of any Determination, the
submitting party may not make any additions
to or deletions from, or otherwise change,
such Determination or the affidavits,
appraisals, reports and other written
evidence delivered therewith. If either
party fails to so deliver its Determination
within such time period, time being of the
essence with respect thereto, such party
shall be deemed to have irrevocably waived
its right to deliver a Determination and the
Arbitrator, without holding a hearing, shall
accept the Determination of the submitting
party as the fair value of the shares. If
each party submits a Determination with
respect to the fair value of the shares
within the twenty (20) day period described
above, the Arbitrator shall, promptly after
its receipt of the second Determination,
deliver a copy of each party's Determination
to the other party.
(v) Not less than ten (10) days nor more than
twenty (20) days after the earlier to occur
of (x) the expiration of the twenty (20) day
period provided for in clause (iv) of this
subparagraph or (y) the Arbitrator's receipt
of both of the Determinations from the
parties (such earlier date is referred to
herein as the "Submission Date") and upon
not less than five (5) days notice to the
parties, the Arbitrator shall hold one or
more hearings with respect to the
determination of the fair value of the
shares. The hearings shall be held in the
Charlotte metropolitan area of North
Carolina at such location and time as shall
be specified by the Arbitrator. Each of the
parties shall be entitled to present all
relevant evidence and to cross-examine
witnesses at the hearings. The Arbitrator
shall have the authority to adjourn any
hearing to such later date as the Arbitrator
shall specify, provided that in all events
all hearings with respect to the
determination of the fair value of the
shares shall be concluded not later than
thirty (30) days after the Submission Date.
(vi) The Arbitrator shall be instructed, and
shall be empowered only, to select as the
fair value of the shares that one of the
Determinations which the Arbitrator believes
is the more accurate determination of the
Average Trading Price of the shares. Without
limiting the generality of the foregoing, in
rendering his or her decision, the
Arbitrator shall not add to, subtract from
or otherwise modify the provisions of this
Agreement or either of the Determinations.
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(vii) The Arbitrator shall render his or her
determination as to the selection of a
Determination in a signed and acknowledged
written instrument, original counterparts of
which shall be sent simultaneously to
Limited Partners and the General Partner,
within ten (10) days after the conclusion of
the hearing(s) required by clause (v) of
this Section.
(3) This provision shall constitute a written agreement
to submit any dispute regarding the determination of
the Average Trading Price of the shares of a Person
to arbitration.
(4) The arbitration decision, determined as provided in
this Article, shall be conclusive and binding on the
parties, shall constitute an "award" by the
Arbitrator within the meaning of the AAA rules and
applicable law, and judgment may be entered thereon
in any court of competent jurisdiction.
(5) The Partnership shall pay all fees and expenses
relating to the arbitration (including, without
limitation, the fees and expenses of one counsel
(including local counsel, if required) chosen by the
holders of a majority of the Partnership Units held
by the Limited Partners (excluding the Partnership
Units held by the General Partner and its Affiliates)
and of experts and witnesses retained or called by
the Limited Partners). The Limited Partners' counsel
chosen as set forth in the preceding sentence shall
represent the interests of all of the Limited
Partners and the choice of counsel shall be binding
on all of the Limited Partners.
E. From and after a Trigger Occurrence, each and every reference to the
"General Partner" in Section 8.6 shall be deemed to be a reference to the Issuer
of the Replacement Shares. From and after a Trigger Occurrence, the Issuer shall
assume or unconditionally guaranty the performance of the General Partner's
obligations under this Agreement pursuant to an instrument in form and substance
satisfactory to the holders of a majority of the Partnership Units held by the
Limited Partners (excluding the Partnership Units held by the General Partner
and its Affiliates). From and after a Trigger Occurrence, the "Average Trading
Price" of a REIT Share or a Replacement Share, as applicable shall be
substituted for the "Value" of the same for the purposes of determining the Cash
Amount.
Section 15.3 Additional Issuer Covenants
The General Partner shall (i) not enter in an agreement with any Person
which would result in a Trigger Event unless such agreement provides for each of
the following and (ii) from and after any Trigger Occurrence, comply with each
of the following:
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A. If, on the day immediately prior to a Trigger Occurrence, the Issuer
is qualified as a REIT, then, substantially contemporaneously with such Trigger
Occurrence, the General Partner, the Issuer and its Affiliates shall enter into
such mergers, combinations, conveyances or other transactions as shall be
required to cause substantially all of the assets of the General Partner and the
Issuer and its Affiliates to be owned, leased or held directly or indirectly by
a single operating partnership in which the Limited Partners shall hold
partnership units having the rights specified by this Agreement. The agreement
governing the resulting operating partnership shall be in a form substantially
no less favorable to each of the Limited Partners than is this Agreement.
B. From and after a Trigger Occurrence, in the event a dividend or
distribution consisting of cash or property (other than Replacement Shares) or
both is paid by the Issuer in respect of the Replacement Shares, the General
Partner shall cause the Partnership to distribute, in respect of each
Partnership Unit, the same amount of cash or property the holder of a
Partnership Unit would have received had such holder exercised its Redemption
Right and received Replacement Shares prior to such dividend or distribution.
Section 15.4 Application to Later Transactions
This Article 15 shall apply to the initial Trigger Event and shall
continue to apply to each subsequent Trigger Event.
