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 March 31, 2000
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
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(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: (248) 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| |_|
4,394,669 Shares of Common Stock, $.0001 par value,
were outstanding as of May 4, 2000
Agree Realty Corporation
Form 10-Q
Index
- -----------------------------------------------------------------------------
Page
Part I: Financial Information
Item 1. Interim Consolidated Financial Statements 3
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 4-5
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 6
Consolidated Statement of Stockholders' Equity for the
three months ended March 31, 2000 7
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II: Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
Agree Realty Corporation
Part I: Financial Information
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Real Estate Investments
Land $ 40,274,374 $ 40,270,367
Buildings 137,846,136 135,709,128
Property under development 2,565,532 3,878,611
------------- -------------
180,686,042 179,858,106
Less accumulated depreciation (27,212,478) (26,342,296)
------------- -------------
Net Real Estate Investments 153,473,564 153,515,810
Cash and Cash Equivalents 257,755 1,064,241
Accounts Receivable - Tenants 398,685 565,133
Investments In and Advances To
Unconsolidated Entities 274,885 449,676
Unamortized Deferred Expenses
Financing 1,499,397 1,587,397
Leasing costs 278,572 282,629
Other Assets 849,937 730,651
------------- -------------
$ 157,032,795 $ 158,195,537
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
4
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Mortgage Payable $ 52,615,801 $ 52,936,571
Construction Loans 15,810,637 15,322,071
Notes Payable 27,158,232 27,158,232
Dividends and Distributions Payable 2,333,219 2,317,670
Accrued Interest Payable 346,317 344,875
Accounts Payable
Operating 456,848 855,886
Capital expenditures 569,935 1,315,597
Tenant Deposits 52,177 52,073
------------ ------------
Total Liabilities 99,343,166 100,302,975
------------ ------------
Minority Interest 5,797,222 5,859,012
------------ ------------
Stockholders' Equity
Common stock, $.0001 par value;
20,000,000 shares authorized,
4,398,669 and 4,364,867 shares
issued and outstanding 440 436
Additional paid-in capital 63,688,433 63,217,235
Deficit (11,076,999) (10,673,302)
------------ ------------
52,611,874 52,544,369
Less: unearned compensation - restricted stock (719,467) (510,819)
------------ ------------
Total Stockholders' Equity 51,892,407 52,033,550
------------ ------------
$157,032,795 $158,195,537
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
5
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statements of Income (Unaudited)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
Revenues
Rental income $ 5,152,382 $ 4,716,423
Operating cost reimbursement 648,524 656,532
Management fees and other 11,982 9,263
----------- -----------
Total Revenues 5,812,888 5,382,218
----------- -----------
Operating Expenses
Real estate taxes 445,620 422,412
Property operating expenses 410,413 446,303
Land lease payments 140,665 136,915
General and administrative 391,895 316,045
Depreciation and amortization 899,642 848,896
----------- -----------
Total Operating Expenses 2,288,235 2,170,571
----------- -----------
Income From Operations 3,524,653 3,211,647
----------- -----------
Other Income (Expense)
Interest expense, net (1,658,520) (1,386,685)
Equity in net income of
unconsolidated entities 1,600 6,934
----------- -----------
Total Other Expense (1,656,920) (1,379,751)
----------- -----------
Income Before Minority Interest 1,867,733 1,831,896
Minority Interest 248,042 244,897
----------- -----------
Net Income $ 1,619,691 $ 1,586,999
============ ===========
Earnings Per Share $ .37 $ .36
============ ===========
Weighted Average Number of
Common Shares Outstanding 4,398,669 4,364,867
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
6
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statement of Stockholders' Equity (Unaudited)
- -----------------------------------------------------------------------------
Unearned
Common Stock Additional Compensation-
---------------------- Paid-In Restricted
Shares Amount Capital Deficit Stock
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 4,364,867 $ 436 $63,217,235 $(10,673,302) $ (510,819)
Issuance of shares under
Stock Incentive Plan 33,802 4 471,198 -- (267,648)
Vesting of restricted stock -- -- -- -- 59,000
Dividends declared for the period
January 1, 2000 to March 31, 2000 -- -- -- (2,023,388) --
Net income for the period
January 1, 2000 to March 31, 2000 -- -- -- 1,619,691 --
--------- ---------- ----------- ------------ ------------
Balance, March 31, 2000 4,398,669 $ 440 $63,688,433 $(11,076,999) $ (719,467)
========= ========== =========== ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
7
<TABLE>
<CAPTION>
Agree Realty Corporation
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,619,691 $ 1,586,999
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 879,268 827,588
Amortization 108,374 111,308
Stock-based compensation 59,000 48,500
Equity in net income of unconsolidated entities (1,600) (6,934)
Minority interests 248,042 244,897
Decrease in accounts receivable 166,448 323,158
Increase in other assets (128,842) (101,755)
