-----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, BvlRDHF+tIavAFyZzc6r+UCiJZRctPMX57AByU31JWRkVJUt9bfXDxx/wPpF8zLt he6dYpS+KtnDQ6JJQ3dOmw== 0000950153-97-000295.txt : 19970329 0000950153-97-000295.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950153-97-000295 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW MEXICO & ARIZONA LAND CO CENTRAL INDEX KEY: 0000071478 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 430433090 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00497 FILM NUMBER: 97568151 BUSINESS ADDRESS: STREET 1: 3033 NORTH 44TH STREET STREET 2: SUITE 270 CITY: PHOENIX STATE: AZ ZIP: 85018-7228 BUSINESS PHONE: 6029528769 MAIL ADDRESS: STREET 1: 3033 NORTH 44TH STREET STREET 2: SUITE 270 CITY: PHOENIX STATE: AZ ZIP: 85018-7228 10-K 1 FORM 10-K FOR FISCAL YEAR ENDING DECEMBER 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the Fiscal Year Ended December 31, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the transition period from ___ to ___ Commission File Number 0-497 New Mexico and Arizona Land Company (Exact name of registrant as specified in its charter) Arizona 43-0433090 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3033 North 44th Street, Suite 270, Phoenix, Arizona 85018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 602/952-8836 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class: Common stock, no par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be 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 60 days prior to the date of filing: aggregate market value $20,448,000. Closing price on the American Stock Exchange on February 25, 1997: $14.375 per share. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Class: Common Stock, no par value. Outstanding at February 25, 1997: 3,012,886 shares. Documents Incorporated by Reference: Part III of the Form 10-K incorporates by reference certain portions of the registrant's definitive proxy statement for the 1997 Annual Meeting of Shareholders to be filed with the Commission on or before April 15, 1997. -1- 2 INDEX PART I ITEM 1: Business............................................................ 3 ITEM 2: Properties.......................................................... 6 ITEM 3: Legal Proceedings................................................... 9 ITEM 4: Submission of Matters to a Vote of Security Holders................. 9 PART II ITEM 5: Market for Registrant's Common Equity and Related Stockholder Matters............................................................. 9 ITEM 6: Selected Financial Data............................................. 10 ITEM 7: Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 11 ITEM 8: Financial Statements and Supplementary Data......................... 14 ITEM 9: Changes in and disagreements with Accountants on Accounting and Financial Disclosure................................................ 32 PART III ITEM 10: Directors and Executive Officers of the Registrant.................. 33 ITEM 11: Executive Compensation.............................................. 33 ITEM 12: Security Ownership of Certain Beneficial Owners and Management ..... 33 ITEM 13: Certain Relationships and Related Transactions...................... 33 PART IV ITEM 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 33 General Information............................................................ 35
-2- 3 PART I ITEM 1: BUSINESS BUSINESS OVERVIEW New Mexico and Arizona Land Company (the "Company" or "NZ") was organized in 1908 as an Arizona corporation. The Company has 24 full-time employees and conducts business in Arizona, Colorado, New Mexico, Texas, and Oklahoma. The Company has four wholly-owned subsidiaries: NZ Development Corporation, NZ Properties, Inc., NZU Inc., and Great Vacations International, Inc. The Company owns various urban and rural real estate properties as well as extensive mineral rights including three large uranium deposits. This document may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Such forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements. See "Significant Activities" in this Item I. "Business", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 11 for a discussion of important factors that could cause actual results to differ from the forward-looking statements. SIGNIFICANT ACTIVITIES REAL ESTATE ARIZONA. In 1995, the Company through, a wholly-owned limited liability company, entered into a partnership (the "Partnership") to purchase 132 undeveloped acres located near Sedona, Arizona (the "Sedona Project"). The Company has a 90% ownership interest in the Partnership. Development plans include an 18-hole golf course and 300 two-bedroom timeshare units. Architectural design and engineering work is virtually complete with final construction plans underway. The revised master plan of the Sedona Project has been approved by planning and zoning authorities of Yavapai County . See "Sedona Project" on page 13 for information regarding the Company's management control of this project and a dispute that has arisen between the Company and its partner. In conjunction with the Sedona Project, the Company has formed a wholly-owned subsidiary, Great Vacations International, Inc., to market the timeshare units. In 1996, NZ purchased a parcel of land, totaling 635 acres, located near Cottonwood, Arizona, which is zoned for the development of residential lots. The Company has completed a full market analysis and is determining development strategies. The Company has recreational land sales programs in which land is sold primarily in 40-acre parcels. The southern Arizona program first sold 688 acres in 1993 and began again in 1995 to sell the remaining 1,377 acres. All of this land was sold by December 31, 1996. The northeastern Arizona program was initiated in 1980 and over the last 16 years has sold some 77,000 acres of NZ's rural land. This program has approximately 2,500 acres remaining in inventory to be sold. All the parcels in both programs are or were typically sold on installment contracts, with 10 to 20% down payments with the balance of the contract carried over 15 years. -3- 4 The Company still owns over 150,000 acres of rural land located in northeastern Arizona and New Mexico, which were derived from 19th Century railroad land grants. COLORADO. In 1996, NZ purchased a 10,000 acre ranch located in Fremont County, Colorado. This property contains a sizeable uranium deposit, which is discussed further on page 5, under "Minerals". This property is suitable for subdivision into recreational lots. NEW MEXICO. The Company owns a 75% interest in three joint ventures located in Albuquerque, New Mexico. Two of the joint ventures, Brown/NZD (Development) Joint Venture ("7-Bar") and Manzano Mesa Limited Partnership ("MMLP") develop and sell residential lots to home builders. In 1996, 212 lots were sold. The two joint ventures have 165 finished lots in inventory. The majority of these lots are under contract to local builders. 7-Bar has about 100 acres remaining to be developed and MMLP has an option to purchase an additional 112 acres for residential lot development. The third joint venture, Brown/NZ (Investment) Joint Venture holds approximately 51 acres that may be sold in bulk or developed into lots. Also in New Mexico, NZ owns and operates four apartment complexes, totaling 342 units, located in four New Mexico communities. These units have federally-subsidized rent contracts designed for the elderly or handicapped. They maintain essentially full occupancy. TEXAS. In 1995, the Company purchased a majority interest in a limited liability company, Texas Elm Fork Land Co., L.C. ("Elm Fork"), that has a 20 year lease with the University of Dallas (the "University") on 160 acres located in Irving, Texas. Although the University had represented ownership of the entire parcel, the local flood control district owns a key 3 acre parcel bisecting the property that has resulted in a delay in development of the property. To protect its interests, Elm Fork has commenced litigation against the University. Full construction plans have been completed for the development of a family entertainment center on this leased property. However, further development of this property has been delayed until the University can perform under the lease and Elm Fork is compensated for its damages. See page 13 "Elm Fork Project" for additional information. MINERALS NZ owns over one million acres of mineral rights in Arizona and New Mexico which originated, like the rural lands, from 19th Century railroad land grants. The Company also owns mineral rights in Colorado and Oklahoma. In Oklahoma, the Company has a royalty interest in a dozen producing oil & gas wells. In New Mexico, NZU, Inc., a wholly-owned subsidiary, owns the mineral rights to two delineated deposits of uranium, the Crownpoint and Crown Mesa deposits. Given adequate uranium market prices, these deposits could become commercially viable in the future. The Crownpoint deposit is leased to a uranium company specializing in solution mining and currently the largest domestic producer of uranium. This lessee has just received the Final Environmental Impact Statement from the Nuclear Regulatory Agency. The lease provides for NZU to receive a production royalty payment of 10% of gross revenues, or product in-kind, at NZU's discretion. Production from this deposit is not expected for several years regardless of market conditions. -4- 5 NZU is also working on access, design, and permitting issues associated with development of a solution mine on the Crown Mesa deposit (formerly referred to as the Hosta Butte deposit). The permitting process could take two or more years once baseline data is complete. In 1996, the Company acquired a 10,000 acre ranch located in Fremont County, Colorado that contains a sizeable and well defined uranium deposit known as the Hansen Orebody. NZU is researching various mining strategies to mine the Hansen deposit. In addition, the Company formerly identified a large deposit of industrial grade limestone on its fee lands in New Mexico that is presently leased. NZ receives annual rental payments and the lease provides for royalty payments should this limestone be mined. Revenue received from the Company's mineral activities does not, presently, constitute a significant portion of the Company's consolidated revenue. -5- 6 ITEM 2: PROPERTIES The following are schedules of properties owned by the Company at December 31, 1996:
Year acquired/ Encumbrance Location Description developed (in thousands) - ----------------------------------------------------------------------------------------------------- RENTAL PROPERTIES ARIZONA Scottsdale I.C.E. Buildings 13,020-square feet of buildings on 1.6 acres 1983 $ 791 Tempe 12th Place Building 37,908-square foot building on 2.7 acres 1983 816 Tucson 8 acres leased to Parking Company of America; a park and fly facility 1984-1988 NEW MEXICO Albuquerque Brentwood Gardens Apartments 122-unit complex on 7.5 acres 1985 3,003 Airpark Building(1) 40,000-square foot office building on 2.5 acres 1985-1986 Farmington Apple Ridge Apartments 80-unit complex on 5.7 acres 1985 1,986 Las Cruces Montana Meadows Apartments 80-unit complex on 6.1 acres 1985 1,885 Roswell Wildewood Apartments 60-unit complex on 4.3 acres 1985 1,359 PROPERTIES UNDER DEVELOPMENT ARIZONA Sedona Rancho del Oro Development Joint Venture(2)(6) Timeshare/golf course development (Seven Canyons of Sedona)planned for 300 timeshare units and an 18-hole golf course. A majority of the design and engineering work has been completed. Construction drawings, additional golf course design and governmental approvals are in process. 1995-2008
-6- 7
Year acquired/ Encumbrance Location Description developed (in thousands) - ----------------------------------------------------------------------------------------------------- NEW MEXICO Albuquerque Manzano Mesa Ltd Partnership(3) Residential lot development (WillowWood) Phases I through III are sold out. Phases IV and V have 86 lots in inventory, all of which are under contract. The joint venture has an option to purchase an additional 112 acres. 1992-1996 Brown/NZD Development joint Venture(4) Residential lot development (Seven Bar North) 902 lots planned, 374 lots remain to be developed, of these, 203 are under contract. At year end there were 79 finished lots in inventory. 1995-1999 $2,200 TEXAS Irving Texas Elm Fork Land Co., LC.(5)(6) (Elm Fork Ranch) 160 acres under lease with the University of Dallas. Development plans, engineering and building plans have been completed for the construction of a family entertainment center. However due to the failure of the University to acquire a key 3-acre parcel,development of the property is on hold. 1995-1996
(1) The property is owned by a general partnership of which the Company owns 50%. (2) The property is owned by a general partnership of which the Company owns 90%. (3) The property is owned by a limited partnership of which the Company owns 75%. (4) The property is owned by a general partnership of which the Company owns 75%. (5) The project is owned by a limited liability company of which the Company owns 85%. (6) See Sedona Project and Elm Fork Project on page 13 for additional information. -7- 8
Year Encumbrance Location Description acquired Acres (in thousands) - -------------------------------------------------------------------------------------------- UNDEVELOPED URBAN PROPERTIES ARIZONA Gilbert Cooper and Warner Roads 1986 11.95 $ 332 Mesa Greenfield Road and Dorsey Lane 1989 56.74 Chandler Ray and McClintock Roads 1986 14.66 97 Scottsdale Carefree Highway and 104th Street 1995 107.91 536 Green Valley Continental and Frontage Roads 1986 9.53 Cottonwood Near Cottonwood Airport 1996 635.00 2,858 Flagstaff Zuni and Walapai Streets 1981 10.00 NEW MEXICO Albuquerque Menaul and Broadway Roads 1986 17.70 Albuquerque Spain Road and Juan Tabo Blvd. 1985 5.89 Albuquerque Seven Bar Loop and Ellison Roads(1) 1993 51.21 93 Las Cruces Mesilla Hills 1990 305.00
(1) Owned by a general partnership of which the Company owns 75%. RURAL AND MINERAL PROPERTIES
Acres Encumbrance County State Surface Mineral(in thousands) - ------------------------------------------------------------------------------------------ Apache Arizona 76,460 146,640 Coconino Arizona 21,191 Mohave Arizona 46,602 Navajo Arizona 80,150 474,932 Catron New Mexico 11,346 Cibola New Mexico 4,788 225,185 McKinley New Mexico 160 117,238 $80 San Juan New Mexico 5,040 Socorro New Mexico 2,399 Valencia New Mexico 43,925 Fremont Colorado 9,889 4,565 Various Oklahoma 337 - ----------------------------------------------------------------------------------------- 171,447 1,099,400 $80 =========================================================================================
The Company is lessor on grazing and mineral leases covering approximately 158,000 and 6,060 acres, respectively, and owns working interests in various oil and gas joint ventures located in New Mexico, acquired from 1986 through 1988. -8- 9 ITEM 3: LEGAL PROCEEDINGS The Company is a party to various legal proceedings arising in the ordinary course of business. While it is not feasible to predict the ultimate disposition of these matters, it is the opinion of management that their outcome will not have a material adverse effect on the financial condition of the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1996. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There are 3,012,886 shares of no par value common stock issued and outstanding, at December 31, 1996. Sun NZ, L.L.C. owns 1,507,871 shares, approximately 50.05% of the outstanding shares of the Company. The stock is admitted to unlisted trading privileges on the American Stock Exchange under the symbol "NZ". Shareholders of record at February 25, 1997, totaled 847. The Board of Directors declared a 10% stock dividend on May 20, 1996 and on March 4, 1995, with payments made on July 18, 1996 and May 1, 1995, respectively. The Company has authority to issue up to 10,000,000 shares of serial preferred stock. At December 31, 1996, no preferred shares were issued. During 1996, the Company did not sell any equity securities that were not registered under the Securities act of 1933, as amended. THE MARKET PRICE RANGE BY QUARTER:
- ------------------------------------------------------------------------------------ 1996 1995 HIGH LOW High Low - ------------------------------------------------------------------------------------ 1st quarter 18 11 5/8 11 1/4 7 5/8 2nd quarter 16 1/2 12 1/2 11 7/8 9 1/2 3rd quarter 14 11 1/2 13 5/8 10 5/8 4th quarter 13 3/4 11 12 5/8 11 3/8
-9- 10 ITEM 6: SELECTED FINANCIAL DATA
Years ended December 31, (in thousands, except per share data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------ SUMMARY OF OPERATIONS: Gross revenue from operations $23,660 $22,062 $21,440 $10,337 $ 10,494 Income (loss) before cumulative effect of an accounting change 4,846 5,500 3,936 1,282 (1,472) Net income (loss) 4,846 5,500 3,936 1,282 (892) Earnings (loss) per share before cumulative effect of an accounting change(1) 1.61 1.83 1.31 0.43 (0.49) Net earnings (loss) per share(1) 1.61 1.83 1.31 0.43 (0.30) SUMMARY OF FINANCIAL POSITION: Total assets $66,328 $57,682 $52,307 $46,622 $ 45,772 Notes payable and lines of credit 16,036 14,080 14,546 15,268 17,392 Shareholders' equity 35,628 30,721 25,127 21,153 19,871 OTHER SUPPLEMENTAL INFORMATION: Weighted average number of common shares outstanding(1) 3,008 3,001 3,001 3,001 3,005 Number of shareholders of record 847 887 925 970 1,035 Number of full time employees 24 21 19 19 19
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996. -10- 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table summarizes the Company's revenues and earnings for the indicated periods:
Fiscal Years Ended December 31: (in thousands, except per share data) 1996 1995 1994 - -------------------------------------------------------------------------------------- Revenue $23,660 $22,062 $21,440 Earnings per share of common stock(1) $ 1.61 $ 1.83 $ 1.31
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996. YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995 Although property sales generated about $1,600,000 more in gross profit in 1996 than in 1995, earnings decreased in 1996 by about 12%, from $5,500,000 in 1995 to $4,846,000 in 1996. The major reason for the decrease in income was the sale of a note receivable and the sale of a joint venture property that produced over $2,700,000 in before tax income in 1995. Rental properties continue to produce steady gross profits and cash flows of about $2,000,000 per year. The majority of the cash flow is from the four federally-subsidized apartment complexes that NZ owns. The subsidy contracts are scheduled to expire, one at the end of 1998 and the other three in 1999. It is not possible to determine at this time whether HUD will renew these contracts. If HUD does not renew the contracts when they expire, the Company may have to adjust its rental rates. The Company does not believe that this would have an adverse effect on the Company with respect to its apartment complex located in Albuquerque; however, the lack of federal subsidies in the rural areas of New Mexico could have an adverse effect on the Company. Investment income decreased by about $400,000. A note receivable was paid off in 1995, thereby reducing interest income in 1996. Also average cash available for investment in 1996 was down from 1995, due to the purchase of properties. The increase in general and administrative expense was due primarily to an increase in officers' and directors' bonuses of about $145,000 and increased legal fees. Cash flow from operating activities increased by over $7,000,000 and cash flow from investing activities decreased by essentially the same amount. The Company sold two commercial corners for about $6,300,000 in cash and the Company purchased two properties, a 