Section 15.5 Waivers and Amendments
This Article 15 shall only be amended as provided in Section 14.1.D of
this Agreement and shall be deemed included in such section for all purposes;
provided that the General Partner may amend this Article 15, without the consent
of the Limited Partners for the purposes set forth at Section 14.1.B(4) prior to
a Trigger Occurrence.
ARTICLE 16
PARTNER RIGHTS PLAN
Section 16.1 Purpose and Interpretation.
This Article 16 sets forth the Partner Rights Plan of the Partnership.
The purpose of the Partner Rights Plan is to ensure that holders of Common
Partnership Units enjoy the same rights as holders of Common Shares under the
Shareholder Rights Plan; accordingly, reference should be made to the Rights
Agreement for purposes of interpretation of the provisions of this Article 16.
Section 16.2 Issuance of Preferred Unit Purchase Right.
In connection with the adoption of the Shareholder Rights Plan, as of
March 29, 1999, each holder of a Common Partnership Unit shall be issued one
right to purchase one one-hundredth of a Series A Preferred Partnership Unit (a
"Right") for each outstanding Common Partnership Unit. Until the Distribution
Date or earlier redemption or expiration of the Rights, each subsequently issued
Common Partnership Unit will also include one Right.
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Section 16.3 Exercise of Rights.
Each Right entitles the holder to purchase from the Partnership one
one-hundredth of a Series A Preferred Partnership Unit at a price of $36 per
Unit, subject to adjustment (the "Purchase Price"). The Rights are not
exercisable until the Distribution Date. Any holder of a Right may exercise a
Right by delivery of a Notice of Election to Purchase to the General Partner and
payment of the Purchase Price for each one-hundredth of a Series A Preferred
Partnership Unit as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on March 29, 2009 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section
16.7 hereof or (iii) the time at which the Rights are exchanged as provided in
Section 16.8 hereof.
Section 16.4 Final Expiration Date.
The Rights will expire on March 29, 2009, unless such Final Expiration
Date is extended by the General Partner or they are earlier redeemed or
exchanged by the Partnership.
Section 16.5 Adjustment of Purchase Price.
The Purchase Price, the number of Series A Preferred Partnership Units
issuable upon exercise of a Right and the number of Rights outstanding are
subject to adjustment by the General Partner from time to time to prevent
dilution to the same extent and in the same manner as the purchase price, the
number of Series A Preferred Shares issuable upon exercise of a preferred share
purchase right and the number of preferred share purchase rights outstanding
under the Rights Agreement.
Section 16.6 Right to Purchase Common Units at a Discount.
In the event any person or group of affiliated persons becomes an
Acquiring Person, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of Common Units redeemable
for REIT Shares that have a market value of two times the exercise price of the
Right. In the event the General Partner is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then-current
exercise price of the Right, that number of Replacement Shares that at the time
of such transaction will have a market value of two times the exercise price of
the Right. The General Partner shall not enter into a transaction of the nature
described in the preceding sentence unless prior thereto the General Partner and
the issuer of the Replacement Shares have entered into an agreement providing
that such issuer take all steps necessary to assure that the requirements of the
preceding sentence are satisfied.
Section 16.7 Redemption.
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At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares, the General Partner may cause the Operating Partnership to redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the General Partner in its sole
discretion may establish. Immediately upon action of the General Partner
ordering the redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
Section 16.8 Exchange.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the General Partner may cause the Partnership to
exchange the Rights (other than Rights owned by such person or group which will
have become void pursuant to Section 16.10) in whole or in part, at an exchange
ratio of one Common Unit per Right, subject to adjustment. Immediately upon any
action of the General Partner ordering the exchange of any Rights, the right to
exercise such Rights will terminate and the only right thereafter of the holders
of such Rights will be to receive that number of Common Units equal to the
number of such Rights multiplied by the above-mentioned exchange ratio.
Section 16.9 Transfer.
The Rights will be transferred with and only with the Common
Partnership Units.
Section 16.10 Nullification of Rights of Acquiring Person.
Notwithstanding anything herein to the contrary, if any Partner (other
than the General Partner) is also an Acquiring Person, such Partner's rights
shall become void.
Section 16.11 Amendments.
The terms of the Rights may be amended by the General Partner without
the consent of the holders of the Rights to the same extent that the Board of
Directors of the General Partner may amend the terms of the rights under the
Shareholder Rights Plan without the consent of the holders of such rights. From
and after such time as any person or group of affiliates or associated persons
becomes an Acquiring Person, no such amendment may adversely affect the interest
of the holders of the Rights (other than those held by an Acquiring Person).
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ARTICLE 17
GENERAL PROVISIONS
Section 17.1 Addresses and Notice
Any notice, demand, request or report required or permitted to be given
or made to a Partner or Assignee under this Agreement shall be in writing and
shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A or such other address
of which the Partner shall notify the General Partner in writing.
Section 17.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 17.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement
shall include the plural and vice versa.
Section 17.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.
Section 17.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 17.6 Creditors
Other than as expressly set forth herein with respect to the
Indemnities, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditors of the Partnership.
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Section 17.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 17.8 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 17.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 17.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 17.11 Entire Agreement
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreement among them with respect
thereto.
Section 17.12 Withdrawal of Organizational Limited Partner
Following the admission of the Limited Partners, the Organizational
Limited Partner shall withdraw from the Partnership and shall be entitled to
receive forthwith the return of his capital contribution, without interest or
deduction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
BODDIE-NOELL PROPERTIES, INC.