Decrease in accounts payable (399,038) (274,135)
Increase in accrued interest 1,442 37,953
Increase (decrease) in tenant deposits 104 (2,333)
------------- -------------
Net Cash Provided By Operating Activities 2,552,889 2,795,246
------------- -------------
Cash Flows From Investing Activities
Acquisition of real estate investments
(including capitalized interest of
$59,000 in 2000 and $147,000 in 1999) (258,001) (519,953)
Investments in and advances to unconsolidated
entities - net 173,580 124,150
------------- -------------
Net Cash Used In Investing Activities (84,421) (395,803)
------------- -------------
Cash Flows From Financing Activities
Dividends and limited partners' distributions paid (2,317,670) (2,309,136)
Payments of payables for capital expenditures (1,112,044) (1,429,019)
Construction loan proceeds 488,566 40,707
Payments of mortgages payable (320,770) (26,398)
Payment of leasing costs (13,036) (18,000)
Line-of-credit proceeds - 900,000
Payment of financing costs - (297,950)
------------- -------------
Net Cash Used In Financing Activities (3,274,954) (3,139,796)
------------- -------------
Net Decrease In Cash and Cash Equivalents (806,486) (740,353)
Cash and Cash Equivalents, beginning of period 1,064,241 994,159
------------- -------------
Cash and Cash Equivalents, end of period $ 257,755 $ 253,806
============= =============
Supplemental Disclosure of Cash flow Information
Cash paid for interest (net of amounts capitalized) $ 1,573,989 $ 1,263,185
============= =============
Supplemental Disclosure of Non-Cash Transactions
Dividends and limited partners' distributions
declared and unpaid $ 2,333,219 $ 2,317,670
Real estate investments financed with
accounts payable $ 569,935 $ 340,695
Shares issued under Stock Incentive Plan $ 471,202 $ 343,249
============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
8
Agree Realty Corporation
Notes to Consolidated Financial Statements
1. Basis of The accompanying unaudited 2000 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, 1999
has been derived from the audited consolidated
financial statements at that date. Operating
results for the three months ended March 31,
2000 are not necessarily indicative of the
results that may be expected for the year
ending December 31, 2000, or for 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,
1999.
2. Earnings Per Share Earnings per share has been computed by
dividing the income by the weighted average
number of common shares outstanding. The per
share amounts reflected in the consolidated
statements of income are presented in
accordance with Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings
per Share"; the amounts of the Company's
"basic" and "diluted" earnings per share (as
defined in SFAS No. 128) are the same.
3. Reclassifications Certain amounts in the 1999 financial
statements have been reclassified to conform
with the 2000 presentation.
9
Agree Realty Corporation
Part I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OEPRATIONS
- -----------------------------------------------------------------------------
Overview
The Company was established to continue to operate and expand the retail
property business of its Predecessors. The Company commenced its operations
on April 22, 1994 with the sale of 2,500,000 shares of common stock in an
initial public offering. The net cash proceeds to the Company from the
completion of this offering were approximately $45.4 million, which were used
primarily to reduce outstanding indebtedness, pay stock issuance costs and
establish a working capital reserve. On May 21, 1997, the Company completed
an offering of 1,625,000 shares of common stock at $20.625 per share; on June
18, 1997 the underwriters exercised their overallotment option for an
additional 28,850 shares at the same per share price (collectively, "the 1997
Offering"). The net proceeds from the 1997 Offering of approximately $31.9
million were used to repay amounts outstanding under the Company's Credit
Facility.
The assets of the Company are held by, and all operations are conducted
through, Agree Limited Partnership (the "Operating Partnership"), of which
the Company is the sole general partner and held an 86.72% interest as of
March 31, 2000. The Company is operating so as to qualify as a real estate
investment trust ("REIT") for federal income tax purposes.
The following should be read in conjunction with the Consolidated Financial
Statements of Agree Realty Corporation, including the respective notes
thereto, which are included in this Form 10-Q.
Comparison of Three Months Ended March 31, 2000 to Three Months Ended March
31, 1999
Rental income increased $436,000, or 9%, to $5,152,000 in 2000, compared to
$4,716,000 in 1999. The increase was the result of the development of four
properties in 1999 and one property in 2000.
Operating cost reimbursement, which represents additional rent required by
substantially all of the Company's leases to cover the tenants' proportionate
share of real estate taxes and property operating expenses, decreased $8,000,
or 1%, to $648,000 in 2000, compared to $656,000 in 1999. Operating cost
reimbursement decreased due to the net decrease in real estate taxes and
property operating expenses.
Management fees and other income remained relatively constant at $12,000 in
2000 compared to $9,000 in 1999.
Real estate taxes increased 24,000, or 5%, to $446,000 in 2000 compared to
$422,000 in 1999. The increase is the result of general assessment increases
on the Company's properties.