10,000 acre ranch in Colorado and a 635 acre parcel in Arizona. Cash on hand at December 31, 1996 was $7,100,000. YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994 Earnings in 1995 were $5,500,000 compared with $3,936,000 in 1994. Earnings increased primarily due to increased interest income; increased revenue from the sale in 1995 of a mortgage note and a joint venture asset; and decreased general and administrative expenses. Interest income increased to $373,000 in 1995 from $32,000 in 1994. This increase resulted primarily from the fact that cash on hand during the majority of 1995 was considerably greater than in 1994. Also in 1995, the Company generated revenue from the sale of a note receivable for a gain of almost $1,100,000, which is reflected in other income on the income statement. Again in 1995, one of the joint ventures in which the Company owned a 50% interest sold its only asset, an office complex. The Company's investment in this joint venture had been written off in prior years. -11- 12 Revenue of $1,610,000 was recognized in 1995 and is reflected as gain from joint ventures on the income statement. General and administrative expenses decreased $128,000 in 1995 as compared to 1994. In 1994, there was a one-time charge of $398,000 that resulted from a liability in connection with the resignation of a corporate officer. Partially offsetting these positive factors was a decrease in 1995 of revenues generated from property sales of about $1,000,000. While revenue from the sale of single-family lots increased by about $2,000,000 over 1994, the sale of the Company's other properties decreased $3,000,000 from 1994. Rental properties have continued to produce a steady cash flow and income from year to year. In both 1995 and 1994, gross income was over $1,900,000. Cash flow from operating activities decreased by $6,000,000 from the prior year, due primarily to the purchase of property in the Sedona, Arizona area that the Company is in the process of developing into a timeshare and golf course facility. LIQUIDITY AND CAPITAL RESOURCES Existing cash, cash flow from sales of land, single-family, and recreational lots, and distributions from its joint ventures and other on-going operations, along with unused borrowing capacity, should be adequate for continuing operations and investments during the 1997 fiscal year. When construction and marketing begins on the Sedona and/or Elm Fork projects, financing from outside sources will be required to fund these projects. Cash distributions from the two Albuquerque joint ventures in 1996 were $2,000,000. As development of these properties continues, additional cash distributions are expected. One of the joint ventures has a loan facility, which has required guarantees by the Company and its partner. The Company may be required to continue to guarantee loans made to this joint venture, as development of single-family lots continues. The Company and its partner have guaranteed a $3,850,500 line of credit, to be utilized for lot development. As of February 12, 1997, there was $2,020,000 borrowed against this line of credit. In addition to regular principal payments on mortgage notes, the Company paid the balance of $1,500,000 on a note that matured in 1996. Also two of its commercial properties were refinanced for a total of $1,600,000, which was the balance of the loans that matured. The Company is negotiating with two major banks for a line of credit in the amount of $1,000,000 with each bank. These lines will be secured by certain real estate properties. INFLATION, DEFLATION, AND CHANGING PRICES The results of operations and capital expenditures will continue to be affected by inflation, deflation, and changing prices. Price changes and market trends in real estate, rental rates, oil, gas, and uranium could have significant effects on the Company's operations. CURRENT ISSUES The Company's ability to maintain and improve its current level of earnings will depend on the current developments discussed below and several factors, such as the development of projects (including those listed below and in "Significant Activities" beginning on page 3 of this report); the length of the development cycle of each project; the ability to acquire additional lands; the actual costs associated with such developments and acquisitions; suitable future development sites; weather; the strength of the local economies in the sub-markets in which the Company operates; and the resolution of the disputes discussed below. Higher than expected costs, delays in development of communities, a downturn in the local economies, -12- 13 and/or the lack of growth of such economies could reduce the Company's revenues and increase its expenses, resulting in a greater burden on the Company's liquidity than that which the Company has described above. DEVELOPMENTS SEDONA PROJECT. The Company, through a wholly-owned limited liability company, has a 90% ownership interest in a partnership that is developing a golf course and timeshare facility in Sedona, Arizona. See Page 3 "Arizona" for more information about the Sedona Project. The Company's partner in the Sedona Project has a 10% ownership interest in the partnership and, pursuant to the terms of the governing agreements, had the ability to earn up to a 45% ownership interest in the partnership. The Company's partner was initially the manager of the Sedona Project, but the Company assumed management control in 1996. A dispute has arisen among the Company and its partner regarding certain aspects of the partnership and the Sedona Project. The Company does not believe, however, that the dispute, or any potential resolution of the dispute, will have a material adverse effect on the Sedona Project. ELM FORK PROJECT. In 1995, the Company through its majority interest in a limited liability company, Texas Elm Fork Land Co., L.C. ("Elm Fork"), leased land in Irving, Texas from the University of Dallas for the purpose of developing a family entertainment center. During the development process, it was discovered that the University did not own a key 3 acre parcel of the land that was a part of the property leased to Elm Fork and was subsequently unable to acquire title to it. As a result, Elm Fork initiated litigation in 1996 against the University of Dallas to protect its position. A standstill agreement has been signed and progress is being made in the resolution of the situation. Further development of this project has been delayed until the University is able to acquire title to the 3 acre parcel and Elm Fork is adequately compensated for its damages. Given the Company's investment in Elm Fork, the delay will not have a material adverse effect on the Company's operations. -13- 14 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders New Mexico and Arizona Land Company: We have audited the accompanying consolidated balance sheets of New Mexico and Arizona Land Company and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules III and IV for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Mexico and Arizona Land Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Phoenix, Arizona February 17, 1997 KPMG Peat Marwick LLP -14- 15 New Mexico and Arizona Land Company and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (in thousands, except per share data) 1996 1995 1994 - ------------------------------------------------------------------------------------------ Revenue: Property sales $ 18,964 $ 15,910 $ 16,868 Property rentals 3,044 2,989 3,094 Investment income 1,236 1,678 1,221 Other 416 1,485 257 - ------------------------------------------------------------------------------------------ 23,660 22,062 21,440 - ------------------------------------------------------------------------------------------ Expenses: Cost of property sales 10,569 9,159 8,949 Rental property 1,007 1,089 1,173 General and administrative 1,773 1,518 1,647 Interest 963 946 1,053 Depreciation, depletion and amortization 450 487 528 - ------------------------------------------------------------------------------------------ 14,762 13,199 13,350 Income Before Joint Ventures, Minority Interests and Income Taxes 8,898 8,863 8,090 Gain (loss) from joint ventures 20 1,582 (234) Minority interests (872) (1,316) (1,309) - ------------------------------------------------------------------------------------------ Income Before Income Taxes 8,046 9,129 6,547 Income taxes 3,200 3,629 2,611 - ------------------------------------------------------------------------------------------ Net Income $ 4,846 $ 5,500 $ 3,936 ========================================================================================== Earnings per Share of Common Stock(1) $ 1.61 $ 1.83 $ 1.31 ========================================================================================== Weighted Average Number of Common Shares(1) 3,008 3,001 3,001 ==========================================================================================
See accompanying Notes to Consolidated Financial Statements. (1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996. -15- 16 New Mexico and Arizona Land Company and Subsidiaries CONSOLIDATED BALANCE SHEETS
