-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EJrX8u18SlcGguxe39CwULC6fNnrqQ+rIjK49qIPq5KHXLnoEO90g4urk1yfqfYO OdYU5sd4Gon/FiVQ6jlTHw== 0000950124-04-003611.txt : 20040806 0000950124-04-003611.hdr.sgml : 20040806 20040806060140 ACCESSION NUMBER: 0000950124-04-003611 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGREE REALTY CORP CENTRAL INDEX KEY: 0000917251 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 383148187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12928 FILM NUMBER: 04956105 BUSINESS ADDRESS: STREET 1: 31850 NORTHWESTERN HGWY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 BUSINESS PHONE: 8107374190 MAIL ADDRESS: STREET 1: 31850 NORTHWESTERN HIGHWAY CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 10-Q 1 k86607e10vq.htm QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2004 e10vq
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One

     
x
  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2004

OR

     
o
  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
of incorporation or organization) 		  (I.R.S. Employer
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
x 		  No
o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     
Yes
x 		  No
o

6,466,971 Shares of Common Stock, $.0001 par value, were outstanding as of August 6, 2004

 

Agree Realty Corporation

Form 10-Q

Index

             
        Page
Part I:
   Financial Information        
Item 1.
   Interim Consolidated Financial Statements        
 
   Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003     3-4  
 
   Consolidated Statements of Income for the six months ended June 30, 2004 and 2003     5  
 
   Consolidated Statements of Income for the three months ended June 30, 2004 and 2003     6  
 
   Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2004     7  
 
   Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003     8-9  
 
   Notes to Consolidated Financial Statements     10  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     11-19  
  Quantitative and Qualitative Disclosures About Market Risk     19  
  Controls and Procedures     20  
  Other Information        
  Legal Proceedings     21  
  Changes in Securities     21  
  Defaults Upon Senior Securities     21  
  Submission of Matters to a Vote of Security Holders     21  
  Other Information     21  
  Exhibits and Reports on Form 8-K     22  
        23  
 Employment Agreement, dated July 1, 2004 between Richard Agree
 Employment Agreement dated July 1, 2004 between Kenneth R. Howe
 Certification of Chief Executive Officer, pursuant to Section 302
 Certification of Chief Financial Officer, pursuant to Section 302
 Certification of Chief Executive Officer pursuant to Section 906
 Certification of Chief Financial Officer pursuant to Section 906

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Agree Realty Corporation

Consolidated Balance Sheets (Unaudited)

                 
    June 30,   December 31,
    2004
   2003
Assets
                
Real Estate Investments
                
Land
   $ 62,912,606     $ 56,848,606  
Buildings
     166,049,502       161,265,188  
Property under development
     2,034,675       3,110,835  
 
    
 		      
 		  
 
     230,996,783       221,224,629  
Less accumulated depreciation
     (40,592,989 )     (38,475,767 )
 
    
 		      
 		  
Net Real Estate Investments
     190,403,794       182,748,862  
Cash and Cash Equivalents
     198,712       1,004,090  
Cash – Restricted
     —       4,309,914  
Accounts Receivable — Tenants, net of allowance of $70,000 and $120,000 for possible losses
     146,707       622,337  
Investments In and Advances to Unconsolidated Entities
     324,693       330,316  
Unamortized Deferred Expenses
               
Financing
     1,079,427       1,155,427  
Leasing costs
     223,544       231,344  
Other Assets
     1,593,857       1,283,424  
 
    
 		      
 		  
 
   $ 193,970,734     $ 191,685,714  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Consolidated Balance Sheets (Unaudited)

                 
    June 30,   December 31,
    2004
   2003
Liabilities and Stockholders’ Equity
                
Mortgage Payable
   $ 54,905,800     $ 55,967,378  
Construction Loans
     1,569,000       1,569,000  
Notes Payable
     30,400,000       26,500,000  
Dividends and Distributions Payable
     3,463,151       3,447,328  
Accrued Interest Payable
     191,323       167,099  
Accounts Payable
                
Operating
     807,589       1,408,272  
Capital expenditures
     641,159       570,363  
Tenant Deposits
     58,863       47,099  
 
    
 		      
 		  
Total Liabilities
     92,036,885       89,676,539  
 
    
 		      
 		  
Minority Interest
     5,787,837       5,821,739  
 
    
 		      
 		  
Stockholders’ Equity
                
Common stock, $.0001 par value; 20,000,000 shares authorized, 6,466,971 and 6,434,345 shares issued and outstanding
     647       643  
Additional paid-in capital
     109,174,472       108,251,813  
Deficit
     (11,547,973 )     (11,227,636 )
 
    
 		      
 		  
 
     97,627,146       97,024,820  
Less: unearned compensation — restricted stock
     (1,481,134 )     (837,384 )
 
    
 		      
 		  
Total Stockholders’ Equity
     96,146,012       96,187,436  
 
    
 		      
 		  
 
   $ 193,970,734     $ 191,685,714  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Consolidated Statements of Income (Unaudited)

                 
    Six Months Ended   Six Months Ended
    June 30, 2004
   June 30, 2003
Revenues
                
Minimum rents
   $ 12,921,273     $ 11,983,813  
Percentage rents
     40,872       51,060  
Operating cost reimbursements
     1,539,667       1,440,385  
Other income
     1,842       1,777  
 
    
 		      
 		  
Total Revenues
     14,503,654       13,477,035  
 
    
 		      
 		  
Operating Expenses
                
Real estate taxes
     927,659       912,896  
Property operating expenses
     1,099,085       1,033,027  
Land lease payments
     369,480       369,480  
General and administrative
     1,296,420       1,123,000  
Depreciation and amortization
     2,169,995       2,009,438  
 