Property operating expenses (shopping center maintenance, insurance and
utilities) decreased $36,000, or 8%, to $410,000 in 2000 compared $446,000 in
1999. The decrease was the result of decreased snow removal costs of $55,000;
an increase in shopping center maintenance costs of $18,000 and an increase
in insurance cost of $1,000.
10
Land lease payments remained relatively constant at $141,000 in 2000 compared
to $137,000 in 1999.
General and administrative expenses increased $76,000, or 24%, to $392,000 in
2000 compared to $316,000 in 1999. The increase was primarily the result of
an increase in compensation-related expenses as a result of the addition of
an employee. General and administrative expenses as a percentage of rental
income increased from 6.7% for 1999 to 7.6% for 2000.
Depreciation and amortization increased $51,000, or 6%, to $900,000 in 2000
compared to $849,000 in 1999. The increase was the result of the development
and acquisition of four properties in 1999 and one property in 2000.
Interest expense increased $272,000, or 20%, to $1,659,000 in 2000, from
$1,387,000 in 1999. The increase in interest expense was the result of the
Company's additional borrowing to finance its development projects.
Equity in net income of unconsolidated entities decreased $5,000 to $2,000 in
2000 compared to $7,000 in 1999 as a result of increased depreciation expense
in 2000 related to certain of the Joint Venture Properties in which the
Company holds interests ranging from 8% to 20%.
The Company's income before minority interest increased $36,000 as a result
of the foregoing factors.
11
Funds from Operations
Management considers Funds from Operations ("FFO") to be a supplemental
measure of the Company's operating performance. FFO is defined by the
National Association of Real Estate Investments Trusts, Inc. ("NAREIT") to
mean net income computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring and
sales of property, plus real estate related depreciation and amortization,
and after adjustments for unconsolidated entities in which the REIT holds an
interest. FFO does not represent cash generated from operating activities in
accordance with GAAP and is not necessarily indicative of cash available to
fund cash needs. FFO should not be considered as an alternative to net income
as the primary indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity.
The following tables illustrate the calculation of FFO for the three months
ended March 31, 2000 and 1999:
Three Months Ended March 31, 2000 1999
- ----------------------------------------------------------------------------
Net income before minority interest $1,867,733 $1,831,896
Depreciation of real estate assets 876,274 827,525
Amortization of leasing costs 17,093 16,686
Amortization of stock awards 59,000 48,500
Depreciation of real estate assets
held in unconsolidated entities 171,980 166,645
---------- ----------
Funds from Operations $2,992,080 $2,891,252
========== ==========
Weighted Average Shares and OP Units Outstanding 5,072,216 5,038,414
========== ==========
FFO increased $101,000, or 3%, for the three months ended March 31, 2000,
to $2,992,000. The increase in FFO is primarily the result of the
development of four properties in 1999 and one property in 2000.
12
Forward-Looking Statements
Management has included herein certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended. When used,
statements which are not historical in nature including the words
"anticipate," "estimate," "should," "expect," "believe," "intend" and similar
expressions are intended to identify forward-looking statements. Such
statements are, by their nature, subject to certain risks and uncertainties.
Risks and other factors that might cause such a difference include, but are
not limited to, the effect of economic and market conditions; risks that the
Company's acquisition and development projects will fail to perform as
expected; financing risks, such as the inability to obtain debt or equity
financing on favorable terms; the level and volatility of interest rates;
loss or bankruptcy of one or more of the Company's major retail tenants; and
failure of the Company's properties to generate additional income to offset
increases in operating expenses.
Liquidity and Capital Resources
The Company's principal demands for liquidity are distributions to its
stockholders, debt repayment, development of new properties and future
property acquisitions.
During the quarter ended March 31, 2000, the Company declared a quarterly
dividend of $.46 per share. The dividend was paid on April 13, 2000, to
holders of record on March 31, 2000.
As of March 31, 2000, the Company had total mortgage indebtedness of
$52,615,801 with a weighted average interest rate of 6.92%. Future scheduled
annual maturities of mortgages payable for the years ending March 31 are as
follows: 2001 - $1,320,140; 2002 - $1,433,456; 2003 - $1,535,387; 2004 -
$1,644,572; and 2005 - $1,761,523. This mortgage debt is all fixed rate debt.
In addition, the Operating Partnership has in place a $50 million line of
Credit Facility (the "Credit Facility") which is guaranteed by the Company.
The loan matures in August 2000 and can be extended by the Company for an
additional three years. Advances under the Credit Facility bear interest
within a range of one-month to six-month LIBOR plus 150 basis points to 213
basis points or the bank's prime rate less 50 basis points to plus 13 basis
points, at the option of the Company, based on certain factors such as debt
to property value and debt service coverage. The Credit Facility is used to
fund property acquisitions and development activities and is secured by most
of the Company's Properties which are not otherwise encumbered and properties
to be acquired or developed. As of March 31, 2000, $27,158,232 was
outstanding under the Credit Facility.