December 31, (in thousands) 1996 1995 - -------------------------------------------------------------------------------- Assets Properties, net $47,478 $ 41,327 Receivables, net 9,848 9,690 Investments in joint ventures 416 409 Cash and cash equivalents 7,142 5,301 Other 1,444 955 - -------------------------------------------------------------------------------- Total assets $66,328 $ 57,682 ================================================================================ Liabilities and Shareholders' Equity Notes payable and lines of credit $16,036 $ 14,080 Accounts payable and accrued liabilities 1,542 999 Deferred revenue 5,002 5,330 Deferred income taxes 5,685 4,188 - -------------------------------------------------------------------------------- Total liabilities 28,265 24,597 - -------------------------------------------------------------------------------- Minority interests 2,435 2,364 - -------------------------------------------------------------------------------- Shareholders' equity: Preferred stock, no par value; 10,000,000 shares authorized, none issued Common stock, no par value; 30,000,000 shares authorized; 3,012,886 and 3,007,636(1) shares issued and outstanding at December 31, 1996 and 1995, respectively 13,738 10,051 Additional paid-in capital 967 966 Retained earnings 20,923 19,736 Treasury stock, none at December 31, 1996, and 4,908 shares at December 31, 1995 -- (32) - -------------------------------------------------------------------------------- Total shareholders' equity 35,628 30,721 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $66,328 $ 57,682 ================================================================================
See accompanying Notes to Consolidated Financial Statements. (1) Restated to reflect a 10% stock dividend paid July 18, 1996 -16- 17 New Mexico and Arizona Land Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 4,846 $ 5,500 $ 3,936 Deduct: Gain from investment property sales (3,963) (891) (3,049) Non-cash items included above: Depreciation, depletion and amortization 450 487 528 Deferred revenue (853) (1,234) (1,091) Deferred income taxes 1,497 465 653 Gain from investment property sales (Gain) loss from joint ventures (20) (1,582) 234 Minority interests 872 1,316 1,309 Employee restricted stock plan 1 13 38 Director stock awards 65 84 -- Net change in: Receivables 367 1,604 (364) Properties under development (969) (6,789) (1,095) Other assets (489) 131 (155) Accounts payable and accrued liabilities 538 (1,169) 859 - -------------------------------------------------------------------------------------------------------- Net cash flow from operating activities 2,342 (2,065) 1,803 - -------------------------------------------------------------------------------------------------------- CASH FLOW FROM INVESTING ACTIVITIES: Additions to properties (7,709) (3,635) (814) Proceeds from sale of properties 6,040 4,933 4,898 Distribution (contribution), joint ventures 13 1,627 (22) - -------------------------------------------------------------------------------------------------------- Net cash flow from investing activities (1,656) 2,925 4,062 - -------------------------------------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from debt 8,615 3,664 3,808 Payment of debt (6,659) (4,130) (4,780) Distribution to minority interest partners (841) (1,443) (316) Capital contribution, minority interest partners 40 1,239 -- - -------------------------------------------------------------------------------------------------------- Net cash flow from financing activities 1,155 (670) (1,288) - -------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 1,841 190 4,577 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 5,301 5,111 534 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 7,142 $ 5,301 $ 5,111 ========================================================================================================
See accompanying Notes to Consolidated Financial Statements -17- 18 New Mexico and Arizona Land Company and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Addi- Total tional Share- Common stock Treasury stock paid-in Retained holders' (in thousands) Shares(1) Amount Shares Amount capital earnings Equity - ----------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1993 3,008 $ 7,812 12 $(92) $891 $ 12,542 $ 21,153 ======================================================================================================================= Net income -- -- -- -- -- 3,936 3,936 Employee restricted stock plan -- -- -- -- 38 -- 38 - ----------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1994 3,008 $ 7,812 12 $(92) $929 $ 16,478 $ 25,127 ======================================================================================================================= Net income -- -- -- -- -- 5,500 5,500 10% stock dividend -- 2,239 -- -- -- (2,242) (3) Employee restricted stock plan -- -- -- -- 13 -- 13 Director stock awards -- -- (7) 60 24 -- 84 - ------------------------------------------------------------------------------------------------------------------------ BALANCES AT DECEMBER 31, 1995 3,008 $10,051 5 $(32) $966 $ 19,736 $ 30,721 ======================================================================================================================= Net income -- -- -- -- -- 4,846 4,846 10% stock dividend -- 3,622 (5) 32 -- (3,659) (5) Employee restricted stock plan -- -- -- -- 1 -- 1 Director stock awards 5 65 -- -- -- -- 65 - ------------------------------------------------------------------------------------------------------------------------ BALANCES AT DECEMBER 31, 1996 3,013 $13,738 0 0 $967 $ 20,923 $ 35,628 =======================================================================================================================
See accompanying Notes to Consolidated Financial Statements. (1) Prior years restated to reflect a 10% stock dividend paid July 18, 1996. -18- 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF ACCOUNTING POLICIES Nature of Business New Mexico and Arizona Land company was organized in 1908 as an Arizona Corporation and is conducting business in Arizona, New Mexico, Colorado, Texas and Oklahoma. The Company owns and develops urban real estate. It also owns extensive rural real estate and mineral rights. Principles of consolidation The consolidated financial statements include the accounts of New Mexico and Arizona Land Company, its wholly-owned subsidiaries, and majority-owned partnerships ("the Company"). All material intercompany transactions have been eliminated in consolidation. Certain financial statement items from prior years have been reclassified to be consistent with the current year financial statement presentation. Properties Properties are recorded at cost net of valuation allowances. Depreciation on rental properties is provided over the estimated useful lives of the assets, ranging from 5 to 35 years, using the straight-line method. Maintenance and repairs are charged to income as incurred and renewals or betterments are capitalized. Investments in joint ventures The Company's investments in joint ventures are accounted for using the equity method. Property sales and deferred revenue Profits on property sales are recognized, subject to the assessment of collectibility of the related receivables, when the buyer's investment amounts to at least 20% of the sales price and when development is to commence within a two year period or 25% of the sales price on all other sales. In all instances the buyer remains obligated to increase this investment by a minimum amount annually. Profits on sales that do not meet these requirements are recognized on the installment basis provided minimum down payments are received. Deferred revenue consists of land sales being accounted for on the installment basis and rents collected in advance. Rents collected in advance represent annual rental payments made in advance of the lease year and are considered earned ratably over the lease year for financial statement purposes. Income taxes The Company follows Statement of Financial Accounting Standards No.109, Accounting for Income Taxes("Statement 109"). Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. -19- 20 Earnings per share Earnings per share computations are based on the weighted average number of common shares outstanding during the year of 3,008,211 in 1996, 3,000,943 in 1995, and 3,000,636 in 1994. The weighted average shares for 1995 and 1994 have been restated to reflect a stock dividend paid July 18, 1996. Cash and cash equivalents Cash and cash equivalents include cash on hand, cash held in trust, money market accounts, and temporary investments, with an original maturity of three months or less. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, requires that a company disclose estimated fair values for its financial instruments. The carrying amounts of the Company's notes receivable and notes payable approximate the estimated fair value because they are at interest rates comparable to market rates, given the terms and maturities. The carrying amounts of the Company's cash equivalents, receivables, accounts payable and accrued liabilities approximate the fair value of these instruments due to their short term maturities. Considerable judgement is required in interpreting market data to develop the estimates of fair value. Accordingly, these fair value estimates are not necessarily indicative of the amounts the Company might pay or receive in actual market transactions. Impairment of Assets The Company adopted the provisions of SFAS No 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of, on January 1, 1996. All properties were reviewed for recoverability. Because the sum of the expected future net cash flows (undiscounted and without interest charges) exceeds the carrying value for assets held and used and the market value exceeds the carrying value for assets held for sales, no impairment loss was recognized in 1996. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the amounts of revenue and expenses at the date of the financial statements. Actual results could differ from those estimates. -20- 21 NOTE 2: - PROPERTIES
Properties are comprised of the following at December 31, (in thousands) 1996 1995 - ---------------------------------------------------------------------------------- Rural lands and unimproved urban properties $23,429 $18,542 Properties under development 14,555 12,475 Rental properties 16,852 17,953 Other 1,639 1,507 Accumulated depreciation, depletion and amortization (5,292) (4,845) Valuation Allowance (3,705) (4,305) - ---------------------------------------------------------------------------------- $ 47,478 $41,327 ==================================================================================
