-----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, AzlWBKoLxlTxB3yPEpZmqPgBcAYUTagT3/pJqE0LeZLZh9/T7qVbpRKTL/vUes7P CT9+U42HZJJnklbgmF2E7g== 0001008878-96-000056.txt : 19960927 0001008878-96-000056.hdr.sgml : 19960927 ACCESSION NUMBER: 0001008878-96-000056 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960926 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTLAND DEVELOPMENT CO INC CENTRAL INDEX KEY: 0000106423 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 850165021 STATE OF INCORPORATION: NM FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-07775 FILM NUMBER: 96634961 BUSINESS ADDRESS: STREET 1: 401 COORS BOULEVARD NW CITY: ALBUQUERQUE STATE: NM ZIP: 87121 BUSINESS PHONE: 5058319600 MAIL ADDRESS: STREET 1: 401 COORS BLVD NW CITY: ALBUQUERQUE STATE: NM ZIP: 87121 10KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number: 0-7775 WESTLAND DEVELOPMENT CO., INC. (Exact name of registrant as specified in its charter) New Mexico 85-0165021 (State or other jurisdiction of (I.R.S. Employer incorporation or other organization Identification No.) 401 Coors Boulevard, N.W., Albuquerque, New Mexico, 87121 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 505-831-9600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: No Par Value Common Stock (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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____. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year: $4,766,401 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: $7,415,520 The number of shares outstanding of each of the Registrant's classes of common stock, as of September 18, 1995, was: No Par Value Common: 716,608 shares. Class A $1.00 Par Value: none. Class B $1.00 Par Value: 86,100 shares. PART I ITEM 1: DESCRIPTION OF BUSINESS General Development of Business. Westland Development Co., Inc., a New Mexico for-profit corporation ("Registrant"), is the successor to a community land grant corporation named Town of Atrisco, Inc., which itself was a successor to a Spanish community land grant named the Atrisco Land Grant. Information concerning the historical background of these predecessor organizations and the conversion in 1967 from a community land grant corporation into a business corporation can be found in the Registrant's Form 10 and its Form 10-K for the fiscal year ended June 30, 1974. With limited exceptions, only lineal descendants of the incorporators of the Town of Atrisco, New Mexico, may own shares of the Registrant's Common Stock. The Registrant's executive offices are located in its own building at 401 Coors Boulevard, N.W., Albuquerque, New Mexico, 87121, telephone (505) 831-9600, on land which was originally part of the Atrisco Land Grant. The Registrant is the owner of approximately 59,000 acres of land located on the west side of Albuquerque, New Mexico. Most of its property is held for long term investment and is not currently marketed or planned for development in the foreseeable future, most of which is devoted to the grazing of cattle. The Registrant derives revenues through commercial and land leases, partnerships formed for various development projects, lot development and sales and land sales. As of September 15, 1996, approximately 250 acres of the Registrant's land located on the west side of the City of Albuquerque, New Mexico which have been segregated for development remain to be sold. The Registrant believes that over the next few years it will decrease its reliance on raw land sales and increase its sales of fully developed residential lots ready for construction, enter into joint ventures, land developments, ground leases, limited partnerships and, if warranted by available capital, may begin the construction of industrial and commercial structures for lease or sale. The Registrant's long term business philosophy is to enhance the value of the Registrant's land through careful planning and development, while retaining ownership of a major portion of the land in perpetuity and simultaneously increasing the value of the Registrant's stock and to provide dividends for its shareholders, when consistent with the Registrant's need for a sufficient cash flow to meet current operating expenses. Narrative Description of Business. The Registrant previously developed six sector plans for the development of certain of its properties. Each such plan encompassed approximately 600 to 1,000 acres and are identified as Atrisco Urban Center and El Rancho Atrisco, Phases I through V. Portions of Phases I and IV have been developed and sold and development of Phase V sector plan was abandoned due the introduction of the Petroglyph National Monument. A revised sector plan for the area between Unser and Paseo del Volcan was initiated in 1994. Oil and Gas and Grazing Leases. Approximately 50,000 acres of the Registrant's land not planned for development is currently leased to others under grazing lease(s), all of which were with unaffiliated persons, providing rental income of approximately $143,000 in fiscal 1996. In the 1997 fiscal year the Registrant agreed to certain rent abatements for the leased grazing lands because of a prolonged drought that severely limited the productive capacity of the land. The Registrant has leased approximately 37,000 acres under and oil and gas lease upon which it receives rental of approximately $2.00 per acre. In December, the lessee must pay $2.50 per acre to keep the lease in force. The Registrant also owns and leases certain commercial buildings at an aggregate annual rental of $551,000. (See "Revenue Producing Properties"). Development Properties. As of June 30, 1996, the Registrant continued to own portions of land that it developed over the last 16 years.. A summary of this acreage is as follows: a) Atrisco Urban Center. 1). Atrisco Urban Center Development and Sales: The Registrant still owns approximately 56 acres within this center. During the last fiscal year it sold approximately 16 acres within the center and continues to work with end users to develop additional projects. A senior citizen's center, an assisted living center, a single family housing subdivision, five manufacturing facilities, a warehouse facility, an office building, a police substation, 400-unit apartment complex, gas station and car wash are among the projects currently located in the Center. See items number 3 and 4 below for a discussion of last year's developed projects. 2) Atrisco Urban Center Rental Properties: The Registrant owns a two-story office building in the Atrisco Urban Center. The entire first floor (approximately 5,057 square feet of rentable space) is leased to Sunwest Bank of Albuquerque, N.A. for use as a branch bank for a term ending in October 1999. The Registrant occupies the second floor of this building. 3) Cedar Ridge Estates Subdivision: The Registrant owns a 40 acre tract located within the Atrisco Urban Center zoned for a single family residential subdivision called Cedar Ridge Estates. The Registrant has completed development of the first phase consisting of approximately 11 acres and 57 lots and during fiscal 1995 a builder executed an option agreement for the purchase of those developed lots upon which the builder is constructing homes priced from $110,000 to $140,000. As of September 20, 1996, Phase I had been fully sold and the Registrant has initiated construction of Phase Two for the development of an additional 71 lots. 4) Assisted Living Development Corporation: The Registrant is a Limited Partner in a partnership managed by Assisted Living Development Corp. of Portland, Oregon which has built and owns a housing facility for persons in need of some care but who are otherwise ambulatory. The 40 unit complex was recently completed and leasing is now underway. b. Sector Plan. 1) The Registrant has prepared a sector development plan covering approximately 6,400 acres which it planned to have annexed to the City of Albuquerque. The sector plan area is located north of Interstate 40 and south of the area designated for the Petroglyph National Monument. The Registrant initially filed this plan with the City of Albuquerque, but due to the City's inability or unwillingness to guarantee the availability of water and sewer service to the property in a timely manner, the plan was withdrawn from the City and submitted to Bernalillo County. The County has indicated a desire to furnish water and sewer service to the property. c. ERA Phase II; Volcano Business Park. Volcano Business Park consists of approximately 22 acres zoned for industrial park uses of which 11 acres have been platted and developed into 9 lots. The Registrant owns 50% of a partnership which constructed, manages and owns a 172 unit storage facility on approximately 1.7 acres of this property. The facility was completed in December of 1995 and as of September 15, 1996 was approximately 50% occupied. d. ERA Phase III Commercial, Industrial and Residential Developments. In 1985, the Registrant completed the planning of Heritage Park and Heritage Plaza in El Rancho Atrisco Phase III. Those plans included construction of a total of 200,000 square feet of office space, approximately 100,000 square feet of retail space. El Rancho Atrisco III also includes, 130 acres for industrial usage (Ladera Industrial Park), and 31 acres of high density housing. During fiscal 1995, the Registrant sold a 6.3 acre tract which has been developed as an affordable apartment complex. The Registrant has also joined a limited liability corporation for the development of an 9.6 acre tract that will also be developed for an affordable senior, multi-family apartment units. As of September 15, 1996, the Registrant had entered into agreements for the sale of the LLC corporation and apartment designated land. During fiscal 1996 the Registrant sold a 0.86 acre parcel of land to Diamond Shamrock for the development of a convenience store-gas station at the corner of Unser and Ladera Drive. During fiscal 1996, the Registrant also sold approximately 16 acre tract to a local developer for construction of additional single family homes. Prospects for the sale or development of the office and commercial property are improving because of the growing demand for such property on Albuquerque's west side, and the construction of single family homes west of Unser. e. Other Properties. 1) Travel Plaza: In March 1990, the Registrant submitted a zone change request to Bernalillo County for 100 acres for a travel center and related commercial uses. In June 1990, the County Commission approved the request for zone change. Anticipated users may include restaurants, motel-hotel facilities, fueling stations, and other travel/tourist related facilities. During 1995, the Registrant sold two acres, on which there has now been a truck sales facility developed. 2) Parkway Units 7 and 8: In 1994, the Company agreed to develop approximately 15 acres of land (57 lots) for Sivage Thomas Homes adjacent to its Parkway Unit 7 development. Development of the residential lots is complete and all lots were sold by November of 1995. The Registrant has also designed and had nearly completed construction of Parkway Unit 8, and in June, 1996, the total Unit was sold to Sivage Thomas Homes. 3) Recreation Complex: During fiscal 1994, the Registrant entered into a lease/option arrangement with PG Corporation, a New Mexico corporation, for 100 acres of Registrant's land located north of I-40 on Paseo del Volcan. A portion of the property was subsequently developed as a recreation and softball complex. The Registrant exchanged $100,000 in rental and option payments for a 6% equity position in the Partnership which owns and operates the recreation venture. Bernalillo County is currently considering purchasing the complex, including 100 acres of the Registrant's properties. 4). Tierra Oeste: The Registrant committed approximately 28 acres of land north of Ladera Dr., west of Unser Blvd, to a limited liability corporation. In July, 1995, this limited liability corporation executed a sale agreement with a home builder for the purchase of developed lots and the Registrant believed that construction would be started on the property during the fall of 1995. During 1995, the other developer owning 50% of the LLC corporation filed bankruptcy and the property and LLC corporation became tied up in the bankruptcy procedure The Registrant paid $100,000 to have the property and the LLC corporation released from the bankruptcy proceedings, with ownership of the LLC and the property passing to the Registrant free from the claims of others. The Registrant is currently negotiating the sale of the property or the corporation to another home builder. 5). Education and Community Projects: Approximately 50 acres of land have been donated to the Technical-Vocational Institute for the construction of a southwest mesa campus. The Company also donated approximately 8 acres to Youth Development, Inc. The properties are located in the Gun Club Rd. area, but the Registrant and TVI have agreed to trade the 50 acres which had been donated to it for a like parcel of land of equal value along the proposed extension of Rio Bravo. In addition, the Registrant has verbally agreed to donate 12 acres to Albuquerque Public Schools and up to 10 acres to the Archdiocese of Santa Fe, in the same area. 6). The Registrant has, in the last year, completed nine transactions totaling fifty- two acres, not including lots sold to Sivage Thomas Homes and Scott Patrick Homes. 7). On June 27, 1990, the United States Congress established an approximately 7,000 acre national monument (the Petroglyph National Monument) to preserve and protect the volcanic escarpment on Albuquerque's West Mesa area. The Monument's proposed boundaries included approximately 1,964 acres of the Registrant's land. The Company sold 444 acres in fiscal year 1992, 713 acres in fiscal 1993, 118 acres in fiscal 1994, and 24 acres in fiscal 1995, to the National Park Service. The Park Service purchased no land from the Registrant during fiscal 1996. Approximately 665 acres have yet to be acquired by the Park Service and the Registrant has been given no assurance when the final purchases of the property may occur. The Registrant's Board of Directors has agreed that, subject to negotiation of acceptable terms of sale, the Registrant will sell to the National Park Service the Registrant's remaining lands included in the Monument. f. Reinvestment Revenue Producing Properties. As part of the Registrant's plan to defer as much of the tax burden arising from the sale of its lands to the Park Service for inclusion in the Petroglyph National Monument, during the last fiscal year it reinvested its funds in the properties described below. As a result of these purchases, the Registrant believes that it has deferred approximately $3,555,000 of taxes during fiscal 1995 and 1996. During the last two fiscal years, as part of its tax deferral program related to proceeds from the sale of its land included in the Petroglyph Monument, the Registrant purchased land upon which commercial buildings were constructed and leased to others. Those properties are: a) A commercial building at Coors Boulevard and Sequoia Road in Albuquerque at a cost of $2,630,000, $1,908,000 of which is subject to a mortgage upon which the Registrant must pay monthly payments of $17,630. This building has been leased to Walgreen Co. for 20 years at a fixed rent of $19,173 per month plus additional rent based upon a percentage of gross sales up to a maximum rent of $460,161 in any one year. Walgreen, Co. may continue the term of the lease for an additional 40 years b) A commercial building in Albuquerque's Industrial Park at a cost of $1,074,000, $768,000 of which is subject to a mortgage upon which the Registrant must make monthly payments of $6,893. This building has been leased to Circuit City Stores for 10 years at an escalating rental beginning at $4.25 per square foot the first year and increasing in stages to $5.55 per square foot in the tenth year. The lessee has also been granted the right to extend the lease for two additional 5 year terms at escalating rental rates during each of the years of any extended term. The current rent is $8,710 per month. c) A commercial building located at Coors Boulevard and Central Avenue was purchased during the 1996 fiscal year for a purchase price of $3,504,109. The building has been leased to Walgreen Co., on a minimum 20 year lease at a fixed rent of $26,122 per month. Walgreen, Co. may continue the term of the lease for an additional 40 years. The property was purchased on the basis of a cash down payment plus assumption of a construction loan in the amount of $1,623,388. Loan payments for the pending mortgage are estimated to be $25,000 per month for 20 years. All of the above three properties were purchased by the Registrant in part to defer taxes resulting from the forced sale of its lands to the National Park Service for inclusion in the Petroglyph National Monument. Current Real Estate Market Conditions. The market conditions for the development and sale of properties in Albuquerque are positive at the present time. The abundance of properties for sale at relatively low prices due to foreclosures, failures, and takeovers which existed for the past several years seems to have been absorbed, including properties held by the Resolution Trust Corporation. After a period of high occupancies, the multi-family market enjoyed a building boom, which has resulted in lower occupancies and rent, on average. For the foreseeable future it appears that commercial and industrial activity will further stabilize and the boom in single family residential construction will slow, but continue to be strong. Competition. The Registrant's industrial parks - The Atrisco Urban Center, Volcano Business Park and Ladera Industrial Park compete with other business and industrial parks in the Albuquerque area, including some that are more established and some that are located nearer the major population centers of Albuquerque. The Registrant believes that a sale to Coca Cola by others within the Business Park will add to the quality of the Park's tenants and will attract other businesses to the Park. Residential subdivisions on the Registrant's land compete with other areas in the Albuquerque housing market (essentially Bernalillo County and portions of Sandoval County and Valencia County), as well as with other subdivisions on the western side of the City of Albuquerque. A number of large subdivisions to the north of the Registrant's land are not fully sold. These include Rio Rancho (about six miles north of the Registrant's land), Paradise Hills (about five miles north of the Registrant's land), Volcano Cliffs and Taylor Ranch (each about two to three miles north of the Registrant's land). Development of a regional shopping center on Registrant's land has been delayed indefinitely because of the establishment of a regional shopping center located in the northwest portion of the City of Albuquerque (about 5 miles north of the Registrant's land), as well as the development of other large strip centers being constructed by competitors to the north of the Registrant's land, but the Registrant signed a listing agreement with a broker to market Heritage Plaza at the corner of I-40 and Unser to potential users as a neighborhood center during fiscal 1996. The listing agreement expired on August 31, 1996, without any tenants having been secured. The mandate by the State Legislature for implementation of Impact Fees may result in the Registrant's lands being disadvantaged because the fees that surrounding counties may be permitted to charge may be less than those that will be charged by Albuquerque and Bernalillo County. Bernalillo County began the assessment of such fees beginning on January 1, 1996, but the Registrant has not been able to determine whether these fees will adversely impact its business. Albuquerque has not yet adopted any Impact Fee structure. Employees. As of June 30, 1996, the Registrant had nine full-time and nine part-time employees. The Registrant's president, who is also a director, is a full time employee. The Registrant also had contractual relationships with six individuals who provided various services to the Company. Government Regulations. The Registrant's ability to undertake an active program of development of its land and management of its rental properties, (whether such development is performed by the