By: _____________________________
Title: _____________________________
[CORPORATE SEAL]
LIMITED PARTNERS:
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EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
(Information intentionally omitted.)
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EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.B of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-l(b)(2)(iv)(m), the computation of all items of
income, gain, loss and deduction shall be made
without regard to any election under Section 754 of
the Code which may be made by the Partnership,
provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of
the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital
Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the
limitations prescribed in Regulations Section
1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact
that items described in Section 705(a)(2)(B) of the
Code are not includible in gross income or are
neither currently deductible nor capitalized for
federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be
determined as if the adjusted basis of such property
as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to
such property as of such date.
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(4) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in
computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the
amount of any such adjustment shall be taken into
account as gain or loss from the disposition of such
asset.
(6) Any items specifically allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor.
D. (1) Consistent with the provisions of Regulations
Section 1.704-l(b)(2)(iv)(f), and as provided in
Section l.D(2), the Carrying Value of all Partnership
assets shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the
times of the adjustments provided in Section l.D(2)
hereof, as if such Unrealized Gain or Unrealized Loss
had been recognized on an actual sale of each such
property and allocated pursuant to Section 6.1 of the
Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to distribution by the Partnership to a Partner of
more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section
1.704-l(b)(2)(iv)(e), the Carrying Value of
Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such
Partnership property, as of the time any such asset
is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article 13 of the Agreement, shall be determined and
allocated by the Liquidator using such reasonable
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methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate value among the assets of the
Partnership (in such manner as it determines in its
sole and absolute discretion to arrive at a fair
market value for individual properties).
E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed in order to comply with
such Regulations, the General Partner may make such modification without regard
to Article 14 of the Agreement, provided that it is not likely to have a
material effect on the amounts distributable to any Person pursuant to Article
13 of the Agreement upon the dissolution of the Partnership. The General Partner
also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
and (ii) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
2. No Interest
No interest shall be paid by the Partnership on Capital Contributions
or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
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EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section
6.1 of the Agreement or any other provisions of this Exhibit C, if there is a
net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such Partnership Year (and, if necessary, subsequent Partnership Years) in an
amount equal to such Partner's share of the net decrease in Partnership Minimum
Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in accordance with Regulations Section
1.704-2(f)(6). This Section 1.A is intended to comply with the minimum gain
chargeback requirements in Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith. Solely for purposes of this Section 1.A,
each Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this Exhibit C
(except Section l.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and gain
for such Partnership Year (and, if necessary, subsequent Partnership Years) in
an amount equal to such Partner's share of the net decrease in Partner Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(5). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i)(4). This Section
1.B is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section l.B, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of the Agreement or this Exhibit with respect to such Partnership Year,
other than allocations pursuant to Section l.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections l.A and l.B hereof, such Partner has an Adjusted Capital Account
Deficit, items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) shall be specifically allocated to such
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Partner in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, its Adjusted Capital Account Deficit created by such
adjustments, allocations or distributions as quickly as possible.
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership Year which would satisfy such
requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership Year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income
tax purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as its correlative item of "book" income,
gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property,
such items attributable thereto shall be
allocated among the Partners consistent with
the principles of Section 704(c) of the Code
to take into account the variation between
the 704(c) Value of such property and its
adjusted basis at the time of contribution;
and
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall
be allocated among the Partners in the
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same manner as its correlative item of
"book" gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such
items shall
(1) first, be allocated among the
Partners in a manner consistent with
the principles of Section 704(c) of
the Code to take into account the
Unrealized Gain or Unrealized Loss
attributable to such property and
the allocations thereof pursuant to
Exhibit B, and
(2) second, in the event such property
was originally a Contributed
Property, be allocated among the
Partners in a manner consistent with
Section 2.B(1) of this Exhibit C;
and
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall
be allocated among the Partners in the same
manner its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this
Exhibit C.
(3) all other items of income, gain loss and deduction
shall be allocated among the Partners the same manner
as their correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of the Exhibit C.
C. The Partnership shall use the "Traditional Method" of making Section
704(c) allocations as provided by Regulations Section 1.704-3(b) to eliminate
the disparities between the Carrying Value of property and its adjusted basis.
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EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
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EXHIBIT E
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby irrevocably (i) redeems Limited
Partnership Units in Boddie-Noell Properties Limited Partnership in accordance
with the terms of the Amended and Restated Agreement of Limited Partnership of
Boddie-Noell Properties Limited Partnership and the Redemption Right referred to
therein, (ii) surrenders such Limited Partnership Units and all right, title and
interest therein, and (iii) directs that the Cash Amount of REIT Shares Amount
(as determined by the General Partner) deliverable upon exercise of the
Redemption Right be delivered to the address specified below, and if REIT Shares
are to be delivered, such REIT Shares be registered or placed in the name(s) and
at the address(es) specified below. The undersigned hereby, represents,
warrants, and certifies that the undersigned (a) has marketable and unencumbered
title to such Limited Partnership Units, free and clear of the rights or
interests of any other person or entity, (b) has the full right, power, and
authority to redeem and surrender such Limited Partnership Units as provided
herein, and (c) has obtained the consent or approval of all person or entities,
if any, having the right to consent or approve such redemption and surrender.
