UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
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 1-12928
Agree Realty Corporation
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 38-3148187
- -----------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
31850 Northwestern Highway, Farmington Hills, Michigan 48334
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, included area code: (810) 737-4190
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 No
|X| |_|
2,649,475 Shares of Common Stock, $.0001 par value, were outstanding as of
November 1, 1996<PAGE>
<TABLE>
<CAPTION>
Agree Realty Corporation
Form 10-Q
Index
- ------------------------------------------------------------------------------
Part I: Financial Information Page
<S> <C>
Item 1. Interim Consolidated Financial Statements 3
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995. 4-5
Consolidated Statements of Operations for the
nine months ended September 30, 1996 and 1995. 6
Consolidated Statements of Operations for the
three months ended September 30, 1996 and 1995. 7
Consolidated Statement of Stockholders' Equity for
the nine months ended September 30, 1996. 8
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1996 and 1995. 9-10
Notes to Consolidated Financial Statements 11-13
<CAPTION>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 14-20
<CAPTION>
Part II: Other Information
<CAPTION>
<S> <C>
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
2
<PAGE>
Agree Realty Corporation
Part I: Financial Information
- ------------------------------------------------------------------------------
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
Agree Realty Corporation
Consolidated Balance Sheets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
Assets
<S> <C> <C>
Real Estate Investments
Land $ 25,241,168 $ 23,224,377
Buildings 102,775,695 94,955,086
Property under development 1,759,436 180,805
------------- -------------
129,776,299 118,360,268
Less accumulated depreciation (16,692,703) (14,792,193)
------------- -------------
Net Real Estate Investments 113,083,596 103,568,075
Cash and Cash Equivalents 31,487 1,283,672
Accounts Receivable - Tenants 292,529 626,280
Restricted Asset - Cash Held in Escrow 305,591 259,204
Investments In and Advances To
Unconsolidated Entities 2,031,758 --
Unamortized Deferred Expenses
Financing costs 2,495,577 2,513,665
Leasing costs 153,225 140,026
Other Assets 727,486 537,487
------------- -------------
$ 119,121,249 $ 108,928,409
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
Agree Realty Corporation
Consolidated Balance Sheets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
<S> <C> <C>
Mortgages Payable $ 53,743,198 $ 53,970,525
Construction Loans 9,838,752 17,603,785
Notes Payable 23,215,297 1,977,808
Dividends and Distributions Payable 1,479,345 1,474,265
Accrued Interest Payable 344,598 189,256
Accounts Payable
Operating 197,534 596,913
Capital expenditures 165,852 1,637,861
Tenant Deposits 61,020 53,477
------------- -------------
Total Liabilities 89,045,596 77,503,890
------------- -------------
Minority Interest 5,823,263 6,118,017
------------- -------------
Stockholders' Equity
Common stock, $.0001 par value, 20,000,000
shares authorized, 2,649,475 and 2,638,185
shares issued and outstanding 265 264
Additional paid-in capital 30,060,908 29,890,292
Deficit (5,808,783) (4,584,054)
------------- -------------
Total Stockholders' Equity 24,252,390 25,306,502
------------- -------------
$ 119,121,249 $ 108,928,409
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
Agree Realty Corporation
Consolidated Statements of Operations (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Revenues
<S> <C> <C>
Rental income $ 10,575,838 $ 8,808,499
Operating cost reimbursement 1,273,309 1,223,199
Management fees and other 60,634 55,588
------------ ------------
Total Revenues 11,909,781 10,087,286
------------ ------------
Operating Expenses
Real estate taxes 886,643 843,395
Property operating expenses 698,130 584,072
Land lease payments 224,583 42,000
General and administrative 779,177 700,367
Depreciation and amortization 1,954,065 1,720,157
------------ ------------
Total Operating Expenses 4,542,598 3,889,991
------------ ------------
Income From Operations 7,367,183 6,197,295
------------ ------------
Other Income (Expense)
Interest expense, net (4,510,656) (3,202,621)
Equity in net income of
unconsolidated entities 62,025 --
------------ ------------
Total Other Expense (4,448,631) (3,202,621)
------------ ------------
Income Before Minority Interest 2,918,552 2,994,674
Minority Interest (566,491) (583,063)
------------ ------------
Net Income $ 2,352,061 $ 2,411,611
============ ============
Earnings Per Share $ .89 $ .91
============ ============
Weighted Average Number of
Common Shares Outstanding 2,649,475 2,638,185
============ ============
<FN>
See accompanying notes to consolidated financial statements.
6
</TABLE>
<PAGE>
Agree Realty Corporation
Consolidated Statements of Operations (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Revenues
<S> <C> <C>
Rental income $ 3,618,303 $ 2,931,027
Operating cost reimbursement 377,313 411,103
Management fees and other 21,054 17,908
----------- -----------
Total Revenues 4,016,670 3,360,038
----------- -----------
Operating Expenses
Real estate taxes 300,938 279,145
Property operating expenses 191,099 178,614
Land lease payments 111,500 14,000
General and administrative 237,305 238,064
Depreciation and amortization 667,215 574,523
----------- -----------
Total Operating Expenses 1,508,057 1,284,346
----------- -----------
Income From Operations 2,508,613 2,075,692
----------- -----------
Other Expense
Interest expense, net (1,575,053) (1,071,293)
Equity in net loss of
unconsolidated entities (89,023) --
----------- -----------
Total Other Expense (1,664,076) (1,071,293)
----------- -----------
Income Before Minority Interest 844,537 1,004,399
Minority Interest (163,925) (195,556)
----------- -----------
Net Income $ 680,612 $ 808,843
=========== ===========
Earnings Per Share $ .26 $ .31
=========== ===========
Weighted Average Number of
Common Shares Outstanding 2,649,475 2,638,185
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
7
<PAGE>
Agree Realty Corporation
Consolidated Statement of Stockholders' Equity (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
------------------- Capital Deficit
Shares Amount ----------- ------------
-------- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 2,638,185 $ 264 $29,890,292 $(4,584,054)
Stock awards 11,290 1 170,616 --
Dividends declared for the period
January 1, 1996 to September 30, 1996,
$1.35 per share -- -- -- (3,576,790)
Net income for the period
January 1, 1996 to September 30, 1996 -- -- -- 2,352,061
--------- ----- ----------- -----------
Balance, September 30, 1996 2,649,475 $ 265 $30,060,908 $(5,808,783)
========= ===== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
8
<PAGE>
Agree Realty Corporation
Consolidated Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 2,352,061 $ 2,411,611
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 1,882,695 1,645,745
Amortization 376,996 247,866
Equity in net income of unconsolidated entities (62,025) --
Minority interests 566,491 583,063
Decrease in accounts receivable 333,751 359,750
Increase in other assets (33,913) (252,786)
Decrease in accounts payable (399,379) (206,310)
Increase in accrued interest 155,342 5,620
Increase in tenant deposits 7,543 3,533
------------ ------------
Net Cash Provided By Operating Activities 5,179,562 4,798,092
------------ ------------
Cash Flows Used In Investing Activities
Acquisition of real estate investments (including
capitalized interest of $64,109 in 1996 and $59,752
in 1995) (11,416,031) (14,125,645)
Investment in and advances to unconsolidated entities (1,969,733) --
Proceeds from sale of marketable securities -- 300,188
------------ ------------
Net Cash Used In Investing Activities (13,385,764) (13,825,457)
------------ ------------
Cash Flows From Financing Activities
Line-of-credit proceeds 21,237,489 2,577,808
Payment of construction loans (7,765,033) --
Dividends and limited partners' distributions paid (4,432,954) (4,422,793)
Repayment of payables - capital expenditures (1,472,009) --
Payments for financing costs (287,538) (1,250)
Payments of mortgages payable (227,327) (208,044)
Payments of leasing costs (52,224) --
Increase in escrow deposits (46,387) (55,440)
Increase in payables - capital expenditures -- 11,145,252
------------ ------------
Net Cash Provided By Financing Activities 6,954,017 9,035,533
------------ ------------
Net Increase (Decrease) In Cash and Cash Equivalents (1,252,185) 8,168
Cash and Cash Equivalents, beginning of period 1,283,672 1,659,406
------------ ------------
Cash and Cash Equivalent, end of period $ 31,487 $ 1,667,574
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
9
<PAGE>
Agree Realty Corporation
Consolidated Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $4,129,436 $3,160,786
========== ==========
Supplemental Disclosure of Non-Cash Transactions
Dividends and limited partners' distributions
declared and unpaid $1,479,345 $1,474,265
Shares issued under Restricted Stock Plan $ 170,616 $ --
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
10
<PAGE>
1. Basis of The accompanying unaudited 1996 consolidated
Presentation financial statements have been prepared in
accordance with generally accepted accounting
principles for interim financial information and
with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by
generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. The consolidated
balance sheet at December 31, 1995 has been derived
from the audited consolidated financial statements
at that date. Operating results for the nine month
period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for
the year ending December 31, 1996 or any other
interim period. For further information, refer to
the consolidated financial statements and footnotes
thereto included in the Company's Annual Report for
the year ended December 31, 1995.
2. Summary of Investments in Unconsolidated Entities
Significant The Company uses the equity method of accounting
Accounting for investments in non- majority owned entities
Policies where the Company has the ability to exercise
significant influence over operating and financial
policies.
Earnings Per Share
The earnings per share amounts for 1996 and 1995
have been computed by dividing net income by the
weighted average number of common shares
outstanding.
3. Investments in During 1996, the Company acquired economic
and Advances interests, generally approximating 8-15%, in seven
to limited liability companies formed for the purpose
Unconsolidated of acquiring, developing and operating properties
Entities located in Ann Arbor, Michigan; Boynton Beach.
Florida; Tulsa, Oklahoma; Oklahoma City, Oklahoma;
Omaha, Nebraska; and Indianapolis, Indiana. The
Company accounts for these investments using the
equity method of accounting, whereby its initial
investment is recorded at cost, and the carrying
amount of the investment is (a) increased by the
Company's share of the investees'
11
<PAGE>
Agree Realty Corporation
Notes to Consolidated Financial Statements
(Unaudited)
- ------------------------------------------------------------------------------
earnings (as defined in the limited liability
company agreements), and (b) reduced by
distributions paid from the investees to the
Company.