13
The Company also has in place a $5 million line of credit (the "Line of
Credit"), which matures on December 19, 2000, and which the Company expects
to renew for an additional 12-month period. The Line of Credit bears interest
at the bank's prime rate less 50 basis points or 175 basis points in excess
of the one-month LIBOR rate, at the option of the Company. The purpose of the
Line of Credit is to provide working capital to the Company and fund land
options and start-up costs associated with new projects. As of March 31,
2000, there were no outstanding borrowings under the Line of Credit.
The Company's wholly-owned subsidiaries have obtained construction financing
of approximately $16,100,000 to fund the development of four retail
properties. The notes require quarterly interest payments, based on a
weighted average interest rate based on LIBOR, computed by the lender. The
notes mature on October 16, 2002 and are secured by the underlying land and
buildings. As of March 31, 2000, $14,080,147 was outstanding under these
notes.
The Company has received funding from an unaffiliated third party for the
construction of certain of its 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 March 31, 2000, $1,730,490
was outstanding under this arrangement.
The Company has one development project under construction that will add an
additional 14,000 square feet of retail space to the Company's portfolio. The
project is expected to be completed during the second quarter of 2000.
Additional Company funding required for this project is estimated to be
$200,000 and will come from the Credit Facility. Management expects the
development of this project to have a positive effect on cash generated by
operating activities and Funds from Operations.
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. Management believes that adequate cash flow will be available to fund
the Company's 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 capital stock. The Company intends to incur additional debt in a manner
consistent with its policy of maintaining a ratio of total debt (including
construction and acquisition financing) to total market capitalization of 65%
or less.
14
The Company plans to begin construction of additional pre-leased developments
and may acquire additional properties, which will initially be financed by
the Credit Facility and Line of Credit. Management intends to periodically
refinance short-term construction and acquisition financing with long-term
debt and/or equity. Upon completion of refinancing, the Company intends to
lower the ratio of total debt to market capitalization to 50% or less.
Nevertheless, the Company may operate with debt levels or ratios which are in
excess of 50% for extended periods of time prior to such refinancing.
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.
15
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not
quantifiable or predictable because of the variability of future interest
rates and the Company's future financing requirements.
Mortgages payable - As of March 31, 2000 the Company had three mortgages
outstanding. The first mortgage in the amount of $32,990,741 bears interest
at 7.00%. The mortgage matures on November 15, 2005. The second mortgage in
the amount of $7,488,937 bears interest at 7.00%. The mortgage matures on
April 1, 2013 and is subject to a rate review after the 7th year (April 1,
2006). The third mortgage in the amount of $12,136,123 bears interest at
6.63%. The mortgage matures on February 5, 2017.
Construction loans - As of March 31, 2000 the Company had Construction loans
outstanding of $14,080,147. Under the terms of the construction loans the
Company bears no interest rate risk.
Notes Payable - As of March 31, 2000 the Company had $27,158,232 outstanding
on its Lines-of Credit which were subject to interest at a variable interest
rate based on LIBOR.
The Company does not enter into financial instrument transactions for trading
or other speculative purposes or to manage interest rate exposure.
A 10% adverse change in interest rates on the portion of the Company's debt
bearing interest at variable rates would result in an annual increase in
interest expense of approximately $200,000.
16
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
3.1 Articles of Incorporation and Articles of Amendment
of the Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form
S-11 (Registration Statement No. 33-73858, as
amended ("Agree S-11"))
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.3 to Agree S-11)
10.1 Employment Agreement, dated January 10, 2000, by and
between the Company, and David J. Prueter
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
17
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: May 4, 2000
- --------------------------------------------
18
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT made this 10th day of January,
2000, by and between AGREE REALTY CORPORATION, a Maryland corporation (the
"Company"), and DAVID PRUETER (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is expected to make certain contributions
to the financial strength of the Company
WHEREAS, the Company desires to assure itself of the continuity of
management and desires to establish certain compensation rights of certain of
its key senior executive officers, including the Executive; and
WHEREAS, the Company desires to employ the Executive and the
Executive desires to accept such employment on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:
1. Employment; Term. The Company hereby employs the Executive as
Vice President of the Company and the Executive agrees to serve the
Company in such capacity for the period commencing the date
1
hereof (the "Effective Date") and ending on the fifth anniversary of the
Effective Date (the "Initial Term").
2. Termination. Subject to the terms and conditions set forth
herein, the Executive's employment may be terminated by either party hereto
upon thirty (30) days' written notice to the other party hereto.