Dated:__________________________
Name of Limited Partner:___________________________________
Please Print
_________________________________
(Signature of Limited Partner)
_________________________________
(Street Address)
_________________________________
(City) (State) (Zip Code)
If REIT Shares are to be issued, issue to:
Name:_____________________________________
Please insert social security or identifying number:____________
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EXHIBIT F
INDEMNIFICATION UNDER SECTION 7.7(I)
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Maximum
Limited Partner Indemnification Indemnification
Per Unit Obligation
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EXHIBIT G
DESIGNATION OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF THE SERIES A PREFERRED PARTNERSHIP UNITS
The following are the terms of the Series A Preferred Partnership Units
established pursuant to this Partnership Unit Designation:
(a) Number. The maximum number of authorized Series A Preferred
Partnership Units shall be 1,000,000. Such number may be increased or decreased
by the General Partner; provided, that no decrease shall reduce the number of
Series A Preferred Partnership Units to a number less than the number of Series
A Preferred Partnership Units then outstanding plus the number reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Partnership
convertible into Series A Preferred Partnership Units.
(b) Distributions.
(1) Subject to the rights of the holders of any series of Preferred
Partnership Units ranking prior and superior to the Series A Preferred
Partnership Units with respect to distributions, the holders of Series A
Preferred Partnership Units, in preference to the holders of Common Partnership
Units, and to any other junior Preferred Partnership Units, shall be entitled to
receive, when, as and if authorized by the General Partner out of funds legally
available for the purpose, quarterly distributions payable in cash on the first
day of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Distribution Payment Date"), commencing on
the first Quarterly Distribution Payment Date after the first issuance of a
Series A Preferred Partnership Unit, in an amount per Series A Preferred
Partnership Unit (rounded to the nearest cent) equal to the greater of (a) $1 or
(b) subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per Common Partnership Unit amount of all cash distributions, and 100
times the aggregate per Common Partnership Unit amount (payable in kind) of all
non-cash distributions, other than a distribution payable in Common Partnership
Units or a subdivision of the outstanding Common Partnership Units (by
reclassification or otherwise), authorized on the Common Partnership Units since
the immediately preceding Quarterly Distribution Payment Date or, with respect
to the first Quarterly Distribution Payment Date, since the first issuance of
any Series A Preferred Partnership Units. In the event the General Partner or
the Partnership shall at any time authorize, declare or pay any distribution on
the Common Partnership Units payable in Common Partnership Units, or effect a
subdivision or combination or consolidation of the outstanding Common
Partnership Units (by reclassification or otherwise than by payment of a
distribution in Common Partnership Units) into a greater or lesser number of
Common Partnership Units, then in each such case the amount to which holders of
Series A Preferred Partnership Units were entitled immediately prior to such
event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
Common Partnership Units outstanding immediately after such
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event and the denominator of which is the number of Common Partnership Units
that were outstanding immediately prior to such event.
(2) The Partnership shall declare a distribution on the Series A
Preferred Partnership Units as provided in paragraph (1) of this Section (b)
immediately after it declares a distribution on the Common Partnership Units
(other than a distribution payable in Common Partnership Units); provided that,
in the event no distribution shall have been declared on the Common Partnership
Units during the period between any Quarterly Distribution Payment Date and the
next subsequent Quarterly Distribution Payment Date, a distribution of $1 per
Series A Preferred Partnership Unit shall nevertheless be payable on such
subsequent Quarterly Distribution Payment Date.
(3) Distributions shall begin to accrue and be cumulative on
outstanding Series A Preferred Partnership Units from the Quarterly Distribution
Payment Date next preceding the date of issue of such Partnership Units, unless
the date of issue of such Partnership Units is prior to the record date for the
first Quarterly Distribution Payment Date, in which case distributions on such
Partnership Units shall begin to accrue from the date of issue of such
Partnership Units, or unless the date of issue is a Quarterly Distribution
Payment Date or is a date after the record date for the determination of holders
of Series A Preferred Partnership Units entitled to receive a quarterly
distribution and before such Quarterly Distribution Payment Date, in either of
which events such distributions shall begin to accrue and be cumulative from
such Quarterly Distribution Payment Date. Accrued but unpaid distributions shall
not bear interest. Distributions paid on the Series A Preferred Partnership
Units in an amount less than the total amount of such distributions at the time
accrued and payable on such Partnership Units shall be allocated pro rata among
all Series A Preferred Partnership Units at the time outstanding. The General
Partner may fix a record date for the determination of holders of Series A
Preferred Partnership Units entitled to receive payment of a distribution
declared thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
(c) Voting Rights. The holders of Series A Preferred Partnership Units
shall have the following voting rights:
(1) Except as otherwise provided herein, in any other Partnership Unit
Designation creating a series of Preferred Partnership Units, or by law, the
holders of Series A Preferred Partnership Units and the holders of Common
Partnership Units and any other Partnership Units of the Partnership having
general voting rights shall vote together as one class on all matters submitted
to a vote of Partners of the Partnership.
(2) Except as set forth herein, holders of Series A Preferred
Partnership Units shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of
Common Partnership Units as set forth herein) for taking any action.
(d) Certain Restrictions.