Combined summarized balance sheet and income
statement information for these seven
unconsolidated entities is as follows:
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------
<S> <C>
Assets
Operating property $23,312,112
Property under development 8,022,477
-----------
Total Real Estate 31,334,589
Other Assets 1,865,095
-----------
$33,199,684
===========
Liabilities and Equity
Liabilities $ 181,590
Equity 33,018,094
-----------
$33,199,684
===========
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
<S> <C>
Rental revenues $ 821,260
Expenses 199,683
---------
Net Income $ 621,577
=========
</TABLE>
12
<PAGE>
Agree Realty Corporation
Notes to Consolidated Financial Statements
(Unaudited)
- ------------------------------------------------------------------------------
4. Lease
Commitments The Company has entered into certain land lease
agreements for three of its properties. As of
September 30, 1996, approximate future annual lease
commitments under these agreements are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------
<S> <C>
1997 $ 446,000
1998 446,000
1999 446,000
2000 472,000
2001 485,000
Thereafter 6,737,417
==========
</TABLE>
13
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following should be read in conjunction with the Unaudited Consolidated
Financial Statements of Agree Realty Corporation (the "Company") including the
respective notes thereto, all of which are included in this Form 10-Q.
Formation of the Company and Initial Public Offering
Agree Realty Corporation was established to continue the business of the Agree
Predecessors in operating and expanding the community shopping center
business. The Company effectively commenced its operations on April 22, 1994
with the sale of 2,500,000 shares of common stock at a price of $19.50 per
share. The net cash proceeds to the Company from the completion of this
initial public offering was approximately $45.4 million which was used
primarily to reduce outstanding indebtedness, pay stock issuance costs and
establish a working capital reserve.
The assets of the Company are held by, and all operations conducted through
the Operating Partnership. The Company is operating as a real estate
investment trust ("REIT") for federal income tax purposes.
Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995
Rental income increased $1,768,000 or 20% to $10,576,000 in 1996, compared to
$8,808,000 in 1995. The increase was the result of development and acquisition
of seven properties.
Operating cost reimbursements, which represent additional rent required by
substantially all of the Company's leases to cover the tenants' proportionate
share of the property's operating expenses, increased $50,000 or 4% to
$1,273,000 in 1996, compared to $1,223,000 in 1995. Operating cost
reimbursements increased due to the increase in real estate taxes and property
operating expenses from 1996 to 1995 as explained below.
14
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Management fees and other income remained relatively constant at $61,000 in
1996 versus $56,000 in 1995.
Real estate taxes increased $43,000, or 5% to $887,000 in 1996 versus $844,000
in 1995. The increase is the result of general assessment increases relating
to the shopping center properties and the addition of several new properties.
Property operating expenses (shopping center maintenance, insurance and
utilities) increased $114,000, or 20% to $698,000 in 1996 versus $584,000 in
1995. The increase was the result of increased snow removal costs ($42,000) as
a result of heavy snows in northern Michigan and Wisconsin, shopping center
maintenance increased $85,000, insurance decreased $18,000 and utilities
increased $5,000 in 1996 versus 1995.
Land lease payments increased $183,000 to $225,000 in 1996 versus $42,000 in
1995 as a result of the acquisition of a single tenant property in Aventura,
Florida.
General and administrative expenses increased $79,000, or 11% to $779,000 in
1996 versus $700,000 in 1995. The increase was primarily the result of
compensation related expenses ($15,000) and other general increases ($64,000).
General and administrative expenses as a percentage of rental income,
decreased from 8.0% for 1995 and 7.4% for 1996.
Depreciation and amortization increased $234,000 or 14% to $1,954,000 in 1996
versus $1,720,000 in 1995. The increase is the result of the completion of
seven new properties in late 1995 and early 1996.
Interest expense increased $1,308,000 or 41%, to $4,511,000 in 1996, from
$3,203,000 in 1995. The increase in interest expense was the result of the
Company financing the development and acquisition of seven new properties
completed in late 1995 and early 1996.
Equity in net income of unconsolidated entities represents the Company's share
of the net income ($62,000) of seven joint ventures formed for the purpose of
acquiring and developing single tenant properties. These entities were not in
existence for the period ended September 30, 1995.
The Company's income before minority interest decreased $76,000 as a result of
the foregoing factors.
15
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Comparison of Three Months Ended September 30, 1996 to Three Months Ended
September 30, 1995
Rental income increased $687,000 or 23% to $3,618,000 in 1996, compared to
$2,931,000 in 1995. The increase was the result of $668,000 resulting from the
development and acquisition of seven new properties in 1996 and an increase of
$19,000 as a result of increased occupancy of the Company's shopping centers
properties.
Operating cost reimbursements decreased $34,000 or 8% to $377,000 in 1996,
compared to $411,000 in 1995. The decrease was primarily due to expenses for
shopping center parking lot repairs, that were incurred during the quarter,
and not reimbursed by certain tenants.
Management fees and other income remained relatively constant at $21,000 in
1996 versus $18,000 in 1995.
Real estate taxes increased $22,000, or 8% to $301,000 in 1996 versus $279,000
in 1995. The increase is the result of general assessment increases relating
to the shopping center properties and the addition of several new properties.
Property operating expense increased $12,000, or 7% to $191,000 in 1996 versus
$179,000 in 1995. The increase was the result of an increase in shopping
center maintenance ($18,000) and a decrease in insurance costs ($6,000).
Land lease payments increased $97,000 to $111,000 in 1996, versus $14,000 in
1995, as a result of the acquisition of a single tenant property in Aventura,
Florida.
General and administrative expenses remained relatively constant at $237,000
in 1996 versus $238,000 in 1995. General and administrative expenses, as a
percentage of rental income, decreased from 8.1% for 1995 and 6.6% for 1996.
Depreciation and amortization increased $93,000, or 16% to $667,000 in 1996
versus $574,000 in 1995. The increase is the result of the completion of seven
new properties in late 1995 and early 1996.
Interest expense increased $504,000, or 47% to $1,575,000 in 1996, from
$1,071,000 in 1995. The increase was the result of the Company financing the
development and acquisition of seven new properties completed in late 1995 and
early 1996.
16
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Equity in net loss of unconsolidated entities represents the Company's share
of the net loss ($89,000) of seven joint ventures formed for the purpose of
acquiring and developing seven new properties. These entities were not in
existence for the period ended September 30, 1995.
The Company's income before minority interest decreased $160,000 as a result
of the foregoing factors.
Funds from Operations
"Funds from operations" is defined by the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") to mean net income, computed in accordance
with generally accepted accounting principles, excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. On March 3, 1995, NAREIT adopted the NAREIT White Paper on Funds
From Operations (the "NAREIT White Paper") which provided additional guidance
on the calculation of funds from operations. As a result, the Company has
presented below the revised calculation of funds from operations ("New FFO")
and the calculation previously used ("Old FFO"):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income before minority interest $ 844,537 $ 1,004,399
Depreciation of real estate assets 639,568 546,343
Amortization 45,294 38,114
Depreciation of real estate assets held in
unconsolidated entities 199,683 --
----------- -----------
New FFO 1,729,082 1,588,856
Amortization of deferred loan costs 109,718 57,974
Other depreciation and amortization 3,071 2,253
----------- -----------
Old FFO $ 1,841,871 $ 1,649,083
=========== ===========
New FFO per share $ .53 $ .48
=========== ===========
Old FFO per share $ .56 $ .50
=========== ===========
Weighted average shares outstanding 3,287,434 3,276,144
=========== ===========
</TABLE>
17
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Net income before minority interest $2,918,552 $2,994,674
Depreciation of real estate assets 1,874,126 1,638,986
Amortization 133,524 110,973
Depreciation of real estate assets held in
unconsolidated entities 199,683 --
---------- ----------
New FFO 5,125,885 4,744,633
Amortization of deferred loan costs 305,626 173,454
Other depreciation and amortization 8,569 6,759
---------- ----------
Old FFO $5,440,080 $4,924,846
========== ==========
New FFO per share $ 1.56 $ 1.45
========== ==========
Old FFO per share $ 1.65 $ 1.50
========== ==========
Weighted average shares outstanding 3,287,434 3,276,144
========== ==========
</TABLE>
Liquidity and Capital Resources
The Company's principal demands for liquidity are expected to be distributions
to its stockholders, debt repayment, development of new properties, and future
property acquisitions.
During the quarter ended September 30, 1996, the Company declared a quarterly
dividend of $.45 per share. The dividend was paid on October 17, 1996 to
holders of record on September 30, 1996.
As of September 30, 1996, the Company had total mortgage indebtedness of
$53,743,198 with a weighted average interest rate of 7.61%. Future scheduled
annual maturities of mortgages payable for the years ended September 30, are
as follows: 1997 - $337,467; 1998 - $412,059; 1999 - $10,556,976; 2000 -
$951,659; 2001 - $1,027,078. The debt is all fixed rate debt with the
exception of $2,375,000 which bears interest at one half percent over the
prime rate.
18
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
The Company has in place a $50 million line-of-credit facility (the "Credit
Facility") which is guaranteed by the Company. The loan is for a three year
period and can be extended by the Company for an additional three years.
Advances under the Credit Facility bear interest within a range of LIBOR plus
200 basis points to 263 basis points or the bank's prime rate plus 37 basis
points to 75 basis points, at the option of the Company, based on certain
factors such as debt to capital value and debt service coverage. The Credit
Facility will be used to fund property acquisitions and development activities
and is secured by existing unencumbered properties and properties to be
acquired or developed. As of September 30, 1996, $20,746,937 was outstanding
under this facility.
The Company also has in place a $5 million dollar line-of-credit. The line
bears interest at the bank's prime rate or 225 basis points in excess of the
one month LIBOR rate at the option of the Company. The purpose of the loan is
to provide working to the Company and fund land options and start-up costs
associated with new projects. As of September 30, 1996, $2,468,360 is
outstanding under this line.
The Company has entered into an agreement to fund the construction of certain
retail properties. Advances under this agreement bear no interest and are
required to be repaid within sixty (60) days after the date construction has
been completed. The advances are secured by the specific land and buildings
being developed. As of September 30, 1996 $9,838,752 was outstanding under
this agreement.