    
 		      
 		  
Total Operating Expenses
     5,862,639       5,447,841  
 
    
 		      
 		  
Income From Continuing Operations
     8,641,015       8,029,194  
 
    
 		      
 		  
Other Income (Expense)
                
Interest expense, net
     (2,262,515 )     (3,259,020 )
Equity in net income of unconsolidated entities
     193,903       231,399  
 
    
 		      
 		  
Total Other Expense
     (2,068,612 )     (3,027,621 )
 
    
 		      
 		  
Income Before Minority Interest and Discontinued Operations
     6,572,403       5,001,573  
Minority Interest
     619,778       653,702  
 
    
 		      
 		  
Income Before Discontinued Operations
     5,952,625       4,347,871  
Income From Discontinued Operations, net of minority interest of $40,609
     —       270,090  
 
    
 		      
 		  
Net Income
   $ 5,952,625     $ 4,617,961  
 
    
 		      
 		  
Earnings Per Share – Basic and Dilutive
   $ .92     $ 1.03  
 
    
 		      
 		  
Weighted Average Number of Common Shares Outstanding – Basic
     6,466,971       4,479,345  
 
    
 		      
 		  
Weighted Average Number of Common Shares Outstanding — Dilutive
     6,473,740       4,480,654  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Consolidated Statements of Income (Unaudited)

                 
    Three Months Ended   Three Months Ended
    June 30, 2004
   June 30, 2003
Revenues
                
Minimum rents
   $ 6,551,445     $ 6,052,633  
Percentage rents
     16,111       9,651  
Operating cost reimbursements
     689,142       721,250  
Other income
     263       51  
 
    
 		      
 		  
Total Revenues
     7,256,961       6,783,585  
 
    
 		      
 		  
Operating Expenses
                
Real estate taxes
     475,348       445,311  
Property operating expenses
     409,835       428,195  
Land lease payments
     184,740       184,740  
General and administrative
     663,473       566,403  
Depreciation and amortization
     1,086,535       1,003,219  
 
    
 		      
 		  
Total Operating Expenses
     2,819,931       2,627,868  
 
    
 		      
 		  
Income From Continuing Operations
     4,437,030       4,155,717  
 
    
 		      
 		  
Other Income (Expense)
                
Interest expense, net
     (1,158,792 )     (1,674,915 )
Equity in net income of unconsolidated entities
     96,952       112,568  
 
    
 		      
 		  
Total Other Expense
     (1,061,840 )     (1,562,347 )
 
    
 		      
 		  
Income Before Minority Interest and Discontinued Operations
     3,375,190       2,593,370  
Minority Interest
     318,281       338,951  
 
    
 		      
 		  
Income Before Discontinued Operations
     3,056,909       2,254,419  
Income From Discontinued Operations, net of minority interest of $17,975
     —       119,552  
 
    
 		      
 		  
Net Income
   $ 3,056,909     $ 2,373,971  
 
    
 		      
 		  
Earnings Per Share – Basic and Dilutive
   $ .47     $ .53  
 
    
 		      
 		  
Weighted Average Number of Common Shares Outstanding — Basic
     6,466,971       4,479,345  
 
    
 		      
 		  
Weighted Average Number of Common Shares Outstanding – Dilutive
     6,472,257       4,481,962  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Consolidated Statement of Stockholders’ Equity (Unaudited)

                                         
                                     
                                 
    Common Stock
   Additional
Paid-In		           Unearned
Compensation -
Restricted
    Shares
   Amount
   Capital
   Deficit
   Stock
Balance, January 1, 2004
     6,434,345     $ 643     $ 108,251,813     $ (11,227,636 )   $ (837,384 )
Issuance of shares under Stock Incentive Plan
     38,626       4       1,092,339       —       (883,750 )
Shares redeemed under the Stock Incentive Plan
     (6,000 )     —       (169,680 )     —       —  
Vesting of restricted stock
     —       —       —       —       240,000  
Dividends declared for the period January 1, 2004 to June 30, 2004
     —       —       —       (6,272,962 )     —  
Net income for the period January 1, 2004 to June 30, 2004
     —       —       —       5,952,625       —  
 
    
 		      
 		      
 		      
 		      
 		  
Balance, June 30, 2004
     6,466,971     $ 647     $ 109,174,472     $ (11,547,973 )   $ (1,481,134 )
 
    
 		      
 		      
 		      
 		      
 		  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Consolidated Statement of Cash Flows (Unaudited)

                 
    Six Months Ended   Six Months Ended
    June 30, 2004
   June 30, 2003
Cash Flows From Operating Activities
                
Net income
   $ 5,952,625     $ 4,617,961  
Adjustments to reconcile net income to net cash provided by operating activities
                
Depreciation
     2,144,235       2,090,134  
Amortization
     101,760       125,890  
Stock-based compensation
     240,000       184,000  
Equity in net income of unconsolidated entities
     (193,903 )     (231,399 )
Minority interests
     619,778       694,311  
Decrease in accounts receivable
     475,630       368,731  
Decrease (Increase) in other assets
     (335,599 )     82,098  
Decrease in accounts payable
     (600,683 )     (342,840 )
Increase (decrease) in accrued interest
     24,224       (8,407 )
Increase (decrease) in tenant deposits
     11,764       (10,622 )
 
    
 		      
 		  
Net Cash Provided By Operating Activities
     8,439,831       7,569,857  
 
    
 		      
 		  
Cash Flows From Investing Activities
                
Acquisition of real estate investments (including capitalized interest of $83,000 in 2004 and $91,000 in 2003)
     (9,130,995 )     (9,152,653 )
Distributions from unconsolidated entities
     193,903       231,399  
Decrease in restricted cash
     4,309,914       —  
 