Registrant itself or by sale of the Registrant's land to others for development), is dependent on the Registrant's ability to comply with laws and regulations of the State of New Mexico and Bernalillo County, and the City of Albuquerque, applicable to general environmental protection, land-use planning, annexation, zoning and subdivisions. Both County and City regulate the subdivision of land and impose zoning and building permit requirements. The subdivision regulations of both Bernalillo County and the City of Albuquerque require, as a condition of approval of proposed subdivisions, that adequate provision be made by the developer for land use planning, water (both to quantity and quality), liquid waste disposal, solid waste disposal, sufficient and adequate roads and storm drain management. Although the compliance with federal, state, and local provisions relating to the protection of the environment, including laws regulating subdivisions and land-use planning, has had no material effect upon the capital expenditures, earnings and competitive position of the Registrant, no assurance can be given that this situation will continue. Requests relating to flood drainage, traffic flow and similar matters from the City of Albuquerque have occasionally delayed the receipt of necessary building permits and required modification of development proposals. The opening of the Double Eagle II Municipal Airport by the City of Albuquerque to the north of the Registrant's Land on Paseo del Volcan may have an impact on the use of and planning for the Registrant's Land in the vicinity of the airport as will the creation of the Petroglyph National Monument, although Management believes both facilities will favorably impact the Company's Lands. At the Registrant's request, the City of Albuquerque has created Special Assessment Districts affecting the Atrisco Urban Center and the El Rancho Atrisco areas for the financing of water, sewer, paving and other street improvements, and levied assessment liens on them. This has provided a mechanism for financing these improvements. Approximately 3,000 acres of the Registrant's land is designated "Developing Urban" by the current Albuquerque/Bernalillo County Comprehensive Plan. According to the Plan, "Developing Urban" land is land without accepted and approved platting, but which has adequate resource capabilities for urbanization. Certain land use regulations contained in the Comprehensive Plan apply to said land which may inhibit its development to its highest and best use. Availability of Water and Municipal Services. The unavailability of sufficient water has often been a major inhibiting factor in the land development business in the Southwest. The extent of the Registrant's water rights has not been determined. However, lack of ownership of water rights by the Registrant would not be an inhibiting factor to the developing of the Registrant's land if adequate water were to be made available through the City of Albuquerque and/or Bernalillo County and/or other water sources or by purchase by the Registrant or a developer that might purchase and develop land. For example, both Tierra West Mobile Home Park and the PG Corporation Complex leased or purchased water rights and drilled wells to meet their water needs. Under present annexation policies of the City of Albuquerque, annexation to the City of Albuquerque of portions of the Registrant's land is a requirement by the City before it will extend water and sewer services within a reasonable period of time after annexation. However, the cost of water distribution and sewer lines would have to be borne by the developer, or by subsequent purchasers of the annexed portions. The Registrant has not been given timely assurances by the City for service, and annexation by the City has not been pursued. Alternative methods of providing water, sewer and other services are currently being investigated, including the possibility that Bernalillo County may provide the services. With the exception of the Atrisco Urban Center and the residential subdivisions, most of the Registrant's land lies outside the municipal limits of the City of Albuquerque and is not furnished with City of Albuquerque water or other City of Albuquerque services. The Registrant experienced little difficulty in having the Atrisco Urban Center and the residential subdivisions annexed to the City of Albuquerque and furnished with services, but the same cannot be assumed for other areas of Registrant's land. Other Factors Affecting Development of Registrant's Land. Various activist groups, as well as neighborhood organizations occasionally have in the past taken actions which have, to some extent, delayed the Registrant's plans for the development of some of its lands. During the 1994 fiscal year two activist groups filed appeals with the City of Albuquerque related to the Registrant's Sector Plan. However, the Sector Plan was upheld with only minor modifications. ITEM 2: DESCRIPTION OF PROPERTIES The major physical assets owned by the Registrant are its land which is owned in fee simple. The land comprises approximately 59,000 acres of undeveloped land held for long-term investment and approximately 250 acres of land remaining from those which the Registrant has developed to various stages of completion. The Registrant also owns the Atrisco Urban Center office building, comprising approximately 11,097 square feet, which the Registrant uses in its rental operations. This building has mortgages against it aggregating approximately $290,541 as of June 30, 1996. Approximately 5.500 square footage of the building is leased to Sunwest Bank at a monthly rental of $3,160. The Registrant also owns three commercial buildings that are leased to others. See "Item 1. Business - - Reinvestment Properties." The Registrant also owns a one-half equity ownership interest in a self storage facility (see "Item 1. "Business - Volcano Business Park") The population of the Albuquerque metropolitan area has grown significantly over the last 40 years. Physical expansion of the City of Albuquerque has taken place on the north, south and east sides, but the bulk of the most recent growth has been west of the Rio Grande River where the Registrant's land is located. In fact, much of the real property directly west of the City of Albuquerque is the Registrant's land, which was previously considered unmarketable and was, therefore, generally viewed as being unavailable for the expansion of the City of Albuquerque. The Registrant anticipates that growth of the West Side will continue into the foreseeable future. The Registrant's land is crossed by Interstate Highway I-40, the main east-west thoroughfare through Albuquerque. Access to the Registrant's land from Interstate 40 is provided by the Coors Boulevard interchange near the eastern edge of the Registrant's land, by the Unser Boulevard interchange at the western edge of the Atrisco Urban Center, by the 98th Street interchange to the west of the Atrisco Urban Center and by the Paseo del Volcan interchange where I-40, Paseo del Volcan and Central Avenue meet. Running north from the I-40 interchange, Paseo del Volcan transverses about 4 1/2 miles of the Registrant's land to the Double Eagle II Airport. In 1994, the Registrant dedicated approximately 180 acres to Bernalillo County for the linking of Paseo del Volcan and Rio Bravo. The County has built out Paseo del Volcan south of the I-40 interchange. The County is expected to begin construction on Rio Bravo in early 1997. The Registrant and other landowners and developers (the Northwest Loop Association) dedicated land and has paid a portion of the design costs for the Northwest Loop, which has been approved by the New Mexico State Highway Commission. The Northwest Loop will extend for approximately 39 miles and will connect I-40 and New Mexico State Highway 44, traversing the western portion of the Registrant's land. In 1995 the Registrant donated 169 acres for development of the Northwest Loop. Completion of the Northwest Loop is not expected for 15 to 20 years. Most of the Registrant's land is remote and not readily accessible, not serviced by utilities, and Registrant believes that the bulk of its land will not be available for development in the foreseeable future. There is no limitation on the kind of securities into which the Company may exchange real estate. The Company has considered, and would, exchange property for partnership units or other securities issued by others for the purpose of developing the Company's land. A large portion of the undeveloped land is leased for agricultural uses (see "Item 1. Business."). The bulk of the Registrant's undeveloped land is held for long term investment. In the opinion of the Company's Management, its property is adequately covered by insurance. ITEM 3: LEGAL PROCEEDINGS Other than ordinary routine litigation incidental to the Company's business, neither the Company any member of management is the subject of any pending or threatened legal proceedings. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 1996. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this item is incorporated by reference to the item in the Registrant's Annual Report to Shareholders for the year ended June 30, 1996 entitled "Market Price and Dividends on Westland's Common Equity and Related Stockholder Matters." ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is incorporated by reference to the item in the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1996 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 7: FINANCIAL STATEMENTS The information required by this item is incorporated by reference to the Financial Statements in the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1996 which is attached as exhibit 13 to this report. ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with Accountants of the kind described by Item 304 of Regulation S-B at any time during the Registrant's two (2) most recent fiscal years. PART III ITEM 9: DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by this item is incorporated by reference to the items in the Registrant's definitive Proxy Statement for the November 1, 1996, Annual Meeting of Shareholders entitled "Election of Directors" and "Directors and Executive Officers". All reports required by Section 16(a) of the Exchange Act to be filed during the fiscal year were filed. ITEM 10: EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the item in the Registrant's definitive Proxy Statement for the November 1, 1996, Annual Meeting of Shareholders entitled "Executive Compensation". ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the item in the Registrant's definitive Proxy Statement for the November 1, 1996, Annual Meeting of Shareholders entitled "Voting Securities and Principal Holders Thereof". ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the item in the Registrant's definitive Proxy Statement for the November 1, 1996, Annual Meeting of Shareholders entitled "Voting Securities and Principal Holders Thereof" and "Executive Compensation". PART IV ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSB 1. Financial Statements: are incorporated by reference to the Registrant's Annual Report to Shareholders for each of the two years ended June 30, 1995 and 1996: Report of Independent Certified Public Accountants Balance Sheet Statements of Earnings Statement of Stockholders' Equity Statements of Cash Flows Notes to Financial Statements 2. Exhibits: Exhibit (3) Articles of Incorporation and Bylaws: (3)(1) Articles of Incorporation filed as an exhibit to the Registrant's Registration Statement on Form 10-K on September 28, 1982 and incorporated herein by reference. (3)(ii) Restated Bylaws filed as an exhibit with the registrant's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993. (10) Material Contracts: (10.1) Consulting Agreement with Sosimo Padilla, dated December 18, 1992, as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993, and incorporated herein by reference. (10.2) Consulting Agreement with Polecarpio (Lee) Anaya, dated December 18, 1992, as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993, and incorporated herein by reference. (10.3) Employment Agreement with Barbara Page, dated December 18, 1992, as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1993, and incorporated herein by reference. (10.4)Lease Agreement dated April 25, 1994, between Central Avenue Partners and Walgreen Co., as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (10.5) Assignment of Lease dated April 20, 1995, from Central Avenue Partners to the Registrant, as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (10.6) Lease Agreement dated March 14, 1995, between George Brunacini and Jeannette Brunacini and Circuit City Stores, Inc., as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (10.7) Assignment of Lease dated June 28, 1995, from George Brunacini and Jeannette Brunacini to the Registrant, as filed with the registrants Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, and incorporated herein by reference. (10.8) Lease Agreement dated March 19, 1996, between C.A.P. II, a New Mexico general partnership and Walgreen Co. (10.9) Assignment of Lease dated June 21, 1996, from C.A.P. II, a New Mexico general partnership, to the Registrant. Statement regarding computation of per share earnings is incorporated by reference to Note A(8) to the Financial Statements incorporated herein by reference to Registrant's Annual Report to Shareholders for the Fiscal year ended June 30, 1996. Annual Report to Shareholders for the Fiscal year ended June 30, 1996. Subsidiaries of the Registrant The registrant has the following subsidiaries: Name State of Incorporationn El Campo Santo, Inc. New Mexico - non-profit Westland Community Services, Inc. New Mexico - non-profit Westland Somerville Ltd. New Mexico - profit All other exhibits required by Item 601 of Regulation S-B are inapplicable to this Registrant in this filing. (b) Reports on Form 8-K: During the last quarter of the period covered by this report, the Registrant filed no reports on Form 8-K: SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WESTLAND DEVELOPMENT CO., INC. Barbara Page ______________________________________________ Barbara Page, President, Principal Executive Officer, Chief Financial Officer and Director Date: September 20, 1996 In accordance with the Exchange Act, this report has been signed below by the following person in behalf of the registrant and in the capacities and on the dates indicated. David C. Armijo ______________________________________________ David C. Armijo, Secretary-Treasurer and Principal Financial Officer Date: September 20, 1996 In accordance with the Exchange Act, this report has been signed below by the following persons in behalf of the registrant and in capacities and on the dates indicated. David C. Armijo ______________________________________________ David C. Armijo, Director Date: September 20, 1996 Polecarpio (Lee) Anaya ______________________________________________ Polecarpio (Lee) Anaya, Director Date: September 20, 1996 Sosimo S. Padilla ______________________________________________ Sosimo S. Padilla, Chairman of the Board of Directors Date: September 20, 1996 Josie G. Castillo ______________________________________________ Josie G. Castillo, Director Date: September 20, 1996 Carmel T. Chavez ______________________________________________ Carmel T. Chavez, Director Date: September 20, 1996 Charles V. Pena ______________________________________________ Charles V. Pena, Director Date: September 20, 1996 Carlos Saavedra ______________________________________________ Carlos Saavedra, Director Date: September 20, 1996 Joe S. Chavez ______________________________________________ Joe S. Chavez, Director Date: September 20, 1996 Barbara Page ______________________________________________ Barbara Page, Director Date: September 20, 1996 EX-27 2
5 YEAR JUN-30-1996 JUN-30-1996 2183758 0 387819 0 0 0 746245 349769 15488167 0 6433867 0 0 87100 5110530 15488167 4334367 4766401 1708993 1828855 2001527 0 365458 936019 372000 564019 0 0 0 564019 .71 .71
EX-13 3 September 27, 1996 Dear Shareholders: 1996 marked another successful year for Westland! With New Mexico growing rapidly, Westland has benefited from the expansion of the manufacturing and residential sectors on the west side. The Company's future prospects are bright, and we will continue to ensure that our shareholders benefit from our success. With the increased tempo of change in Albuquerque, careful planning is a high priority. Whether it is working with major developers to investigate a variety of land use possibilities or cooperating with government officials to ensure the timely implementation of infrastructure (e.g. utilities), Westland is dedicated to building the future of the west side on a solid foundation. The driving force behind our various projects is, and always will be, the preservation of the Company and its heritage for our future heirs. Seven years ago, this future was endangered: we do not know of another company in Albuquerque that has had to overcome such enormous obstacles just to survive. But with the strength that our people have always shown, we not only have survived, but thrived since that time. On August 27, 1996 you received the sixth dividend the Company has paid over the last five years. We will continue to strive to provide dividends to you from profits every year. Our sincere "thanks" to so many of you who called with appreciation of our efforts on your behalf. We also wish to thank the numerous shareholders who offer prayers for myself, the Board, and our Company's continued success. Sincerely, Barbara Page President & Chief Executive Officer P.S. The Annual Meeting will be held on November 1, 1996 at the Double Tree Hotel, 201 Marquette NW on the first floor in the Ulam Salons II and III. BUSINESS OF WESTLAND Westland owns a large tract of land consisting of approximately 59,000 acres (the "Land") located on the west side of the City of Albuquerque, New Mexico. Most of the Land is held for long-term investment and is leased to others for grazing purposes while the balance is held for development, sales and leasing activities. Approximately 48,000 acres of this Land were originally part of the Atrisco Land Grant, which was granted to a group of Spanish settlers in 1692. Approximately 700 acres within the monument boundary remain to be purchased by National Park Service for the Petroglyph National Monument. Westland generates cash internally through its land operations (grazing leases, real estate sales and commercial leases) and externally through long and short-term borrowing. The profitability and resulting cash flows of Westland's land operations depend on numerous factors, such as demand for grazing leases, land leases, supply of competitively priced, developed or undeveloped, properties for residential, industrial or commercial uses. Over the long term, Westland expects that residential and industrial growth on Albuquerque's west side will increase demand for Westland's Land, thus increasing Westland's ability to generate revenue from land development and sales. In the short term, however, periodic local economic conditions may decrease the number of land sales and hinder development, such as during the period from 1986 through 1992. Westland's basic business philosophy has been to hold certain areas of the land in trust for shareholders and to enhance the value of other areas of the Land through careful planning and development to assure perpetual benefit to the Company and its shareholders. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION In the past fiscal year, land sales increased over the prior year as the Company continued sales of improved residential lots to builders and acquired an additional property leased by a large national retailer. Increased land revenues are due to not only the recovery of the housing market in the U.S., but also Westland's strategy initiated in fiscal 1994 to generate more revenue by developing infrastructure and selling finished lots to builders rather than land sales, as well as investment in long-term single tenant leased buildings. During the last fiscal year there were no sales of lands to the National Park Service ("NPS") as part of its acquisition of the lands included in the Petroglyph National Monument. In 1994, such sales were $1,058,000 or 43% of total revenue and in 1995, $329,000 or 11% of revenue. With the recovery of the real estate business in Albuquerque, Management continues to believe that the Company is no longer as dependent on large bulk sales of its Land and that its income will continue to strengthen with the sale of small improved parcels and lots, even though the costs associated with such sales will always be a larger percentage of revenue than the expenses associated with large bulk sales. Albuquerque continues to be one of the fastest growing cities in the Southwest and, because of certain geographical and other limitations on its growth, Westland's Lands lie directly in the path of future predictable growth patterns. Sales of improved residential lots in 1996 were approximately $1,147,000, compared to sales of approximately $745,000 in fiscal 1995. Westland's future revenues will continue to be largely dependent upon the sale of land. The Company's assets are illiquid, comprising principally undeveloped land. Sales are dependent upon the market conditions in Albuquerque, New Mexico, which now appear to have recovered from the depressed state of several years ago. Westland anticipates making capital commitments for land development projects over the next few years if the economy and opportunities continue to improve to the extent that such expenditures would be warranted. Capital commitments may include assessments for roads and water and sewer lines on its land. Infrastructure improvements are paid for by assessments which increase the value of Westland's land and make further development possible. Westland intends to incur capital expenditures when management determines such investments will increase the value of the Land and generate future revenue. Land is Westland's principal capital resource, and is valued, for financial accounting purposes, at its 1907 value plus the cost of improvements, Westland's balance sheet does not reflect the actual current value of this asset. The Company has no current appraisals of the Land and, therefore, the actual value of the land is not known. The carrying value of the Land was decreased during the fiscal year ended June 30, 1996, primarily to reflect land sales. The carrying value will be increased or decreased regularly as Westland acquires, sells or develops parcels of land. Management believes the June 30, 1996 carrying value of the Land is substantially less than the current market value of the land. Westland's balance sheet also segregates income-producing properties which consist of commercial real estate and improvements. The actual value of Westland's land varies, depending on national and local market conditions and the amount and proximity of roads, utilities and other amenities to the land under development. As Albuquerque continues to grow, the land value of both developed and undeveloped Land should increase. The company is continuing to study the feasibility of establishing various agricultural developments for portions of its Land. Such development is contingent on the availability of adequate water. Westland is moving forward on the establishment of its Sector Plan in the area north of Interstate 40 and south of the area designated for the Petroglyph National Monument between Unser and Paseo del Volcan for the development of that portion of its properties. Although the Sector Plan was initially filed with the City of Albuquerque, the City could not furnish any assurance that water and sewer services would be made available in a reasonable period of time, which resulted in the Plan being withdrawn from the City while the Company has been working with Bernalillo County to determine if those services can be furnished by the County. The Sector plan excludes land located in the Monument. Financial Condition: During fiscal 1996, total assets increased to $15,488,167 from $13,182,499, while liabilities increased from $8,214,689 to $10,290,537 . This was the result of the Management's efforts to replace lands sold through investments to defer taxes. During fiscal 1996 the Company invested $3,065,764 in income producing and other properties and the accompanying borrowing on notes and mortgages, which amounted to $2,618,398. This significant net investment along with the increase in deposits of cash for the retirement of bonds outstanding and payment of dividends of $475,624 decreased cash and equivalents by $1,045,765, even though operations provided $1,311,720. As a result, in fiscal 1996, the Company finalized an arrangement with a local bank for a $2,000,000 line of credit, collateralized by certain real property. The purpose of the line of credit is to provide funds necessary for its continued expansion. At June 30, 1996, only $1,000,000 was available until interim financing on the newly acquired property at Coors and Central is repaid. During fiscal 1997, the Company will be obligated to pay income tax of approximately $144,000 should replacement properties totaling $360,000 for lands sold to the National Park not be acquired. Management believes that the uncommitted balance of cash, cash equivalents, investments and its borrowing capacity are sufficient to meet all of the Company's obligations during 1997 without considering additional revenues that may be generated during that period. Results of Operations: In 1996, land revenues increased by $1,497,441 from $2,836,926 in 1995 to $4,334,367. The related cost of land revenues increased to $1,708,993, or $1,180,598 from $528,395 in fiscal 1995. Management expects this trend of increasing cost of sales to continue as more and smaller tracts are sold. Rental revenue increased from $112,666 to $394,419 due to the acquisition of large, single tenant properties, and the related costs increased from $30,525 to $119,862. These increases are expected to continue as the Company expands its activities in these areas. MARKET PRICE OF AND DIVIDENDS ON WESTLAND'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Because ownership of Westland's stock is restricted in the manner discussed below, no established public trading market exists for Westland's outstanding shares and, to the best of Westland's knowledge, no dealer has made, is making, or is attempting to create such a market from which to determine an aggregate market value of any of Westland's stock. In 1989, Westland entered into an arrangement with an independent stockbroker to broker transactions in Westland's stock between shareholders. The broker has informed Westland that the price at which Westland's common stock had been bought and sold by Westland's shareholders during the last two fiscal years and during the ninety (90) days preceding this date of this report shares has consistently been $9.50 to $10.00 per share. Since 1982, the outstanding shares have been subject to restrictions imposed by a majority of Westland's shareholders who amended Westland's Articles of Incorporation. Those Articles prohibit (with certain limited exceptions) transfer of Westland stock to persons other than lineal descendants of the original incorporators of the Town of Atrisco (a New Mexico Land Grant Corporation). The following table sets forth the approximate number of holders of record of each class of Westland's common stock as of September 15, 1996: Number of Title of Class Record Holders No Par Value Common 5366 $1.00 Par Value Common Class A 0 $1.00 Par Value Common Class B 16 Dividends: During each of the last two (2) fiscal years ended June 30, 1995 and June 30, 1996, Westland declared and paid cash dividends to shareholders, aggregating a total during the two years of $1,243,333. Also, subsequent to June 30, 1996, the Company has paid an additional cash dividend of $0.60 per share for an aggregate of $480,125. ON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON FORMS 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1996 TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO) TO ANY RECORD HOLDER OR BENEFICIAL OWNER OF THE COMPANY'S SHARES AS OF THE CLOSE OF BUSINESS ON SEPTEMBER 20, 1996. ANY EXHIBIT WILL BE PROVIDED ON REQUEST UPON PAYMENT OF THE REASONABLE EXPENSES OF FURNISHING THE EXHIBIT. ANY SUCH WRITTEN REQUEST SHOULD BE ADDRESSED TO DAVID C. ARMIJO, SECRETARY, WESTLAND DEVELOPMENT CO., INC., 401 COORS BOULEVARD, N.W., ALBUQUERQUE, NEW MEXICO 87121. Report of Independent Certified Public Accountants -------------------------------------------------- Stockholders Westland Development Co., Inc. We have audited the accompanying balance sheet of Westland Development Co., Inc., as of June 30, 1996, and the related statements of earnings, stockholders' equity, and cash flows for each of the two years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westland Development Co., Inc., as of June 30, 1996, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Grant Thornton LLP Oklahoma City, Oklahoma August 22, 1996 Westland Development Company, Inc. BALANCE SHEET June 30, 1996
ASSETS Cash and cash equivalents ......................................................................... $ 2,183,758 Receivables Real estate contracts (note B) ............................................................... $ 363,660 Less related deferred profit ............................................................ (96,567) ------------ 267,093 Note receivable - related party (note M) ..................................................... 70,176 Other accounts receivable .................................................................... 49,001 Accrued interest ............................................................................. 1,549 387,819 ------------ Land and improvements held for future development (notes C and E) ................................. 5,116,421 Income-producing properties, net (notes D and E) .................................................. 6,396,422 Property and equipment, net of accumulated depreciation of $349,769 (note E) ...................... 396,476 Investments in partnerships and joint ventures .................................................... 451,461 Other (note E) .................................................................................... 555,810 ------------ $ 15,488,167 ============
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, accrued expenses, and other liabilities ......................................... $ 562,139 Accrued interest payable .......................................................................... 61,531 Deferred income taxes (note F) .................................................................... 3,233,000 Notes, bonds, mortgages, and assessments payable (note E) ......................................... 6,433,867 ------------ Total liabilities ........................................................ 10,290,537 Commitments and contingencies (notes E, K, and L) ................................................. -- Stockholders' equity (note G) Common stock - no par value; authorized, 736,668 shares; issued and outstanding, 716,608 shares ............................................................................ 8,500 Class A common stock - $1 par value; authorized, 736,668 shares; issued, none ................ -- Class B common stock - $1 par value; authorized, 491,112 shares; issued and outstanding, 78,600 shares ............................................................................. 78,600 Additional paid-in capital ................................................................... 547,702 Retained earnings ............................................................................ 4,562,828 5,197,630 ------------ ------------ $ 15,488,167 ============ The accompanying notes are an integral part of this statement.
Westland Development Company, Inc. STATEMENTS OF EARNINGS Year ended June 30, 1996 1995 ----------- ----------- Revenues Land ...................................... $ 4,334,367 $ 2,836,926 Deferred profit recognized on installment sales ................. 37,615 57,941 Rentals ................................... 394,419 112,666 ----------- ----------- 4,766,401 3,007,533 Costs and expenses Cost of land revenues ..................... 1,708,993 528,395 Cost of rentals ........................... 119,862 30,525 Other general and administrative .......... 1,813,152 1,698,723 Loss on trading securities ................ -- 2,576 Legal ..................................... 81,980 171,577 ----------- ----------- 3,723,987 2,431,796 ----------- ----------- Operating income ................ 1,042,414 575,737 Other (income) expense Interest income ........................... (101,974) (135,852) Gain on sale of property and equipment .... (200) (1,958) Other income .............................. (156,889) (130,633) Interest expense .......................... 365,458 125,631 ----------- ----------- 106,395 (142,812) ----------- ----------- Earnings before income taxes .... 936,019 718,549 Income tax expense (note F) .................... 372,000 330,200 ----------- ----------- NET EARNINGS .................... $ 564,019 $ 388,349 =========== =========== Weighted average common and common equivalent shares outstanding ............. 792,927 770,242 =========== =========== Earnings per common and common equivalent shares ......................... $ .71 $ .50 =========== =========== The accompanying notes are an integral part of these statements. Westland Development Company, Inc. STATEMENT OF STOCKHOLDERS' EQUITY Years ended June 30, 1996 and 1995
Class A Class B Common stock Common stock Common stock no par value $1 par value $1 par value Additional ------------------ ---------------- ------------------ paid-in Retained Shares Amount Shares Amount Shares Amount capital earnings Total -------- ------- ------ ------ ------ -------- --------- ----------- ----------- Balances at July 1, 1994 716,608 $ 8,500 -- $ -- 51,100 $ 51,100 $ 378,677 $ 4,853,792 $ 5,292,069 Net earnings ............ -- -- -- -- -- -- -- 388,349 388,349 Options exercised ....... -- -- -- -- 10,000 10,000 45,100 -- 55,100 Cash dividends paid - $1.00 per share .... -- -- -- -- -- -- -- (767,708) (767,708) ------- ------- ------ ------ ------ -------- --------- ----------- ----------- Balances at June 30, 1995 716,608 8,500 -- -- 61,100 61,100 423,777 4,474,433 4,967,810 Net earnings ............ -- -- -- -- -- -- -- 564,019 564,019 Options exercised ....... -- -- -- -- 17,500 17,500 123,925 -- 141,425 Cash dividends paid - $.60 per share ..... -- -- -- -- -- -- -- (475,624) (475,624) ------- ------- ------ ------ ------ -------- --------- ----------- ----------- Balances at June 30, 1996 716,608 $ 8,500 -- $ -- 78,600 $ 78,600 $ 547,702 $ 4,562,828 $ 5,197,630 ======= ======= ====== ====== ====== ======== ========= =========== =========== The accompanying notes are an integral part of this statement.
Westland Development Company, Inc. STATEMENTS OF CASH FLOWS Year ended June 30,
1996 1995 ------------ ------------ Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities Cash received from land sales and collections on real estate contracts receivable .......... $ 4,771,163 $ 2,199,392 Development and closing costs paid on land sales .......................................... (1,156,070) (1,721,712) Cash received from rental operations ...................................................... 357,025 87,102 Cash paid for rental operations ........................................................... (57,359) (23,599) Cash paid for property taxes and maintenance .............................................. (208,155) (126,661) Purchase of trading securities ............................................................ -- (9,001,032) Proceeds on sale of trading securities .................................................... -- 10,920,073 Interest received ......................................................................... 85,197 137,115 Interest paid ............................................................................. (356,765) (125,529) Income taxes received (paid) .............................................................. (184,320) 49,800 Legal and other general and administrative costs paid ..................................... (2,101,085) (1,504,041) Other ..................................................................................... 162,089 123,693 ------------ ------------ Net cash provided by operating activities ..................................... 1,311,720 1,014,601 Cash flows from investing activities Capital expenditures ...................................................................... (1,096,068) (3,629,023) Sinking fund deposit ...................................................................... -- (256,385) Investments in partnerships and joint ventures ............................................ (346,298) (30,158) Proceeds from the sale of assets .......................................................... 200 -- ------------ ------------ Net cash used in investing activities ......................................... (1,442,166) (3,915,566) Cash flows from financing activities Borrowings on notes, mortgages, and assessments payable ................................... 995,000 2,873,864 Repayments of notes, mortgages, and assessments payable ................................... (219,400) (133,721) Exercise of stock options ................................................................. 96,425 55,100 Payment of dividends ...................................................................... (475,624) (767,708) ------------ ------------ Net cash provided by financing activities ..................................... 396,401 2,027,535 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 265,955 (873,430) Cash and cash equivalents at beginning of year ............................................... 1,917,803 2,791,233 ------------ ------------ Cash and cash equivalents at end of year ..................................................... $ 2,183,758 $ 1,917,803 ============ ============ Reconciliation of Net Earnings to Net Cash Provided by Operating Activities Net earnings ................................................................................. $ 564,019 $ 388,349 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation ........................................................................... 138,778 45,281 Gain on sale of property and equipment ................................................. (200) (1,958) Sale of land for real estate contract .................................................. (228,664) (425,827) Collections on real estate contracts receivable ........................................ 487,779 96,387 Profit recognized on installment sales ................................................. (37,614) (57,941) Deferred income taxes .................................................................. (32,000) 247,000 Change in Income taxes receivable/payable ..................................................... 190,309 133,000 Trading securities .................................................................. -- 1,919,041 Other accounts receivable ........................................................... 180,310 (190,015) Accrued interest receivable ......................................................... 828 (573) Land and improvements held for future development ................................... 552,923 (1,417,088) Other assets ........................................................................ (68,488) 5,056 Accounts payable, accrued expenses, and other liabilities ........................... (444,952) 266,259 Accrued interest payable ............................................................ 8,692 7,630 ------------ ------------ Net cash provided by operating activities .................................. $ 1,311,720 $ 1,014,601 ============ ============ Noncash investing and financing activities: In June, 1996, the Company assumed a $1,623,398 construction loan as part of the purchase of a commercial building to be completed. During the year ended June 30, 1996, the Company realized approximately $45,000 of tax benefits from deductible compensation related to the exercise of stock options. During the year ended June 30, 1995, the Company exchanged an account receivable of $100,000 for a partnership interest and contributed land with a cost of approximately $22,000 to a partnership. In addition, assessments payable of approximately $25,000 were assumed by the purchaser in association with certain land sales. The accompanying notes are an integral part of these statements.