The Company has development activity under way which will add an additional
62,000 square feet of retail space to the Company's portfolio during 1996. In
September 1996, the Company completed development of a 25,000 square foot
property in Norman, Oklahoma. Management expects the development of these
retail projects to have a positive effect on cash generated by operating
activities and Funds From Operations. Additional Company funding required for
these projects is estimated to be $2.5 million and will come from the Credit
Facility.
The Company intends to meet its short-term liquidity requirements, including
capital expenditures related to the leasing and improvement of the properties,
through its cash flow provided by operations and the line-of-credit
arrangement. Management believes that adequate cash flow will be available to
fund its operations and pay dividends in accordance with REIT requirements.
The Company may obtain additional funds for future development or acquisitions
through other borrowings or the issuance of additional shares of common stock.
The Company intends to incur additional debt in a manner consistent with its
policy of maintaining a long-term debt to total market capitalization ratio of
50% or less, provided that during the period when temporary construction or
acquisition financing is used in connection with the development or
acquisition of a property, the Company intends to maintain a ratio of total
debt (including construction an acquisition financing) to total market
capitalization of 65% or less.
19
<PAGE>
Agree Realty Corporation
Part I
- ------------------------------------------------------------------------------
Inflation
The Company's leases generally contain provisions designed to mitigate the
adverse impact of inflation on net income. These provisions include clauses
enabling the Company to pass through to tenants certain operating costs,
including real estate taxes, common area maintenance, utilities and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. Certain of the Company's leases contain
clauses enabling the Company to receive percentage rents based on tenants'
gross sales, which generally increase as prices rise, and, in certain cases,
escalation clauses, which generally increase rental rates during the terms of
the leases. In addition, expiring tenant leases permit the Company to seek
increased rents upon re-lease at market rates if rents are below the then
existing market rates.
20
<PAGE>
Agree Realty Corporation
Part II
- ------------------------------------------------------------------------------
Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Business Loan Agreement
10.2 Addendum to Amended and Restated Business Loan Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
None
21
<PAGE>
Agree Realty Corporation
Signatures
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Agree Realty Corporation
/s/ RICHARD AGREE
- ------------------------------------
Richard Agree
President and Chief Executive Officer
/s/ KENNETH R. HOWE
- -------------------------------------
Kenneth R. Howe
Vice President - Finance and Secretary
(Principal Financial Officer)
Date: November 1, 1996
22
<PAGE>
AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT
This Amended and Restated Business Loan Agreement made September __,
1996, but effective as of September 21, 1996, by and between AGREE LIMITED
PARTNERSHIP, a Delaware limited partnership, with its chief executive offices
located at 31850 Northwestern Highway, Farmington Hills, Michigan 48334 (the
"Borrower"), and MICHIGAN NATIONAL BANK, a national banking association, of
27777 Inkster Road (10-02), Farmington Hills, Michigan 48333-9065 (the
"Bank").
WHEREAS, Borrower and Bank entered into a Business Loan Agreement
dated September 21, 1995, as amended on December 29, 1995 and June 17, 1996
("Original Loan Agreement"), whereby Bank agreed to make a $5,000,000 Line of
Credit Loan ("Loan") available to Borrower;
WHEREAS, the Loan has matured or will mature on September 21, 1996;
WHEREAS, borrower has requested the Bank to extend the maturity date
of the Loan and modify and amend the terms and conditions of the Original Loan
Agreement to evidence the extension of the Loan and the Bank has agreed to do
so upon the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of and in reliance upon the foregoing
recitals of fact (which are a material part of this Agreement) and the
agreements among the parties set forth in this Agreement, the Original Loan
Agreement is hereby amended and restated in its entirety and Borrower and Bank
AGREE AS FOLLOWS:
I. LOAN.
The following Loans and any amendments, extensions, renewals or
refinancings thereof are subject to this Agreement:
<TABLE>
<CAPTION>
INTEREST MATURITY LOAN
TYPE OF LOAN. RATE NOTE AMOUNT DATE DATE
- ------------- -------- ------------ -------- ----
<S> <C> <C> <C> <C>
Line of Credit MNB Prime $5,000,000.00 9/22/97 9/21/96
or 225 b.p.
(2.25%) in
excess of
1-month LIBOR
</TABLE>
Purpose of Loans listed above:
Working capital, Letters of Credit, real estate investments and bridge
facility to Line of Credit Facility.
II. BORROWER'S REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Bank, all of which representations
and warranties shall be continuing and shall survive the execution of
this Agreement until all of the Indebtedness is fully paid to Bank and
Borrower's obligations under this Agreement and the Related Documents
are fully performed, as follows:
A. Borrower's Existence and Authority. Borrower is a Delaware limited
partnership authorized to do business in the State of Michigan and
each other jurisdiction where the nature of its business requires it
to be so qualified, whose general partner is Agree Realty Corporation,
a Maryland corporation ("Guarantor") qualified to do business in the
State of Michigan and each other jurisdiction where the nature of its
business requires it to be so qualified, and the Person executing this
Agreement has full power and complete authority to execute this
Agreement and all Related Documents.
<PAGE>
B. Validity of Indebtedness and Agreement. Borrower's Indebtedness to
Bank, this Agreement, and all Related Documents are valid, binding
upon, and fully enforceable against Borrower in accordance with their
respective terms.
C. Nature of Borrower's Business. The nature of Borrower's business is:
The acquisition and ownership of retail shopping centers and related
business activities.
D. Financial Information. All financial information provided to Bank has
been prepared and will continue to be prepared in accordance with
generally accepted accounting principles ("GAAP"), consistently
applied, and fully and fairly present the financial condition of
Borrower and Guarantor. There has been no material adverse change in
Borrower's and/or Guarantor's business, Property, or financial
condition since the date of Borrower's latest Financial Statements
provided to Bank.
E. Title and Encumbrances. Borrower and Guarantor own and have good title
to all of their Property, and there are no liens or encumbrances on
any of the Property except as have been disclosed to Bank in writing
prior to the date of this Agreement and as are identified and listed
in an attachment to this Agreement (the "Permitted Encumbrances").
Borrower agrees that Borrower shall not obtain further loans, leases,
or extensions of credit from any Person identified in the Permitted
Encumbrances list or otherwise without Bank's prior written consent.
F. No Litigation. There are no suits or proceedings pending before any
court, government agency, arbitration panel, or administrative
tribunal, or, to Borrower's knowledge, threatened against Borrower or
Guarantor, which may result in any adverse change in the business,
Property or financial condition of Borrower or Guarantor.
G. No Misrepresentations. All representations and warranties in this
Agreement and the Related Documents are true and correct and no
material fact has been omitted.
H. Employee Benefit Plans. Borrower has not incurred any material
accumulated funding deficiency within the meaning of ERISA, and has
not incurred any material liability to the PBGC in connection with any
employee benefit plan established or maintained by Borrower, and no
reportable event or prohibited transaction, as defined in ERISA, has
occurred with respect to such plans.
I. Environmental Compliance. Borrower and Guarantor are in full
compliance and conformity with all applicable Environmental Laws and
Borrower (and all Obligors) agree to indemnify and hold Bank harmless
from all costs and expenses, including legal fees, incurred by Bank
related to any Borrower or Guarantor violation of any Environmental
Laws.
III. AFFIRMATIVE COVENANTS.
As of the date of this Agreement and continuing until Borrower's
obligations under this Agreement and the Related Documents are fully
performed and the Indebtedness is fully repaid to Bank, Borrower and
Guarantor on a consolidated basis shall at all times:
A. Financial Requirements.
1. Maintain for the most recently ended twelve (12) month period,
a ratio of Adjusted Funds from Operations to Total Interest
Expense equal to or greater than 2.00 to 1.00;
2. Maintain a consolidated Minimum Net Worth of not less than
$23,092,200.00 plus 90% of the cash proceeds of any equity
offering of Agree Realty net of underwriting discounts
and commissions and other reasonable costs associated
therewith; and
3. Maintain for the most recently ended twelve (12) month period,
a ratio of Adjusted Funds from Operations to Total Debt Service
equal to or greater than 1.65 to 1.00;
- 2 -
<PAGE>
B. Books and Reports.
1. Financial Statements. Within Ninety (90) days after the end of
each fiscal year, Borrower shall cause to be furnished to Bank,
in form acceptable to Bank, audited consolidated Financial
Statements of the Borrower and Guarantor prepared and certified
by certified public accountants acceptable to Bank.
2. Financial Statements. Within forty-five (45) days after the end
of each fiscal quarter Borrower shall cause to be furnished to
Bank, in form acceptable to Bank, unaudited consolidated
management Financial Statements of the Borrower and Guarantor,
prepared by management and certified by Borrower's treasurer or
chief financial officer.
3. Operating Statements. Within forty five (45) days after the end
of each fiscal quarter, Borrower shall cause to be forwarded to
Bank, in form acceptable to Bank, quarterly operating
statements for each of Borrower and Guarantor's real properties
which are management prepared and certified by Borrower's
treasurer or chief financial officer.
4. Guarantor's SEC Information. (a) Within forty five (45) days
after the end of each fiscal quarter, Borrower shall cause the
Guarantor to furnish to Bank a copy of its current quarterly
10-Q report; and (b) within ninety (90) days after the end of
each fiscal year, Borrower shall cause the Guarantor to furnish
Bank a copy of its current annual 10-K report.
5. Other. Promptly furnish to Bank such other information and
reports concerning the Borrower's and/or Guarantor's business,
Property, and financial condition as are provided to Borrower's
and/or Guarantor's owners or as Bank shall request, and permit
Bank to inspect, confirm, and copy Borrower's books and records
at any time during Borrower's and/or Guarantor's normal
business hours.
C. Notice of Adverse Events. Promptly notify Bank in writing of any
litigation, governmental proceeding, default or any other occurrence
which may have a material adverse effect on Borrower's and/or
Guarantor's business, Property or financial condition.
D. Maintain Business Existence and Operations. Do all things necessary to
keep in full force and effect Borrower's and Guarantor's corporate,
partnership, proprietorship, trust, or other existence, as the case
may be, and to continue its business described in Paragraph II C. as
presently conducted. Borrower and Guarantor shall not change its
corporate, partnership, proprietorship, trust, or other existence, nor
sell or merge Borrower's or Guarantor's business, in whole or in part,
to or with any other Person, without the prior written consent of
Bank.