    
 		      
 		  
Net Cash Used In Investing Activities
     (4,627,178 )     (8,921,254 )
 
    
 		      
 		  
Cash Flows From Financing Activities
                
Payments of mortgages payable
     (1,061,578 )     (1,216,365 )
Mortgage proceeds
     —       7,699,151  
Dividends and limited partners’ distributions paid
     (6,910,820 )     (4,829,544 )
Payment on construction loan
     —       (26,900 )
Line-of-credit net borrowings (payments)
     3,900,000       (625,000 )
Repayments of capital expenditure payables
     (361,769 )     (423,910 )
Payments for financing costs
     —       (6,954 )
Redemption of restricted stock
     (169,680 )     (101,400 )
Payment of leasing costs
     (14,184 )     (12,089 )
 
    
 		      
 		  
Net Cash Provided By (Used In) Financing Activities
     (4,618,031 )     456,989  
 
    
 		      
 		  
Net Decrease In Cash and Cash Equivalents
     (805,378 )     (894,408 )
Cash and Cash Equivalents, beginning of period
     1,004,090       1,095,610  
 
    
 		      
 		  
Cash and Cash Equivalents, end of period
   $ 198,712     $ 201,202  
 
    
 		      
 		  

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Agree Realty Corporation

Consolidated Statement of Cash Flows (Unaudited)

                 
    Six Months Ended   Six Months Ended
    June 30, 2004
   June 30, 2003
Supplemental Disclosure of Cash flow Information
                
Cash paid for interest (net of amounts capitalized)
   $ 2,225,178     $ 3,173,823  
 
    
 		      
 		  
Supplemental Disclosure of Non-Cash Transactions
                
Dividends and limited partners’ distributions declared and unpaid
   $ 3,463,151     $ 2,499,153  
Shares issued under Stock Incentive Plan
   $ 1,092,343     $ 622,153  
Real estate investments financed with accounts payable
   $ 641,159     $ 345,514  
 
    
 		      
 		  

See accompanying notes to consolidated financial statements.

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Agree Realty Corporation

Notes to Consolidated Financial Statements

         
1.
  Basis of Presentation   The accompanying unaudited consolidated financial statements for the fiscal quarter ended June 30, 2004 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, 2003 has been derived from the audited consolidated financial statements at that date. Operating results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004, 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 on Form 10-K for the year ended December 31, 2003.
 
        
2.
  Earnings Per
Share 		  Earnings per share has been computed by dividing the net 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”.
 
        
3.
  Discontinued
Operations 		  In October 2003 the Company completed the sale of a shopping center for approximately $8.5 million. The shopping center was anchored by Kmart Corporation and Kash N Karry and was located in Winter Garden, Florida. The results of operations for this property are presented as discontinued operations in the Company’s Consolidated Statements of Income.
 
        
      The revenues from this property were $628,298 for the six months ended June 30, 2003. The expenses for this property were $358,208, including minority interest charges of $40,609, for the six months ending June 30, 2003.
 
        
      The revenues from this property were $302,493 for the three months ended June 30, 2003. The expenses for this property were $182,941, including minority interest charges of $17,975 for the three months ending June 30, 2003.

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Agree Realty Corporation

Part I

     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 future results to differ from the statements 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.

Overview

We were established to continue to operate and expand the retail property business of our predecessor. We commenced operations in April 1994. Our assets are held by, and all operations are conducted through, Agree Limited Partnership (the “Operating Partnership”), of which Agree Realty Corporation is the sole general partner and held an 90.57% interest as of June 30, 2004. We are operating so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.

On August 4, 2003, we completed an offering of 1,700,000 shares of common stock at $23.50 per share; on August 12, 2003 the underwriters exercised their over allotment option for an additional 255,000 shares at the same per share price (collectively, the “2003 Offering”). The net proceeds from the 2003 Offering of approximately $43.2 million were used to repay amounts outstanding under the Company’s credit facility.

We have fourteen (14) leases with Kmart Corporation. Eleven (11) of the Kmart stores are currently anchors in the Company’s Community Shopping Centers and three (3) Kmart stores are free-standing net leased properties. The Kmart stores in the Company’s Portfolio provided 16.7% of our Annual Base Rent as of June 30, 2004. Four of the Kmart stores paid percentage rent in addition to their minimum rent during 2003. As of June 30, 2004, all of our Kmart stores were open and operating as Kmart discount stores.

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Agree Realty Corporation

Part I

In May 2003, Kmart Corporation emerged from the bankruptcy proceeding which it had initiated in January 2002. Pursuant to the confirmed plan of reorganization, Kmart closed approximately 600 of its stores, including one located in our center in Lakeland, Florida. Kmart vacated the premises in Lakeland, Florida in April 2003 and we have actively marketed the space formerly occupied by Kmart. Kmart’s annual rent on this property was approximately $480,000 and their annual contribution under the lease for real estate taxes, insurance and common area maintenance was approximately $110,000. Certain tenants in the Lakeland, Florida community shopping center have co-tenancy clauses in their leases which provide either for modification of their rent to be based on gross sales or an option to terminate their lease when the Kmart store closed, and we are unable to obtain a replacement anchor tenant. As of July 31, 2004, none of these tenants has indicated that they will exercise their option to terminate their leases with us. In addition, we have agreed to a rent reduction of $150,000 per year under a Kmart lease for a store in Perrysburg, Ohio. The rent reduction is for a 5-year period.

We have entered into a lease with a department store to lease the entire vacant Kmart space. The terms of the lease are similar to the terms under the previous Kmart lease. We expect the tenant to commence paying rent and other charges in October 2004. In connection with re-letting the Kmart location, we have agreed to make capital expenditures of approximately $600,000 with respect to the property.