The future rentals on non-cancelable operating leases related to the Company's rental properties, but excluding its four apartment complexes, are as follows: $560,000 in 1997; $467,000 in 1998; $467,000 in 1999; $467,000 in 2000; $469,000 in 2001; and $1,681,000 in later years. The four apartment complexes, which are federally subsidized under the U.S. Department of Housing and Urban Development Section 8 Housing-Assistance-Payments Program, have contributed revenue of $2,437,000 in 1996, $2,412,000 in 1995 and $2,377,000 in 1994. During 1996 and 1995 the Company acquired residential real estate at a cost of $4,600,000 and $2,980,000, of which $2,900,000 and $600,000 were financed, respectively. -21- 22 NOTE 3 - RECEIVABLES
Receivables consist of the following at December 31, (in thousands) 1996 1995 - ---------------------------------------------------------------------------------- Mortgage notes receivable $9,758 $9,590 Other notes receivable -- 7 Accounts receivable 165 168 Reserve for bad debts (75) (75) - ---------------------------------------------------------------------------------- $9,848 $9,690 ==================================================================================
The Company sells recreational land, principally in 40-acre parcels. Since 1980, over 75,000 acres have been sold in Arizona. The mortgage notes receivable from these land sales, due over ten to fifteen years, bear interest at rates ranging from 10% to 12%, and are secured by the properties sold. At December 31, 1996 and 1995 mortgage notes receivable relating to these sales totalled $7,557,000 and $7,318,000, respectively. The Company sold land for mortgage notes receivable in the amount of $1,910,000 and $2,045,000 during the years ended December 31, 1996 and 1995 respectively. In 1996 and 1995 the Company collected $1,429,000 and $903,000 in principal payments on these land sale contracts. The Company has a mortgage note receivable with a remaining principal balance of $2,201,000, from a 1983 sale of an apartment complex located in Flagstaff, Arizona. This note, which matured in September 1992, was restructured under a bankruptcy reorganization plan. Under the reorganization plan the maturity of the note was extended to January 13, 2000, the interest rate was reduced from 10% to 8.75% and the payments were changed from quarterly interest-only payments to monthly payments of principal and interest. Also in connection with that sale, the Company remained contingently liable under a mortgage note that was assumed by the purchaser. The estimated fair value of the property securing the Company's mortgage note receivable exceeds the basis of the mortgage note receivable and the mortgage assumed by the buyer. Consequently, should the buyer default under the note, the Company would not recognize a loss on foreclosure. -22- 23 NOTE 4 - NOTES PAYABLE AND LINES OF CREDIT
Notes payable consist of the following at December 31, (in thousands) Maturity Interest date rate (%) Payment 1996 1995 - ----------------------------------------------------------------------------------------- Mortgage loans: Apartment complexes 2009 8.375 monthly P&I $ 8,233 $ 8,584 Commercial buildings 2006 9.125 monthly P&I 1,607 1,666 Undeveloped land 2000-2001 9.25-10.25 annual P&I 3,394 2,143 Development loan 1997 prime(1) monthly int. 2,200 989 Other loans 1998-2004 7.125-7.6 semi-annl.P&I 602 698 - ----------------------------------------------------------------------------------------- $16,036 $14,080 =========================================================================================
(1) Prime rate at December 31, 1996 was 8.25% The Company and its partner guarantee a development line of credit for one of its majority-owned partnerships. This line, which is secured by the real property, expires in August 1997 and has a commitment amount of $3,850,500. At December 31, 1996, the outstanding balance was $2,200,000. The interest rate is at the bank's prime rate, 8.25% at December 31, 1996. Principal payments due on all notes payable and lines of credit are as follows: $3,547,000 in 1997; $1,299,000 in 1998; $1,304,000 in 1999; $1,323,000 in 2000; $1,224,000 in 2001; and $7,339,000 in later years. Interest paid in 1996, 1995 and 1994, amounted to $1,360,000, $1,316,000 and $1,449,000, respectively. Interest cost incurred in 1996, 1995 and 1994, was $1,470,000, $1,286,000 and $1,434,000, respectively, of which $507,000, $340,000 and $381,000 was capitalized. -23- 24 NOTE 5 - INCOME TAXES
Income tax expense is comprised of the following: (in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------- Current: Federal $1,362 $2,531 $1,566 State 341 633 392 Deferred Federal 1,198 368 522 State 299 97 131 - ----------------------------------------------------------------------------------------- $3,200 $3,629 $2,611 =========================================================================================
The reconciliation of the computed statutory income tax expense to the effective income tax expense follows:
(in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------- Statutory Federal income tax expense $2,736 $3,104 $2,226 Reconciling items: State income taxes, net of Federal benefit 422 474 345 Other 42 51 40 - ---------------------------------------------------------------------------------------- $3,200 $3,629 $2,611 ========================================================================================
-24- 25 The effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,
(in thousands) 1996 1995 - ---------------------------------------------------------------------------------------- Deferred tax assets: Properties, principally due to valuation allowances, depreciation and amortization of costs $1,040 $ 2,764 Investments in joint ventures, principally due to valuation allowances 167 174 Other 103 142 - ---------------------------------------------------------------------------------------- Total gross deferred tax assets $1,310 $ 3,080 - ---------------------------------------------------------------------------------------- Deferred tax liabilities: Properties, principally due to basis differences upon acquisition $(5,317) $(5,665) Receivables/deferred revenue, principally due to installment sales (1,606) (1,537) Other (72) (66) - ---------------------------------------------------------------------------------------- Total gross deferred tax liabilities (6,995) (7,268) - ---------------------------------------------------------------------------------------- Net deferred tax liability $(5,685) $(4,188) ========================================================================================
Income taxes paid in 1996, 1995 and 1994 amounted to $1,418,000, $3,596,000 and $2,164,000, respectively. -25- 26 NOTE 6 - INVESTMENTS IN JOINT VENTURES: The Company participates in a joint venture that developed an office building. Revenues, costs and profits or losses are shared equally. In prior years the Company reduced the carring value of its investment in this joint venture to the estimated realizable value of its share of the building, which is the only asset of this joint venture. The following is a summary of the condensed balance sheet and results of operations of this joint venture at December 31,
(in thousands) 1996 1995 - ---------------------------------------------------------------------------------------- Assets, primarily real estate $1,862 $1,865 ======================================================================================== Liabilities $ 66 $ 18 Capital 1,796 1,847 - ---------------------------------------------------------------------------------------- $1,862 $1,865 ========================================================================================
Results of operations for years ended December 31,
(in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------- Revenue $380 $249 $223 Operating expenses (223) (173) (177) Depreciation and amortization (101) (83) (70) - ---------------------------------------------------------------------------------------- Net income (loss) $ 56 $ (7) $(24) ========================================================================================
In addition to the above real estate joint venture, the Company has invested in various working-interest petroleum properties principally located in the San Juan Basin of New Mexico. The Company's interests range from 5% to 50%. The net assets and results of operations applicable to the Company are as follows for years ended December 31,
(in thousands) 1996 1995 1994 - --------------------------------------------------------------------------------------- Net assets $ 11 $ 17 $37 ======================================================================================= Revenue $ 47 $ 51 $ 54 Expenses (55) (71) (276) - --------------------------------------------------------------------------------------- Net loss $ (8) $(20) $(222) =======================================================================================
-26- 27 NOTE 7 - RETIREMENT PLANS Pension Plan: The Company's defined benefit retirement plan covers substantially all full-time employees. The benefits are based on employment commencement date, years of service and compensation. Plan restatement to conform with TRA86 and subsequent changes was completed in December 1994. In accordance with Statement of Financial Accounting Standards No. 87 Employers' Accounting for Pensions (FAS87), the effect of the restatement was recognized in 1995. No additional post-employment benefits are provided and plan assets are invested in various mutual funds. The Plan was "frozen" on December 31, 1996. No gain or loss was recognized by the Company. The "freeze" puts a stop on future benefit accruals. The net periodic pension benefit is computed as follows for years ended December 31,