E. Insurance. Maintain adequate fire and extended risk coverage, business
interruption, workers disability compensation, public liability,
environmental, flood, and such other insurance coverages as may be
required by law or as may be required by Bank. All insurance policies
shall be in such amounts, upon such terms, in form, and carried with
such insurers, as are acceptable to Bank. Borrower shall provide
evidence satisfactory to Bank of all insurance coverages and that the
policies are in full force and effect, and for all insurance coverages
upon any Property which is Collateral, the insurance policy shall be
endorsed to provide Bank with a standard loss payable clause with not
less than thirty (30) days advance written notice to Bank by the
insurer of any cancellation or modification of coverage (CF12181185).
Any failure by Borrower to maintain insurance as provided in this
Agreement shall be an Event of Default and Bank may obtain insurance,
without obligation to do so, and all amounts so expended by Bank shall
be added to the Indebtedness or shall be payable on demand, at Bank's
option.
F. Payment of Taxes. Promptly pay all taxes, levies and assessments due
to all local, State and Federal agencies. Except to the extent that
Borrower has established a cash reserve and is actively pursuing a tax
appeal, any failure by Borrower to promptly pay any taxes, levies and
assessments due shall be an Event of Default.
- 3 -
<PAGE>
G. Employee Benefit Plans.
1. At all times meet the minimum funding requirements of ERISA
concerning all of Borrower's employee benefit plans subject to
ERISA.
2. At no time allow any event to occur or condition concerning any
employee benefit plan subject to ERISA which might constitute
grounds for termination of the plan or for the appointment of a
trustee to administer the plan.
3. At no time allow any employee benefit plan subject to ERISA to
be the subject of voluntary or involuntary termination
proceeding.
H. Environmental Laws Compliance/Notices/Indemnity. Strictly comply with
all Environmental Laws applicable to Borrower's business. Borrower
agrees to notify Bank, not later than ten (10) days after Borrower's
receipt, of any summons, notice, lawsuit, citation, letter, or other
advice received by Borrower from any Federal, State, or local agency
or unit of government or other Person, which asserts that Borrower is
in violation of any Environmental Laws. Borrower (and the Obligors)
agree to indemnify and hold Bank harmless from all violations by
Borrower of any Environmental Laws, which indemnity shall include all
costs and expenses incurred by Bank, including legal fees, which are
related to any violation by Borrower of any Environmental Laws,
whether or not the Indebtedness has been paid at the time any such
proceeding, claim, or action is instituted against Bank. Borrower
further agrees that Bank may at any time, at Borrower's sole cost and
expense, require Borrower to provide Bank with an environmental audit
prepared by an independent environmental engineering firm acceptable
to Bank, to confirm the continuing truth and accuracy of Borrower's
environmental representations, warranties, and agreements set forth in
this Agreement.
I. Use of Proceeds; Purpose of Loans. Use the proceeds of the Loan(s)
only for Borrower's business described in Paragraph II C, and only for
those purposes stated in Paragraph I.
J. Maintenance of Records; Change in Place of Business or Name. Keep all
of its books and records at the address set forth in this Agreement,
and give the Bank prompt written notice of any change in its principal
place of business, in the location of Borrower's books and records, in
Borrower's name, and of any change in the location of the Collateral.
K. Employment Laws. Strictly comply with all Federal and State laws
pertaining to Borrower's employees, including by way of illustration
but not of limitation, the Michigan Worker's Disability Compensation
Act, MCL 418.101 et seq., as amended, Michigan Employment Security
Act, MCL 421.1 et seq., as amended, and the Fair Labor Standards Act,
29 USC 201 et seq., as amended.
L. General Compliance with Law. At all times operate Borrower's business
in strict compliance with all applicable Federal, State, and local
laws, ordinances and regulations, and refrain from and prevent
Borrower's partners, owners, directors, officers, employees and agents
from engaging in any civil or criminal activity proscribed by Federal,
State or local law.
M. Management Continuation. Borrower agrees that Richard A. Agrees shall
continue to actively manage and operate Borrower's business, and
acknowledges that the Bank has made the Loan in reliance thereon.
N. Qualification as REIT. Guarantor shall continue to qualify as a
"qualified Real Estate Investment Trust" under the Internal Revenue
Code of 1986, as amended from time to time, with no charter amendments
permitted without Bank's prior written consent.
O. Ownership of REIT Shares. Richard A. Agree and Edward Rosenberg, shall
at all times maintain an aggregate ownership interest in Borrower
and/or its Guarantor of at least ten percent (10%) of the outstanding
ownership interest therein.
- 4 -
<PAGE>
P. Borrower's Operations. Operations of Borrower shall be limited to the
acquisition and ownership of retail shopping centers and related
business activities.
IV. NEGATIVE COVENANTS.
Until all of Borrower's obligations under this Agreement and the
Related Documents are fully performed and the Indebtedness is fully
repaid, Borrower shall not:
A. Total Debt. Permit the total Debt of Borrower and Guarantor including
the Indebtedness, to exceed seventy (70%) percent of the Total Market
Capital.
B. Distributions by Guarantor. Distribute or permit the Guarantor to
distribute more than ninety-five percent (95%) of Funds from
Operations.
C. Lien and Encumbrances. Mortgage, assign or encumber any of its
property except to Bank.
D. No Borrowings, Guarantees, or Loans. Borrow money or act as Guarantor
of any loan or other obligation or permit Guarantor to borrow money or
act as guarantor of any loan or other obligation, without Bank's prior
written consent, excluding loans or guaranties pursuant to the Line of
Credit Agreement, and also excluding secured construction financing
from Borders Group, Inc. and/or Borders, Inc.
E. Debt to Value. Permit the aggregate total indebtedness in respect of
the Loan and the Line of Credit Facility to exceed 75% of the
aggregate fair market value of the properties identified in Exhibit A
hereto and more particularly described in the Mortgages, as set forth
in the most recent FIRREA appraisals for the properties delivered to
and acceptable to Bank.
V. SECURITY FOR LOANS.
A. Security/Mortgage Interests. Borrower has granted to Bank,
security/mortgage interests in certain Property as collateral security
for the Loan and repayment of the Indebtedness, among which are the
following Related Documents ("Mortgages" and "Assignments"):
1. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated May 14, 1995
for Borman's Center, Roseville, MI
2. Second Assignment of Leases and Rents dated May 14, 1995 for
Borman's Center, Roseville, MI
3. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated May 14, 1995
for Grayling Plaza, Grayling, MI
4. Second Assignment of Leases and Rents dated May 14, 1995 for
Grayling Plaza, Grayling, MI
5. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated May 14, 1995
for Iron Mountain Plaza, Iron Mountain, MI
6. Second Assignment of Leases and Rents dated May 14, 1995 for
Iron Mountain Plaza, Iron Mountain, MI
7. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated May 14, 1995
for Ironwood Commons, Ironwood, MI
8. Second Assignment of Leases and Rents dated May 14, 1995 for
Ironwood Commons, Ironwood, MI
9. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated May 14, 1995
for Oscoda Plaza, Oscoda, MI
10. Second Assignment of Leases and Rents dated May 14, 1995 for
Oscoda Plaza, Oscoda, MI
11. Second Leasehold Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Financing Statement dated May
14, 1995 for Capital Plaza, Frankfort, KY
12. Second Assignment of Leases and Rents dated May 14, 1995 for
Capital Plaza, Frankfort, KY
- 5 -
<PAGE>
13. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated May 14, 1995
for West Frankfort Plaza, West Frankfort, IL
14. Second Assignment of Leases and Rents dated May 14, 1995 for
West Frankfort Plaza, West Frankfort, IL
15. Second Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated June 6, 1996
for Omaha, NE (Borders Store #123, Birch Street)
16. Second Assignment of Leases and Rents dated June 6, 1996 for
Omaha, NE (Borders Store #123, Birch Street)
17. Second Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated June 6, 1996
for Borders Store #122, Wichita, KS
18. Second Assignment of Leases and Rents dated June 6, 1996 for
Borders Store #122, Wichita, KS
19. Second Open-End Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Financing Statement dated June
6, 1996 for Borders Store #2, Columbus, OH
20. Second Assignment of Leases and Rents dated June 6, 1996 for
Borders Store #2, Columbus, OH
21. Second Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement dated June 6, 1996
for Borders Store #129, Santa Barbara, CA
22. Second Assignment of Leases and Rents dated June 6, 1996 for
Borders Store #129, Santa Barbara, CA
23. Second Leasehold Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Financing Statement dated June
17, 1996 for Borders Store #83, Aventura, FL
24. Second Assignment of Leases and Rents dated June 17, 1996 for
Borders Store #83, Aventura, FL
25. Second Construction Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Financing Statement dated August
20, 1996 for Boynton Festival Market (Circuit City), Boynton
Beach, Florida
26. Second Assignment of Leases and Rents dated August 20, 1996 for
Boynton Festival Market (Circuit City), Boynton Beach, Florida
At such time as K-Mart Corporation's debt rating by both Moody's
Corporation and Standard & Poor's Corporation is raised to investment
grade or better (Baaa3/BBB-,respectively), upon request by Borrower,
Bank shall release the Mortgages and Assignments; provided, however,
that in the event K-Mart Corporation's debt rating by either Moody's
Corporation or Standard & Poor's Corporation is downgraded to below
investment grade (Baaa3/BBB-) thereafter,Borrower shall, on the day
requested by Bank, grant, or cause to be granted to Bank, real estate
mortgages and assignments of leases and rents,subject only to
encumbrances acceptable to Bank, on all of the commercial properties
described on Exhibit A attached hereto, or such other substitute
properties as Bank in its sole discretion shall approve, as collateral
for the Loan. Borrower shall at its sole expense also furnish Bank
at the same time as it provides Bank with the aforementioned mortgages,
those due-diligence documents associated with the mortgaged properties,
including (without limitation) "as-built" surveys, title searches, and
appraisals.