During October 2003, we sold a community shopping center that was located in Winter Garden, Florida and was anchored by Kmart. We developed the 233,512 square foot shopping center in 1988. The property was sold to a private investor for approximately $8.5 million. We recognized a gain of approximately $835,000 on the sale.

The lost revenue and increased property expenses resulting from the rejection by any bankrupt tenant of any of their respective leases with the Company could have a material adverse effect on the liquidity and results of operations of the Company, if the Company is unable to re-lease the space at comparable rental rates and in a timely manner.

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.

Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”). The objective of SFAS 150 is to establish standards for how an issuer classifies and measurers certain financial instruments with characteristics of both liabilities and equity. In November 2003 the FASB indefinitely delayed the effective date of SFAS 150 with respect to certain mandatory redeemable non-controlling interests in consolidated financial statements. Adoption of SFAS did no have an impact on the results of operations or financial position of the Company.

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Agree Realty Corporation

Part I

Critical Accounting Policies

In the course of developing and evaluating accounting policies and procedures, we use estimates, assumptions and judgements to determine the most appropriate methods to be applied. Such processes are used in determining capitalization of costs related to real estate investments, potential impairment of real estate investments, operating cost reimbursements, and taxable income.

Real estate assets are stated at cost less accumulated depreciation. All costs related to planning, development and construction of buildings prior to the date they become operational, including interest and real estate taxes during the construction period, are capitalized for financial reporting purposes and recorded as property under development until construction has been completed. Subsequent to completion of construction, expenditures for property maintenance are charged to operations as incurred, while significant renovations are capitalized. Depreciation of the buildings is recorded on the straight-line method using an estimated useful life of forty years.

In determining the fair value of real estate investments, we consider future cash flow projections on a property by property basis, current interest rates and current market conditions of the geographical location of each property.

Substantially all of the Company’s leases contain provisions requiring tenants to pay as additional rent a proportionate share of operating expenses (Operating Cost Reimbursements) such as real estate taxes, repairs and maintenance, insurance, etc. The related revenue from tenant billings is recognized in the same period the expense is recorded.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company’s 1994 tax year. As a result, the Company is not subject to federal income taxes to the extent that we distribute annually at least 90% of its taxable income to our stockholders and satisfy certain other requirements defined in the Code. Accordingly, no provision was made for federal income taxes in the accompanying consolidated financial statements.

Comparison of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2003

Minimum rental income increased $937,000, or 8%, to $12,921,000 in 2004, compared to $11,984,000 in 2003. The increase was the result of rental decreases of ($183,000) from existing properties; an increase of $591,000 due to additional rent as a result of the acquisition of our joint venture partner’s interest in three Joint Venture Properties in 2003; an increase of $258,000 from the acquisition of one property in 2003 and one property in 2004; and an increase of $271,000 from the development of two properties in 2003 and one property in 2004.

Percentage rental income decreased ($10,000), or 20%, to $41,000 in 2004, compared to $51,000 in 2003. The decrease was primarily the result of decreased tenant sales.

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Part I

Operating Cost Reimbursements increased $100,000, or 7%, to $1,540,000 in 2004, compared to $1,440,000 in 2003. Operating cost reimbursements increased due to the increase in real estate taxes and property operating expenses as explained below.

Other income remained constant at $2,000 in 2004 and 2003.

Real estate taxes increased $15,000, or 2%, to $928,000 in 2004, compared to $913,000 in 2003. The increase is the result of general assessment changes on the Company’s properties and additional real estate taxes paid directly by the Company related to a closed Kmart store.

Property operating expenses (shopping center maintenance, insurance and utilities) increased $66,000, or 6%, to $1,099,000 in 2004 compared to $1,033,000 in 2003. The increase was the result of increased snow removal costs of $47,000; a decrease in shopping center maintenance costs of ($13,000); a decrease in utility costs of ($1,000); and an increase in insurance costs of $33,000 in 2004 versus 2003. Included in shopping center maintenance is approximately $85,000 to paint the exterior walls of two shopping centers in 2004. This cost, in accordance with our tenant’s leases was not a reimbursable expense.

Land lease payments remained constant at $369,000 for 2004 and 2003.

General and administrative expenses increased by $173,000, or 15%, to $1,296,000 in 2004, compared to $1,123,000 in 2003. The increase was primarily the result of increased compensation related expenses of $112,000; increased general state taxes of $40,000 and property management related expenses of $21,000. General and administrative expenses as a percentage of total rental income increased from 9.3% for 2003 to 10.0% for 2004.

Depreciation and amortization increased $161,000, or 8%, to $2,170,000 in 2004, compared to $2,009,000 in 2003. The increase was the result of the development of two properties in 2003 and one property in 2004; the acquisition of the joint venture partner’s interest in three (3) Joint Venture Properties in 2003; and the acquisition of one property in 2003 and one property in 2004.

Interest expense decreased $996,000, or 31%, to $2,263,000 in 2004, from $3,259,000 in 2003. The decrease in interest expense was the result of decreased borrowings as a result of the reduction in outstanding indebtedness with the net proceeds from the issuance of additional common stock.

Equity in net income of unconsolidated entities decreased $37,000, or 16%, to $194,000 in 2004 compared to $231,000 in 2003 as a result of the acquisition of our joint venture partner’s interest in three Joint Venture Properties in 2003.

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Part I

The Company’s income before minority interest and discontinued operations increased $1,570,000, or 31%, to $6,572,000 in 2004 from $5,002,000 in 2003 as a result of the foregoing factors.