(in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------- Service cost $ 43 $ 39 $ 41 Interest cost 47 41 41 Return on assets Actual (175) (333) 32 Deferred gain (loss) 106 251 (115) Amortization of unrecognized net transition asset (26) (26) (25) - ---------------------------------------------------------------------------------------- Net periodic pension benefit $ (5) $ (28) $ (26) ========================================================================================
Through December 31, 1996, the Company accrued retirement benefits based on an independent actuarial valuation for the plan. The discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations were 7% and 0%, respectively, at December 31, 1996, 1995 and 1994. The expected long-term rate of return on plan assets was 7% for 1996, 1995 and 1994. The following is the funded status of the Plan at December 31,
(in thousands) 1996 1995 - ---------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $ 675 $ 672 Nonvested benefits 0 4 - ---------------------------------------------------------------------------------------- Accumulated and projected benefit obligation 675 676 Fair value of plan assets (1,464) (1,414) - ---------------------------------------------------------------------------------------- Excess of assets over projected benefit obligation (789) (738) Unrecognized net gain 146 104 Unrecognized net transition asset 358 383 - ---------------------------------------------------------------------------------------- Prepaid pension asset $ (285) $ (251) ========================================================================================
401(k) Savings Plan: The Company has a 401(k) Savings Plan for all of its employees. The Company matches up to 3% of the employee's salary contributed. Total expense for the Company under this plan was $19,700, $19,800 and $23,600 for 1996, 1995 and 1994, respectively. -27- 28 NOTE 8 - RESTRICTED STOCK PLAN In 1988 the Company adopted a Restricted Stock Plan ("the Plan") to distribute shares of stock to senior executives at no cost. 100,000 shares of common stock are authorized for awards during the Plan's ten year term. No shares were awarded in 1996, 1995 and 1994. A total of 31,400 shares have been awarded since inception of the plan. Forfeiture restrictions lapse on the third, fourth and fifth anniversary after award. In 1994 a special dispensation was given due to the change of control of the Company and restrictions were lifted on 15,334 shares. In 1995 special dispensation was given, due to internal restructuring, and restrictions were lifted on 4,507 shares. Restrictions will be lifted on the remaining 733 shares in 1997. Compensation expense is recorded for the awards of stock in each period in which services are performed. The Company recognized compensation expense of $1,000, $13,000 and $38,000 related to these awards for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE 9 - DIRECTOR STOCK AWARDs On November 22, 1996, at a meeting of the Board of Directors, the Board awarded 750 shares of common stock of the Company to each director. The shares were valued at the fair market value on the grant date. A total of 5,250 shares was issued on December 30, 1996. The shares contain a restrictive legend as required under Rule 144 of the Securities Act of 1933. In addition a cash award of $3,750 was paid to each director. On December 15, 1995, at a meeting of the Board of Directors, the Board awarded 1,000 shares of the Company's common stock to each director. It was determined that the stock used for these awards would be treasury stock. Of the Company's 11,908 shares of treasury stock, 7,000 shares were reissued at 1,000 shares to each director, on December 28, 1995. The shares were valued at the fair market value on the grant date. The reissued shares contain a restrictive legend as required under Rule 144 of the Securities Act of 1933. In addition a cash award of $4,750 was paid to each director. Compensation expense of $92,000 in 1996 and $116,000 in 1995 was recorded as a result of the above awards. NOTE 10 - COMMITMENTS AND CONTINGENCIES The Company is a party to various legal proceedings arising in the ordinary course of business. While it is not feasible to predict the ultimate disposition of these matters, it is the opinion of management that their outcome will not have a material adverse effect on the financial condition of the Company. -28- 29 NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION Certain unaudited quarterly financial information for the years ended December 31, 1996, and 1995 is presented below:
First Second Third Fourth (in thousands, except per share data) Quarter Quarter Quarter Quarter Total - ----------------------------------------------------------------------------------------- 1996 Revenue $4,608 $3,121 $4,690 $11,241 $23,660 ========================================================================================= Net income $ 837 $ 551 $ 762 $2,696 $ 4,846 ========================================================================================= Earnings per share $ 0.28 $ 0.18 $ 0.25 $0.90 $ 1.61 ========================================================================================= 1995 Revenue $4,095 $6,007 $7,665 $4,295 $22,062 ========================================================================================= Net income $1,446 $1,803 $1,404 $ 847 $ 5,500 ========================================================================================= Earnings per share(1) $ 0.48 $ 0.60 $ 0.47 $ 0.28 $ 1.83 =========================================================================================
(1) Restated to reflect a 10% stock dividend paid July 18, 1996. NOTE 12 - INDUSTRY SEGMENTS The following information summarizes information about the Company's industry segments for the years ended December 31,
(in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------- Total revenue Real estate $23,473 $21,881 $21,216 Minerals 187 181 224 Income before income taxes Real estate $ 7,939 $ 9,054 $ 6,420 Minerals 107 75 127 Identifiable assets Real estate $65,524 $56,969 $51,558 Minerals 804 713 749
-29- 30 New Mexico and Arizona Land Company and Subsidiaries SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996 Cost (in thousands) capi- Initial talized Gross amount at which cost to subse- carried at close Company quent to of period(1) -------------- acqui- ------------------------ Accum- Bldgs sition Buildings ulated and im- -------- and depre- Encum- prove- Improve- improve- Total ciation Date brances Land ments ments Land ments (a) (2) (b)(6) acquired - ------------------------------------------------------------------------------------------------------------------------- Unimproved Properties Arizona and New Mexico(3) $961 $11,496 $ $ 890 $11,862 $ 524 $12,386 $ 77 1908-1995 Colorado 2,751 8 2,759 2,759 1996 Cottonwood, Arizona 2,858 4,584 48 4,632 4,632 1996 Chandler, Arizona 97 3,245 407 3,245 407 3,652 117 1986 Properties Under Development 40-acre lots, Arizona 6 6 6 1908 Albuquerque, New Mexico(3) 2,200 1,230 3,529 1,230 3,529 4,759 1992 Sedona, Arizona(4) 7,500 671 8,171 8,171 1995 Irving, Texas(5) 1,619 1,619 1,619 1995 Rental Properties Commercial Buildings Phoenix, Arizona 1,607 947 1,354 156 947 1,510 2,457 664 1986 Land Leases Tucson, Arizona 2,130 2,130 2,130 1984 Apartments New Mexico 8,233 1,187 10,665 413 1,187 11,078 12,265 3,728 1985 - ------------------------------------------------------------------------------------------------------------------------- $15,956 $35,076 $13,638 $6,122 $36,169 $18,667 $54,836 $4,586 =========================================================================================================================
(1) Tax basis: $39,000,000 (2) A valuation allowance in the amount of $3,705,000 was established in prior years to reflect the Company's estimated realizable value upon ultimate disposition of certain of its properties, principally unimproved urban real estate. (3) Certain properties are owned by partnerships of which the Company has a 75% ownership. (4) Owned by a partnership in which the Company has a 90% ownership. (5) Owned by a limited liability company of which the Company has an 85% ownership (6) Life on which depreciation in the latest income statements is computed: 5 to 35 years. -30- 31 (a) NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Years ended December 31, (in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------- Balance at beginning of year $48,970 $39,861 $40,453 Additions during year: Acquisitions 7,459 10,580 1,438 Improvements 5,613 5,539 7,123 Deductions during year: Cost of real estate sold (7,206) (7,010) (9,153) - ----------------------------------------------------------------------------------------- Balance at close of year $54,836 $48,970 $39,861 =========================================================================================
(b) NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Years ended December 31, (in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------- Balance of accumulated depreciation at beginning of year $4,188 $3,764 $3,526 Additions during year: Current year's depreciation 398 447 476 Deductions during year: Real estate sold -- (23) (238) - ----------------------------------------------------------------------------------------- Balance at close of year $4,586 $4,188 $3,764 =========================================================================================
-31- 32 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31,1996 Principal amount of Face Carrying loans amount amount subject to Final Period of of mort- delinquent Interest maturity payment mort- gages principal (in thousands) rate date terms gages (3) (a) & interest - ----------------------------------------------------------------------------------------- Conventional first mortgages on unimproved land sales in Arizona and New Mexico: (predominately 40- acre parcel sales) 6%-12% 1997-2012 Monthly(1) $13,238 $7,482(2) $375 Mortgages on the sale of commercial properties: Apartment complex 8.75% 2000 Monthly(1) 2,852 2,201 - --------------------------------------------------------------------------------------- $16,090 $9,683 $375 =======================================================================================