Bank agrees that the Related Documents set forth at 23-26 above (the
"Florida Related Documents") will not be recorded unless and until an
Event of Default occurs under this Agreement or any Related Document
which is not cured within any applicable grace period ("Uncured
Default"). At any time upon or following the occurrence of an Uncured
Default, Bank may record the Florida Documents, and Borrower shall pay
to Bank upon demand all transfer, recording and documentary taxes and
charges imposed by any applicable governmental authority, and any
other costs and expenses incurred by Bank in connection therewith
("Recording Costs"). If Borrower fails to pay the Recording Costs upon
demand therefor, Borrower hereby authorizes and directs Bank, at
Bank's option, to make an Advance of the Loan payable to Bank in the
amount of the Recording Costs.
B. Guaranty of Payment. The prompt payment of Borrower's Loans and
Indebtedness to Bank has been guaranteed by the following Persons
pursuant to an Amended and Restated Guaranty of even date herewith
("Guaranty"):
- 6 -
<PAGE>
<TABLE>
<CAPTION>
Guarantor Name Address Guaranty Amount
- -------------- -------------------------------- ---------------
<S> <C> <C>
Agree Realty Corporation 31850 Northwestern Highway Unlimited
Farmington Hills, Michigan 48334
</TABLE>
VI. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
Event of Default under this Agreement:
A. Failure to Pay Amounts Due. Any principal or interest on any
Indebtedness to Bank is not paid within ten (10) days following its
due date.
B. Misrepresentation; False Financial Information. Any warranty or
representation of Borrower or Guarantor in connection with or
contained in this Agreement, the Related Documents, or any Financial
Statements now or hereafter furnished to the Bank by or on behalf of
the Borrower or Guarantor, are false or misleading in any material
respect.
C. Noncompliance with Bank Agreements. Borrower or Guarantor breaches any
covenant, term, condition or agreement under this Agreement, the
Related Documents, the Line of Credit Agreement and any documents
executed in connection therewith (collectively, the "Line of Credit
Documents") or any other agreements, provided, however, except for
those Events of Default otherwise referenced in this Section VI, for
which no notice shall be given, the Borrower shall be given written
notice of Events of Default under this Subsection C and shall have a
period of thirty (30) days following such notice within which to cure
such Events of Default.
D. Other Lender Default. Any non-Bank indebtedness of Borrower is
declared to be due and payable prior to the stated maturity thereof,
provided that Borrower has not cured such default within any
applicable notice or grace period.
E. Judgments; Attachments; Tax Liens. There shall be entered against
Borrower or any other Obligor, any judgment which materially affects
Borrower's or any Obligor's business, Property or financial condition,
or if any tax lien, levy, attachment, forfeiture, seizure,
garnishment, execution or similar writ or process shall be issued
against the Collateral or which materially affects Borrower's
business, Property or financial condition, and which remains unpaid,
unstayed on appeal, undischarged, unbonded, or undismissed for a
period of sixty (60) days after the date thereof.
F. Indictment. The institution of any criminal proceeding wherein
forfeiture of Borrower's or Guarantor's Property is a potential
penalty, and provided such proceedings are not dismissed within sixty
(60) days thereafter.
G. Business Merger, Suspension, Bankruptcy. Borrower or any other Obligor
shall sell or merge Borrower's business to or with any other Person;
shall voluntarily suspend transaction of its business; shall generally
not pay debts as they mature; shall make a general assignment for the
benefit of creditors; shall file or have filed against Borrower or any
other Obligor any reorganization or liquidation under the Bankruptcy
Code or under any other State or Federal law for the relief of
debtors, or a receiver, trustee or custodian shall be appointed for
Borrower or any other Obligor for any portion of Borrower's or other
Obligor's Property, which is not discharged within sixty (60) days
after filing.
VII. REMEDIES ON DEFAULT.
A. Acceleration. Upon the occurrence of any Event of Default, the Loans
and all Indebtedness to Bank may, at the option of Bank, and without
demand or notice of any kind, be declared to be immediately due and
payable.
- 7 -
<PAGE>
B. Remedies Cumulative. The remedies provided for in this Agreement are
cumulative and not exclusive, and Bank may exercise any remedies
available to it at law or in equity, and as are provided in this
Agreement, the Related Documents, and any other agreement between
Borrower and Bank.
C. No Waiver. No delay or failure of Bank in exercising any right,
remedy, power or privilege hereunder shall affect that right, remedy,
power or privilege, nor shall any single or partial exercise thereof
preclude the exercise of any other right, remedy, power or privilege.
No delay or failure of Bank to demand strict adherence to the terms of
this Agreement shall be deemed to constitute a course of conduct
inconsistent with the Bank's right to at any time, before or after any
Event of Default, demand strict adherence to the terms of this
Agreement and the Related Documents.
D. Bank's Right of Set-off. Upon the occurrence of any Event of Default,
Bank shall have the right to apply any or all of Borrower's and any
Obligor's bank accounts or any other Property held by Bank against any
Indebtedness of Borrower to Bank.
VIII. CROSS-COLLATERALIZATION/CROSS-DEFAULT.
Borrower agrees that all Collateral is security for the Loan under
this Agreement and for all other Indebtedness of Borrower to Bank,
whether or not such Indebtedness is related by class or kind and
whether or not contemplated by the parties at the time of executing
each evidence of Indebtedness. Any Borrower default, beyond any
applicable grace or cure period under the terms of any Indebtedness to
Bank or under the Line of Credit Documents shall constitute an Event
of Default under this Agreement.
IX. MISCELLANEOUS.
A. Compliance with Bank Agreements. Borrower acknowledges that it has
read, and agrees to fully comply with this Agreement, the Related
Documents, and all other agreements between Borrower and Bank.
B. Expenses. Borrower agrees to pay all of Bank's expenses incidental to
perfecting Bank's security interests and liens, the Bank's payment of
any insurance premiums, Uniform Commercial Code search fees,
Environmental Laws inspections and audits, appraisals, and fees
incurred by Bank for audits, inspection, and copying of Borrower's
books and records. Borrower also agrees to pay all costs and expenses
of Bank, including reasonable attorney fees, in connection with the
enforcement of the Bank's rights and remedies under this Agreement,
the Related Documents and any other agreement, and in connection with
the preparation of any amendments, modifications, waivers or consents
with respect to this Agreement.
C. Further Action. Borrower agrees, from time to time upon Bank's
request, to make, execute, acknowledge, and deliver to Bank such
further and additional instruments, documents, and agreements, and to
take such further action as may be required to carry out the intent
and purpose of this Agreement and repayment of the Loans.
D. Governing Law, Partial Illegality. This Agreement and the Related
Documents shall be interpreted and the rights of the parties
determined under the laws of the State of Michigan. Should any part,
term, or provision of this Agreement be adjudged illegal or in
conflict with any law of the United States or State of Michigan, the
validity of the remaining portion or provisions of the Agreement shall
not be affected.
E. Writings Constitute Entire Agreement; Modifications Only in Writing.
This Agreement, the Related Documents and all other written agreements
between Borrower and Bank, constitute the entire agreement of the
parties, and there are no other agreements, express or implied. This
Agreement supersedes any and all commitment letters or term sheets
heretofore issued in connection with this Loan. None of the parties
shall be bound by anything not expressed in writing, and neither this
Agreement, the Related Documents, nor any other agreement can be
modified except by a writing executed by Borrower and by the Bank.
This Agreement shall inure to the benefit of and shall be
- 8 -
<PAGE>
binding upon all of the parties to this Agreement and their respective
successors, estate representatives, and assigns, provided however,
that Borrower cannot assign or transfer its rights or obligations
under this Agreement without Bank's prior written consent.
F. Credit Inquiries. Borrower hereby authorizes Bank to respond to any
credit inquiries received by Bank from trade creditors or other credit
granting institutions.
G. Release of Claims Against Bank. In consideration of the Bank's making
the Loans described in this Agreement, Borrower and the Obligor(s) do
each hereby release and discharge Bank of and from any and all claims,
harm, injury, and damage of any and every kind, known or unknown,
legal or equitable, which Borrower or any of the Obligor(s) have
against the Bank from the date of Borrower's first contact with Bank
up to the date of this Agreement. Borrower and the Obligor(s) confirm
to Bank that they have reviewed the effect of this release with
competent legal counsel of their choice, or have been afforded the
opportunity to do so, prior to execution of this Agreement and the
Related Documents and each acknowledge and agree that Bank is relying
upon this release in extending the Loans to Borrower.
H. Waiver of Jury Trial. Borrower and the Obligor(s) do each knowingly,
voluntarily and intelligently waive their constitutional right to a
trial by jury with respect to any claim, dispute, conflict, or
contention, if any, as may arise under this Agreement or under the
Related Documents, and agree that any litigation between the parties
concerning this Agreement and the Related Documents shall be heard by
a court of competent jurisdiction sitting without a jury. Borrower and
the Obligor(s) hereby confirm to Bank that they have reviewed the
effect of this waiver of jury trial with competent legal counsel of
their choice, or have been afforded the opportunity to do so, prior to
signing this Agreement and the Related Documents and each acknowledge
and agree that Bank is relying upon this waiver in extending the Loans
to Borrower.
I. Headings. All section and paragraph headings in this Agreement are
included for convenience only and do not constitute a part of this
Agreement.
J. Term of Agreement. Unless superseded by a later Business Loan
Agreement, this Agreement shall continue in full force and effect
until all of Borrower's obligations to Bank are fully satisfied and
the Loans and Indebtedness are fully repaid.
X. DEFINITIONS.
The following words shall have the following meanings in this
Agreement:
A. "Adjusted Funds from Operation" shall mean, for the period for which
it is be determined, the operating income of Borrower and the
Guarantor for such period, less operating expenses of Borrower and the
Guarantor for such period, determined in accordance with GAAP,
calculated on a basis consistent with the definitions of Net Operating
Income and Operating Expenses herein; but excluding operating income
and expenses resulting from (i) cumulative changes in accounting
practices, (ii) discontinued operations, (iii) extraordinary items,
(iv) net income of a subsidiary that is unavailable to Borrower or the
Guarantor, (iv) net income not readily convertible into Dollars or
remittable to the United States, and (v) net income from corporations,
partnerships, associations, joint ventures or other entities in which
Borrower or the Guarantor or a subsidiary has a minority interest and
in which Borrower or the Guarantor does not have Control, except to
the extent actually received.