Comparison of Three Months Ended June 30, 2004 to Three Months Ended June 30, 2003

Minimum rental income increased $498,000, or 8%, to $6,551,000 in 2004, compared to $6,053,000 in 2003. The increase was the result of rental decreases of ($53,000) from existing properties; an increase of $254,000 due to additional rent as a result of the acquisition of our joint venture partner’s interest in three Joint Venture Properties in 2003; an increase of $164,000 from the acquisition of one property in 2003 and one property in 2004; and an increase of $133,000 from the development of two properties in 2003 and one property in 2004.

Percentage rental income increased $6,000, or 67%, to $16,000 in 2004, compared to $10,000 in 2003. The increase was primarily the result of increased tenant sales.

Operating cost reimbursements decreased $32,000, or 4%, to $689,000 in 2004, compared to $721,000 in 2003. Operating cost reimbursements decreased due to the decrease in property operating expense as explained below.

Real estate taxes increased $30,000, or 7%, to $475,000 in 2004, compared to $445,000 in 2003. The increase is the result of general assessment changes on the Company’s properties and additional real estate taxes related to a closed Kmart store.

Property operating expenses (shopping center maintenance, insurance and utilities) decreased $18,000, or 4%, to $410,000 in 2004 compared to $428,000 in 2003. The decrease was the result of increased shopping center maintenance costs of $14,000; a decrease in snow removal costs of ($46,000); a decrease in utility costs of ($2,000); and an increase in insurance costs of $16,000 in 2004 versus 2003. Included in shopping center maintenance is approximately $85,000 to paint the exterior walls of two shopping centers in 2004. This cost, in accordance with our tenant’s leases was not a reimbursable expense.

Land lease payments remained constant at $185,000 for 2004 and 2003.

General and administrative expenses increased by $97,000, or 17%, to $663,000 in 2004, compared to $566,000 in 2003. The increase was primarily the result of an increase in compensation-related expenses of $57,000; increased state taxes of $20,000; and property management related expenses of $20,000. General and administrative expenses as a percentage of total rental income increased from 9.3% in 2003 to 10.1% in 2004.

Depreciation and amortization increased $84,000, or 8%, to $1,087,000 in 2004, compared to $1,003,000 in 2003. The increase was the result of the development of two properties in 2003 and one property in 2004; the acquisition of the joint venture partner’s interest in three (3) Joint Venture Properties in 2003; and the acquisition of one property in 2003 and one property in 2004.

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Part I

Interest expense decreased $516,000, or 31%, to $1,159,000 in 2004, from $1,675,000 in 2003. The decrease in interest expense was the result of decreased borrowings as a result of the reduction in outstanding indebtedness with the net proceeds from the issuance of additional common stock.

Equity in net income of unconsolidated entities decreased $16,000, or 14%, to $97,000 in 2004 compared to $113,000 in 2003 as a result of the acquisition of the joint venture partner’s interest in three Joint Venture Properties in 2003.

The Company’s income before minority interest and discontinued operations increased $782,000, or 30%, to $3,375,000 in 2004 from $2,593,000 in 2003 as a result of the foregoing factors.

Liquidity and Capital Resources

Our principal demands for liquidity are distributions to our shareholders, debt repayment, development of new properties and future property acquisitions.

During the quarter ended June 30, 2004, the Company declared a quarterly dividend of $.485 per share. The dividend was paid on July 13, 2004, to holders of record on June 30, 2004.

As of June 30, 2004, the Company had total mortgage indebtedness of $54,905,800 with a weighted average interest rate of 6.63%. Future scheduled annual maturities of mortgages payable for the years ending June 30 are as follows: 2005 — $2,118,624; 2006 — $2,375,235; 2007 — $2,536,963; 2008 — $2,700,189; and 2009 — $2,874,208. This mortgage debt is all fixed rate debt.

In addition, the operating partnership has in place a $50 million credit facility with Standard Federal Bank, as the agent (Credit Facility), which is guaranteed by the Company. The Credit Facility matures in November 2006 and can be extended for an additional three years. During the three year extension period we will have no further ability to borrow under this facility and will be required to repay a portion of the unpaid principal on a quarterly basis. 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, at our option, 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 June 30, 2004 $27,500,000 was outstanding under the Credit Facility bearing a weighted average interest rate of 2.87%.

We also have in place a $5 million line of credit (Line of Credit), which matures on June 30, 2005. The Line of Credit bears interest at the lender’s prime rate less 50 basis points or 175 basis points in excess of the one-month LIBOR rate, at our option. 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 June 30, 2004, $2,900,000 was outstanding under the Line of Credit bearing a weighted average interest rate of 3.75%.

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Part I

We have received funding from an unaffiliated third party for the construction of one of its properties. Advances under this agreement bear no interest and are secured by the specific land and buildings being developed. As of June 30, 2004, $1,569,000 was outstanding under this arrangement.

The following table outlines our contractual obligations (in thousands) as of June 30, 2004.

                                         
    Total
   Yr 1
   2-3 Yrs
   4-5 Yrs
   Over 5 Yrs
Mortgages Payable
   $ 54,906     $ 2,119     $ 4,912     $ 5,574     $ 42,301  
Construction Loan
     1,569       —       —       —       1,569  
Notes Payable
     30,400       2,900       734       734       26,032  
Land Lease Obligation
     14,702       725       1,533       1,535       10,909  
Other Long-Term Liabilities
     —       —       —       —       —  
 
    
 		      
 		      
 		      
 		      
 		  
Total
   $ 101,577     $ 5,744     $ 7,179     $ 7,843     $ 80,811  
 
    
 		      
 		      
 		      
 		      
 		  

We have one development project under construction that will add an additional 13,650 square feet of GLA to our portfolio. The project is expected to be completed during the fourth quarter of 2004. Additional Company funding required to complete this project is estimated to be $1,300,000 and will come from the Credit Facility.