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(1) Whenever quarterly distributions payable on the Series A Preferred
Partnership Units as provided in Section (b) are in arrears, thereafter and
until all accrued and unpaid distributions, whether or not authorized or
declared, on Series A Preferred Partnership Units outstanding shall have been
paid in full, the General Partner and the Partnership shall not:
(i) authorize, declare or pay distributions, on any
Partnership Unit ranking junior (either as to distributions or upon
liquidation, dissolution or winding up) to the Series A Preferred
Partnership Units;
(ii) authorize, declare or pay distributions on any
Partnership Unit ranking on a parity (either as to distributions or
upon liquidation, dissolution or winding up) with the Series A
Preferred Partnership Units, except distributions paid ratably on the
Series A Preferred Partnership Units and all such parity Partnership
Units on which distributions are payable or in arrears in proportion to
the total amounts to which the holders of all such Partnership Units
are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration Partnership Units ranking junior (either as to
distributions or upon liquidation, dissolution or winding up) to the
Series A Preferred Partnership Units, provided that the Partnership may
at any time redeem, purchase or otherwise acquire any such junior
Partnership Units in exchange for Partnership Units ranking junior
(either as to distributions or upon dissolution, liquidation or winding
up) to the Series A Preferred Partnership Units; or
(iv) redeem or purchase or otherwise acquire for consideration
any Series A Preferred Partnership Units, or any Partnership Units
ranking on a parity with the Series A Preferred Partnership Units,
except in accordance with a purchase offer made in writing or by
publication (as determined by the General Partner) to all holders of
such Partnership Units upon such terms as the General Partner, after
consideration of the respective annual distribution rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(2) The Partnership shall not permit any subsidiary of the Partnership
to purchase or otherwise acquire for consideration any Partnership Units of the
Partnership unless the Partnership could, under paragraph (1) of this Section
(d), purchase or otherwise acquire such Partnership Units at such time and in
such manner.
(e) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Partnership, no distribution shall be made (1)
to the holders of Partnership Units ranking junior (either as to distributions
or upon liquidation, dissolution or winding up) to the Series A Preferred
Partnership Units unless, prior thereto, the holders of Series A Preferred
Partnership Units shall have received $100 per Series A Preferred Partnership
Unit, plus an amount equal to accrued and unpaid distributions thereon, whether
or not authorized or declared, to the date of such payment, provided that the
holders of Series A Preferred Partnership Units shall be entitled to receive an
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aggregate amount per Series A Preferred Partnership Unit, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per Common Partnership Unit, or (2) to the holders of
Partnership Units ranking on a parity (either as to distributions or upon
liquidation, dissolution or winding up) with the Series A Preferred Partnership
Units, except distributions made ratably on the Series A Preferred Partnership
Units and all such parity Partnership Units in proportion to the total amounts
to which the holders of all such Partnership Units are entitled upon such
liquidation, dissolution or winding up. In the event the General Partner or the
Partnership shall at any time authorize, declare or pay any distribution on the
Common Partnership Units payable in Common Partnership Units, or effect a
subdivision or combination or consolidation of the outstanding Common
Partnership Units (by reclassification or otherwise than by payment of a
distribution in Common Partnership Units) into a greater or lesser number of
Common Partnership Units, then in each such case the aggregate amount to which
holders of Series A Preferred Partnership Units were entitled immediately prior
to such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of Common Partnership Units outstanding immediately after such event and
the denominator of which is the number of Common Partnership Units that were
outstanding immediately prior to such event.
(f) Consolidation, Merger, etc. In case the Partnership shall enter
into any consolidation, merger, combination or other transaction in which the
Common Partnership Units are exchanged for or changed into other securities,
cash and/or any other property, then in any such case each Series A Preferred
Partnership Unit shall at the same time be similarly exchanged or changed into
an amount per Series A Preferred Partnership Unit, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each Common Partnership Unit is changed or
exchanged. In the event the General Partner or the Partnership shall at any time
authorize, declare or pay any distribution on the Common Partnership Units
payable in Common Partnership Units, or effect a subdivision or combination or
consolidation of the outstanding Common Partnership Units (by reclassification
or otherwise than by payment of a distribution in Common Partnership Units) into
a greater or lesser number of Common Partnership Units, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of Series A Preferred Partnership Units shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of Common
Partnership Units outstanding immediately after such event and the denominator
of which is the number of Common Partnership Units that were outstanding
immediately prior to such event.
(g) No Redemption. The Series A Preferred Partnership Units shall not
be redeemable.
(h) Rank. The Series A Preferred Partnership Units shall rank, with
respect to the payment of quarterly distributions and to participation in
distributions of payments in the case of any liquidation, dissolution or winding
up of the Partnership, junior to all other series of Preferred Partnership
Units.
(i) Amendment. The Agreement shall not be amended in any manner that
would materially alter or change the preferences, voting powers or other rights
or restrictions of the Series
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A Preferred Partnership Units, as set forth herein, so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding Series A Preferred Partnership Units, voting together as a
single class.
131
<PAGE>
EXHIBIT H
NOTICE OF ELECTION TO PURCHASE
(To be executed if Partner desires to exercise a Right)
To BODDIE-NOELL PROPERTIES, INC.:
The undersigned Partner hereby irrevocably elects to exercise
______ Rights to purchase Common Partnership Units or Series A Preferred
Partnership Units, as applicable, issuable upon the exercise of the Rights and
requests that such Partnership Units be issued in the name of the undersigned
Partner.