B. "Bank" shall mean Michigan National Bank, a national banking
association, and any successor or assign.
C. "Base Rate" or "Prime Rate" shall mean that variable rate of interest
from time to time established by the Bank designated in the Loan
Promissory Note and Section I. of this Agreement as its base or prime
commercial lending rate.
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<PAGE>
D. "Business Day" shall mean any day on which the Bank is open for normal
commercial business transactions (other than ATM or other similar
mechanical or automated services provided by Bank).
E. "Collateral" shall mean that Property which Borrower and any other
Obligor has pledged, mortgaged, or granted Bank a security interest
in, wherever located and whether now owned or hereafter acquired,
together with all replacements, substitutions, proceeds and products
thereof, as collateral security for the Loan.
F. "Control" shall mean in (a) in the case of a corporation, ownership,
directly or through ownership of other entities, of at least ten
percent (10%) of all the voting stock (exclusive of stock which his
voting only as required by applicable law or in the event of nonpayment
of dividends and pays dividends only on a nonparticipating basis at a
fixed or floating rate), and (b) in the case of any other entity,
ownership, directly or through ownership of other entities, of at least
ten percent (10%) of al of the beneficial equity interests therein
(calculated by a method that excludes from equity interests, ownership
interests that are nonvoting (except as required by applicable law or
in the event of nonpayment of dividends, or distributions) and pay
dividends or distributions only on a nonparticipating basis at a fixed
or floating rate) or, in any case, (c) the power directly or
indirectly, to direct or control, or cause the direction of, the
management policies of another Person, whether through the ownership
of voting securities, general partnership interest, common directors,
trustees, officers by contract or otherwise. The terms "controlled"
and "controlling" shall have meanings correlative to the foregoing
definition of "Control."
G. "Debt" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument,
(iii) the face amount of all letters of credit issued for the account
of such Person and, without duplication, all unreimbursed amounts
drawn thereunder, (iv) all indebtedness of any other Person secured by
an lien on any property owned by such Person, whether or not such
indebtedness has been assumed, (v) all contingent liabilities of such
Person, (vi) all payment obligations of such Person under any interest
rate protection agreement (including, without limitation, any interest
rate swaps, caps, floors, collars and similar agreements) and currency
swaps and similar agreements, (vii) all indebtedness and liabilities
secured by any lien or mortgage on any property of such Person,
whether or not the same would be classified as a liability on a
balance sheet, (viii) the liability of such Person in respect of
banker's acceptances and the estimated liability under any
participating mortgage, convertible mortgage or similar arrangement,
(ix) the aggregate amount of rentals or other consideration payable by
such Person in accordance with GAAP over the remaining unexpired term
of all capitalized leases, and (x) all indebtedness, contingent
obligations, etc. of any partnership in which such Person holds a
general partnership interest.
H. "Environmental Laws" shall mean all laws, regulations, and rules of
the United States of America, State of Michigan, and local authorities
which pertain to the environment, including but not limited to, the
Clean Air Act (42 USC 7401 et seq.), Clean Water Act (33 USC 1251 et
seq.), Resource Conservation and Recovery Act of 1976 (42 USC 6901 et
seq.), Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 USC 9601 et seq.), Hazardous Materials
Transportation Act- (49 USC 1801 et seq.), Solid Waste Disposal Act
(42 USC 6901 et seq.), Toxic Substances Control Act (15 USC 2601 et
seq.), Michigan Resource Recovery Act (MCL 299.501 et seq.),
Environmental Response Act (MCL 299.601), and Underground Storage Tank
Regulatory Act (MCL 299.701 et seq. and 299.801 et seq.), as each of
said statutes have been or are hereafter amended, together with all
rules and regulations promulgated by the Environmental Protection
Agency and Michigan Department of Natural Resources and all additional
environmental laws, rules, and regulations in effect on the date of
this Agreement and as may be enacted and effective.
I. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor act.
J. "Event of Default" shall mean any of the events described in Section
VI of this Agreement or in the Related Documents.
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<PAGE>
K. "Financial Statements" shall mean all balance sheets, cash flows,
earnings statements, and other financial information (whether of the
Borrower or an Obligor) which have been, are now, or are in the future
furnished to Bank.
L. "Funds from Operations" shall mean the consolidated net income (loss)
calculated in accordance with GAAP, excluding gains (or losses) from
debt restructuring and sales (or adjustments to basis or properties or
other assets), plus non-cash charges (primarily depreciation and
amortization), and after adjustments for unconsolidated partnerships
and joint ventures, which adjustments shall be calculated on the same
basis.
M. "GAAP" shall mean "generally accepted accounting principles"
consistently applied, as set forth from time to time in the Opinion of
the Accounting Principles Board of the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board, or
which have other substantial authoritative support.
N. "Indebtedness" or "Obligations" shall mean all Loans, indebtedness,
and obligations of Borrower to Bank, including but not limited to any
Bank advances for payments of insurance, taxes, amounts advanced by
Bank to protect its interest in the Collateral, overdrafts in deposit
accounts with Bank, and all other indebtedness, obligations and
liabilities of Borrower to Bank, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or
hereafter arising.
O. "LIBOR Rate" shall equal 225 basis points in excess of the 1-month
LIBOR, as such term is defined in the Addendum to Amended and Restated
Business Loan Agreement (Line of Credit with Letter of Credit
Advances).
P. "Line of Credit Agreement" shall mean the Line of Credit Agreement
between Borrower, Guarantor, Bank, NBD Bank and LaSalle National Bank
dated as of November 14, 1995, as now or hereafter amended or
supplemented ("Line of Credit Agreement").
Q. "Line of Credit Facility" shall mean the line of credit loan made to
Borrower under the Line of Credit Agreement.
R. "Michigan National Bank Prime Rate" or "MNB Prime" shall mean that
variable rate of interest so designated and from time to time
established by Michigan National Corporation as the Michigan National
Bank prime commercial lending rate.
S. "Net Operating Income" shall mean, with respect to any property, the
gross income derived from the operation of such Property, less
Operating Expenses attributable to such property, accounted for on an
accrual basis, in accordance with GAAP, including any rent loss or
business interruption insurance proceeds, and water and sewer charges,
and Operating Expenses actually paid or payable on an accrual basis
attributable to such property as set forth on operating statements
satisfactory to Bank. Net Operating Income shall be calculated in
accordance with customary accounting principles applicable to real
estate. Notwithstanding the foregoing, Net Operating Income shall not
include (i) any condemnation or insurance proceeds (excluding rent or
business interruption insurance proceeds), (ii) any proceeds resulting
from the sale, exchange, transfer, financing or refinancing of all or
any portion of the property for which it is to be determined, (iii)
amounts received from tenants as security deposits, (iv) amounts
received from affiliates of Borrower or the Guarantor, which amounts
do not represent pass-through rent payments received from bonafide
third party tenants, (v) interest income, and (vi) any type of income
otherwise included in Net Operating Income but paid directly by any
tenant to a Person other than Borrower or the Guarantor or its agents
or representatives.
T. "Net Worth" shall mean the difference between Borrower's total assets
and total liabilities, as determined under GAAP.
- 11 -
<PAGE>
U. "Obligor" shall mean any person having any obligation to Bank, whether
for the payment of money or otherwise, under this Agreement or under
the Related Documents, including but not limited to any guarantors of
Borrower's Indebtedness.
V. "OP Units" shall mean operating units of Borrower as defined in
Borrower's partnership agreement.
W. "Operating Expenses" shall mean with respect to any property, for any
given period (and shall include the pro rata portion for such period
of all such expenses attributable to, but not paid during, such
period), all expenses to be paid or payable, as determined in
accordance with GAAP, the Borrower or the Guarantor during that period
in connection with the operation of such property for which it is to
be determined, including without limitation:
(i) expenses for cleaning, repair, maintenance, decoration and
painting of such property (including, without limitation, parking lots
and roadways), net of any insurance proceeds in respect of any of the
foregoing;
(ii) wages (including overtime payments), benefits, payroll
taxes and all other related expenses for Borrower and Guarantor's
on-site personnel, engage din the repair, operation and maintenance of
such property and service to tenants and on-site personnel engaged in
audit and accounting functions performed by Borrower;
(iii) actual management fees, if any, together with any
allocated management fees or similar fees received from tenants or
other parties. Such fees shall include all fees for management
services whether such services are performed at such property or
off-site;
(iv) the cost of all electricity, oil, gas, water, steam, heat,
ventilation, air conditioning and any other similar item and the cost
of building and cleaning supplies;
(v) the cost of any leasing commissions and the tenant
concessions or improvements payable by Borrower, the Guarantor
pursuant to any leases which are in effect for such property at the
commencement of that period as such costs are recognized in accordance
with GAAP, but no less than a straight line basis over the remaining
term of the respective Lease, exclusive of any renewal or extension or
similar options;
(vi) rent, liability, casualty and fidelity insurance premiums;
(vii) legal, accounting and other professional fees and expenses;
(viii) the cost of all equipment to be used in the ordinary course
of business, which is not capitalized in accordance with GAAP;
(ix) real estate and other taxes;
(x) advertising and other marketing costs and expenses;
(xi) casualty losses to the extent not reimbursed by a third
party; and
(xii) all amounts that should be reserved, as reasonably
determined by Borrower and the Guarantor with approval by Bank in its
reasonable discretion, for repair or maintenance of the property and
to maintain the value of the property.
Notwithstanding the foregoing, Operating Expenses shall not include
(i) depreciation or amortization or any other non-cash items of expense; (ii)
interest, principal, fees, costs and expense reimbursements of Bank in
administering the Loan but not in exercising any of its rights under this
Agreement or the Loan Documents; or (iii) any expenditure (other than leasing
commissions, tenant concessions and improvements, and replacement reserves)
which is properly treatable as a capital item under GAAP.
- 12 -
<PAGE>
X. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
Person succeeding to the powers and functions of the Pension Benefit
Guaranty Corporation.
Y. "Person" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated association, joint stock
company, government, municipality, political subdivision, agency or
other entity.
Z. "Property" shall mean all of Borrower's (or other Obligor's, as
applicable) assets, tangible and intangible, real and personal.