We intend to meet our 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. We believe that adequate cash flow will be available to fund our operations and pay dividends in accordance with REIT requirements. We may obtain additional funds for future development or acquisitions through other borrowings or the issuance of additional shares of common stock. We intend to incur additional debt in a manner consistent with our policy of maintaining a ratio of total debt (including construction and acquisition financing) to total market capitalization of 65% or less. We believe that these financing sources will enable us to generate funds sufficient to meet both our short-term and long-term capital needs.

We plan 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. We will periodically refinance short-term construction and acquisition financing with long-term debt and /or equity. Upon completion of refinancing, we intend to lower the ratio of total debt to market capitalization to 50% or less. Nevertheless, we may operate with debt levels or ratios, which are in excess of 50% for extended periods of time prior to such refinancing.

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Part I

Inflation

Our leases generally contain provisions designed to mitigate the adverse impact of inflation on net income. These provisions include clauses enabling the us to pass through to tenants certain operating costs, including real estate taxes, common area maintenance, utilities and insurance, thereby reducing the our exposure to increases in costs and operating expenses resulting from inflation. Certain of our leases contain clauses enabling the us 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 us to seek increased rents upon re-lease at market rates if rents are below the then existing market rates.

Funds from Operations

Management considers Funds from Operations (“FFO”) to be a useful supplemental measure to evaluate our operating performance because, by excluding gains or losses on dispositions and excluding depreciation FFO can help one compare the operating performance of our real estate between periods or compare such performance to that of different companies.. FFO 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 (“GAAP”), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization. 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. While we adhere to the NAREIT definition of FFO in making our calculation our method of calculating FFO may not be comparable to the methods used by other REITs and accordingly may be different from similarly titled measures reported by other companies.

The following tables illustrate the calculation of FFO for the six months and three months ended June 30, 2004 and 2003 and a reconciliation of net income to FFO:

                 
Six Months Ended June 30,
   2004
   2003
Net income
   $ 5,952,625     $ 4,617,961  
Depreciation of real estate assets
     2,126,621       2,080,347  
Amortization of leasing costs
     21,984       28,490  
Minority interest
     619,778       694,311  
 
    
 		      
 		  
Funds from Operations
   $ 8,721,008     $ 7,421,109  
 
    
 		      
 		  
Weighted Average Shares and OP Units Outstanding — Dilutive
     7,147,287       5,155,509  
 
    
 		      
 		  

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Part I

                 
Three Months Ended June 30,
   2004
   2003
Net income
   $ 3,056,909     $ 2,373,971  
Depreciation of real estate assets
     1,064,410       1,038,670  
Amortization of leasing costs
     11,214       14,245  
Minority interest
     318,281       356,926  
 
    
 		      
 		  
Funds from Operations
   $ 4,450,814     $ 3,783,812  
 
    
 		      
 		  
Weighted Average Shares and OP Units Outstanding — Dilutive
     7,145,804       5,155,509  
 
    
 		      
 		  

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 roll over 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.

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal payments (in thousands) and the weighted average interest rates on remaining debt, by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.

                                                         
    Year ended June 30,
        
    2005
   2006
   2007
   2008
   2009
   Thereafter
   Total
Fixed rate debt
     2,119       2,376       2,537       2,700       2,874       42,300       54,906  
Average interest rate 6.63
     6.63       6.63       6.63       6.63       6.63                  
Construction loans
     —       —       —       —       —       1,569       1,569  
Average interest rate
     —       —       —       —       —       —       —  
Variable rate debt
     2,900       —       734       734       26,032       —       30,400  
Average interest rate
     3.75       2.87       2.87       3.12       3.12       —       —  

The fair value (in thousands) is estimated at $55,500, $1,569 and $30,400 for fixed rate debt, construction loans and variable rate debt, respectively.

The table above incorporates those exposures that exist as of June 30, 2004; it does not consider those exposures or position, which could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.

We do not enter into financial instruments transactions for trading or other speculative purposes or to manage interest rate exposure.

A 10% adverse change in interest rates on the portion of our debt bearing interest at variable rates would result in an increase in interest expense of approximately $91,000.

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Part I

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Vice-President-Finance have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Vice-President-Finance have concluded that our current disclosure controls and procedures are effective and timely, providing them with material information relating to us required to be disclosed in the reports we file or submit under the Exchange Act.

Changes in Internal Controls

There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses; therefore, no corrective actions were taken.

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Part II

Other Information

Item 1. Legal Proceedings

None

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

On May 10, 2004, the Company held its Annual Meeting of Stockholders. The following were the results of the meeting:

The stockholders elected Ellis Wachs and Leon M. Schurgin as Directors until the annual meeting of stockholders in 2007 or until a successor is elected and qualified.

The vote was as follows:

                 
    Ellis Wachs
   Leon M. Schurgin
Votes cast for
     5,974,080       6,015,719  
Votes withheld
     125,453       83,814  

Item 5. Other Information

None

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Part II

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 July 1, 2004, by and between the Company, and Richard Agree
 
10.2   Employment Agreement dated July 1, 2004, by and between the Company and Kenneth R. Howe
 
31.1   Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2   Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer
 
32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer

(b) Reports on Form 8-K

  •   On July 29, 2004, the Company furnished a Form 8-K disclosing its second quarter 2004 results of operations and financial condition.