Westland Development Company, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 1996 and 1995 NOTE A - SUMMARY OF ACCOUNTING POLICIES 1. History of Company and Beginning Basis of Financial Reporting In 1892, the descendants of the owners of a land grant deeded in 1692 by the Kingdom of Spain became incorporators of a land grant corporation named Town of Atrisco. Ownership of the Town of Atrisco was based on proportionate ownership of the land grant. In 1967, the Town of Atrisco was reorganized and became Westland Development Co., Inc. (the "Company"), with the heirs receiving shares in the Company in proportion to their ancestors' interests in the Town of Atrisco corporation. The net assets of $232,582 at the date of reorganization were assigned as follows: Value of no par common stock as stated in the Articles of Incorporation $ 8,500 Additional paid-in capital 224,082 ---------- $ 232,582 ========== The Company estimated that it owned approximately 49,000 acres of land at the date of incorporation as Westland Development Co., Inc. Such acreage was used as the beginning cost basis for financial reporting purposes and was valued at $127,400 ($2.60 per acre) based on an appraisal in 1973 which determined the approximate value of the land in 1907. This date approximates the date that the Patent of Confirmation covering the land comprising the Atrisco Land Grant was given to the Town of Atrisco by the United States of America. Since the date of the Patent of Confirmation, the Company's acreage has increased in market value, but a full determination of such value has not been made. The Company includes its wholly-owned subsidiary, El Campo Santo, Inc., on a consolidated basis. El Campo Santo, Inc. is a wholly-owned nonprofit corporation created to manage cemeteries set aside on Company land for the stockholders. El Campo Santo, Inc. has no significant assets, liabilities, or operations. All material intercompany accounts and transactions have been eliminated. 2. Nature of Operations The Company develops, sells, or leases its land holdings, all of which are located near Albuquerque, New Mexico. The Company may use joint ventures or participation in limited partnerships to accomplish these activities. Revenue sources for the years ended June 30, 1996 and 1995 consist primarily of proceeds from vacant land sales and rentals from developed properties, such as single-tenant retail stores and office space. Land sales are primarily to commercial developers and others in the Albuquerque area and certain governmental agencies, and the terms of sale include both cash and internal financing by the Company. Such sales are collateralized by the land. The Company has relied primarily upon cash land sales over the past several years due to the collection risk associated with real estate contracts. 3. Cash and Cash Equivalents Cash and cash equivalents are considered to include highly liquid investments with maturities of three months or less and money market funds. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits and in money market funds which are not federally insured. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. 4. Land and Improvements Held for Future Development Land and improvements held for future development are recorded at cost not to exceed net realizable value. Improvements consist of abstracts, surveys, legal fees, master and sector plans, infrastructure improvements, and other costs related to land held by the Company which are allocated to respective tracts primarily by specific identification of costs. 5. Income-Producing Properties and Property and Equipment Income-producing properties and property and equipment are stated at cost, less accumulated depreciation, computed on a straight-line basis over their estimated lives of three to thirty years. The cost of the building in which the Company has its offices, a portion of which is rented to others, has been allocated to property and equipment and income-producing properties based upon square footage. 6. Recognition of Income on Real Estate Transactions The Company recognizes the entire gross profit on sales where the down payment is sufficient to meet the requirements for the full-accrual method. Transactions where the down payment is not sufficient to meet the requirements for the full-accrual method are recorded using the deposit or installment method. Under the deposit method, cash received is recorded as a deposit on land sale. Under the installment method, the Company records the entire contract price and the related costs at the time the transaction is recognized as a sale. Concurrently, the gross profit on the sale is deferred and is subsequently recognized as revenue in the statements of earnings as payments of principal are received on the related contract receivable. 7. Income Taxes Deferred income tax assets or liabilities are determined based on the difference between financial statement and tax bases of certain assets and liabilities as measured by the enacted tax rates in effect using the liability method. 8. Earnings Per Common Share Earnings per common share are based upon the weighted average number of common and dilutive common equivalent shares outstanding during the year. Common equivalent shares include the number of no par value common shares which may be issued in connection with eliminating fractional shares (which resulted from the determination made by the Court in the heirship case) and the number of no par value common shares for which the Court ruled that no incorporator or heirs existed. 9. Investments in Partnerships and Joint Ventures Investments in partnerships and joint ventures are accounted for on the equity method. 10. Trading Securities Debt and equity securities that are bought and held principally for sale in the near term are reported at fair value, with unrealized gains and losses included in earnings. 11. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the June 30, 1996 presentation. 12. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates. 13. Recently Issued Accounting Pronouncement The Financial Accounting Standards Board has issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. Statement 121 also addresses the accounting for long-lived assets for which disposal is expected. The Company will adopt Statement 121 in the first quarter of the year ended June 30, 1997; however, the effect of adoption has not been determined. NOTE B - REAL ESTATE CONTRACTS RECEIVABLE Real estate contracts receivable are summarized as follows at June 30, 1996: Promissory note from developer, noninterest-bearing, due September 12, 1996; collateralized by land $228,664 Contracts, due in aggregate annual installments of $56,649, with interest rates ranging from 10% to 12%; collateralized by land 134,996 -------- $363,660 ======== Principal collections (based upon stated contract maturities and assuming all delinquent amounts will be collected in 1997) due on the real estate contracts receivable for the years ending June 30 are as follows: 1997 $273,355 1998 14,246 1999 65,501 2000 2,100 2001 2,353 Thereafter 6,105 -------- $363,660 ======== NOTE C - LAND AND IMPROVEMENTS HELD FOR FUTURE DEVELOPMENT The Company estimates that it presently owns in excess of 58,000 acres of land, primarily including land located within the boundaries of the Town of Atrisco Land Grant and land located elsewhere which the Company has acquired since incorporation. Plans for ultimate development of the properties have not been finalized. Land and improvements consist of the following at June 30, 1996: Land $1,061,702 Improvements 4,054,719 ---------- $5,116,421 ========== NOTE D - INCOME-PRODUCING PROPERTIES Income-producing properties consist of two single-tenant retail store buildings, one single-tenant retail store under construction, and one-half of the Company's office building and are summarized as follows at June 30, 1996: Buildings and equipment $2,926,390 Less accumulated depreciation 191,193 ---------- 2,735,197 Land 966,939 Construction in progress 2,694,286 ---------- $6,396,422 ========== The Company's rentals from income-producing properties are principally obtained from tenants through rental payments as provided for under noncancelable operating leases. The lease terms range from one to twenty years and typically provide for guaranteed minimum rent, percentage rent, and other charges to cover certain operating costs. Minimum future rentals from income-producing properties on noncancelable tenant operating leases as of June 30, 1996 are as follows: Year ending June 30 1997 $ 551,000 1998 543,000 1999 558,000 2000 541,000 2001 535,000 Thereafter 4,309,000 ----------- $ 7,037,000 =========== NOTE E - NOTES, BONDS, MORTGAGES, AND ASSESSMENTS PAYABLE Notes, bonds, mortgages, and assessments payable are summarized as follows at June 30, 1996: Mortgage notes with a bank, due in aggregate monthly installments of $4,650 at June 30, 1996, including interest at 7.5%, due at various dates from August, 1998 through November, 1999; collateralized by income-producing properties and related equipment $ 292,916 Assessments for the installation of water and sewer lines and paving, with semiannual payments of $24,700 for the year ending June 30, 1997 and $5,428 semiannual payments through January, 2002, plus interest at 7.5%; collateralized by land and improvements with an approximate equal carrying value 73,826 Promissory note with an insurance company, due in monthly installments of $17,970 through May, 2015, including interest at 9.37%; collateralized by income-producing properties 1,907,636 Note payable to an investment corporation, due in monthly installments of $6,893 through September, 2015, including interest at 8.75%; collateralized by income-producing properties 767,542 Bonds payable, due June 30, 1998, with annual interest at 7%; collateralized by partial proceeds of sale of land for national park 625,900 Promissory note with developer, due December 14, 1998, bearing interest at 6%; collateralized by land and improvements held for future development 194,074 Notes payable to a finance company, due in aggregate monthly installments of $1,570, including interest at rates ranging from 9.75% to 11%, due at various dates through July, 1999; collateralized by vehicles 33,575 Revolving $1,000,000 note payable to bank; due December 1, 1996, with interest payable quarterly at 9.25%; collateralized by land 915,000 Mortgage note with a bank, due in quarterly installments of $61,537 at June 30, 1996, including interest at prime plus 0.5%, due April 16, 1997; collateralized by land 1,623,398 --------- $6,433,867 ========== The Company has general obligation bonds outstanding of $625,900 which provide for 7% annual interest payments and mature June 30, 1998. Pursuant to the bond indenture, the Company must deposit with the bond trustee an amount not to exceed 20% of the face amount of all such issued and outstanding Series B bonds less the amount of interest accumulated or accrued on funds previously deposited pursuant to the terms of the agreement, or 20% of the Company's net income from the sale of such properties, whichever is less. As of June 30, 1996, all required deposits due July 15, 1995 were on deposit with the bond trustee and are included in other assets in the amount of $410,024. The Company may redeem the bonds prior to maturity by payment of the principal amount plus a premium of 2% of the principal balance, plus accrued interest, through the date of redemption. The bonds are collateralized by 20% of the net income, as defined in the bond indenture, to be received from the sale of approximately 2,000 acres of land to the United States Government for inclusion in the Petroglyph National Monument (Note K). The Company maintains a line of credit with a bank which provides a maximum of $2,000,000 (limited to $1,000,000 until a mortgage with the same bank is paid in full) at the bank's prime rate of interest and is collateralized by specific tracts of land. Interest is payable quarterly with the balance payable at maturity, December 1, 1996. At June 30, 1996, the Company had approximately $75,000 of outstanding letters of credit to the City of Albuquerque in connection with subdivision improvements done for the Company. Aggregate required principal payments of the notes, bonds, mortgages, and assessments payable as of June 30, 1996 are as follows: Year ending June 30 1997 $2,885,256 1998 737,665 1999 297,879 2000 82,118 2001 84,331 Thereafter 2,346,618 ---------- $6,433,867 ========== NOTE F - INCOME TAXES An analysis of the deferred income tax assets and liabilities as of June 30, 1996 is as follows: Deferred tax assets Tax loss and contribution carryforwards $ 240,400 Accrued expenses 71,155 Investments 69,125 Property, equipment, and land 131,066 Other 31,052 Valuation allowance (220,618) ---------- 322,180 Deferred tax liabilities Deferred tax gain on involuntary conversion of land 3,555,180 ---------- Net deferred tax liability $3,233,000 ========== Income tax expense (benefit) for continuing operations consists of the following: June 30, ------------------- 1996 1995 -------- -------- Current Federal $363,000 $ 83,200 State 41,000 - -------- -------- 404,000 83,200 Deferred Federal (29,000) 209,950 State (3,000) 37,050 -------- -------- (32,000) 247,000 -------- -------- $372,000 $330,200 ======== ======== The income tax provision for continuing operations is reconciled to the tax computed at statutory rates as follows: June 30, ------------------- 1996 1995 -------- -------- Tax expense at statutory rates $318,247 $244,307 State income taxes at statutory rates 56,161 43,113 Adjustment of estimated income tax liabilities of prior year 41,078 (49,800) Change in valuation allowance (88,050) 92,786 Nondeductible expenses 29,490 - Other 15,074 (206) -------- -------- Total expense from continuing operations $372,000 $330,200 ======== ======== A valuation allowance of approximately $220,000 has been recognized at June 30, 1996 based on estimates of tax assets which are not likely to be realized in the future. Significant changes in assumptions concerning future taxable income and deductions may cause changes in the valuation allowance. NOTE G - COMMON STOCK AND STOCK OPTIONS Under its Articles of Incorporation, the Company is authorized to issue 1,964,448 shares of common stock classified as follows: (a) 736,668 shares of no par value common stock to represent $8,500 estimated value of land held by the Town of Atrisco; (b) 736,668 shares to be sold for $1.45 a share, designated as Class A, $1 par value common stock. Class A stock is to be sold only to the stockholders of record as of the date of incorporation as follows: At the first sale of such stock, each stockholder shall have the right to purchase up to the number of shares obtained by dividing the total number of stockholders of record on the date of incorporation into 736,668 shares. Any stock remaining unpurchased shall be offered for sale at subsequent sales, and only stockholders who purchased stock at a preceding sale shall have the right to purchase stock at a subsequent sale, each one being entitled to purchase up to the number of shares obtained by dividing the total number of stockholders of record who purchased at the preceding sale into the total number of unpurchased shares remaining after the preceding sale. (c) 491,112 shares to be sold for a price to be determined by the Board of Directors, designated as Class B, $1 par value common stock. Those acquiring no par value common stock and Class A, $1 par value common stock have no preemptive rights to purchase Class B, $1 par value common stock. The following summarizes, at June 30, 1996, the number of shares of common stock which, upon judicial determination, can be distributed (no par) or offered for sale (Class A) to stockholders of record as of the date of incorporation: Price Number ------------------------ of Per shares share Total ------- ------- ---------- Shares issuable No par value common 5,047 $ - $ - Class A, $1 par value common 736,668 1.45 1,068,169 ------- ---------- 741,715 $1,068,169 ======= ========== There is no established market value for the Company's common stock. At June 30, 1996, 716,608 shares of the Company's no par value common stock were issued and outstanding. Of the 5,047 shares of no par value common stock issuable, 1,872 shares may be issued in connection with eliminating fractional shares which resulted from the determinations made by the Court in the heirship case and 3,175 shares represent shares for which the Court in the heirship case ruled that no incorporator or heirs existed. The Company also has reacquired and canceled 15,013 shares of no par value common stock which have been constructively retired. These shares have not been formally retired and, as such, may be issuable to stockholders of record as of the date of incorporation. During 1985, the stockholders of the Company approved a stock option plan for certain directors and employees. During 1987, the plan was terminated. At the time of termination, options for 48,000 Class B shares had been granted at $5.51 per share and expire in December, 1996. At June 30, 1996 and 1995, options for 20,500 and 38,000 Class B shares, respectively, were exercisable. Options for 17,500 shares were exercised during 1996 and 10,000 were exercised during 1995. The Company realized approximately $45,000 in the reduction of income taxes relating to compensation recognized by the directors and employees for the excercise of the options. The reduction in income taxes was not included in earnings but has been reflected as additional paid-in capital. NOTE H - SEGMENT INFORMATION The Company operates primarily in two industry segments. They are as follows: Land - Operations involve the development and sale of tracts, both residential and commercial. In addition, included are incidental revenues from leasing of grazing rights. Rentals - Operations involve rentals from two single-tenant retail store buildings, one single-tenant retail store under construction, and one-half of the Company's office building. Financial information for each industry segment is summarized as follows: Land Rentals ---------- ----------- 1996 Revenues $4,371,982 $ 394,419 Operating profit 2,662,989 274,557 Identifiable assets 5,774,766 6,792,172 Capital expenditures - 2,724,320 Depreciation - 95,823 1995 Revenues $2,894,867 $ 112,666 Operating profit 2,366,472 82,141 Identifiable assets 6,341,330 3,807,369 Capital expenditures - 3,688,900 Depreciation - 16,508 Other corporate assets consist primarily of cash, furniture, equipment, and one-half of an office building, of which the remaining one-half is included in income-producing properties. NOTE I - BENEFIT PLAN The Company has a Simplified Employee Pension (SEP/IRA) plan under section 408(k) of the Internal Revenue Code. The Company annually may make a voluntary matching contribution of a maximum of 11% of each eligible employee's compensation. Company-contribution expense was approximately $53,000 and $47,000 for 1996 and 1995, respectively. NOTE J - SALES TO MAJOR CUSTOMERS Sales to major customers are summarized as follows: During the year ended June 30, 1996, sales to two customers individually accounted for 24% and 18% of total revenues. During the year ended June 30, 1995, sales to four customers individually accounted for 26%, 16%, 15%, and 13% of total revenues. NOTE K - SALE OF LAND FOR NATIONAL PARK On June 28, 1990, the Petroglyph National Monument ("National Monument") was established by an act of the United States Congress ("Congress"). Under the bill passed by Congress, the National Park Service is authorized to acquire acreage within the National Monument using funds specifically appropriated by Congress each year. In 1995, approximately 24 acres were transferred to the National Park Service for cash of $329,900. The Company's remaining land within the National Monument boundary of approximately 665 acres is expected to be sold in a series of transactions over the next several years. NOTE L - LITIGATION The Company is engaged in various lawsuits either as plaintiff or defendant which have arisen in the conduct of its business which, in the opinion of management, based upon advice of counsel, would not have a material effect on the Company's financial position. NOTE M - RELATED PARTY TRANSACTIONS The Company purchases its directors' and officers' liability insurance through a corporation controlled by a member of the Board of Directors. Total premiums for this policies paid in 1996 and 1995 were $68,000 and $60,000, respectively. The Company loaned $70,500 to a joint venture partner during the year ended June 30, 1996. The note is payable in monthly installments of $758 including interest at 10% and is collateralized by developed property. The note matures April, 2006. During the year ended June 30, 1995, the Company acquired certain property from an ownership group which included a member of the Board of Directors. Under the sales agreement, the Board member received proceeds in the amount of $74,090. NOTE N - FINANCIAL INSTRUMENTS The following table includes various estimated fair value information as of June 30, 1996 as required by Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS 107"). Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in SFAS 107 and does not purport to represent the aggregate net fair value of the Company. The carrying amounts in the table are the amounts at which the financial instruments are reported in the financial statements. All of the Company's financial instruments are held for purposes other than trading. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: 1. Cash and Cash Equivalents The carrying amount approximates fair value because the Company has the contractual right to receive immediate payment on the deposit accounts. 2. Real Estate Contracts Receivable Long-term notes receivable are generally collateralized by real estate and accrue interest at rates from 10% to 12%. Because the ultimate collectibility of these notes is not reasonably assured, it is not practicable to estimate fair value. Short-term notes are valued at the present value of future cash flows based on the current rates at which similar loans would be made to purchasers with similar credit ratings. 3. Other Notes Receivable Other notes receivable are valued at the present value of future cash flows based on the current rates at which similar loans would be made to borrowers with similar credit ratings. 4. Fixed Rate Long-Term Debt The discounted amount of future cash flows using the Company's current incremental rate of borrowing for similar liabilities is used to estimate fair value. 