(1) Level payments of principal and interest (2) Net of reserve for bad debt of $75,000. (3) Tax basis is $7,932,000 (a) NOTE TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Years ended December 31, (in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------- Balance at beginning of year $9,515 $8,757 $8,804 Additions during period: New mortgage loans 1,910 2,045 1,285 Deduction during period: Collections of principal (1,469) (964) (1,061) Forfeitures on installment contracts (273) (323) (271) - ---------------------------------------------------------------------------------------- Balance at close of year $9,683 $9,515 $8,757 ========================================================================================
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -32- 33 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required under this item is contained in New Mexico and Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 11: EXECUTIVE COMPENSATION Information required under this item is contained in New Mexico and Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item is contained in New Mexico and Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this item is contained in New Mexico and Arizona Land Company's 1997 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The consolidated financial statements and schedules are included in Part III, Item 8: Independent Auditors' Report Balance Sheets Statements of Income Statements of Cash Flows Statements of Shareholders Equity Notes to Consolidated Financial Statements Schedule III - Real Estate and Accumulated Depreciation Schedule IV - Mortgage Loans on Real Estate Exhibit 3.(i) Articles of Incorporation of Registrant amended May 20, 1996. Exhibit 3.(ii)By-laws of Registrant revised March 8, 1996. Exhibit 10.3 New Mexico and Arizona Land Company 401(k) Plan dated January 1, 1992. Exhibit 27. Financial Data Schedule All other exhibits are omitted because they are inapplicable, contained elsewhere in the report or have been previously filed with the Securities and Exchange Commission. No Form 8-K was filed in 1996. -33- 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEW MEXICO AND ARIZONA LAND COMPANY (Registrant) /s/William A Pope /s/Elizabeth M. Bedewi - -------------------------- ---------------------------- William A. Pope Elizabeth M. Bedewi President and Principal Senior Vice President and Executive Officer Principal Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Stephen E. Renneckar /s/John C. Lucking - -------------------------- ---------------------------- Stephen E. Renneckar John C. Lucking Chairman Director /s/William A. Pope /s/Arnold L. Putterman - -------------------------- ---------------------------- William A. Pope Arnold L. Putterman Director Director /s/Ronald E. Strasburger /s/Robert Wertheim - -------------------------- ---------------------------- Ronald E. Strasburger Robert Wertheim Director Director /s/Richard A. Wessman - -------------------------- Richard A. Wessman Director Dated: March 14, 1997 -34- 35 GENERAL INFORMATION DIRECTORS Term expiring in 1998: Arnold L. Putterman(1): New York, New York, Counselor at Law Stephen E. Renneckar(2,3) Phoenix, Arizona, Vice President, General Counsel, SunChase Holdings, Inc. Robert Wertheim(1) Albuquerque, New Mexico, Chairman, Charter Companies Richard A. Wessman(1,3) Roseville, California, President, Sterling Pacific Assets, Inc. Term expiring in 1997: John C. Lucking(2,3) Phoenix, Arizona, Consulting Economist, Econ-Linc William A. Pope Phoenix, Arizona, President and CEO of the Company and SunChase Holdings Inc. Ronald E. Strasburger(2) Phoenix, Arizona, Loans and Acquisitions Manager, Sterling Pacific Management Services, Inc. (1) Audit Committee (2) Compensation and Nominating Committee (3) Executive Committee OFFICERS William A. Pope President and Chief Executive Officer R. Randy Stolworthy(1) Executive Vice President, Chief Operating Officer Elizabeth M. Bedewi Senior Vice President, Treasurer and Secretary Joe D. Sphar Vice President--Minerals and Assistant Secretary (1) effective February 18, 1997 SHAREHOLDER INFORMATION ANNUAL MEETING The annual meeting of the shareholders of the Company will be held in Phoenix, Arizona, Friday May 16, 1997. Notice of meeting and proxy will be mailed to shareholders of record as of March 21, 1997. Please notify E. M. Bedewi, Secretary, of any change of address. TRANSFER AGENT AND REGISTRAR OF STOCK American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005, (718) 921-8209, (800)937-5449, fax (718)921-8331 CORPORATE OFFICE 3033 N 44th Street, Suite 270, Phoenix, AZ 85018. (602)952-8836, fax (602)952-8769, email lbedewi@aol.com web site nz-newmexariz.com ALBUQUERQUE OFFICE 6100 Indian School Road N.E., Suite 100, Albuquerque, NM 87110. (505)881-6644, fax (505)889-3682 -35- EX-3.(I) 2 RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.(i) RESTATED ARTICLES OF INCORPORATION OF NEW MEXICO AND ARIZONA LAND COMPANY (AS OF MAY 20, 1996) KNOW ALL MEN BY THESE PRESENTS that we, whose hands are hereunto affixed, do hereby associate ourselves together for the purpose of forming a corporation under the laws of the State of Arizona and, to that end, do adopt the following articles of incorporation: FIRST: The name of the corporation shall be New Mexico and Arizona Land Company. SECOND: This corporation is organized for the purpose of transacting any or all lawful business for which corporations may be incorporated under the laws of the State of Arizona, as amended from time to time. The corporation is presently engaged in the business of holding and managing land for investment purposes, leasing real property and interests therein, and developing mineral resources. THIRD: The Corporation shall have authority to issue a total of forty million (40,000,000) shares of capital stock, consisting of: (1) Thirty million (30,000,000) shares of common stock, no par value per share; and (2) Ten million (10,000,000) shares of serial preferred stock, no par value per share. Each issued and outstanding share of common stock will entitle the holder thereof to one (1) vote on any matter submitted to a vote of or for consent of shareholders. Issued and outstanding shares of serial preferred stock will entitle the holders thereof only to those votes, if any, which may expressly be fixed as hereinafter provided for the respective series thereof and to voting rights on certain matters, and in certain circumstances, as set forth in this Article. The Board of Directors is authorized to provide from time to time for the issuance of shares of serial preferred stock in series and to fix from time to time before issuance the designation, preferences, privileges and voting powers of the shares of each series of serial preferred stock and the restrictions or qualifications thereof, including, without limiting the generality of the foregoing, the following: a) The serial designation and authorized number of shares; b) The dividend rate, the date or dates on which such dividends will be payable, and the extent to which such dividends may be cumulative; c) The amount or amounts to be received by the holders in the event of voluntary or involuntary dissolution or liquidation of the Corporation; d) The price or prices at which shares may be redeemed and any terms, conditions and limitations upon such redemption; e) Any sinking fund provisions for redemption or purchase of shares of such series; and f) The terms and conditions, if any, on which shares may be converted into shares of other capital stock, or of other series of serial preferred stock of the Corporation. 2 Each series of serial preferred stock, in preference to the common stock, may be entitled to dividends, from funds or other assets legally available therefor, at such rates, payable at such times and cumulative to such extent as may be fixed by the Board of Directors pursuant to the authority herein conferred upon it. In the event of dissolution or liquidation of the Corporation, voluntary or involuntary, the holders of the serial preferred stock, in preference to the common stock, may be entitled to receive such amount or amounts as may be fixed by the Board of Directors pursuant to the authority herein conferred upon it. Preference stock of any series redeemed, converted, exchanged, purchased or otherwise acquired by the Corporation shall be cancelled by the Corporation and returned to the status of authorized but unissued preference stock. All shares of any series of serial preferred stock, as between themselves, shall rank equally and be identical; and all series of serial preferred stock, as between themselves shall rank equally and be identical except asset forth in resolutions of the board of directors authorizing the issuance of the series. FOURTH: All directors of the corporation must be shareholders of the corporation. The number of directors of the corporation shall be set by the Board of Directors from time to time; provided, however, that the number of directors so designated shall be no less than five (5) nor more than nine (9). The Board of Directors shall consist of Class A directors and Class B directors. The Class A directors shall be elected for a term of two (2) years at the annual meeting of shareholders of the corporation held in every odd numbered year. The Class B directors shall be elected for a term of two (2) years at the annual meeting of shareholders of the corporation held in every even numbered year. When an even number of directors has been set by the Board of Directors, there shall be an even number of Class A and Class B directors. When an odd number of directors has been set by the Board of Directors, there shall be one more Class B director than there are Class A directors. FIFTH: The Board of Directors may, from time to time, cause the corporation to purchase its own shares to the extent of the unreserved and unrestricted capital surplus of the corporation. SIXTH: Elizabeth M. Bedewi, Senior Vice President, Treasurer and Secretary of New Mexico and Arizona Land Company, 3033 North 44th Street, Suite 270, Phoenix, Arizona 85018-7228, is hereby appointed statutory agent for the corporation for the State of Arizona. SEVENTH: The liability of a director or former director to the corporation or its shareholders shall be eliminated to the fullest extent permitted by Section 10-202.B.1 of the Arizona Revised Statutes. If the Arizona Business Corporation Act is amended to authorize corporate action further eliminating or limiting the liability of directors, the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Arizona Business Corporation Act, as amended. 