3. Duties. The Executive shall be responsible for the supervision,
control and conduct of the development and leasing affairs business of the
Company and shall have such additional duties and any additional
responsibilities as are normally assigned to a Vice President which may from
time to time be reasonably designated by the Board of Directors of the
Company (the "Board"), provided that in no event shall the scope of his
duties and the extent of his responsibilities be substantially different from
the duties and responsibilities usually associated with those positions in a
corporation similar in size and function to the Company. At all times, the
Executive shall be subject to the direction of the Board. During the period
the Executive is employed by the Company (the "Employment Period"), the
Executive shall devote his full business time and best efforts to the
business and affairs of the Company and its subsidiaries.
4. Compensation. The Company shall pay the Executive a salary at
the rate of one hundred forty thousand dollars ($140,000.00) per annum during
the first year of this contract. The annual salary for the balance of the
contract is as follows: year two - $150,000; year
2
three - $160,000; years four and five - $160,000 minimum. Such compensation
shall be shall be payable in accordance with the usual payroll practices of
the Company, as compensation to the Executive for the services rendered by
the Executive hereunder, including, but not limited to, all services rendered
by the Executive as an officer of the Company and its subsidiaries.
5. Benefits.
(a) The Company agrees to reimburse the Executive for all
reasonable and necessary travel, business entertainment and other business
expenses incurred by the Executive in connection with the performance of his
duties under this Employment Agreement. Such reimbursements shall be made by
the Company on a timely basis upon submission by the Executive of vouchers,
in accordance with the Company's standard procedures. All such reimbursements
shall be subject to limitations, which may from time to time be prescribed by
the Board.
(b) The Executive shall be entitled to participate in any and
all life insurance , medical insurance group health, disability insurance,
and other benefit plans which are made generally available during the
Employment Period by the Company to executives of the Company, including, but
not limited to, the Company's Stock Incentive Plan, Profit Sharing Plan and
performance Bonus Plan (to the extent that the Executive qualifies under the
eligibility provisions of such plan or plans).
3
Additionally, the Executive shall be entitled to receive annual paid vacation
and paid holidays made available pursuant to Company policy to all of the
senior executives of the Company.
(c) In the event of the death or disability of the Executive, the
Executive's employment hereunder shall terminate and in addition to any
amounts payable at such time and in accordance with the terms of Paragraph 4
hereof (appropriately pro-rated), the Company shall, for the longer of (i)
the remainder of the calendar year in which the Executive dies or becomes
disabled or (ii) six (6) months, but in no event longer than the remainder of
the Initial Term, pay to the Executive or the Executive's personal
representative, as the case may be, the Executive's salary at the date of
such death or disability. For the purposes hereof, the term "disability"
shall mean the absence of the Executive, due to physical or mental illness,
on a full time basis for one hundred twenty (120) consecutive business days
or for shorter periods which aggregate more than four months during any
consecutive twelve (12) month period.
(d) In the event the employment of the Executive is terminated by
the Company for any reason other than for cause (as defined below), the
Executive shall be entitled to all amounts payable during the Initial Term
(including, but not limited to, salary at the then applicable rate) within
ten (10) days of such termination and the Executive shall have the right to
continue to participate in all benefits plans made generally available by the
Company to its executives during the Initial Term. For
4
purposes of this Section 5(d) the term "cause" shall mean: (i) the
Executive's willful failure or refusal to perform specific reasonable written
directives of the Board, which directives are consistent with the scope and
nature of the Executive's duties and responsibilities under this Employment
Agreement, and which are not remedied by the Executive within sixty (60) days
after being notified, in writing, of his failure by the Board; (ii) the
Executive's conviction of a felony; (iii) any act of dishonesty involving the
Company which results in an unjust gain or enrichment to the Executive at the
expense of the Company; (iv) any act involving moral turpitude of the
Executive which adversely affects the business of the Company; or (v) a
material breach by the Executive of his obligations under Section 7 hereof.
(e) In the event this Employment Agreement is terminated by the
Company for "cause," the Executive shall forfeit his right to any and all
benefits (other than any previously vested benefits, including, without
limitation, the Executive's salary through the date of termination) which the
Executive would otherwise have been entitled to receive pursuant to the terms
of this Employment Agreement.
6. Change in Control of the Company
If a Change in Control (as hereinafter defined) of the Company occurs prior
to the scheduled expiration of the Term and within three years after the
Change in Control of the Company, Executive is terminated by the Company for
reasons other than Death, Disability, or Cause, the
5
Company or any successor thereto, within 30 days of Executive's termination
of employment, will pay to Executive, an amount equal to the greater of (i) 3
times Executive's compensation, or (ii) the Executive's compensation due over
the Initial Term of this agreement which, for purposes of this Section,
Executive Compensation shall mean an amount equal to the highest annualized
rate of Executive's Salary prior to the date of termination. For purposes of
this Agreement, a "Change in Control" shall have occurred if at any time
during the Term any of the following events occurs:
(a) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person and as a result of such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders
of Voting Stock (as hereinafter defined) of the Company immediately prior to
such transaction;
(b) The Company sells all or substantially all of its assets to
any other corporation or other legal person, less than a majority of the
combined voting power of the then-outstanding voting securities of which are
held in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale;
6
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing
that any person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing 25%
or more of the combined voting power of the then-outstanding securities of
the Company entitled to vote generally in the election of directors of the
Company ("Voting Stock").