5. Floating Rate Long-Term Debt The carrying amount approximates fair value because interest rates adjust to market rates. The carrying amounts and estimated fair values of the Company's financial instruments at June 30, 1996 are as follows: Carrying Estimated amount fair value ---------- ---------- Financial assets Cash and cash equivalents $2,183,758 $2,183,758 Real estate contracts For which it is not practicable to estimate fair value 134,996 - Short-term real estate contract 228,664 224,154 Other notes receivable 70,176 70,176 Financial liabilities Fixed rate long-term debt (4,810,469) (4,727,926) Floating rate long-term debt (1,623,398) (1,623,398) NOTE O - SUBSEQUENT EVENT On August 9, 1996, the Board of Directors declared a cash dividend of $.60 per common share payable on August 27, 1996 to stockholders of record on August 13, 1996. DIRECTORS OF WESTLAND SOSIMO S. PADILLA, Chairman of the Board of Directors and Director. Member of the Executive Committee. Mr. Padilla is retired from the circulation department of the Albuquerque Publishing Company and was owner/operator of Western Securities Transportation Corporation for over thirty years. BARBARA PAGE, President, Chief Executive Officer and Director. Secretary of the Executive Committee. Ms. Page is employed by Westland Development Co., Inc. as its President. POLECARPIO (LEE) ANAYA, Executive Vice President, Assistant Secretary/Treasurer and Director. Chairman of the Executive Committee. Mr. Anaya was owner/operator of Lee's Conoco. DAVID C. ARMIJO, Secretary/Treasurer and Director. Mr. Armijo is an insurance broker and serves as President and Chairman of the Board of California's All-Risk Insurance Agency, Inc. in Los Angeles. CARMEL CHAVEZ, Director. Member of the Executive Committee and the Disclaimer Committee and Vice Chairman of El Campo Santo, Inc. Mr. Chavez is a retired employee of the Albuquerque Public Schools. JOSIE G. CASTILLO, Director. Vice Chairman of the Executive Committee, Chairman of El Campo Santo, Inc. and member of the Disclaimer Committee. Ms. Castillo is retired from the Human Services Department of the State of New Mexico. CARLOS SAAVEDRA, Director. Alternate member of the Executive Committee, member of El Campo Santo, Inc. and Chairman of the Disclaimer Committee. Dr. Saavedra is a former director of bilingual education for the Colorado Department of Education and the Oakland Unified School District, Oakland, California. Dr. Saavedra retired from education in 1985. JOE S. CHAVEZ, Director. Alternate member of the Disclaimer Committee. Mr. Chavez is employed at Galles Chevrolet. CHARLES V. PENA, Director. Mr. Pena owns and operates CJ's New Mexican Food Restaurant. EX-10 4 EXHIBIT 10.8 LEASE By this Lease, made in multiple copies the 19th day of March 1996, between CAP II, a New Mexico general partnership, hereinafter called "Landlord," and WALGREEN HASTINGS CO., a Nebraska corporation, hereinafter called "Tenant"; Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, for the term commencing October 1, 1996, and continuing to and including September 30, 2056, subject to adjustment pursuant to Article 3 herein and subject to prior commencement and to prior termination as hereinafter provided, the premises to include both a building and other improvements and certain real estate located at the northwest corner of Central Avenue and Coors Road, in the City of Albuquerque, County of Bernalillo, State of New Mexico, the building to be erected and completed by Landlord to include not less than 118 feet of frontage facing Central Avenue and not less than 135 feet of depth, being an area containing approximately 15,930 square feet of first floor area (the "Building"), and together with all improvements, appurtenances, easements and privileges belonging thereto. All of the foregoing shall be as shown on the plan attached hereto and made a part hereof as Exhibit "A," and as legally described in Exhibit "B" attached hereto and made a part hereof and the Building, real estate and other improvements to be constructed thereon are hereinafter collectively referred to as the "Leased Premises." (This Instrument Prepared by Elena Kraus, 200 Wilmot Road, Deerfield, Illinois 60015) THE TERMS, COVENANTS AND CONDITIONS OF SAID LETTING ARE AS FOLLOWS: USE 1. Subject to Article 13 of this Lease and so long as Tenant shall operate in the Leased Premises, Tenant shall operate a store similar in nature to a majority of its other stores in the Albuquerque metropolitan area, with the right to sell such merchandise and provide such services, as Tenant may, from time to time, sell and provide in a majority of its other stores in the Albuquerque metropolitan area. Subject to the restrictions contained in the Declaration as defined in Section 7(b) below, nothing contained herein shall be construed so as to prohibit Tenant from expanding or eliminating any department(s) or from expanding or eliminating any line(s) of merchandise in the Leased Premises. RENT 2. Tenant shall pay rent for the Leased Premises, as follows: (a) A fixed rent of $26,121.75 per month, commencing on the Rent Commencement Date (as defined in Article 6 hereo@ and continuing thereafter for the remainder of the Term (as defined in Article 3[b] hereo@. Fixed rent shall be payable on the first day of each and every month in advance and shall be properly apportioned for any period less than a full calendar month. (b) If a sum equal to ---- 2.0% of the Gross Sales, as hereinbelow defined, except from the sale of food, alcoholic beverages and prescriptions, plus 1.0% of the Gross Sales fronlthe sale of alcoholic beverages, plus 0.5% of the Gross Sales from the sale of food and prescriptions made by Tenant in the operation of Tenant's store in the Leased Premises in any lease year (as defined in Section [c] of Article 3) shall exceed the total fixed rent for such lease year, then and in such event, and within forty-five (45) days after the end of each lease year, Tenant shall pay to Landlord the amount of such excess as additional percentage rent. However, in no event shall the total of fixed rent plus additional percentage rent (if any) payable by Tenant in any lease year exceed $626,922.00, which amount shall be proportionately decreased for any lease year that is not comprised of a full twelve (1 2) months. Within fortyfive (45) days after the end of each lease year Tenant shall furnish to Landlord a statement of the total amount of such Gross Sales for such lease year. The aforesaid amount(s) shall be proportionately adjusted in the case of a lease year of more or less than a full twelve (1 2) calendar months. (c) The term "Gross Sales" as used herein is defined as the total amount of all receipts, whether for cash or on credit (less returns and refunds) from sales of drugs, food, drinks, goods, wares and merchandise of every sort whatsoever, made by Tenant in the operation of Tenant's store on the Leased Premises, or made by any concessionaire on the Leased Premises. The following shall be specifically excluded from Gross Sales: receipts from sales of milk and all other non-alcoholic beverages; receipts from sales of tobacco products; receipts from the sale of prescription items pursuant to third party prescription plans, as defined below; receipts and commissions from the operation of public telephones; license and transaction fees received from the operation of automatic teller machines and any other electronic consumer service apparatus to the extent such fees do not exceed five percent (5%) of fixed rent paid in any lease year; credit card processing fees; intercorporate and interstore sales or transfers; sales of government bonds, savings stamps and other government securities; sales of postage stamps and ready stamped postcards and envelopes; sales of government lottery tickets; sales at a discount to employees; sales at a discount to doctors, dentists, hospitals, nurses, drug stores or wholesale drug or supply houses; accounts receivable written off as uncollectible. Tenant shall also have the right to deduct and exclude from Gross Sales a sum equal to any approximate amounts which may be paid by Tenant or which Tenant may add to or include in its selling prices of various articles by reason of any sales taxes, use taxes, retailers' occupation taxes, excise taxes at the retail level and the like, now or hereafter imposed and however entitled, and which are based upon the amounts of sales or the units of sales. Third party prescription plans shall be deemed to be those health benefit plans wherein all or any portion of the cost of pharmaceuticals and any other items obtained by a prescription are paid or reimbursed by an organization such as a governmental agency, an entity created by state or federal law, an insurance carrier, a health maintenance organization, a union, a trust or benefit organization or an employer or employer group pursuant to an agreement between Tenant and such organization. Tenant shall cause to be kept, in accordance with its customary accounting procedure, records of the Gross Sales made by Tenant in the operation of Tenant's store on the Leased Premises. Landlord and Landiord's duly authorized representative, at reasonable times during business hours, shall have access to such records at the place where the same are kept, for the purpose of inspecting and auditing the same, provided that any such inspection and audit be made by Landlord within six (6) months after the expiration of any lease year. If Landlord does not object in writing to any statement above mentioned within said time period, such statement shall be conclusive y presumed to be correct and final, and thereafter Tenant shall not be required to preserve the records from which such statement was compiled. Landlord agrees not to divulge to any person or entity information obtained by Landlord and Landlord's representative from such records or from the statements above mentioned, except to any mortgagee or prospective purchaser of the Leased Premises and except as may be necessary to enforce of Landlord's rights under this Lease. Nothing herein contained, however, shall be deemed to confer upon Landlord any interest in the business of Tenant on the Leased Premises. (d) Until further notice by Landlord to Tenant, rent checks shall be payable to and mailed to: CAP II c/o Peterson Properties 2325 San Pedro, N.E., Suite 2-A Albuquerque, New Mexico 87110 Attention: James A. Peterson INITIAL TERM, TERM, LEASE YEAR, OPTIONS 3. (a) The initial term of this Lease shall commence on the date that Tenant accepts possession of the Leased Premises and shall continue to and include the day immediately preceding the date that the term of this Lease commences as below provided (the "Initial Term"). Tenant shall h.ave no obligation to pay rents or other charges during the Initial Term nor shall any of the same accrue; all rents and other charges specified in this Lease shall commence as of the date that the term commences, unless otherwise expressly provided herein. (b) The term shall commence on the Rent Commencement Date (as defined in Article 6) and shall continue for sixty (60) years thereafter (the "Term"); provided, however, that if the Rent Commencement Date be other than the first day of the calendar month, then the Term shall continue to and include the last day of the same calendar month of the sixtieth (60th) year thereafter. (c) The first lease year shall commence on the Rent Commencement Date and, if such date be on the first day of a calendar month, shall end twelve (12) months thereafter, or, if such date be other than the first day of the calendar month, shall end on the last day of the same calendar month of the first year thereafter, and each succeeding lease year shall be each succeeding twelve (12) month period. (d) Tenant shall have the right and option, at Tenant's election, to terminate this Lease effective as of the last day of the two hundred fortieth (240th) full calendar month of the Term, effective as of the last day of the three hundredth (300th) full calendar month of the Term, effective as of the last day of the three hundred sixtieth (360th) full calendar month of the Term, effective as of the last day of the four hundred twentieth (420th) full calendar month of the Term, effective as of the last day of the four hundred eightieth (480th) full calendar month of the Term, effective as of the last day of the five hundred fortieth (540th) full calendar month of the Term, effective as of the last day of the six hundredth (600th) full calendar month of the Term and effective as of the last day of the six hundred sixtieth (660th) full calendar month of the Term. If Tenant shall elect to exercise any such option, Tenant shall send notice thereof to Landlord, at least six (6) months prior to the date this Lease shall so terminate, but no notice shall be required to terminate this Lease upon the expiration of the Term. DELIVERY OF POSSESSION 4. (a) Landlord shall put Tenant into exclusive physical possession of the Leased Premises on or before October 1, 1996 or as soon as possible thereafter, and in any case not later than October 1, 1997, and at the same time deliver to Tenant a full set of keys to the Building, provided that if Landlord shall so put Tenant into possession between November 1 and January 1, then the Initial Term shall be extended by the period between the date of such possession and January 1. Landlord shall send written notice to Tenant, Aftention: Director of Construction, at least forty-five (45) days (but not more than sixty [60] days) before such possession is to be delivered. Such notice shall set forth the date of delivery of possession, which shall be on a Monday (unless such date is a legal holiday, in which case possession shall be delivered the next business day). Additionally, as a condition precedent to the delivery of possession of the Leased Premises to Tenant, Landlord shall send written notice to Tenant%vhich shall be certified by Landlord's architect, at least seven (7) but not more than twenty-one (21) days prior to the date of delivery of possession, which noiice shall confirm the date that possession shall be delivered and that the Led'sed Premises is (or in the architect's judgment will be as of the date of delivery of possession) substantially complete and ready for occupancy. If possession is not delivered by October 1, 1998, Tenant, in addition to Tenant's remedies at law, equity or under this Lease, may cancel this Lease by notice to Landlord. The Leased Premises upon delivery shall be in good condition and repair, free of Hazardous Substances (as defined below), and shall fully comply with all lawful requirements and shall be constructed in accordance with Article 5 hereof. Tenant shall have the right, without being deemed to have accepted possession, to enter upon the Leased Premises as soon hereafter as practical, to take measurements and install its fixtures and exterior signs (including, but not limited to, the installation of permanent and temporary signs), but such entry or the opening for business shall not constitute a waiver as to the condition of the Leased Premises or as to any work to be done or changes to be made by Landlord, or as to any other obligations of Landlord hereunder. If available from appropriate governmental authorities, Landlord shall secure from the appropriate governmental authority and provide to Tenant prior to the delivery of possession of the Leased Premises, a Certificate of Occupancy subject only to those items to be completed by Tenant. (b) (i) Landlord represents that other than as disclosed in that certain report dated March 5, 1996, prepared by Western Technologies, Inc. and entitled "Phase I Environmental Site Assessment and Limited Asbestos Sample, 101 Coors Boulevard, N.W., Albuquerque, New Mexico" (the "Report"), Landlord has no knowledge concerning any current or previous use of the land and/or Building comprising the Leased Premises which would lead a reasonable person to suspect that Hazardous Substances (as defined below) were deposited, stored, disposed of or placed upon, about or under the Leased Premises. The Report shall be certified to Tenant prior to delivery of possession of the Leased Premises. In order to make the foregoing representation, Landlord states that it has made due inquiry or investigation as appropriate. Landlord has provided to Tenant, at Landlord's sole cost and expense, a copy of the Report. In the event the Report discloses the existence of any Hazardous Substances in, on or under the Leased Premises, including, but not limited to, the existence of any underground storage tanks and/or petroleum or petroleum by-products, Landlord, at Landlord's sole cost and expense, prior to the date Landlord delivers possession of the Leased Premises to Tenant, as provided in Article 4, shall properly remove, and dispose of any such underground storage tanks and shall properly remove and dispose of any Hazardous Substances and/or petroleum or petroleum by-products. All such disposal and removal shall be conducted in accordance with all federal, state and local laws, ordinances, and rules or regulations, or other binding determinations of any federal, state, local, or other governmental entity exercising executive, legislative, judicial, regulatory, or administrative functions (whether now or hereafter existing). In the event of any such removal and disposal by Landlord hereunder, upon completion of the same the Leased Premises shall again be tested by the environmental engineer and/or contractor and the results delivered to Tenant; Landlord shall also deliver in such event all necessary governmental inspections and approvals with respect to the removal, remediation and disposal work. Tenant shall have no obligation to accept delivery of possession of the Leased Premises until Landlord has complied with the provisions of this Section; provided, however, that Tenant may, at Tenant's option, accept possession of the Leased Premises prior to the completion of any remediation if Landlord provides Tenant with final remediation plans and Tenant determines that the effectuation of said remediation will not adversely impact Tenant's full use and enjoyment of the Leased Premises. (ii) "Hazardous Substances" shall mean any hazardous or toxic chemical, waste, byproduct, pollutant, contaminant, compound, product or substance, including, without limitation, asbestos, polychlorinated byphenyls, petroleum (including crude oil or any fraction or byproduct thereof, and any material the exposure to, or manufacture, possession, presence, use, generation, storage, transportation, treatment, release, disposal, abatement, cleanup, removal, remediation or handling of which is prohibited, controlled or regulated by any Environmental Law. (iii) "Environmental Law" shall mean any federal, state, regional, county or local governmental statute, law, regulation, ordinance, order or code or any consent decree, judgment, permit, license, code, covenant, deed restriction, common law, or other requirement pertaining to protection of the environment, health or safety of persons, natural resources, conservation, wildlife, waste management, and pollution (including, without limitation, regulation of releases and disposals to air, land, water and ground water), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601 et seq., Solid Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of 1976 and Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. 6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. 1251 et seq., Clean Air Act of 1966, as amended, 42 U.S.C. 7401 et seq., Toxic Substances Control Act of 1976, 15 U.S.C. 2601 et seq., Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. 651 et seq., Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. 1 1 001 ET SEQ., National Environmental Policy Act of 1975, 42 U.S.C. 300(@ et seq., and all amendments as well as any similar state or local statute or code and replacements of any of the same and rL4es, regulations, guidance documents and publications promulgated thereunder. (c) It shall be a condition precedent to the delivery of possession of the Leased Premises to Tenant that Landlord shall have first delivered to Tenant satisfactory evidence of Landlord's title together with each instrument, if any, required by Section (b) of Article 18. Tenant's acceptance of possession of the Leased Premises in the absence of full satisfaction of said condition precedent shall in no manner be deemed a waiver thereof or of any of the requirements of Article 18. (d) Landlord shall, prior to the delivery of possession of the Leased Premises to Tenant, cause Landlord's architect to certify to Tenant the square foot floor area contained in the Building. CONSTRUCTION BY LANDLORD 5. (a) Before delivering possession of the Leased Premises to Tenant, Landlord shall obtain all required zoning and permits (other than Tenant's business licenses) for the construction and operation of the Leased Premises. Subject to the restrictions contained in the Declaration, the Building shall be of such exterior and structural design and character as is acceptable to Tenant and as will also meet Tenant's requirements for its permanent exterior signs, which may extend above the Building and shall be at locations and of a size permitted by appropriate governmental authorities and reasonably acceptable to Tenant. The Leased Premises and Building shall be erected and completed by Landlord, in accordance with the plans and specifications described below, and shall contain Tenant's specific requirements for the operation of Tenant's business, which requirements will include, among other things, the items and installations listed in the Criteria Specifications for SelfServe Walgreen Store prepared by Walgreen Co., revised July 1, 1995, and Criteria Plans, including the drawings referenced on Exhibit "C" attached hereto, heretofore delivered to Landlord and incorporated herein by reference and made a part hereof. All such work by Landlord shall be done by contractors selected by Landlord and acceptable to Tenant. Such work shall comply with the requirements of public authorities and shall be done in a first-class, good, and workmanlike manner, free and clear of all liens and encumbrances for labor and materials furnished to Landlord. Except as otherwise shown on Exhibit "A" or in the Plans, the Leased Premises shall contain no grade elevation changes in excess of five percent (5%); there shall be no steps or ramps (excepting ramps to serve the handicapped) in any exterior portion of the Leased Premises. (b) Within one (1) month after the execution and delivery of this Lease, Tenant shall furnish to Landlord a fixture plan and base sheets relative to the Building, so that Landlord may be enabled to prepare and furnish to Tenant plans and specifications covering Tenant's specific requirements. The plans (which shall be on mylar or vellum) and specifications (collectively the "Plans") prepared by Landlord shall be furnished to Tenant for Tenant's approval within forty-five (45) days after the execution and delivery of this Lease or the receipt of said fixture plan and base sheets from Tenant, whichever is later. All areas of design and engineering must be certified by and under the direct supervision of architects and engineers licensed