Please insert social security
or other identifying taxpayer number:________________________
______________________________________________________________________________
(Please print name and address)
Date: ________________________
__________________________________
Signature
Signature Guaranteed:_____________________________
132
<PAGE>
EXHIBIT 10.2
Form and description of Incentive Stock Option Agreements dated June 30, 1998,
and November 2, 1998,
Agreements between the Company and the following individuals are substantially
identical in all material respects except as identified below:
Agreements dated June 30, 1998:
<TABLE>
<CAPTION>
D. Scott Wilkerson Philip S. Payne Pamela B. Bruno
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Vesting schedule:
June 30, 1999 - - 5,000
June 30, 2000 - - 5,000
June 30, 2001 - - 5,000
June 30, 2002 7,600 7,600 5,000
Total shares subject to
option 7,600 7,600 20,000
</TABLE>
Agreement dated November 1, 1998:
Douglas E. Anderson
---------------------
Vesting schedule:
November 1, 1999 8,750
November 1, 2000 8,750
November 1, 2001 8,750
November 1, 2002 8,750
Total shares subject to
option 35,000
133
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
An incentive stock option, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Option") is hereby granted by
Boddie-Noel] Properties, Inc., a Maryland corporation (the "Company"), to the
employee named below (the "Employee"), with respect to common stock of the
Company, $.01 par value per share ("Common Stock"), subject to the following
terms and conditions:
1. Subject to the provisions set forth herein and the terms and
conditions of the Boddie-Noell Properties, Inc. Amended and Restated 1994 Stock
Option and Incentive Plan (the "Plan"), the terms of which are hereby
incorporated by reference, and in consideration of the agreements of Employee
herein provided, the Company hereby grants to Employee an Option to purchase
from the Company the number of shares of Common Stock, at the purchase price per
share, and on the schedule, all as set forth below. Any capitalized term not
otherwise defined in this Agreement shall have the meaning given to such term in
the Plan. The terms and conditions of exercise of the Option and the payment of
the Purchase price are as provided at Section 5 of the Plan. Upon the exercise
of an Option, the Committee shall have the right to require the Employee to
remit to the Company, in any such manner or combination of manners permitted
under the terms of the Plan, an amount sufficient to satisfy all federal, state
and local withholding tax requirements prior to the delivery by the Company of
any certificate for shares of Common Stock.
Name of Employee: D. Scott Wilkerson
Date of Grant: June 30, 1998
Number of Shares Subject to Option: 7,600
Exercise Price Per Share: $13.125
Reload Option: (Yes) or (No)
Vesting and Exercise Schedule:
Exercise Period
Number of Vesting Expiration
Shares Date Date
7,600 June 30, 2002 June 30, 2008
The Expiration Date of the Exercise Period for the Option hereby
granted may not be more than ten (10) years after the Date of Grant of the
Option; and further provided, that if the Employee
134
<PAGE>
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10% of the combined voting power of all classes of stock
of the Company or any Subsidiary or parent corporation, the term of the Option
shall be no more than five (5) years from the Date of Grant; and further
provided, that the aggregate Fair Market Value (determined as of the Date of
Grant) of the shares of the Common Stock with respect to which incentive stock
options, as defined in Section 422 of the Code, have been granted either under
the Plan or under any other plan of the Company or its Subsidiaries become
exercisable for the first time by Employee during any calendar year shall not
exceed $100,000.00.
2. The exercise of the Option is conditioned upon the acceptance by
Employee of the terms hereof and the Plan as evidenced by his or her execution
of this Agreement and the return of an executed copy to the Secretary of the
Company no later than October 31, 1998.
If Employee's employment with the Company and all Subsidiaries is
terminated by reason of death or Disability, as that term is defined in Section
22(e)(3) of the Code or as may be otherwise determined by the Committee, the
vested portion of the Option shall remain exercisable for a period of six months
following the date of such termination of employment (or such longer period as
the Committee shall specify at any time) or until the expiration of the stated
term of the Option as set forth in paragraph I hereof (the "Expiration Date"),
if earlier. If Employee's employment with the Company and all Subsidiaries is
terminated under any circumstance other than for Cause, the vested portion of
the Option shall remain exercisable for a period of three months from the date
of such termination of employment (or such longer period as the Committee shall
specify at any time) or until the Expiration Date, if earlier. If Employee's
employment with the Company and all Subsidiaries is terminated for Cause, the
Option shall terminate immediately and be of no further force and effect;
provided, however, that the Committee may, in its sole discretion, provide that
the Option can be exercised for up to thirty (30) days from the date of
termination of employment or until the Expiration Date, if earlier.
Written notice of an election to exercise any portion of the Option,
specifying the portion thereof being exercised and the exercise date, shall be
given by Employee, or his personal representative in the event of Employee's
death, (i) by delivering such notice to the Secretary of the Company at the
principal executive offices of the Company or (ii) by delivering such notice to
a broker-dealer with a copy to the Secretary of the Company.
If expressly permitted in the schedule set forth in paragraph I above,
and if Employee satisfies the obligation to pay the purchase price by
surrendering unrestricted Company shares, then the Option set forth herein shall
include a so-called "reload" feature pursuant to which the Employee exercising
an Option pursuant to this paragraph 2 shall automatically be granted an
additional Option with an exercise price equal to the Fair Market Value of the
Common Stock on the date the additional Option is granted and with the same
expiration date as the original Option being exercised, and with such other
terms as the Committee may provide, to purchase that number of shares of the
Common Stock equal to the number delivered to exercise the original Option. If
not
135
<PAGE>
expressly permitted in the schedule set forth in paragraph I above, the Option
granted in this Agreement shall not include such a "reload" feature.