(d) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may
have occurred or will or may occur in the future pursuant to any
then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of
each director of the Company first elected during such period was approved by
a vote of at least two-thirds of the directors of the
7
Company then still in office who were directors of the Company at the
beginning of any such period.
Notwithstanding the foregoing provision of Section 6(c) or 6(d) hereof, a
"Change in Control" shall not be deemed to have occurred for purposes of this
Agreement solely because the Company, an entity in which the Company directly
or indirectly beneficially owns 50% or more of the voting securities of such
entity, any Company-sponsored employee stock ownership plan or any other
employee benefit plan of the Company either files or becomes obligated to
file a report or a proxy statement under or in response to Schedule 13D,
Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) under the Exchange Act, disclosing beneficial
ownership by it of shares of voting securities of the Company, whether in
excess of 25% or otherwise, or because the Company, reports that a change in
control of the Company has or may have occurred or will or may occur in the
future by reason of such beneficial ownership.
7. Non-Competition. The Executive agrees that (a) at all times
during the Initial Term, if the Executive is terminated for "cause" or
voluntarily terminates his employment hereunder and (b) at all times during
the Employment Period, the Executive shall not engage in any business which
is competitive with the then current business of the Company or any of its
subsidiaries. For the purposes of this Paragraph
8
7, a business shall be deemed competitive if it consists of or includes any
type or line of business engaged in by the Company or any of its subsidiaries
at the time of such terminations and which is conducted in whole or in part,
within those states where the Company then conducts business. The executive
shall be deemed, directly or indirectly, to engage in a business if he
participates in such business as a director, officer, stockholder, employee,
salesman, partner or individual proprietor, or if he participates in such
business as an investor who has made advances on loan, contributions to
capital or expenditures for the purchase of stock, permits his name to be
used by, acts as a paid consultant or paid advisor to, or if the Executive
exerts a controlling influence over such business, provided that nothing
herein contained shall be deemed to preclude the purchase of securities of
publicly owned companies which securities are listed on a national securities
exchange, but the total holding of any such securities so listed shall be
limited to five percent (5%) of the amount of such securities outstanding.
8. Confidentiality. The Executive shall not at any time use or
divulge, furnish or make accessible to anyone (other then in the regular
course of the business of the Company or any of its subsidiaries) any
knowledge or information of trade secrets and proprietary information which
has not otherwise become publicly available (including, but not limited to,
any information concerning customers or accounts) with respect to the
business affairs of the Company or any of its subsidiaries.
9
9. Notices. All notices relating to this Employment Agreement
shall be in writing and shall be deemed to have been given at the time when
delivered personally or sent in the United States by registered or certified
mail, return receipt requested, in a postpaid envelope, addressed to the
other party at the address set forth below, or to such changed address as the
other party may have fixed by notice; provided, however, that any notice of
change of address shall be effective only upon receipt:
To the Company Agree Realty Corporation
31850 Northwestern Highway
Farmington Hills, MI 48334
To the Executive 38982 Plumbrook Drive
Farmington Hills, MI 48331
10. Assignability, Binding Effect and Survival. This Employment
Agreement shall inure to the benefit of and be binding upon the Company, its
successors and assigns, including without limitation any corporation which
may acquire all or substantially all of the Company's assets and business or
with or into which the Company may be consolidated or merged, and shall inure
to the benefit of and be binding upon the Executive, his heirs, executors,
administrators and legal representatives, provided that the obligations of
the Executive hereunder may not be delegated.
11. Complete Understanding; Amendment; Waiver. This Employment
Agreement constitutes the complete understanding between the parties with
respect to the employment of the Executive hereunder,
10
and no statement, representation, warranty or covenant has been made by
either party with respect thereto except as expressly set forth herein. This
Employment Agreement shall not be altered, modified, amended or terminated
except by written instrument signed by each of the parties hereto. Waiver by
either party hereto of any breach hereunder by the other party shall not
operate as a waiver of any other breach, whether similar to or different from
the breach waived. No delay on the part of the Company or the Executive in
the exercise of any of their respective rights or remedies shall operate as a
waiver thereof, and no single or partial exercise by the Company or the
Executive of any such right or remedy shall preclude other or further
exercise thereof.