and registered in the State of New Mexico. Tenant agrees to approve or reject said Plans, within thirty (30) days of Tenant's receipt thereof, and if not approved or rejected within said period, said Plans shall be deemed approved. In the event Tenant shall reject such Plans within the period provided above, Tenant shall return said Plans to Landlord indicating the items so rejected. Landlord shall then have thirty (30) days to resubmit the Plans to Tenant, and Tenant shall have thirty (30) days after resubmittal to approve or reject the same. If not approved or rejected within said period, said Plans shall be deemed approved; provided, however, that in no event shall the standards of quality of approved Plans, or of those deemed approved, be less than those required by the Criteria Plans and Criteria Specifications above described, which shall control. If said Plans are rejected after being resubmitted to Tenant, and the parties are unable to agree on approved Plans within thirty (30) days thereafter, then either party may cancel this Lease upon thirty (30) days written notice to the other. Any such cancellation notice shall be null and void if the plans are approved during the thirty (30) day notice period. After approval of Plans, Tenant, at Tenant's sole cost and expense, shall have the right to make changes, substitutions and eliminations in said Plans provided, however, that Tenant shall pay all costs and expenses on account of any such changes, substitutions and eliminations. In addition, Tenant shall be solely responsible for paying all costs and expenses for changes, substitutions and additional requirements in the Plans which deviate from the Criteria Plans dated July 1, 1995 and further detailed on Exhibit "C" attached hereto. Landlord and Tenant agree to cooperate with each other and to diligently and in good faith make all reasonable modifications to keep the cost of the Building and improvements as economical as is reasonably practicable. (c) As soon as the final Plans are available to Landlord from Architect after Tenant has returned the final set of Plans to Landlord stamped "approved as noted" pursuant to Section (b) of this Article but in any event prior to the delivery of possession of the Leased Premises to Tenant, Landlord shall provide to Tenant a mylar sepia of the final Plans prepared by Landlord as provided above. (d) All Plans shall be deemed to be owned by Tenant regardless of by whom prepared; Landlord shall take all actions as may be appropriate or necessary at any time and from time to time in order to evidence such ownership in Tenant. Such Plans may be used by Tenant in their approved form or as modified by Tenant in connection with any alteration or renovation of the Leased Premises. Landlord may use the Plans only in connection with a Walgreens Drug Store. RENT COMMENCEMENT 6. Tenant shall commence paying fixed rents pursuant to Article 2 hereof as of the date that is two (2) months after Landlord has completed all construction and has delivered possession as above provided (the "Rent Commencement Date"). The Rent Commencement Date shall be subject to extension equal to any delays occasioned by strikes, casualties, governmental restrictions, priorities or allocations, inability to obtain materials or labor, denial of licenses to operate a pharmacy and/or to conduct its business, any cause the fault of Landlord or other causes beyond Tenant's control. Anything to the contrary in this Lease notwithstanding, Tenant shall have no obligation to pay rent or other charges until Landlord has provided all of the information and instruments required by Article 18 of this Lease and after such event, Tenant shall remit to Landlord all monies withheld. Nothing contained in this Lease shall be construed to obligate Tenant to open for business nor to obligate Tenant (or its successors or assigns) to continue to operate its business in the Leased Premises. PARKING 7. (a) Subject to the provisions of the Declaration, during the Term of this Lease, Tenant, at Tenant's cost and expense, shall maintain the landscaping at the Leased Premises and maintain and repair the parking areas located within the Leased Premises. However, Tenant shall have no obligation to perform nor pay any costs in connection with the following: (i) any replacements of the landscaping, light poles, parking areas or other improvements thereon; (ii) any other item which under generally accepted accounting principles are classified as a capital expense; (iii) any repair for which the need for repair is a result of the acts or negligence of Landlord or its agents, employees or licensees; (iv) any items for which Landlord is reimbursed by insurance, warranty or otherwise; (v) any item which Landlord's obligation under Article 5, 10, and/or 14 hereof; and (vi) any defects in the construction of the Leased Premises by Landlord. The foregoing items (i) through (vi) shall remain Landlord's responsibility to perform. Except as may be provided to the contrary in the Declaration [defined in(b) below], the parking spaces located on the Leased Premises shall be for the exclusive use of Tenant and Tenant's customers, employees, invitees, successors, assigns and sublessees. (b) This Lease shall be subject to those certain documents described in paragraph 1 of Exhibit "D" and all rules, regulations and guidelines promulgated pursuant thereto (hereinafter collectively referred to as the "Declaration"). The Declaration provides for reciprocal ingress and egress rights over and across the parking areas of the Leased Premises and the adjoining property (as shown on Exhibit "A-1 " hereto) all as more particularly described in the Declaration. Tenant hereby agrees to comply with the provisions of the Declaration and any failure to comply with the provisions of the Declaration and all applicable documents shall constitute a default under the Lease. Landlord hereby agrees that it shall not enter into any agreement or modification of the Declaration which interferes with Tenant's use and enjoyment of the driveways located on the adjoining property and the Leased Premises without Tenant's prior written consent thereto. Landlord covenants that upon Tenant's request, Landlord will cooperate with Tenant who shall have the right to enforce all rights, covenants and agreements granted Landlord and Tenant pursuant to the Declaration at no cost to Landlord. (c) Tenant hereby indemnities and holds harmless Landlord from any claim, damage or liability arising out of Tenant's use of the ingress and egress rights provided for in the Declaration over the adjoining property or any violation of the provisions of the Declaration by Tenant. (d) Tenant shall be responsible for any maintenance or repairs of the adjoining property resulting from the use of the adjoining property by Tenant. EXCLUSIVES 8. (a) Landlord covenants and agrees that, during the Term and any extensions or renewals thereof and subject to the rights of any tenants on the Adjoining Property with valid leases in effect as of the date of this Lease, no additional property which Landlord, directly or indirectly, may now or hereafter own or control, which is contiguous to, or within five hundred (500) feet of any boundary of the Leased Premises, including the Adjoining Property, will be used for any one or combination of the following: (i) the operation of a drug store or a so-called prescription pharmacy or for any other purpose requiring a qualified pharmacist or other person authorized by law to dispense medicinal drugs, directly or indirectly, for a fee or remuneration of any kind; (ii) the sale of so called health and/or beauty aids and/or drug sundries; (iii) the operation of a business in which photofinishing services and/or photographic film are offered for sale; (iv) the operation of a business in which food items are sold for consumption off the premises (other than a restaurant selling take-out food items); (v) the operation of a business in which greeting cards or wrapping paper are offered for sale; and/or (vi) the operation of a business in which alcoholic beverages shall be sold for consumption off the premises. In the event that Tenant files suit against any party to enforce the foregoing restrictions, Landlord agrees to cooperate fully with Tenant in the prosecution of any such suit. Notwithstanding the foregoing, if Tenant closes its store to the public for six (6) months or more, then all of the foregoing exclusive use restrictions shall terminate, except in the event that Tenant discontinues business as a result of fire or other casually beyond Tenant's control so long as Tenant reopens its business within sixty (60) days after the Leased Premises have been restored or the cause for such discontinuance has ceased. In no event shall said restrictions terminate in the event that Tenant discontinues business and a permitted assignee or sublessee of Tenant commences business operations in the Leased Premises within six (6) months after taking possession of the Leased Premises, selling any such item or items so restricted as a material part of such assignee's or sublessee's business. (b) Except as may be provided in the Declaration, in the event that any action, claim or suit is brought by any party against Tenant alleging that Tenant's operations in the Leased Premises are in violation of any use restriction contained in any instrument executed by Landlord or recorded against the Leased Premises prior to the delivery of possession of the Leased Premises to Tenant and in the event that a court of competent jurisdiction shall hold that Tenant's operations in the Leased Premises are in violation of any use restriction, Tenant, at Tenant's option shall have the right to terminate this Lease upon thirty (30) days written notice thereof to Landlord. UTILITIES 9. Tenant shall pay when due all bills for water, trash removal, sewer rents, sewer charges, heat, gas and electricity and other utilities and services used in or serving the Building or the Leased Premises from the commencement of the Initial Term and until the expiration of the Term. The source of supply and vendor of each such commodity shall be the local public utility company or municipality commonly serving the area, provided that if more than one utility vendor serves the area Landlord shall cause the vendor selected by Tenant to serve the Leased Premises. Landlord shall furnish to said Building and to the Leased Premises at all times sufficient gas and water service lines, also sewer lines and sewer connections, all of the capacity initially specified by Tenant, and electric service lines of the voltage and amperage initially specified by Tenant, all connected to an adequate source of supply or disposal. In addition, Landlord shall furnish to said Building conduit for telephone lines of a capacity specified by Tenant. If Tenant shall require additional service line capacity of any of such utilities and if same are available on the Leased Premises, Tenant, at Tenant's expense, shall have the right to the use of the same. REPAIRS, CONFORMITY WITH THE LAW 10. (a) Except as provided below, Tenant, at Tenant's sole cost and expense, shall, (i) repair and replace heating and cooling equipment and doors and door equipment serving the Building, (ii) make plate glass replacements unless required by fault of Landlord or its agents, and (iii) make repairs to the interior of the Building. Tenant shall also palint the exterior of the Building and make minor repairs (i.e. patching) to the exterior. Landlord, at Landiord's sole cost and expense, shall maintain and make all repairs to the exterior and structural portions of the Building, roof, and all utility lines, including but not limited to sewers, sewer connections, pipes, ducts, wires and conduits leading to and from the Leased Premises and/or the Building. Landlord shall make all repairs required by the fault of Landlord or its agents, or by fire or other insured casualty (as provided in Paragraph 14 below unless Tenant, at Tenant's sole option, chooses to make repairs necessitated by casualty) or the elements. In the event that any Hazardous Substance or any underground storage tank is discovered at any time in, under or about the Leased Premises and/or the Building (unless introduced by Tenant, or Tenant's agents, employees or licensees acting within the scope of their respective agency, employment or license), Landlord shall, at Landiord's expense, remove and dispose of the same in the manner described in and provide all documentation required by Section (b) of Article 4. Landlord hereby indemnifies and saves and holds Tenant harmless from and against any liability, obligation, damage or cost, including, without limitation, attorneys'fees and costs, resulting directly or indirectly from the presence, removal or disposal of any such Hazardous Substance (unless introduced by Tenant, or Tenant's agents, employees or licensees acting within the scope of their respective agency, employment or license) or any underground storage tank. Tenant hereby indemnifies and saves and holds Landlord harmless from and against any liability, obligation, damage or cost, including, without limitation, attorneys'fees and costs, resulting directly or indirectly from the presence, removal or disposal of any such Hazardous Substance introduced on, in or under the Leased Premises by Tenant, or Tenant's agents, employees or licensees acting within the scope of their respective agency, employment or license. These indemnifications shall survive the termination or expiration of this Lease for any reason. The provisions of this Section shall be complied with as required from time to time. (b) If in an emergency situation, a repair to the Leased Premises and/or the Building which Landlord is obligated to perform is required, Tenant shall make all reasonable efforts to contact Landlord or Landlord's managing agent by telephone and/or facsimile to advise Landlord of the need for the repair. If after making reasonable efforts to contact Landlord, either Tenant is unable to contact Landlord or Landlord's managing agent, or Tenant succeeds in contacting Landlord or Landiord's managing agent and Landlord fails to undertake action to correct the emergency situation within one business day, Tenant may perform the repair, in such manner as Tenant deems reasonably necessary, on account of Landlord. Upon completion of the repair, Landlord shall be required to reimburse Tenant for the actual cost of the repair. Landlord's payment shall be due within thirty (30) days after receipt of Tenant's bill accompanied by reasonable evidence that Tenant has paid for the repair. In the event Landlord fails to make payment to Tenant for said repair within said thirty (3O) days, such failure shall be deemed a default under this Lease and Tenant shall have all remedies set forth in Article 17 and those available at law or in equity, provided however, Tenant shall not have the right to cancel this Lease as. a result of Landlord's failure to make such payment as herein provided. For the purpose of this Section, an emergency situation means a condition or state of facts which if not corrected would result in further damage to the Leased Premises, the Building or its contentsor which would prevent Tenant from conducting its business at the Leased Premises in a reasonable manner. (c) Tenant shall comply with all provisions of the Declaration and shall make all changes and installations necessary to comply with the valid requirements of public authorities regarding the conduct of Tenant's particular business in the Building and the Leased Premises. Except as required above, Landlord shall make all changes and/or installations and pay the cost, if any, of all inspections required to comply with valid requirements of public authorities as they apply to the Leased Premises or the Building. SIGNS, TENANT'S FIXTURES 11. (a) Subject to the provisions of the Declaration, Tenant may, at Tenant's sole cost and expense, install and operate interior and exterior electric and other signs, and in so doing shall comply with all lawful requirements. Subject to governmental regulations and any other restrictions which apply to the Leased Premises, including, without limitation, the Declaration, Tenant shall have the right to install mechanical equipment, including satellite dishes or other antennae for telecommunications affixed to the roof or other portions of the Building or other portions of the Leased Premises, but shall indemnify Landlord from any costs and expenses (including without limitation the costs for repairs and improvements) relating thereto. Subject to compliance with any and all lawful requirements or restrictions, Tenant may, at Tenant's option install within the Leased Premises pay telephones, automatic teller machines and other electronic consumer service apparatus. (b) Tenant shall at all times have the right to remove all fixtures, machinery, equipment, appurtenances and other property furnished or installed by Tenant or by Landlord at Tenant's expense, it being expressly understood and agreed that said property shall not become part of the Building or the Leased Premises but shall at all times be and remain the personal property of Tenant and shall not be subject to any Landlord's lien. (c) If permitted by applicable governmental rules and regulations and the Declaration Landlord shall, as soon as is possible after the date hereof, install a readerboard pylon sign foundation with conduit at the location shown on Exhibit "A," upon which Tenant may install its readerboard and sign panel. Such readerboard pylon sign shall be electrified by Landlord as soon as is practical thereafter. Tenant may install the same prior to the date that it accepts possession of the Leased Premises and such installation of said readerboard and sign panel shall be deemed neither acceptance of possession of the Leased Premises nor a waiver of any condition precedent to the delivery of possession of the Leased Premises. ALTERATIONS 12. (a) Subject to governmental rules and regulations and any restrictions which apply to the Leased Premises, including, without limitation, the Declaration, at any time and from time to time, Tenant, at Tenant's cost and expense, may make alterations and additions to the Building. Tenant shall obtain Landiord's consent, which shall not be unreasonably withheld or delayed, before making any structural changes to the Building. In compliance with the Declaration, Tenant may, without Landiord's consent, however, make changes to storefronts, partitions, floors, electric, plumbing and heating, ventilating and cooling systems or components thereof. Tenant,-at Tenant's sole cost and in compliance with the Declaration and any other applicable restrictions, and governmental requirements, if any, shall have the right to reconfigure or otherwise modify the parking areas on the Leased Premises (including without limitation, curb cuts, entrances and exits) as Tenant deems necessary or desirable. Landlord shall cooperate in securing necessary permits and approvals. Tenant shall not permit any mechanics' or other liens to stand against the Leased Premises for work or material furnished Tenant and shall indemnify Landlord from any costs or expenses relating to any repairs or alterations completed by Tenant. (b) Landlord covenants and agrees that Landlord shall not, without Tenant's written consent, make any alterations or additions to the Leased Premises, including, but not limited to, any modifications to the storefront, signband or fascia of the Building or to the Parking Areas. Landlord shall not permit any mechanics' or other liens to stand against the property for work or material furnished by or on behalf of Landlord and shall indemnify Tenant from any costs or expenses relating to any repairs or alterations completed by Landlord. ASSIGNMENT AND SUBLETTING 13. (a) At any time and from time to time, Tenant may discontinue the operation of its store in the Leased Premises and/or Building. (b) At any time and from time to time, Tenant's interest under this Lease may be assigned and re-assigned, without Landlord's consent, provided that any such assignment or reassignment be only to a corporation which is subsidiary to or affiliated with Tenant, or to a corporation resulting from any consolidation, reorganization or merger to which Tenant, or any of its subsidiaries, parent or affiliates, may be a party. At any time and from time to time, Tenant may also sublet or license or permit a portion or portions of the Building to be used for concessions, leased or licensed departments and demonstrations in connection with and as part of the operation of Tenant's store, the Gross Sales therefrom to be included in the Gross Sales of Tenant. Tenant shall deliver written notice to Landlord in the event of any assignment or subletting under this Section (b). (c) At any time and consent, Tenant may sublet a portion of the Leased Premises and/or Building, to any person, firm or corporation, other than a corporation described in Section (b) hereof, for any lawful purpose not in violation of the Declaration. In such case, the Gross Sales of such subtenant (but not the subrentals paid by such subtenant) shall be included in the Gross Sales of Tenant. (c) (i) At any time and from time to time, without Landlord's consent except as set forth below, Tenant may assign this Lease or Tenant may sublet all of the Leased Premises and/or Building to any person, firm or corporation, other than a corporation described in Section (b) above, for any lawful purpose. In the event of any subletting, Tenant shall pay to Landlord the rent provided in Article 2 of this Lease. Tenant shall notify Landlord in writing of any proposed sublease or assignment, together with the name, address, phone number, any financial information regarding the proposed sublessee or assignee that Tenant may have in its possession, and the nature of the business of the proposed sublessee or assignee. Within forty-five (45) days after Landlord's receipt of Tenant's notice of a proposed assignee or sublessee, Landlord may terminate this Lease by written notice to Tenant. Such termination shall be effective as of the earlier of the following to occur: (x) thirty (30) days after Tenant closes its store on the Leased Premises, or (y) two (2) years after the date Landlord delivers the termination notice required by this Section In any event, Tenant shall deliver to Landlord at least ninety (90) days' prior written notice of the date on which possession of the Leased Premises will be delivered to Landlord. If Landlord so elects to terminate this Lease, neither party shall have any further or unaccrued obligation or liability to the other as of the termination date of the Lease. If Landlord fails to notify Tenant of termination within said forty-five (45) day period, such termination right shall be deemed waived but only as to such subletting or assignment. Notwithstanding the above, if such sublease or assignment