3. In the event of a Change in Control as defined in the Plan, the
Option shall automatically become fully exercisable, notwithstanding any
provision in the Plan or herein to the contrary.
4. The Option may be exercised only by Employee during his lifetime and
may not be transferred other than by will or the applicable laws of descent or
distribution. The Option shall not otherwise be transferred, assigned, pledged
or hypothecated for any purpose whatsoever and is not subject, in whole or in
part, to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge or hypothecation or other disposition of the Option, other than
in accordance with the terms set forth herein, shall be void and of no effect.
5. Neither Employee nor any other person entitled to exercise the
Option under the terms hereof shall be, or have any of the rights or privileges
of, a shareholder of the Company in respect of any of the shares of Common Stock
issuable on exercise of the Option, unless and until the purchase price for such
shares shall have been paid in full.
6. In the event the Option shall be exercised in whole, this Agreement
shall be surrendered to the Company for cancellation. In the event the Option
shall be exercised in part, or a change in the number or designation of the
Common Stock shall be made, this Agreement shall be delivered by Employee to the
Company for the purpose of making appropriate notation thereon, or of otherwise
reflecting, in such manner as the Company shall determine, the partial exercise
or the change in the number of designation of the Common Stock.
7. The Option shall be exercised in accordance with such administrative
regulations as the Committee shall from time to time adopt.
8. The Option and this Agreement shall be construed, administered and
governed in all respects under and by the laws of the State of North Carolina.
BODDIE-NOELL PROPERTIES, INC.
By: /s/ Philip S. Payne
Title: Executive Vice President
The undersigned hereby accepts the foregoing Option and the terms and
conditions hereof.
/s/ D. Scott Wilkerson (SEAL)
----------------------------------
D. Scott Wilkerson
136
<PAGE>
EXHIBIT 10.3
Form and description of Nonqualified Stock Option Agreements dated June 30,
1998, and November 2, 1998,
Agreements between the Company and the following individuals are substantially
identical in all material respects except as identified below:
Agreements dated June 30, 1998:
D. Scott Wilkerson Philip S. Payne
Vesting schedule:
June 30, 1999 12,500 12,500
June 30, 2000 12,500 12,500
June 30, 2001 12,500 12,500
June 30, 2002 4,900 4,900
Total shares subject to
option 42,400 42,400
Agreement dated November 1, 1998:
Douglas E. Anderson
Vesting schedule:
November 1, 1999 6,250
November 1, 2000 6,250
November 1, 2001 6,250
November 1, 2002 6,250
Total shares subject to
option 25,000
137
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
A nonstatutory stock option (the "Option") is hereby granted by
Boddie-Noell Properties, Inc., a Maryland corporation (the "Company"), to the
employee named below (the "Employee"), with respect to common stock of the
Company, $.01 par value per share ("Common Stock"), subject to the following
terms and conditions:
1. Subject to the provisions set forth herein and the terms and
conditions of the Boddie-Noell Properties, Inc. Amended and Restated 1994 Stock
Option and Incentive Plan (the "Plan"), the terms of which are hereby
incorporated by reference, and in consideration of the agreements of Employee
herein provided, the Company hereby grants to Employee an Option to purchase
from the Company the number of shares of Common Stock, at the purchase price per
share, and on the schedule, all as set forth below. Any capitalized term not
otherwise defined in this Agreement shall have the meaning given to such term in
the Plan. The terms and conditions of exercise of the Option and the payment of
the Purchase price are as provided at Section 5 of the Plan. Upon the exercise
of an Option, the Committee shall have the right to require the Employee to
remit to the Company, in any such manner or combination of manners permitted
under the terms of the Plan, an amount sufficient to satisfy all federal, state
and local withholding tax requirements prior to the delivery by the Company of
any certificate for shares of Common Stock.
Name of Employee: D. Scott Wilkerson
Date of Grant: June 30, 1998
Number of Shares Subject to Option: 42,400
Exercise Price Per Share: $13.125
Reload Option: (Yes) or (No)
Vesting and Exercise Schedule:
Exercise Period
Number of Vesting Expiration
Shares Date Date
12,500 June 30, 1999 June 30, 2008
12,500 June 30, 2000 June 30, 2008
12,500 June 30, 2001 June 30, 2008
4,900 June 30, 2002 June 30, 2008
138
<PAGE>
2. The exercise of the Option is conditioned upon the acceptance by
Employee of the terms hereof and the Plan as evidenced by his or her execution
of this Agreement and the return of an executed copy to the Secretary of the
Company no later than October 31, 1998.
If Employee's employment with the Company and all Subsidiaries is
terminated by reason of death or Disability, as that term is defined in Section
22(e)(3) of the Code or as may be otherwise determined by the Committee, the
vested portion of the Option shall remain exercisable for a period of six months
following the date of such termination of employment (or such longer period as
the Committee shall specify at any time) or until the expiration of the stated
term of the Option as set forth in paragraph I hereof (the "Expiration Date"),
if earlier. If Employee's employment with the Company and all Subsidiaries is
terminated under any circumstance other than for Cause, the vested portion of
the Option shall remain exercisable for a period of three months from the date
of such termination of employment (or such longer period as the Committee shall
specify at any time) or until the Expiration Date, if earlier. If Employee's
employment with the Company and all Subsidiaries is terminated for Cause, the
Option shall terminate immediately and be of no further force and effect;
provided, however, that the Committee may, in its sole discretion, provide that
the Option can be exercised for up to thirty (30) days from the date of
termination of employment or until the Expiration Date, if earlier.