12. Severability. If any provision of this Employment Agreement
or the application of any such provision to any party or circumstances shall
be determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Employment Agreement or
the application of such provision to such person or circumstances other than
those to which it is so determined to be invalid and unenforceable, shall not
be affected thereby, and each provision hereof shall be enforced to the
fullest extent permitted by law.
13. Governing Law. This Employment Agreement shall be governed and
construed in accordance with the internal laws of the State of Michigan
without regard to conflict of laws provisions.
11
14. Indemnification. The Company shall indemnify the Executive
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees actually and necessarily incurred, in any action or
proceeding to which the Executive is made a party by reason of the fact that
he is or was an officer or director of the Company, to the fullest extent
permitted by law, the By-laws of the Company and the Articles of
Incorporation of the Company.
15. Counterparts. This Employment Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all parties hereto.
16. Titles and Captions. All paragraph, article or section titles
or captions in this Employment Agreement are for convenience only and in no
way define, limit, extend or describe the scope or intent of any provisions
hereof.
IN WITNESS WHEREOF, each of the parties hereto has duly executed
this Employment Agreement as of the date first above written.
AGREE REALTY CORPORATION
By: /s/ RICHARD AGREE
--------------------
Name: Richard Agree
Title: President
/s/ DAVID PRUETER
--------------------
David Prueter
12
ADDENDUM TO EMPLOYMENT AGREEMENT DATED
JANUARY 10, 2000
David Prueter (Executive) to receive the following compensation in addition
to that which is in the above referenced Employment Agreement.
1. $50,000.00 moving allowance
2. Reimbursement or payment for car lease and insurance expense.
3. 2,500 shares of Agree Realty Corporation stock as an annual bonus per
the attached Restricted Stock Agreement
4. 2,500 shares of Agree Realty Corporation stock for each deal (anchor
type tenant) developed due to his efforts per the attached Restricted
Stock Agreement. These shares are deemed to be earned at the time of
lease commencement.
5. At the expiration of the Employment Agreement, the Company shall have
the right to either 1) have all Restricted Shares immediately vest
and the restrictions shall lapse entirely or 2) purchase those
Restricted Shares which have not vested from the Executive at the
fair market value of said shares. The fair market value shall be
based on the average stock price for the thirty (30) days preceding
the expiration of the Employment Agreement.
6. In the event the employment of the Executive is terminated by the
Company for any reason other than cause (as defined in the Employment
Agreement) all restricted shares of the Executive, as defined in the
Restricted Stock Agreement, shall immediately vest and the
restrictions shall lapse.
Page 2 -
Addendum to Employment Agreement
7. The restrictions set forth in Section 2.1 of the Restricted Stock
Agreement shall lapse entirely in the event of the death or
disability of the Executive as defined in 5(C) of the Employment
Agreement.
AGREE REALTY CORPORATION
By: /s/ RICHARD AGREE
--------------------
Richard Agree
Its: President
/S/ DAVID PRUETER
-----------------
David Prueter
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT (the "Agreement") dated January 1, 2000
between AGREE REALTY CORPORATION, a Maryland Corporation (the "Company"), and
David Prueter, an employee of the Company (the "Grantee").
The Company's Board of Directors has determined that the Company's
objectives will be furthered by the grant to the Grantee of ______ shares
(the "Restricted Shares") of Common Stock of the Company, par value $.0001
per share, subject to the restrictions set out in this agreement,
consideration for the issuance of which is based on services heretofore
rendered to the Corporation by the Grantee, the Board of Directors having
determined that such services represent at least $_______ per share.
The Grantee delivers herewith a stock power duly endorsed in
blank. The stock power will be returned to the Grantee when all restrictions
on the Restricted Shares have expired as provided in Section 2.
In consideration of the foregoing and of the mutual undertakings
set forth in this Agreement, the Company and the Grantee hereby agree as
follows:
SECTION 1. Issuance of Restricted Shares. As soon as practicable
after receipt from the Grantee of this executed Agreement, the
1
Company shall issue in the name of the Grantee five stock certificates each
representing one-fifth of the total number of Restricted Shares, each of
which certificates shall remain in the possession of the Company until the
Restricted Shares represented thereby are free of the restrictions set forth
in Section 2. Upon the issuance of such certificates, the Grantee shall have
all the rights of a stockholder with respect to the Restricted Shares,
subject to the restrictions set forth in Section 2.
SECTION 2. Restrictions.
2.1 Restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of prior to the applicable
Expiration Date as provided in Section 2.2. These restrictions shall apply as
well to any shares of common stock or other securities of the Company which
may be acquired by the Grantee in respect of the Restricted Shares as a
result of any stock split, stock divided, combination of shares or other
change, or any exchange, reclassification or conversion of securities.