is in connection with Tenant's sublease or assignment of three (3) or more of Tenant's other stores in the Albuquerque, New Mexico metropolitan area to a single or related entity, Landlord shall have no such right to terminate. (ii) In the event of a subletting pursuant to Section (c)(i) above, then at any time thereafter, Landlord may, by written notice to Tenant, terminate this Lease provided, however, Landlord shall concurrently with such termination agree to attorn to and be bound by the terms of any such sublease. Upon such termination, neither Landlord nor Tenant shall have any further or unaccrued obligation or liability to the other. Prior to such termination, Landlord shall reimburse Tenant the unamortized cost of any leasehold improvements made by Tenant to the Leased Premises in connection with said subletting, together with all third party out-of-pocket costs and all brokerage fees incurred by Tenant as a result of such subletting, prorated over the unexpired sublease term. (d) If Tenant shall cease the conduct of business on the Leased Premises for a continuous period in excess of six (6) months (except by reason of strikes, fire, casualty or other causes beyond reasonable control of Tenant, except by reason of repairs or remodeling and except by reason of assignment or subletting as above provided) and the Leased Premises remain continuously vacant during such period, Landlord shall have the right and option to terminate this Lease upon written notice to Tenant, effective on the last day of the next succeeding calendar month following receipt of such notice; provided, however, that if Tenant shall send written notice to Landlord of Tenant's intent to sublet the Leased Premises during such period when Landlord shall have the option, pursuant to this Section to terminate this Lease, Landlord shall have the right within thirty (30) days after receipt of such notice from Tenant to terminate this Lease upon written notice to Tenant effective on the last day of the next succeeding calendar month following Tenant's receipt of such notice and from and after such date, neither party shall have any liability or further obligation to the other under this Lease. If Landlord shall not so notify Tenant within thirty (30) days of receipt of Tenant's notice that Landlord has exercised its option to cancel this Lease, the termination options contained in this Section shall be void and of no further force and effect. (e) Notwithstanding any assignment of this Lease, Walgreen Hastings Co. shall not be released from liability. However, in the event of a default by any such assignee, Landlord shall give Walgreen Hastings Co. notice of such default, shall accept cure of such default by Walgreen Hastings Co. within thirty (30) days after such notice and shall permit Walgreen Hastings Co. to re-enter and repossess the Leased Premises for the then unelapsed portion of the Term of this Lease upon all of the provisions of this Lease. CASUALTY 14. (a) If the Building and/or Leased Premises and/or any improvements thereon shall be damaged or destroyed by fire or other casualty, then Landlord, shall repair and restore the Building and/or Leased Premises and/or any improvements thereon to their condition immediately prior to such damage or destruction; but only to the extent possible based upon the insurance proceeds available to Landlord, and the fixed rent and all other charges shall abate proportionately according to the extent of such damage or destruction. Landlord shall commence such restoration as soon as possible after such occurrence [but in no event later than sixty (60) days thereafter] and shall diligently pursue such repair or restoration to completion [which shall be not later than two hundred seventy (270) days after such occurrence]. In the event that such repair or restoration is not completed within two hundred seventy (270) days after such occurrence, Tenant may, at Tenant's option, terminate this Lease. Subject to the payment of proceeds by Tenant as expressly set forth in Section (b) below, under no circumstances shall Tenant be liable for any loss or damage, (excluding Tenant's property) including but not limited to damage to the Building or Leased Premises resulting from fire or other casualty. (b) If the damage or destruction referred to in Section (a) hereof amounts to at least twenty-five percent (25%) of the Building and occurs during the last three (3) years of the Term of this Lease or during the last three (3) years prior to any of Tenant's options to terminate, then and in such events, Landlord and Tenant shall have the right and option, to terminate this Lease effective as of the date of such happening; and any unearned rents paid in advance shall be refunded. Landlord shall not have the right to exercise the option under this Section during any period which shall be less than thirty-six (36) months and more than twelve (12) months prior to any such optional termination date if Tenant shall, within one (1) month after such happening, advise Landlord that Tenant will not exercise Tenant's option to terminate this Lease as of the next optional termination date thereunder, and further, Landlord shall have the right to exercise the option under this Section during any period which shall be twelve (12) months or less prior to any such optional termination date only if Tenant shall have theretofore exercised Tenant's option to terminate this Lease as of the next optional termination date. Notwithstanding any termination of the Lease by Tenant hereunder, Tenant shall provide Landlord with a sufficient amount of the proceeds of the insurance required to be maintained by Tenant under Article 20 hereof and such other proceeds which may be necessary to enable Landlord to reconstruct or repair the Building and/or improvements on the Leased Premises to their condition immediately prior to damage or destruction. In the event Tenant shall elect to cancel this Lease hereunder, any proceeds payable by Tenant to Landlord under this Section (b) shall be exclusive of the cost of improvements made by or on behalf of Tenant to the Leased Premises and/or Building. In the event Tenant shall elect not to cancel this Lease hereunder, Landlord and Tenant shall enter into a construction escrow agreement satisfactory to Landlord and Tenant appointing a third party as escrow agent to disburse such proceeds as Landiord's repair and reconstruction work progresses and to monitor the repair and reconstruction of the Building and improvements by Landlord. (c) If the fire or casualty is not an insurable casualty under Tenant's fire and extended coverage insurance, Landlord or Tenant may cancel this Lease upon notice to the other. Tenant may void Landlord's notice of termination by notifying Landlord within thirty (30) days after receipt of such notice of termination that Tenant shall provide Landlord with a sufficient amount of money necessary for Landlord to reconstruct ot repair the Building and/or improvements on the Leased Premises, as required by this Article 14. Landlord may void Tenant's notice of termination by notifying Tenant within thirty (30) days after receipt of such notice of termination that Landlord intends to reconstruct or repair the Building and/or Landiord's improvements on the Leased Premises as required by this Article 14, at Landiord's own cost and expense. (d) If required by statute, ordinance, governmental rule or regulation, Landlord, at Landiord's expense, shall cause the fire and sprinkler alarm system serving the Building to be monitored and maintained by a reputable alarm service company and/or the local fire department. Landlord shall provide Tenant with a copy of the above service contract prior to the delivery of possession of the Leased Premises to Tenant. Provided that Tenant has approved the alarm service company selected by Landlord, Tenant shall reimburse Landlord for governmentally required monitoring and maintenance services, including charges for dedicated phone lines, to the extent the same apply to the Leased Premises. To secure such reimbursement, Landlord shall submit to Tenant (300 VVilmot Road, Deerfield, Illinois 60015, Attention: Fixed Assets) a copy of the actual bill therefor together with a copy of the service contract pursuant to which such bill has been issued. Landlord shall be responsible for any costs incurred for permits, inspections and false alarms (except those caused by Tenant). Landlord shall, at Landlord's expense, install and maintain any phone line(s) required in connection with such fire and sprinkler alarm system. LANDLORD'S RIGHT TO INSPECT 15. Landlord may at reasonable times during Tenant's business hours, and after so advising Tenant, enter the Building for the purpose of examining and of making repairs required of Landlord under this Lease and during the last six (6) months of the Term may place the usual "For Rent" signs in the Leased Premises, but not so"@s to interfere with Tenant's business. SURRENDER 16. At the expiration or termination of this Lease, Tenant shall surrender immediate possession of the Leased Premises in good condition, subject to reasonable wear and tear, changes and alteration, damage by fire, casualty and the elements, and other repairs which are Landlord's obligation . Any holding over by Tenant shall not operate, except by written agreement, to extend or renew this Lease or to imply or create a new lease, but in such case Landlord's rights shall be limited to either the immediate termination of Tenant's occupancy or the treatment of Tenant's occupancy as a month to month tenancy, any custom or law to the contrary notwithstanding. Tenant shall repair damage caused by the removal of Tenant's fixtures and equipment. DEFAULT AND REMEDIES 17. (a) If any rent is due and remains unpaid for ten (10) days after receipt of notice from Landlord, or if Tenant breaches any of the other covenants of this Lease and if such other breach continues for thirty (30) days after receipt of notice from Landlord, Landlord shall then but not until then, as its sole legal remedies but in addition to its remedies in equity, if available, have the right (a) to sue for rent, (b) to re-enter without terminating this Lease, provided that Landlord shall use its best efforts to relet the Leased Premises for Tenant's account and otherwise to mitigate its damages (it being expressly understood that Tenant shall remain liable on a monthly basis for the difference between what Tenant's obligations under this Lease are and what Landlord actually collects, and further provided that-if Landlord elects to re-enter without terminating this Lease, this Lease shall nonetheless expire as of the next optional termination date as set forth in Article 3[d]), or (c) to terminate this Lease and re-enter the Leased Premises; but if Tenant shall pay said rent within said ten (10) days, or in good faith within said thirty (30) days commence to correct such other breach, and diligently proceed therewith, then Tenant shall not be considered in default. (b) If Landlord shall from time to time fail to pay any sum or sums due to Tenant and if such failure continues for thirty (30) days after receipt of notice from Tenant, Tenant shall have the right and is hereby irrevocably authorized and directed to deduct such sum or sums from fixed and percentage rent and other sums due Landlord, together with interest thereon at the so-called prime rate charged from time to time by The First National Bank of Chicago, plus two per cent until fully reimbursed. If Landlord shall from time to time fail to perform any act or acts required of Landlord by this Lease and if such failure continues for thirty (30) days after receipt of notice from Tenant, Tenant shall then have the right, at Tenant's option, to perform such act or acts, in such manner as Tenant deems reasonably necessary, and the full amount of the cost and expense so incurred shall immediately be owing by Landlord to Tenant, and Tenant shall have the right and is hereby irrevocably authorized and directed to deduct such amount from fixed and percentage rent and other sums due Landlord, together with interest thereon at the so-called prime rate charged from time to time by The First National Bank of Chicago, plus two per cent until fully reimbursed. If Landlord shall in good faith within said thirty (30) days commence to correct such breach, and diligently proceed therewith to completion, then Landlord shall not be considered in default. (c) No delay on the part of either party in enforcing any of the provisions of this Lease shall be considered as a waiver thereof. Any consent or approval granted by either party under this Lease must be in writing and shall not be deemed to waive or render unnecessary the obtaining of consent or approval with respect to any subsequent act or omission for which consent is required or sought. TITLE AND POSSESSION 18. (a) Landlord covenants, represents and warrants that Landlord has entered into a contract to acquire fee simple legal title to the Leased Premises and has the right to enter into this Lease, that said entire property is now and shall be as of the date of Tenant's recording of a Memorandum of this Lease and a Ratification Agreement as below defined free and clear of all liens, encumbrances and restrictions, except for those items set forth on Exhibit "D" attached hereto and made a part hereof, none of which shall limit, interfere with or prohibit Tenant's use and occupancy of the Leased Premises or interfere with any of Tenant's rights under this Lease, and that upon paying the rents and keeping the agreements of this Lease on its part to be kept and performed, Tenant shall have peaceful and uninterrupted possession during the continuance of this Lease. Upon acquisition of fee title, Landlord shall execute an agreement in the form attached hereto as Exhibit "E", ratifying and adopting this Lease ("Ratification Agreement") and Landlord, at Landlord's expense, shall furnish Tenant evidence of Landiord's title and the status thereof as of the date of such acquisition and as of the date of the recordation of such Ratification Agreement. Such evidence shall be in form and substance reasonably satisfactory to Tenant and shall be delivered to Tenant no later than seven (7) business days prior to the date for delivery of possession as described in Section (a) of Article 4, and shall include, among other things, evidence that the Leased Premises and the Adjoining Property are properly zoned for general retail use, including the operation of a drug store with a drive-through pharmacy. Landlord shall also provide Tenant with an as-built survey of the Leased Premises drawn per ALTA standards and certified to Tenant. (b) If at the date of the recording of the Memorandum of this Lease or the Ratification Agreement, whichever is later, the Leased Premises, or any part thereof is subject to any mortgage, deed of trust or other encumbrance in the nature of a mortgage, which is prior and superior to this Lease, it is a further express condition hereof that Landlord shall thereupon furnish and deliver to Tenant, in form and substance reasonably acceptable to Tenant, an agreement executed by such mortgagee or trustee, either (i) making such mortgage, deed of trust or other encumbrance in the nature of a mortgage subject and subordinate to this Lease and to the leasehold estate created hereby and to all of Tenant's rights hereunder, or (ii) obligating such mortgagee or trustee and any successor thereto to be bound by this Lease and by all of Tenant's rights hereunder, provided that Tenant is not then in continued default, after notice, in the payment of rents or otherwise under the terms of this Lease. (c) It is understood and agreed that Tenant shall, in no event, be obligated to accept possession of the Leased Premises until the Landlord has complied with the provisions of this Article. (d) (i) If required by Landiord's institutional lender, Tenant shall subordinate the lien of this Lease to the lien of such mortgage encumbering the Leased Premises, so long as such lender simultaneously with such subordination and as a condition of the same, executes in recordable form a Subordination, Non-Disturbance and Attornment Agreement in form and substance acceptable to Tenant and agrees to be bound by all of the terms and conditions of this Lease. In the event of a conflict between the terms of such mortgage and the terms of this Lease, the terms of this Lease shall prevail. (ii) Landlord and Tenant agree to execute and deliver to the other within twenty (20) days from receipt of either party's written request, estoppel certificates in a form acceptable to the party to whom such request is made, which certificates shall include information as to any modification of this Lease, and to the best of Tenant's or Landlord's knowledge, whether or not the other party is in default of this Lease. REAL ESTATE TAXES 19. (a) Landlord, prior to the Rent Commencement Date, shall make a mailing address change on the property tax records so that as of the Rent Commencement Date the tax bill and tax notices for only the Leased Premises will be mailed to Tenant at the following address: Walgreen Co., 300 Wilmot Road, Deerfield, Illinois 60015, Attention: Tax Department. Prior to the date that the tax bill is mailed directly to Tenant pursuant hereto, Landlord, prior to delinquency, shall send to Tenant a copy of the tax bill for the Leased Premises if Tenant is obligated to pay for such taxes. (b) Upon receipt of the aforesaid tax bills, Tenant shall pay, when due and before delinquency, the ad valorem real estate taxes (including all special benefit taxes and special assessments but excluding so-called impact fees) levied and assessed against the Leased Premises, commencing with the Rent Commencement Date and continuing for the remainder of the Term. However, the ad valorem taxes levied or assessed for the year in which Tenant commences paying fixed rent shall be prorated between Landlord and Tenant so that Tenant shall pay only such part thereof as pertains to the period commencing on the Rent Commencementbate and ending December 31st bears to such entire tax year, and the ad valorem taxes levied or assessed for the year during which this Lease expires or is terminated shall be prorated between Landlord and Tenant so that Tenant shall pay only such part thereof as the period commencing on January lst and ending on the date this Lease expires or is terminated. Within thirty (30) days after payment of any such taxes, or as soon thereafter as receipt bills are available, Tenant shall furnish to Landlord photocopies of bills indicating such payments. If Landlord is required to pay to its lender a monthly escrow for taxes levied and assessed against the Leased Premises, Tenant shall pay to Landlord its pro rata share of such taxes on a monthly basis. At the end of each tax year for which said taxes are levied, Landlord shall furnish to Tenant a statement from its lender and a copy of the paid tax bill as furnished to Landlord by its lender, and any overage paid by Tenant to Landlord shall be reimbursed to Tenant and any shortage shall be paid to Landlord. (c) Tenant shall have the right, and is hereby irrevocably authorized and directed to deduct and retain amounts payable under the provisions of this Article from additional percentage rents payable under Section (b) of Article 2 for such tax year, or in the alternative, if such taxes for any tax year are payable after percentage rents under Section (b) of Article 2 for such tax year are payable, then Tenant shall have no liability under this Article to the extent of such percentage rents paid for such tax year. In such event, Landlord shall refund to Tenant the amount of such overpayment of percentage rent. (d) All special benefit taxes and special assessments shall be spread over the longest time permitted and Tenant's liability for installments of such special benefit taxes and special assessments not yet due shall cease upon the expiration or termination of this Lease. In no event shall Tenant be obligated to pay any impact fees whether or not billed by the taxing authority as a special benefit tax or a special assessment. (e) (i) Tenant shall have the right to contest the validity or the amount of any tax or assessment levied against the Leased Premises or any improvements thereon, provided that Tenant shall not take any action which will cause or allow the institution of foreclosure proceedings against the Leased Premises. Landlord shall cooperate in the institution of any such proceedings to contest the validity or amount of real estate taxes and will execute any documents required therefor. (ii) Landlord covenants and agrees that if there shall be any refunds or rebates on account of any tax, governmental imposition or levy paid by Tenant under the provisions of this Lease, such refund or rebate shall belong to Tenant. Any such refunds or rebates which shall be received by Landlord shall be held in trust for the benefit of Tenant and shall be forthwith paid to Tenant. Landlord shall, on request of Tenant, sign any receipt which may be necessary to secure the payment of any such refund or rebate, and shall pay over to Tenant such refund or rebate as received by Landlord. INSURANCE 20. Commencing with the Initial Term, Tenant shall carry an all risk fire and extended coverage insurance policy covering the Building and the other improvements constructed by Landlord on the Leased Premises to the extent of not less than one hundred percent (100%) pf the full insurable value, less foundations, with companies which are authorized to do business in the State of New Mexico and are governed by the regulatory authority which establishes maximum rates in the vicinity. Tenant, upon request of Landlord's lender, shall also carry earthquake and/or flood damage insurance to the same extent as may be acceptable to Tenant and as customary for all risk coverage. Tenant shall also procure and continue in effect public liability and property damage insurance with respect to the operation of the Leased Premises (and also covering that portion of the adjoining property used by Tenant for ingress and egress). Such public liability insurance shall cover liability for death or bodily injury in any one accident, mishap or casualty in a sum of not less than One Million Dollars ($1,000,000.00), and shall cover liability for property damage in one accident, mishap or casualty in the amount of not less than One Hundred Thousand Dollars ($100,000.00). Tenant agrees to name the owner of the adjoining property as an additional insured under such policy in compliance with the provisions of the Declaration. The proceeds from Tenant's casualty insurance shall be paid and applied only as set forth in Article 14 hereof. Any insurance carried or required to be carried by Tenant pursuant to this Lease may, at Tenant's option, be carried under an insurance policy(ies), self-insurance or pursuant to a master policy of insurance or