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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: August 6, 2004

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Exhibit Index

     
Exhibit no.
   Description
10.1
  Employment Agreement, dated July 1, 2004, by and between the Company, and Richard Agree
 
    
10.2
  Employment Agreement dated July 1, 2004, by and between the Company and Kenneth R. Howe
 
    
31.1
  Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
31.2
  Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
    
32.1
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Richard Agree, Chief Executive Officer
 
    
32.2
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kenneth R. Howe, Chief Financial Officer

 

EX-10.1 2 k86607exv10w1.txt EMPLOYMENT AGREEMENT, DATED JULY 1, 2004 BETWEEN RICHARD AGREE EXHIBIT 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT made this 1st day of July, 2004, by and between AGREE REALTY CORPORATION, a Maryland corporation (the "Company"), and RICHARD AGREE (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 Chairman of the Board of Directors and President of the Company and the Executive agrees to serve the Company in such capacity for the period commencing on July 1, 2004 (the "Effective Date") and ending on June 30, 2009 (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 all the business and affairs of the Company and shall have such additional duties and any additional responsibilities as are normally assigned to a Chief Executive Officer and 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 publicly-held corporation similar in size and function to the Company. The Executive agrees that he will conduct all investigations, make all inquiries, provide all services and execute all reports, certifications and/or attestation required of him in his capacity as the Chief Executive Officer of the Company and the "Principal Executive Officer" of the Company (as defined under the rules and regulations of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by the Sarbanes-Oxley Act of 2002, the related rules and regulations promulgated by the Securities and Exchange Commission and the rules and regulations of the New York Stock Exchange. 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, except for any business activities rendered by the Executive in connection with the partnerships listed on Schedule A. The Executive will not be prevented from (i) engaging in any civic or charitable activity for which the Executive receives no compensation or other pecuniary advantage; (ii) investing his personal 2 assets in businesses which do not compete with the Company, provided that such investment will not require any services on the part of the Executive in the operation of the affairs of the businesses in which investments are made which would unreasonably interfere with his obligations hereunder; (iii) purchasing securities in any corporation whose securities are publicly traded, provided that such purchases will not result in the Executive owning beneficially at any time five percent (5%) or more of the equity securities of any corporation engaged in a business competitive with that of the Company; (iv) serving as a director of any corporation that does not engage in any business which is competitive with the then current business of the Company as any of its subsidiaries (as defined in Section 7 hereof); or (v) participating in any other activity approved in advance in writing by the Board. 4. COMPENSATION. The Company shall pay the Executive a salary at the initial rate of two hundred thousand dollars ($200,000.00) per annum, subject to review by the Board's Compensation Committee. 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 or director of the Company and its subsidiaries. The Compensation Committee shall review the Executive's salary immediately prior to the end of each fiscal year during the Employment Period to determine whether the Executive's salary shall be adjusted based on such criteria as the Compensation Committee shall from time to time establish. (For purposes of this Employment Agreement, the term "salary" shall mean the amount established and adjusted from time to time pursuant to this Section 4.) 3 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 documentation 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). 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 (as defined below) 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 Section 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, 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, 4 and the pro-rata portion of the Executive's average bonus over the previous three calendar years. In addition, all unvested shares of the Company's common stock issued to the Executive under the Company's Stock Incentive Plan shall become fully vested. For the purposes of this Employment Agreement, 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 benefit plans made generally available by the Company to its executives during the Initial Term. In addition, all unvested shares of the Company's common stock issued to the Executive under the Company's Stock Incentive Plan shall become fully vested. For 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. For purposes 5 of this Agreement, no act or failure to act on the part of the Executive shall be deemed "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "willful" only if done or omitted to be done by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The Executive shall not be deemed to have been terminated for "cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "cause" as herein defined and specifying the particulars thereof in detail. (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 defined below) of the Company occurs prior to the scheduled expiration of the Term of this Employment Agreement and within three years after the Change in Control of the Company, the Executive is terminated by the Company for reasons other than death, disability, or cause, the Company, or any successor thereto, will pay to the Executive within 30 days of Executive's termination of 6 employment, an amount equal to the greater of (i) three (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. In addition, all unvested shares of the Company's common stock issued to the Executive under the Company's Stock Incentive Plan shall become fully vested. For purposes of this Agreement, a "Change in Control" shall have occurred if at any time during the Initial 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; (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 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 7 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 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 8 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 if the Executive is terminated for "cause" or voluntarily terminates his employment hereunder, that for a one year 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 Section 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, 9 any information concerning customers or accounts) with respect to the business affairs of the Company or any of its subsidiaries. 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 2455 Wendrick Court West Bloomfield, MI 48322 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, and no statement, representation, warranty or covenant has been made by either party with respect thereto except as expressly set forth herein. This 10 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. 