2.2 Unless terminated sooner pursuant to Section 2.3, the
restrictions set forth in Section 2.1 shall expire with respect to one-fifth
of the total number of Restricted Shares on each of the first, second, third,
fourth and fifth anniversaries of the date of this Agreement (the "Expiration
Dates"). As soon as practicable after each Expiration Date, the Company shall
deliver to the Grantee, subject to the provisions of
2
Sections 4 and 5, the stock certificate representing the shares which became
free of restrictions on such Expiration Date.
2.3 The restrictions set forth in Section 2.1 shall lapse
entirely in the event that the stockholders of the Company approve an
agreement to merge, consolidate, liquidate or sell all or substantially all
of the assets of the Company, and the date of such approval shall be deemed
an Expiration Date for purposes of Section 2.2.
SECTION 3. Termination. During the 120 days following termination
of the Grantee's employment with the Company for any reason, the Company
shall have the right to cancel the stock certificate(s) representing any
restricted Shares on which the restrictions have not expired as of the date
of such termination. For purposes of this Agreement, an individual's
"employment" shall include any and all periods during which such individual
is an employee of the Company or serves as an officer or director of or
consultant to the Company, but is not otherwise an employee. If the Board of
Directors determines that the termination of the Grantee's employment is a
dismissal for cause, it may in its discretion retroactively deem the
Grantee's date of termination to be the date of the action that is the cause
for dismissal. The Board of Directors may in its discretion determine whether
any leave of absence constitutes a termination of employment within the
meaning of this Agreement.
3
SECTION 4. Consents.
4.1 Notwithstanding anything to the contrary contained herein, if
the Company shall at any time determine that any Consent (as hereinafter
defined) is necessary or desirable as a condition to, or in connection with,
the issuance or transfer of shares of Common Stock or the taking of any other
action in connection with this Agreement, then such action shall not be
taken, in whole or in part, unless and until such Consent shall have been
effected or obtained to the full satisfaction of the Company, or the Company
may require that such action be taken only in such manner as to make such
Consent unnecessary.
For purposes of Section 4.1, the term "Consent" means (a) any and all
listings, registrations or qualifications in respect thereof upon any
securities exchange or under any federal, state or local law, rule or
regulation, (b) any and all written agreements and representations by the
Grantee with respect to the acquisition or disposition of shares of Common
Stock, or with respect to any other matter, which the Company shall deem
necessary or desirable to comply with the terms of any such listing,
registration or qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made and (c) any and
all consents, clearances and approvals by any governmental or other
regulatory bodies.
SECTION 5. Investment Representation. The Grantee understands that the shares
of Common Stock which he is
4
acquiring are not registered under the Securities Act of 1933, as amended, or
under state securities laws and will not necessarily become registered in the
future, and that, consequently, even after expiration of the restrictions set
forth in Section 2 he may be unable to sell such shares without either
registration under such Act and compliance with applicable state securities
laws or the availability of an exemption therefrom. The Grantee represents
and warrants the Company that all shares of Common Stock which he is
acquiring are acquired for his own account for investment and the Grantee
agrees that he will not sell or otherwise dispose of any such shares except
in compliance with all applicable federal and state securities laws. The
Grantee agrees that the Company may place a legend upon each certificate
representing shares acquired by him under the Plan, which legend will refer
to the restrictions on transferability contained, or referred to, herein.
SECTION 6. Right of Discharge Reserved. Nothing in the Plan or in
this Agreement shall confer upon the Grantee the right to continue in the
employ or service of the Company or affect any right, which the Company may
have to terminate the employment or service of the Grantee.
SECTION 7. Section Headings. The Section headings contained herein
are for purposes of convenience only and are not intended to define or limit
the contents of said Sections.
5
SECTION 8. Notices. Any notice to be given to the Company
hereunder shall be in writing and shall be addressed to the Company at 31850
Northwestern Highway, Farmington Hills, MI 48334, attention: President, or at
such other address as the Company may hereafter designate to the Grantee by
notice as provided herein. Any notice to be given to the Grantee hereunder
shall be addressed to the Grantee at the address set forth beneath his
signature hereto, or at such other address as he may hereafter designate to
the Company by notice as provided herein. Notices hereunder shall be deemed
to have been duly given when personally delivered or three (3) days after
having been mailed by registered or certified mail to the party entitled to
receive the same.
SECTION 9. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the successors and
assigns of the Company and the Grantee's heirs and representatives of his
estate.
SECTION 10. Other Payments or Awards. Nothing contained in this
Agreement shall be deemed in any way to limit or restrict the Company from
making any award or payment to the Grantee under any other plan, arrangement
or understanding, whether now existing or hereafter in effect.
SECTION 11. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of New
6
York and for all purposes shall be governed by, construed and enforced in
accordance with the internal laws of said State, without reference to
principles of conflict of laws
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
AGREE REALTY CORPORATION
By:______________________________
ATTEST:__________________ Title____________________________
GRANTEE__________________________
_________________________________
_________________________________
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