so-called blanket policy of insurance covering other locations of Tenant or its corporation affiliates, or any combination thereof; provided, however, that in the event Tenant carries any of such insurance under any policy, Tenant shall have the right and is hereby irrevocably authorized and directed to deduct and retain the amounts of said premiums in any lease year from percentage rents payable under Section (b) of Article 2 for such lease year, provided such premiums are at market rates and excludes premiums for Tenant's personal property. From time to time and upon request from Landlord to Tenant's Tax Department, 300 Wilmot Road, Deerfield, Illinois 60015, Tenant shall cause to be issued to Landlord a current Certificate of Insurance naming Landlord as additional insured under Tenant's casualty insurance policy. Notwithstanding the foregoing, Tenant may self-insure only so long as the consolidated net worth of Walgreen Co. is not less than Three Hundred Million Dollars ($300,000,000.00). Proceeds of self-insurance shall be paid to the same extent as would an all risk fire and extended coverage insurance policy issued by a reputable insurance company authorized to do business in the State of New Mexico and which is governed by the regulatory authority which establishes maximum rates in the vicinity (such as Hartford Casualty Insurance Company or such other insurer as Landlord's lender may designate from time to time by notice to Landlord and Tenant), with such endorsements as Landlord's lender would normally require with respect to such a policy covering property serving as collateral for a loan by Landlord's lender. On Landiord's request, Tenant will deliver to Landlord written confirmation of the coverage in a letter or certificate of insurance. MUTUAL INDEMNITY 21. Except for loss, cost and expense caused by fire or other casualty, Landlord and Tenant shall each indemnify and hold harmless the other against and from any and all loss, cost and expense resulting from their own respective negligent acts and omissions or the negligent acts and omissions of their respective employees in the course of their employment. CONDEMNATION 22. If the entire Leased Premises shall be taken by reason of condemnation or under eminent domain proceedings, Landlord or Tenant may terminate this Lease as of the date when possession of the Leased Premises is taken. If a portion of the Leased Premises shall be taken under eminent domain or by reason of condemnation and if in the opinion of Tenant, reasonably exercised, the remainder of the Leased Premises are no longer suitable for Tenant's business, this Lease, at Tenant's option, to be exercised by notice to Landlord within sixty (60) days of such taking, shall terminate; any unearned rents paid or credited in advance shall be refunded to Tenant. If this Lease is not so terminated, Landlord forthwith and with due diligence, shall restore the Leased Premises. Until so restored, fixed rent shall abate to the extent that Tenant shall not be able to conduct business, and thereafter fixed rent for the remaining portion of the Term shall be proportionately reduced. Tenant shall be entitled to the award in connection with any condemnation insofar as the same represents compensation for or damage to Tenant's fixtures, equipment, leasehold improvements or other property, moving expenses as well as the loss of leasehold (i.e. the unexpired balance of the lease Term immediately prior to such taking). Landlord shall be entitled to the award insofar as same represents compensation for or damage to the fee remainder. Any mortgagee of Landlord shall be compensated out of Landlord's award. For the purposes of this Article, the term "condemnation or under eminent domain proceedings" shall include conveyances and grants made in anticipation of or in lieu of such proceedings. BROKERAGE 23. Landlord and Tenant represent that they have dealt with no broker or agent with respect to this Lease. Landlord hereby indemnifies and saves and holds Tenant harmless against any claims for brokerage commissions or compensation or other claims of any kind (including reasonable attorney's fees and costs) arising out of the negotiation and execution, of this Lease or Tenant's interest or involvement with respect to the Leased Premises. PREVAILING PARTY 24. In the event of litigation between Landlord and Tenant in connection with this Lease, the reasonable attorneys'fees and court costs incurred by the party prevailing in such litigation shall be borne by the nonprevailing party. NOTICES 25. All notices hereunder shall be in writing and sent by United States certified or registered mail, postage prepaid, or by overnight delivery service providing proof of receipt, addressed if to Landlord, to the place where rent checks are to be mailed, and if to Tenant, to 200 Wilmot Road, Deerfield, Illinois 60015, Attention: Law Department, and a duplicate to the Leased Premises, provided that each party by like notice may designate any future or different addresses to which subsequent notices shall be sent. Notices shall be deemed given upon receipt or upon refusal to accept delivery. RIGHT OF FIRST REFUSAL 26. (a) From and after the date that is Ten (10) years after the date of this Lease, in the event that Landlord shall receive a Bona Fide Offer to purchase the Leased Premises at any time and from time to time during the Term of this Lease or any extensions thereof from any person or entity, Landlord shall so notify Tenant (Attn: Law Department with a duplicate notice to the Real Estate Department) together with a true and correct copy of said Bona Fide Offer. For purposes hereof, a "Bona Fide Offer" shall be deemed to be one made in writing by a person or entity that is not related or affiliated with Landlord (or any of Landiord's Partners or principal owners) in which Landlord intends to accept (subject to this Article). Tenant may, at Tenant's option and within ten (10) working days after receipt of Landiord's notice of said Bona Fide Offer and receipt of a copy thereof, offer to purchase the Leased Premises at the price and upon the terms and conditions as are contained in said Bona Fide Offer, in which event, Landlord shall sell the Leased Premises to Tenant upon said terms and conditions and that said price; furthermore, in such event, Landlord shall convey the Leased Premises to Tenant by warranty deed. Landlord covenants that it shall accept no such Bona Fide Offer or convey the premises until it has complied with the terms of this Article. Any conveyance of the Leased Premises made in the absence of full satisfaction of this Article shall be void. Tenant may enforce this Article, without limitation, by injunction, specific performance or other equitable relief. (b) Tenants election not to exercise any right of first refusal as provided for in this Article 26 shall not prejudice Tenant's rights hereunder as to any future Bona Fide Offer. The terms and conditions contained in this Article 26 shall be binding upon the heirs, successors and/or assigns of Landlord. TRANSFER OF TITLE 27. (a) In the event that Landlord conveys its interest in the Leased Premises to any other person or entity, Tenant shall have no obligation to pay rents or any other charges under this Lease to any such transferee until Tenant has been notified of such conveyance and has received satisfactory evidence of such conveyance together with a written direction from such transferee as to the name and address of the new payee of rents and other charges. It is understood and agreed that Tenant's withholding of rent and other charges until its receipt of such satisfactory evidence shall not be deemed a default under this Lease. (b) In the event Landlord sells its interest in the Leased Premises, Landlord shall be relieved of any and all liability under any of Landlord's covenants and obligations contained in or derived from this Lease arising out of any act, occurrence, or omission occurring thereafter, and the assignee or purchaser at any such sale or any subsequent sale of the Leased Premises or assignment of this Lease, shall be deemed without any further agreement between the parties and any such assignee or purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of Landlord under this Lease. RENT TAX 28. In the event that any governmental authority imposes a tax, charge, assessment or other imposition upon tenants in general which is based upon the rents payable under this Lease, Tenant shall pay the same to said governmental authority or to Landlord if Landlord is responsible to collect the same (in which case Landlord shall remit the same in a timely manner and, upon request of Tenant, evidence to Tenant said remittance). Tenant is hereby authorized and directed to deduct the amount of such taxes, charges, assessments or impositions from additional percentage rents payable under Section (b) of Article 2 for such lease year or, in the alternative, in the event that such imposition or a portion thereof is due after percentage rents, payable under Section (b) of Article 2 have been paid, Tenant shall have no liability under this Article to the extent that percentage rents for said lease year have been paid. Nothing contained herein shall be deemed to obligate Tenant with respect to any income, inheritance or successor tax or imposition. MISCELLANEOUS 29. (a) Captions of the several Articles contained in this Lease are for convenience only and do not constitute a part of this Lease and do not limit, affect or construe the contents of such Articles. (b) If any provision of this Lease shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. (c) If the Landlord is comprised of more than one person or entity, the obligations imposed on Landlord under this Lease shall be joint and several. (d) All provisions of this Lease have been negotiated by both parties at arm's length and neither party shall be deemed the scrivener of this Lease. This Lease shall not be construed for or against either party by reason of the authorship or alleged authorship of any provision hereof. (e) This instrument shall merge all undertakings between the parties hereto with respect to the Leased Premises and shall constitute the entire lease unless otherwise hereafter modified by both parties in writing. (f) This instrument shall also bind and benefit, as the case may require, the heirs, legal representatives, assigns and successors of the respective parties, and all covenants, conditions and agreements herein contained shall be construed as covenants running with the land. This instrument shall not become binding upon the parties until it shall have been executed and delivered by both Landlord and Tenant. (g) Landlord has been afforded a full and fair opportunity to seek advice from legal counsel and Landlord acknowledges that Tenant's attorney represents Tenant and not Landlord. (h) Notwithstanding any provision of this Lease to the contrary, the Term shall commence, if at all, not later than twenty-one (21) years after the date of this Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, under seal, as of the day and year first above written. WALGREEN HASTINGS CO. CAP II By________________________ By: Peterson Properties Real Vice President Estate Services, Inc., Managing General Partner James A. Peterson ________________________________ James A. Peterson, President Attest: By: Steven Johnson Development, L.L.C., General Partner Steve Johnson _________________________ ________________________________ Assistant Secretary Steve Johnson, Managing Member Witnesses: Witnesses: _________________________ ________________________________ _________________________ ________________________________ STATE OF ILLINOIS) )SS COUNTY OF LAKE ) On this 29th day of March 1996, before me appeared Alan Resnick, to me personally known, who, being by me duly sworn, did say that he is the Vice President of WALGREEN HASTINGS CO., a Nebraska corporation, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said Vice President, acknowledged said instrument to be the free act and deed of said corporation. SEAL Elena Kraus ________________________________ (Signature) ________________________________ (Title) (My commission expires_________) STATE 0F NEW MEXICO) )SS COUNTY OF BERNALILLO) On this 19th day of March 1996, before me appeared James A. Peterson, President of Peterson Properties Real Estate Services, Inc., and Managing General Partner of CAP II, a New Mexico general partnership, and signed said instrument on behalf of said corporation and said general partner acknowledged said instrument to be the free act and deed of said partnership. Seal Colleen McGrath ________________________________ (Signature) Notary Public ________________________________ (Title) (My commission expires 10/18/97) STATE 0F NEW MEXICO) )SS COUNTY OF BERNALILLO) On this 19th day of March 1996, before me appeared Steven Johnson, Managing Member of Steve Johnson Development, L.L.C. and General Partner of CAP II, a New Mexico general partnership, and signed said instrument on behalf of said corporation and said general partner acknowledged said instrument to be the free act and deed of said partnership. Seal Colleen McGrath ________________________________ (Signature) Notary Public ________________________________ (Title) (My commission expires 10/18/97) EXHIBIT 10.9 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND A13SUMPTION AGREEMENT ("Agreement") is entered into as of the day of June, 1996, by and between C.A.P. II, a New Mexico general partnership ("Assignor") and WESTLAND DEVELOPMENT CO., INC., a New Mexico corporation ("Assignee"). RECITALS: WHEREAS, pursuant to that certain Real Estate Purchase Agreement for the Purchase of Non-Residential Real Property ("Purchase Agreement"), dated April 3, 1996, between Assignor and Assignee, covering that certain real property more particularly described on Exhibit "All attached hereto and by this reference incorporated herein ("Real Property"), Assignor is concurrently, with the execution of this Agreement, conveying to Assignee all of its right, title and interest in and to said Real Property; and WHEREAS, pursuant to the aforesaid Purchase Agreement and in connection with the conveyance by Assignor of its interest in said Real Property to Assignee, the parties are executing this Agreement. NOW, THEREFORE, in consideration of the above premises, the mutual covenants hereinafter expressed, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Subject to the rights and interests granted to Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation ("Lender"), in connection with a loan from Lender to Assignor to finance the construction of certain improvements on the Real Property, which loan Assignee has or will assume pursuant to the aforesaid Purchase Agreement, Assignor hereby assigns, transfers and conveys to Assignee all of its right, title and interest in and to all contracts and agreements relating to the financing, construction, development, lease or use of all or a portion of the Real Property or the improvements thereon and all governmental licenses or permits obtained for the construction of such improvements ("Instruments"), specifically including, but not limited to the Instruments described on Exhibit "B" attached hereto and by this reference incorporated herein. 2. Assignor hereby represents and warrants that as of the date hereof, to the best of Assignor's actual knowledge, no default by any party to any of the aforesaid Instruments exists thereunder and no circumstance or condition which with the giving of notice or the passage time, or both, would constitute such a default. 3 Assignee hereby accepts the foregoing assignment, and, in addition, expressly assumes and agrees to keep, perform and f ulf ill all of the terms, covenants, obligations and conditions required to be kept, performed and fulfilled by Assignor from and after the date hereof under or with respect to the aforesaid Instruments. 4. Assignor hereby agrees to indemnify, defend, and hold harmless Assignee from and against any and all liability, loss, cost, damage, or expenses (including without limitation, attorneys, fees and costs) directly or indirectly arising out of or related to the failure of Assignor to perform the obligations of the Assignor under the aforesaid Instruments arising prior to the date hereof. 5. Assignee hereby agrees to indemnify, defend and hold harmless Assignor and any guarantors of the obligations of Assignor from and against any and all liability, loss, cost, damage or expense (including, without limitation, attorney's fees and costs) directly or indirectly arising out of or related to the failure of Assignee to perform the obligations under the aforesaid Instruments assumed by Assignee hereunder arising from and after the date hereof. 6. Assignor and Assignee each hereby represent and warrant to the other that it has full right and lawful authority to execute and deliver this Agreement. 7. Assignor and Assignee each hereby agree to execute, acknowledge, and deliver any other documents, instruments or materials reasonably necessary or appropriate to effect the assignment and assumption contemplated by this Agreement. 8. This Agreement shall be binding upon and inure to the benefit of the parties, their respective heirs, personal representatives, successors and assigns. 9. This Agreement may be executed in a number of identical counterparts. If so executed, each such counterpart is to be deemed an original for all purposes, and all such counterparts shall collectively constitute one agreement, but for the purpose of proving the existence of this Assignment and Assumption of Lease it shall not be necessary to produce or account for more than one such counterpart except for the purpose of demonstrating that any party is a signatory thereto. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. ASSIGNOR: C . A . P . I I , a New general partnership By: Peterson Properties Real Estate Services, Inc., a New Mexico corporation, Managing General Partner By: James A. Peterson __________________________________ James A. Peterson, President By: Steve Johnson Development Ltd. Liability Co., a New Mexico limited liability company, General Partner Steven A. Johnson By: ___________________________________ Steven J. Johnson, Managing Member ASSIGNEE: WESTLAND DEVELOPMENT CO., INC., a New Mexico corporation Barbara Page By: ___________________________________ Name:______________________________ President and CEO Title:_____________________________ ACKNOWLEDGMENTS STATE OF NEW MEXICO) )SS COUNTY OF BERNALILLO) This instrument was acknowledged before me on June 19, 1996, by James A. Peterson, President of Peterson Properties Real Estate Services, Inc., Managing General Partner of C.A.P. II, a New Mexico general partnership, on behalfof said partnership. Betty L. Peterson _______________________________ Notary Public My commission expires: February 16, 1997 OFFICIAL SEAL _____________________ STATE OF NEW MEXICO) )SS COUNTY OF BERNALILLO) This instrument was acknowledged before me on June 19, 1996, by Steven J. Johnson, Managing Member of Steve Johnson Development Ltd. Liability Co., General Partner of C.A.P. II, a New Mexico general partnership, on behalf of said partnership. Betty L. Peterson _______________________________ Notary Public My commission expires: February 16, 1997 OFFICIAL SEAL _____________________ STATE OF NEW MEXICO) )SS COUNTY OF BERNALILLO) This instrument was acknowledged before me on June 14, 1996 by Barbara Page, President and CEO of Westland Development Coq, Inc., a New Mexico corporation, on behalf of said corporation. Robert S. Simon _______________________________ Notary Public My commission expires: May 15, 1998 OFFICIAL SEAL _____________________ EXHIBIT "A" DESCRIPTION OF THE REAL PROPERTY Tract lettered 'IF" of Tracts lettered "All through 'IF", inclusive, Hubbell Plaza, City of Albuquerque, as the same is shown and designated on the Replat of said Addition, filed in the Office of the County Clerk of Bernalillo County, New Mexico, on August 15, 1986, in Plat Book C31, Folio 75. EXHIBIT "B" 1 Lease dated March 19, 1996, between C.A.P. II, a New Mexico general partnership, as Landlord, and Walgreen Hastings Co., a Nebraska corporation, as Tenant. 2. Memorandum of Lease dated March 19, 1996, between C.A.P. II, a New Mexico general partnership, as Landlord, and Walgreen Hastings Co., a Nebraska corporation, as Tenant, recorded April 17, 1996 in Book 96-11, Pages 296-304, Records of Bernalillo County, New Mexico. 3. Ratification Agreement by C.A.P. II, a New Mexico general partnership, recorded April 17, 1996 in Book 96-11, Pages 305307, Records of Bernalillo County, New Mexico. 4. Mortgage dated April 17, 1996 by C.A.P. II, a New Mexico general partnership, to Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation, recorded April 17, 1996 in Book 96-11, pages 292-295, Records of Bernalillo County, New Mexico. 5. Construction Line of Credit (promissory note) in the original principal sum of $2,490,000.00 dated April 16, 1996 by C.A.P. II, a New Mexico general partnership, to Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation. 6. Agreement between owner and Architect for Professional Services dated March 28, 1996, between C.A.P. II, as Owner, and George Rainhart & Associates, as Architect. 7. Standard Form of Agreement Between owner and Contractor dated March 28, 1996, between C.A.P. II, a New Mexico general partnership, as Owner, and Wilger Enterprises, Inc., as Contractor. 8. Assignment of Architect's Contract dated April 17, 1996 by C.A.P. II, a New Mexico general partnership, to Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation. 9. Assignment of Construction Contracts dated April 17, 1996 by C.A.P. II, a New Mexico general partnership, to Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation. 10. Assignment (of Lease between C.A.P. II and Walgreen Hastings Co., as described in item 1 above) dated April 17, 1996 by C.A.P. II, a New Mexico general partnership, to Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation, and Acknowledgement of Assignment by Walgreen Hastings Co. 11. Non-disturbance Agreement dated May 15, 1996 by Western Bank, Albuquerque, New Mexico, a New Mexico state banking corporation, in favor of Walgreen Hastings Co., a Nebraska corporation, recorded May 20, 1996, in Book 96-14, Pages 11291130, Records of Bernalillo County, New Mexico. 12. Financing Statement dated April 16, 1996 by C.A.P. II in favor of Western Bank (covering assignment of Walgreen Hastings Lease described in item 1 above). 13. Median Access Agreement dated April 25, 1996, between C.A.P. II, a New Mexico general partnership, and South Coors Limited Partnership, a New Mexico limited partnership, recorded May 1, 1996 in Book 96-12, Pages 5619-5629, Records of Bernalillo County, New Mexico. 14. Drainage Covenant dated May 31, 1996, between C.A.P. II, a New Mexico general partnership, and the City of Albuquerque. -----END PRIVACY-ENHANCED MESSAGE-----