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 11 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 COMPENSATION COMMITTEE By: Gene Silverman ---------------------------- Name: Gene Silverman Title: Chairman By: /s/ Richard Agree ---------------------------- Richard Agree Executive 12 SCHEDULE A Anderson Plaza Brentwood Realty Associates Floyd Realty Associates Gas City Plaza Grant Line Plaza Greenwood Realty Associates Harden Realty Associates Hartman Realty Associates Main Realty Associates Marshall Plaza Parkway Plaza Limited Partnership West Frankfort Plaza T.M.J. Incorporated Radcliff, Inc. Schedule A - 1 EX-10.2 3 k86607exv10w2.txt EMPLOYMENT AGREEMENT DATED JULY 1, 2004 BETWEEN KENNETH R. HOWE EXHIBIT 10.2 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT made this 1st day of July, 2004, by and between AGREE REALTY CORPORATION, a Maryland corporation (the "Company"), and KENNETH R. HOWE (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, Finance and Secretary of the Company and the Executive agrees to serve the Company in such capacity for the period commencing on July 1, 2004 (the "Effective Date") and ending on June 30, 2007 (the "Initial Term"). In addition the Company may, upon giving the Executive 120 days advance written notice either prior to the termination of the Initial Term or any extension thereof, extend this agreement for two (2) additional one year terms, as extended, the "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 all the business and affairs of the Company and shall have such additional duties and any additional responsibilities as are normally assigned to a Chief Financial Officer, Vice President and Secretary 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 publicly-held corporation similar in size and function to the Company. The Executive agrees that he will conduct all investigations, make all inquiries, provide all services and execute all reports, certifications and/or attestation required of him in his capacity as the Chief Financial Officer of the Company and the "Principal Financial Officer" of the Company (as defined under the rules and regulations of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by the Sarbanes-Oxley Act of 2002, the related rules and regulations promulgated by the Securities and Exchange Commission and the rules and regulations of the New York Stock Exchange. 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, except for any business activities rendered by the Executive in connection with the partnerships listed on Schedule A. The 2 Executive will not be prevented from (i) engaging in any civic or charitable activity for which the Executive receives no compensation or other pecuniary advantage; (ii) investing his personal assets in businesses which do not compete with the Company, provided that such investment will not require any services on the part of the Executive in the operation of the affairs of the businesses in which investments are made which would unreasonably interfere with his obligations hereunder; (iii) purchasing securities in any corporation whose securities are publicly traded, provided that such purchases will not result in the Executive owning beneficially at any time five percent (5%) or more of the equity securities of any corporation engaged in a business competitive with that of the Company; (iv) serving as a director of any corporation that does not engage in any business which is competitive with the then current business of the Company as any of its subsidiaries (as defined in Section 7 hereof); or (v) participating in any other activity approved in advance in writing by the Board. 4. COMPENSATION. The Company shall pay the Executive a salary at the initial rate of one hundred thirty one thousand dollars ($131,000.00) per annum, subject to review by the Board's Compensation Committee. 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 or director of the Company and its subsidiaries. The Compensation Committee shall review the Executive's salary immediately prior to the end of each fiscal year during the Employment Period to determine whether the Executive's salary shall be adjusted based on such criteria as the Compensation Committee shall from time to time establish. (For purposes of this Employment Agreement, the term "salary" shall mean the amount established and adjusted from time to time pursuant to this Section 4.) 3 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 documentation 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). 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 (as defined below) 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 Section 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, 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, 4 and the pro-rata portion of the Executive's average bonus over the previous three calendar years. In addition, all unvested shares of the Company's common stock issued to the Executive under the Company's Stock Incentive Plan shall become fully vested. For the purposes of this Employment Agreement, 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 benefit plans made generally available by the Company to its executives during the Initial Term. In addition, all unvested shares of the Company's common stock issued to the Executive under the Company's Stock Incentive Plan shall become fully vested. For 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. For purposes 5 of this Agreement, no act or failure to act on the part of the Executive shall be deemed "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "willful" only if done or omitted to be done by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. The Executive shall not be deemed to have been terminated for "cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "cause" as herein defined and specifying the particulars thereof in detail. (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 defined below) of the Company occurs prior to the scheduled expiration of the Term of this Employment Agreement and within three years after the Change in Control of the Company, the Executive is terminated by the Company for reasons other than death, disability, or cause, the Company, or any successor thereto, will pay to the Executive 6 within 30 days of Executive's termination of employment, an amount equal to the greater of (i) three (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. In addition, all unvested shares of the Company's common stock issued to the Executive under the Company's Stock Incentive Plan shall become fully vested. 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; (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 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 7 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 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 8 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 if the Executive is terminated for "cause" or voluntarily terminates his employment hereunder, that for a one year 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 Section 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, 9 any information concerning customers or accounts) with respect to the business affairs of the Company or any of its subsidiaries. 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 2455 Wendrick Court West Bloomfield, MI 48322 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, and no statement, representation, warranty or covenant has been made by either party with respect thereto except as expressly set forth herein. This Employment 10 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. 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 11 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 COMPENSATION COMMITTEE By: /s/ Gene Silverman ---------------------- Name: Gene Silverman Title: Chairman By: /s/ Kenneth R. Howe ----------------------- Kenneth R. Howe Executive 12 SCHEDULE A Anderson Plaza Brentwood Realty Associates Floyd Realty Associates Gas City Plaza Grant Line Plaza Greenwood Realty Associates Harden Realty Associates Hartman Realty Associates Main Realty Associates Marshall Plaza Parkway Plaza Limited Partnership West Frankfort Plaza T.M.J. Incorporated Radcliff, Inc. Schedule A - 1 EX-31.1 4 k86607exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard Agree, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Agree Realty Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 6, 2004 /s/ Richard Agree ----------------------- Name: Richard Agree Title: President and Chief Executive Officer EX-31.2 5 k86607exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER, PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kenneth R. Howe, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Agree Realty Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 6, 2004 /s/ Kenneth R. Howe ---------------------- Name: Kenneth R. Howe Title: Vice President, Finance EX-32.1 6 k86607exv32w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Agree Realty Corporation (the "Company") on Form 10-Q for the six months ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard Agree, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairy presents, in all material respects, the financial condition and results of operations of the Company. /s/ RICHARD AGREE - -------------------------- Richard Agree Chief Executive Officer August 6, 2004 EX-32.2 7 k86607exv32w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Agree Realty Corporation (the "Company") on Form 10-K for the six months ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth R. Howe, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairy presents, in all material respects, the financial condition and results of operations of the Company. /s/ KENNETH R. HOWE - ------------------------- Kenneth R. Howe Chief Financial Officer August 6, 2004 -----END PRIVACY-ENHANCED MESSAGE-----