AA. "Related Documents" shall mean any and all documents, promissory
notes, security agreements, leases, mortgages, guaranties, pledges,
"swap agreement" (within the meaning of the United States Bankruptcy
Code of 1978, as amended, 11 USC 101 et seq.) and any other documents
or agreements executed in connection with this Agreement. The term
shall include both documents existing before, at the time of execution
of this Agreement, and documents executed after the date of this
Agreement.
AB. "Total Debt Service" shall mean for the period for which it is to be
determined, the amount of interest and regularly schedule principal
payments payable during such period in respect of Debt of Borrower and
the Guarantor, taking into account any interest rate swap, cap or
other interest rate management agreement; provided that the entity
providing such interest rate management agreement maintains a credit
rating by S&P of equal to or exceeding "A" or the equivalent rating by
Moody's.
AC. "Total Interest Expense" shall mean for the period for which it is to
be determined, the aggregate of all interest paid or payable by
Borrower and the Guarantor with respect to Debt, as determined in
accordance with GAAP.
AD. "Total Interest Bearing Funded Debt" shall mean, as of any date, the
outstanding principal amount of interest bearing indebtedness for
borrowed money of Borrower and the Company.
AE. "Total Market Capital" shall mean, as of any date the sum of (i) Total
Interest Bearing Funded Debt, and (ii) the product of the market value
per share of the common stock the Guarantor calculated on the basis of
the closing quotation published in the section entitled "New York
Stock Exchange Composite Transaction" in the Wall Street Journal
published in New York, New York on the date such calculation is made,
times the total number of shares of the common stock of the Guarantor
issued and outstanding ("Guarantor Share Price") and (iii) the
Guarantor Share Price times the total number of issued and outstanding
OP Units.
XI. ADDITIONAL PROVISIONS:
A. Effect of this Agreement and Construction with Related Documents:
This Agreement shall not be construed as an agreement to substitute a
new obligation or to extinguish an obligation under the Original Loan
Agreement or the Related Documents and shall not constitute a novation
as to the obligations of the parties. If any express conflict shall
exist between the agreements of the parties herein and as set forth in
the Related Documents, this Agreement shall govern and supersede the
agreements set forth in the previous documents. The Related Documents
shall continue in full force and effect, and except as above
specifically modified and amended, shall be unamended, unchanged, and
unmodified by this Agreement and shall continue to secure to Bank the
repayment and performance of Borrower's Indebtedness to Bank.
B. Addendum. See Addendum to Amended and Restated Business Loan Agreement
(Line of Credit with Letter of Credit Advances) attached hereto and
incorporated herein.
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<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement on the
date first written above.
BORROWER:
AGREE LIMITED PARTNERSHIP, a
Delaware limited partnership
By: Agree Realty Corporation,
a Maryland corporation
Its: General Partner
By:/s/ Richard A. Agree
-------------------------
Richard A. Agree
Its: President
BANK:
MICHIGAN NATIONAL BANK,
a national banking association
By: /s/ Sheila E. Maples
-------------------------------
Sheila E. Maples
Its: Vice President
- 14 -
<PAGE>
AGREEMENT OF GUARANTORS
By executing this Agreement the undersigned "Guarantor" agrees that the
Indebtedness of Borrower is and, notwithstanding this Agreement, will continue
to be guaranteed to Bank in accordance with the terms of the Guaranty
agreement heretofore executed and delivered by Guarantor to Bank, without
limit. In addition, Guarantor: (1) acknowledges and agrees that the Guarantor
has completely read and understands this Agreement; (2) consents to all of the
provisions of this Agreement relating to Borrower; (3) acknowledges and agrees
that the Guaranty executed and delivered by the undersigned continues in full
force and effect; (4) acknowledges receipt of good and lawful consideration
for execution of the guaranty agreement and this Agreement; (5) agrees
promptly to furnish such Financial Statements to Bank concerning the Guarantor
as Bank shall reasonably request; (6) agrees to all of those portions of this
Agreement which apply to Guarantor; (7) acknowledges and agrees that this
Agreement has been freely executed without duress and after an opportunity was
provided to Guarantor for review of this Agreement and the guaranty agreement
by competent legal counsel of Guarantor's choice; and (8) acknowledges that
the Bank has provided Guarantor with a copy of this Agreement, the guaranty
agreement, and such other Related Documents as Guarantor has requested.
GUARANTOR:
AGREE REALTY CORPORATION,
a Maryland corporation
By: /s/ Richard A. Agree
-----------------------------------
Richard A. Agree
Its: President
- 15 -
<PAGE>
EXHIBIT A
Commercial Properties
1. A & P, Borman Center, Roseville, Michigan
2. Capital Plaza, Shopping Center, Frankfort, Kentucky
3. Grayling Plaza, I-75 Business Loop, Grayling, Michigan
4. Iron Mountain Plaza, U.S. Highway 141, Iron Mountain, Michigan
5. Ironwood Commons, U.S. Highway 2, Ironwood, Michigan
6. Oscoda Plaza, U.S. Highway 23, Oscoda, Michigan
7. West Frankfort, Plaza, West Frankfort, Illinois
8. Borders Store #2, Columbus, Ohio
9. Borders Store #123, Omaha, Nebraska
10. Borders Store #122, Wichita, Kansas
11. Borders Store #129, Santa Barbara, California
12. Borders Store #83, Aventura, Florida
13. Boynton Festival Market (Circuit City), Boynton Beach, Florida
- 16 -
<PAGE>
EXHIBIT B
Permitted Encumbrances
First mortgage liens and related security interests have been granted to the
following lenders on the projects described below:
A. Nationwide Insurance Company
1. Charlevoix Commons
2. Chippewa Commons
3. Marshall Plaza II
4. Petoskey Town Center
5. Plymouth Commons
6. Rapids Associates
7. Shawano Plaza
B. Travelers Indemnity
1. North Lakeland Plaza
C. American United Life
1. Winter Garden Plaza
D. Michigan National Bank
1. Perrysburg Plaza
E. Michigan National Bank, NBD Bank and LaSalle National Bank
1. The properties listed on Exhibit A to this Agreement.
- 17 -
ADDENDUM TO AMENDED AND
RESTATED BUSINESS LOAN AGREEMENT
(Line of Credit with Letter of Credit Advances)
This Addendum to Amended and Restated Business Loan Agreement
("Addendum") is an integral part of the Amended and Restated Business Loan
Agreement ("Agreement") executed by Borrower, and each and all of the terms,
conditions, provisions and agreements set forth in the Agreement are
incorporated by this reference into this Addendum.
I. LOAN
Under those terms and conditions set forth in the Agreement and in
this Addendum, and provided there shall exist no Event of Default, Bank agrees
from time to time, at Borrower's request, to provide Borrower with Advances or
Credit Advances in an aggregate amount up to but not to exceed the lesser of
the sum of FIVE MILLION and NO/100 DOLLARS ($5,000,000.00). On such terms and
conditions as set forth herein, the Advances and Credit Advances may be
outstanding as Prime advances or LIBOR Advances. There shall be no more than a
total of five (5) LIBOR Advances outstanding at any time.
II. NOTE
The Loan shall be signified by Borrower's execution and delivery to
Bank of a promissory note to Bank's order in the amount of the Loan (the
"Note").
III. EXPIRATION OF BANK'S COMMITMENT
Bank's obligation to make any Advance or Credit Advance under the Loan
and Note shall automatically (a) cease and terminate upon the maturity date
stated in the Note, and (b) suspend or terminate (at Bank's option), upon the
occurrence of any Event of Default unless Bank in writing agrees to waive said
Event of Default. No subsequent Advance by Bank shall be construed as a waiver
by Bank of the benefit of this provision, nor shall Bank be estopped thereby
to refuse any subsequent Borrower Advance request. All principal amounts
outstanding on any Advance or Credit Advance are immediately payable on the
Due Date stated in the Note or at the election of Bank after the occurrence of
any Event of Default and following the expiration of any applicable cure
period.
IV. ADVANCE PROCEDURE
Subject to Paragraphs I and III above, Borrower may request a Prime
Advance on any day the Bank is open for business and Bank will promptly make
the Prime Advance available to Borrower by crediting Borrower's general
deposit account number 6822-13748-2 in the amount requested, or in such other
manner as borrower shall request in writing, unless the requested prime
Advance, when aggregated with all prior unpaid Advances and all outstanding
Credit advances, would exceed the Loan amount.
Subject to Paragraphs I and III above, Borrower may give Bank written
or telegraphic notice (effective upon receipt) of any requested LIBOR Advance,
at least three (3) Business Days before each LIBOR Advance, specifying (1) the
date of such LIBOR Advance; (2) the amount of such LIBOR Advance which amount
shall be at least $250,000.00; and (3) the fact that the Advance requested is
a LIBOR Advance. Upon the fulfillment of all applicable conditions, the Bank
will make such LIBOR Advance available to Borrower by crediting Borrower's
general deposit account number 6822-13748-2 in the amount requested, or in
such other manner as Borrower shall request in writing unless the requested
LIBOR Advance, when aggregated with all prior unpaid Advances
<PAGE>
and all outstanding Credit Advances would exceed the Loan amount or the
Interest Period requested is longer than the time period remaining to the Due
Date of the Note.
All notices for LIBOR Advances shall be irrevocable and shall be given
no later than 1:00 P.M. Eastern Standard Time on the day which is three (3)
Business Days before such LIBOR Advance. Absent a written or telegraphic
notice secured by Bank to the contrary, interest on all Advances shall accrue
at the Prime Rate.
V. CREDIT ADVANCE PROCEDURE
Subject to Paragraph I and III above, Credit Advances will be made to
Borrower by Bank's issuance of a commercial or standby Letter of Credit, with
such beneficiary and with such Letter of Credit draft instructions as Borrower
shall specify and as are customary in Borrower's business and acceptable to
Bank. Advances and Credit Advances available to Borrower under the Loan shall
be automatically reduced by the amount of Bank's aggregate obligation under
all Letters of Credit issued and outstanding from time to time, and in no
event shall the total of unpaid Advances and open and outstanding Credit
Advances at any time exceed the lesser of the Loan. Credit Advances shall be
made only under the following terms and conditions:
A. Each Letter of Credit request shall be made by submitting to Bank, on
forms supplied by Bank, a Letter of Credit application (the
"Application"), fully executed and completed to Bank's satisfaction.