Written notice of an election to exercise any portion of the Option,
specifying the portion thereof being exercised and the exercise date, shall be
given by Employee, or his personal representative in the event of Employee's
death, (i) by delivering such notice to the Secretary of the Company at the
principal executive offices of the Company or (ii) by delivering such notice to
a broker-dealer with a copy to the Secretary of the Company.
If expressly permitted in the schedule set forth in paragraph I above,
and if Employee satisfies the obligation to pay the purchase price by
surrendering unrestricted Company shares, then the Option set forth herein shall
include a so-called "reload" feature pursuant to which the Employee exercising
an Option pursuant to this paragraph 2 shall automatically be granted an
additional Option with an exercise price equal to the Fair Market Value of the
Common Stock on the date the additional Option is granted and with the same
expiration date as the original Option being exercised, and with such other
terms as the Committee may provide, to purchase that number of shares of the
Common Stock equal to the number delivered to exercise the original Option. If
not expressly permitted in the schedule set forth in paragraph I above, the
Option granted in this Agreement shall not include such a "reload" feature.
3. In the event of a Change in Control as defined in the Plan, and if
Employee satisfies the obligation to pay the purchase price by rendering
unrestricted Company shares, then the Option shall automatically become fully
exercisable, notwithstanding any provision in the Plan or herein to the
contrary.
4. The Option may be exercised only by Employee during his lifetime and
may not be transferred other than by will or the applicable laws of descent or
distribution. The Option shall not
139
<PAGE>
otherwise be transferred, assigned, pledged or hypothecated for any purpose
whatsoever and is not subject, in whole or in part, to execution, attachment, or
similar process. Any attempted assignment, transfer, pledge or hypothecation or
other disposition of the Option, other than in accordance with the terms set
forth herein, shall be void and of no effect.
5. Neither Employee nor any other person entitled to exercise the
Option under the terms hereof shall be, or have any of the rights or privileges
of, a shareholder of the Company in respect of any of the shares of Common Stock
issuable on exercise of the Option, unless and until the purchase price for such
shares shall have been paid in full.
6. In the event the Option shall be exercised in whole, this Agreement
shall be surrendered to the Company for cancellation. In the event the Option
shall be exercised in part, or a change in the number or designation of the
Common Stock shall be made, this Agreement shall be delivered by Employee to the
Company for the purpose of making appropriate notation thereon, or of otherwise
reflecting, in such manner as the Company shall determine, the partial exercise
or the change in the number of designation of the Common Stock.
7. The Option shall be exercised in accordance with such administrative
regulations as the Committee shall from time to time adopt.
8. The Option and this Agreement shall be construed, administered and
governed in all respects under and by the laws of the State of North Carolina.
BODDIE-NOELL PROPERTIES, INC.
By: /s/ Philip S. Payne
Title: Executive Vice President
The undersigned hereby accepts the foregoing Option and the terms and
conditions hereof.
/s/ D. Scott Wilkerson (SEAL)
--------------------------------
D. Scott Wilkerson
140
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
YEAR ENDED DECEMBER 31, 1998
Subsidiary of Boddie-Noell Properties, Inc.:
Subsidiary name: Boddie-Noell Properties Limited Partnership
State of organization: Delaware
Business name: Boddie-Noell Properties Limited Partnership
Subsidiaries of Boddie-Noell Properties Limited Partnership:
Subsidiary name: BNP Realty, LLC
State of organization: North Carolina
Business name: BNP Realty, LLC
Subsidiary name: BNP/Chrysson Phase I, LLC
State of organization: North Carolina
Business name: BNP/Chrysson Phase I, LLC
Subsidiary name: BNP/Chason Ridge, LLC
State of organization: North Carolina
Business name: BNP/Chason Ridge, LLC
Subsidiary of BNP Realty, LLC:
Subsidiary name: BNP Management, Inc.
State of organization: North Carolina
Business name: BNP Management, Inc.
141
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 333-07415 and 333-68935) of Boddie-Noell Properties, Inc. of our
report dated January 13, 1999 (except for Note 11 as to which the date is
February 26, 1999) with respect to the consolidated financial statements and
schedule of Boddie-Noell Properties, Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 26, 1999
142
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BODDIE-NOELL
PROPERTIES, INC. FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 489,694
<SECURITIES> 0
<RECEIVABLES> 189,452
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,259,628
<PP&E> 231,743,720
<DEPRECIATION> (19,552,177)
<TOTAL-ASSETS> 221,120,610
<CURRENT-LIABILITIES> 1,316,586
<BONDS> 140,523,621
0
0
<COMMON> 72,177,415
<OTHER-SE> (15,428,154)
<TOTAL-LIABILITY-AND-EQUITY> 221,120,610
<SALES> 0
<TOTAL-REVENUES> 27,140,087
<CGS> 0
<TOTAL-COSTS> 12,587,407
<OTHER-EXPENSES> 1,863,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,209,389
<INCOME-PRETAX> 3,737,719
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,737,719
<DISCONTINUED> 0
<EXTRAORDINARY> 51,335
<CHANGES> 0
<NET-INCOME> 3,686,384
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