Borrower acknowledges and agrees that each Letter of Credit issued by
Bank for the account of Borrower is subject to all terms and
conditions set forth in the Application including, without limitation,
the grant to Bank of a security interest in such collateral as is
identified in the Agreement and/or in the Application.
B. Borrower shall pay to Bank, for each Letter of Credit issued by Bank
for the account of Borrower, One (1%) Percent per annum of the face
amount thereof, and all other fees, charges, and expenses specified in
Bank's international department standard fee schedule then in effect
including, without limitation, issuance fees, payment fees, amendment
fees, non-utilization fees, communication and delivery expenses, and
any and all costs and expenses, including reasonable attorneys' fees,
incurred by Bank in defending any suit or claim brought against the
Bank by any Letter of Credit beneficiary. For each Letter of Credit
draft received and paid by Bank, Borrower's obligation to immediately
put Bank in good funds shall be funded by an Advance under the Note to
the extent unpaid Advances and other open and outstanding Credit
Advances do not exceed the lesser of the Loan, otherwise Borrower
shall immediately pay Bank the entire amount of any Letter of Credit
draft paid by Bank;
C. Any Letter of Credit issued by Bank shall have an expiry date of not
more than twelve (12) months after the issue date.
VI. CONVERSIONS AND RENEWALS
The Borrower may elect from time to time to convert all or a part of
one type of Advance into another type of Advance or to renew all or a part of
an Advance by giving the Bank notice at least One (1) Business Day before the
conversion into a Prime Advance, or at least three (3) Business Days before
the conversion into or renewal of a LIBOR Advance, specifying (1) the renewal
or conversion date; (2) the amount of the Advance to be converted or renewed;
and (3) in the case of conversions, the type of Advance to be converted into;
provided that LIBOR Advances can be converted only on the last day of the
Interest period for such LIBOR Advance. All notices given under this Section V
shall be irrevocable and shall be given not later than 1:00 P.M. (Eastern
Standard Time) on the day which is not less than the number of Business Days
specified above for such notice. If the Borrower shall fail to give the Bank
the notice as specified above for the renewal or conversion of a LIBOR Advance
prior to the end of the Interest period with respect thereto, such LIBOR
Advance shall automatically be converted into a Prime Advance on the last day
of the Interest period for such Advance.
VII. INTEREST
A. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of the Advances made under this Agreement at a
rate per annum as follows:
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<PAGE>
(1) For a Prime Advance at a rate equal to the Prime Rate;
(2) For a LIBOR Advance at a rate equal to the LIBOR
Interest Rate plus Two and One-Quarter (2.25%) percent.
Any change in the interest rate based on the Prime Rate
resulting from a change in the Prime Rate shall be effective as
of the opening of business on the day on which such change in
the Prime rate become effective.
Interest on each Prime Advance and LIBOR Advance shall
be calculated on the basis of a year of 360 days for the actual
number of days elapsed.
B. Interest on all principal amounts advanced by Bank from time to time
and unpaid by Borrower shall be paid on the 1st day of October, 1996,
and the first day of each month hereafter, unless in connection with
any LIBOR Advance some other periodic payment thereof is agreed to by
Bank.
C. Any principal amount not paid when due (at maturity, by acceleration
or otherwise) shall bear interest thereafter until paid in full,
payable on demand, at a rate per annum equal to:
(1) For each Prime Advance at a rate equal to the Prime Rate
plus Two (2%) Percent;
(2) For each LIBOR Advance at a rate equal to the LIBOR
Interest Rate plus Four and One-Quarter (4.25%) Percent
from the time of default in payment of principal until
the end of the then current Interest Period therefore,
and thereafter at a rate equal to the Prime Rate plus
Two (2%) Percent.
XIII. PREPAYMENTS
The Borrower may prepay any Prime Advances made under the Note at any
time. LIBOR Advances may be prepaid, in full or in part, only on the last day
of the Interest Period for such Advance.
IX. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an
Event of Default under this Addendum:
A. Any Event of Default under the Agreement of which this Addendum
is a part;
B. Any Borrower breach of any provision or agreement in this Addendum;
C. Any representation or warranty made under this Addendum is or becomes
false or misleading in any material respect;
D. The aggregate unpaid principal amount of all Advances and Bank
obligations under all open Credit Advances exceeds the amount of the
Note.
X. REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default under this Addendum, Bank
shall have all remedies as are provided by law or by the Agreement, the Note,
the Application, or any mortgage, security or other collateral agreement.
XI. DEFINITIONS
The following terms used in this Addendum shall have the following
meanings:
A. "Advance" or "Advances" shall mean a loan or loans of money from Bank
to Borrower.
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<PAGE>
B. "Business Day" means a day on which the Commercial Loan Department of
the Bank is open for normal business transactions and, if the
applicable day relates to a LIBOR Advance, Interest period or notice
with respect to a LIBOR Advance, "Business Day" means a day on which
dealings in U.S. Dollar currency are carried on in the London
interbank market.
C. "Credit Advance" shall mean the Bank's liability, direct or
contingent, for or arising under any Letter of Credit issued by Bank.
D. "Interest Period" means the period commencing with, and including, the
date the LIBOR Advance is made or continued as, or converted into a
LIBOR Advance which bears interest determined with reference to LIBOR,
and ending on the calendar day which numerically corresponds to such
date one (1) calendar months thereafter; provided, however, that:
(a) If there exists no numerically corresponding calendar day in
such month, such Interest period shall end on the last Business
Day in that month; and,
(b) No Interest period may extend beyond the Due Date in the Line
of Credit Note; and
(c) If an Interest Period would end on a day that is not a Business
Day, such Interest period shall be extended to the next
Business Day unless such Business Day would fall in the next
calendar month, in which event such Interest Period shall end
on the immediately preceding Business Day.
E. "Letter of Credit" shall have the meaning ascribed to such term under
Article 5 of the Michigan Uniform Commercial Code, as amended from
time to time, as supplemented by the Uniform Customs and Practice for
Documentary Credits, ICC Publication 500, as amended from time to
time.
F. "LIBOR Advance" means any Advance when and to the extent that the
interest rate therefor is determined by reference to the LIBOR
Interest Rate.
G. "LIBOR Interest Rate" means (A) the London Interbank Offered Rate,
determined for any Interest period as the arithmetic mean, expressed
as a decimal truncated to the nearest one-hundredth of a percent, of
interbank per annum rates offered by major banks in the London, United
Kingdom market at 11:00 p.m. London Time two (2) Business days
immediately preceding the commencement of the Interest period for
immediately available U.S. dollar denominated deposits delivered on
the first day of the Interest Period for the number of days comprised
therein, as referenced and reported by one of the following sources,
selected by Bank on an availability basis in descending order of
priority: (1) the Dow Jones Telerate System "LIBO Page" report of such
interest rates as determined by Reuter's news Service; (2) the Dow
Jones Telerate System "Page 3750" report of such interest rate as
determined by the British Bankers Association; or (3) The Wall Street
Journal, Midwest Edition, report of such interest rate; or (4) any
other generally accepted authoritative source as Bank may reference
(the "Unadjusted LIBOR"); (B) AS ADJUSTED for the LIBOR Reserve, if
any, in accordance with the formula:
LIBOR Interest Rate = Unadjusted LIBOR
-----------------
1 - LIBOR Reserve
LIBOR Interest Rate, as so determined, will be the fixed rate of
interest relative to any LIBOR Advance for each calendar day of such
Interest Period. Bank's determination of LIBOR Interest Rate from time
to time will be conclusive and binding on Borrower in the absence of
manifest error.
H. "LIBOR Reserve" means a per annum rate, expressed as a decimal
truncated to the nearest one-hundredth of a percent, equal to the
maximum aggregate percentage, if any, in effect two (2) Business Days
prior to the first day of such Interest Period, specified by
regulations issued from time to time by the Board of Governors of the
Federal Reserve System, or any successor agency, for determining
reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional
adjustments or other scheduled changes in reserve requirements
applicable to "Eurocurrency Liabilities", as currently defined in
Regulation D of the Board of Governors
- 4 -
<PAGE>
of the Federal Reserve system. For purposes of this definition, every
LIBOR Advance will be deemed a "Eurocurrency Liability" as defined in
said Regulation D.
I. "Prime Advance" means any Advance when and to the extent that the
interest rate therefor is determined by reference to the Prime Rate.
J. "Prime Rate" means the variable rate of interest announced by the Bank
from time to time as its prime or base commercial lending rate, which
rate is not intended to be the lowest rate of interest charged by the
Bank to its borrowers.
IN WITNESS WHEREOF, the parties have executed this Addendum as of this
21st day of September, 1996.
BORROWER
AGREE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Agree Realty Corporation,
a Maryland corporation
Its: General Partner
By: /s/ Richard A. Agree
---------------------------------
Richard A. Agree
Its: President
BANK
MICHIGAN NATIONAL BANK,
a national banking association
By: /s/ Shelia E. Maples
---------------------------------------
Sheila E. Maples
Its: Vice President
- 5 -
<PAGE>
AGREEMENT OF GUARANTOR
By executing this Addendum, Guarantor: (1) acknowledges and agrees
that Guarantor has completely read and understands this Addendum; (2) consents
to all provisions of this Addendum relating to Borrower; (3) agrees to
promptly furnish Bank at least annually with such financial information
concerning Guarantor as Bank shall reasonably request; (4) agrees to all
portions of this Addendum which apply to Guarantor; (5) acknowledges and
agrees that this Addendum has been freely executed without duress and after an
opportunity was provided Guarantor for review of the Business Loan Agreement,
this Addendum and the Guaranty by legal counsel of Guarantor's choice; and (6)
that Bank has provided Guarantor with a copy of the Business Loan Agreement,
this Addendum, the Guaranty, and such other agreements concerning Borrower as
Guarantor has requested.
GUARANTOR:
AGREE REALTY CORPORATION,
a Maryland corporation
By:/s/ Richard A. Agree
---------------------------------
Richard A. Agree
Its: President
- 6 -
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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0
0
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