2 3 Any repeal or modification of this Article Seventh shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification. The provisions of the Article Seventh shall not be deemed to limit or preclude indemnification of a director by the Corporation for any liability of a director which has not been eliminated by the provisions of the Article Seventh. 3 EX-3.(II) 3 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.(ii) AMENDED AND RESTATED BYLAWS OF NEW MEXICO AND ARIZONA LAND COMPANY I. REFERENCES TO CERTAIN TERMS AND CONSTRUCTION 1.01. Certain References. Any reference herein made to law will be deemed to refer to the law of the State of Arizona, including any applicable provision of Chapters 1 through 17 of Title 10 of the Arizona Revised Statutes, or any successor statute, as from time to time amended and in effect (sometimes referred to herein as the "Arizona Business Corporation Act"). Any reference herein made to the corporation's Articles will be deemed to refer to its Articles of Incorporation and all amendments thereto as at any given time on file with the Arizona Corporation Commission. Except as otherwise required by law and subject to any procedures established by the corporation pursuant to Arizona Revised Statutes Section 723, the term "shareholder" as used herein shall mean one who is a holder of record of shares of the corporation. References to specific sections of law herein made shall be deemed to refer to such sections, or any comparable successor provisions, as from time to time amended and in effect. 1.02. Seniority. The law and the Articles (in that order of precedence) will in all respects be considered senior and superior to these Bylaws, with any inconsistency to be resolved in favor of the law and such Articles (in that order of precedence), and with these Bylaws to be deemed automatically amended from time to time to eliminate any such inconsistency which may then exist. 1.03. Computation of Time. The time during which an act is required to be done, including the time for the giving of any required notice herein, shall be computed by excluding the first day or hour, as the case may be, and including the last day or hour. II. OFFICES 2.01. Principal Office. The principal office of the corporation shall be located at any place either within or outside the State of Arizona as designated in the corporation's most current Annual Report filed with the Arizona Corporation Commission or in any other document executed and delivered to the Arizona Corporation Commission for filing. If a principal office is not so designated, the principal office of the corporation shall mean the known place of business of the corporation. The corporation may have such other offices, either within or without the State of Arizona, as the Board of Directors may designate or as the business of the corporation may require from time to time. 2.02. Known Place of Business. A known place of business of the corporation shall be located within the State of Arizona and may be, but need not be, the address of the statutory agent of the corporation. The corporation may change its known place of business from time to time in accordance with the relevant provisions of the Arizona Business Corporation Act. 2 III. SHAREHOLDERS 3.01. Annual Shareholder Meeting. The annual meeting of the shareholders shall be held on or before June 30th in each year, at such time and place, either within or without the State of Arizona, as shall be fixed by the Board of Directors or, in the absence of action by the Board, as set forth in the notice given or waiver signed with respect to such meeting pursuant to Section 3.03 below, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. If any annual meeting is for any reason not held on the date determined as aforesaid, a deferred annual meeting may thereafter be called and held in lieu thereof, at which the same proceedings may be conducted. If the day fixed for the annual meeting shall be a legal holiday in the State of Arizona such meeting shall be held on the next succeeding business day. 3.02. Special Shareholder Meetings. Special meetings of the shareholders may be held whenever and wherever, either within or without the State of Arizona, called for by or at the direction of the Chairman of the Board, the President, or the Board of Directors. 3.03. Notice of Shareholders Meetings. (a) Required Notice. Notice stating the place, day and hour of any annual or special shareholders meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting by or at the direction of the person or persons calling the meeting, to each shareholder entitled to vote at such meeting and to any other shareholder entitled to receive notice of the meeting by law or the Articles. Notices to shareholders shall be given in accordance with, and shall be deemed to be effective at the time and in the manner described in, Arizona Revised Statutes Section 10-141. If no designation is made of the place at which an annual or special meeting will be held in the notice for such meeting, the place of the meeting will be at the principal place of business of the corporation. (b) Adjourned Meeting. If any shareholders meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place is announced at the meeting before adjournment. But if a new record date for the adjourned meeting is fixed or must be fixed in accordance with law or these Bylaws, then notice of the adjourned meeting shall be given to those persons who are shareholders as of the new record date and who are entitled to such notice pursuant to Section 3.03(a) above. (c) Waiver of Notice. Any shareholder may waive notice of a meeting (or any notice of any other action required to be given by the Arizona Business Corporation Act, the corporation's Articles, or these Bylaws), at any time before, during, or after the meeting or other action, by a writing signed by the shareholder entitled to the notice. Each such waiver shall be delivered to the corporation for inclusion in the minutes or filing with the corporate records. Under certain circumstances, a shareholder's attendance at a meeting may constitute a waiver of notice, unless the shareholder takes certain actions to preserve his/her objections as described in the Arizona Business Corporation Act. (d) Contents of Notice. The notice of each special shareholders meeting shall include a description of the purpose or purposes for which the meeting is called. Except as required by law, this Section 3.03(d), or the corporation's Articles, the notice of an annual shareholders meeting need not include a description of the purpose or purposes for which the meeting is called. 2 3 3.04. Fixing of Record Date. For the purpose of determining shareholders of any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive any distribution or dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date. Such record date shall not be more than seventy (70) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is so fixed by the Board of Directors, the record date for the determination of shareholders shall be as provided in the Arizona Business Corporation Act. When a determination of shareholders entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section , such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. 3.05. Shareholder List. The corporation shall make a complete record of the shareholders entitled to notice of each meeting of shareholders thereof, arranged in alphabetical order, listing the address and the number of shares held by each. The list shall be arranged by voting group and within each voting group by class or series of shares. The shareholder list shall be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the corporation's principal office or at another place identified in the meeting notice in the city where the meeting is to be held. Failure to comply with this section shall not affect the validity of any action taken at the meeting. 3.06. Shareholder Quorum and Voting Requirements. (a) If the Articles or the Arizona Business Corporation Act provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group. (b) If the Articles or the Arizona Business Corporation Act provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. (c) Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles or the Arizona Business Corporation Act provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. (d) Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new record date is or must be set for that adjourned meeting. (e) If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles or the Arizona Business Corporation Act require a greater number of affirmative votes. (f) Voting will be by ballot on any question as to which a ballot vote is demanded prior to the time the voting begins by any person entitled to vote on such question; otherwise, 3 4 a voice vote will suffice. No ballot or change of vote will be accepted after the polls have been declared closed following the ending of the announced time for voting. 3.07 Manner of Bringing Business Before Meetings. (a) At any annual or special meeting of shareholders only such business shall be conducted as shall have been properly brought before the meeting. In order to be properly brought before the meeting, such business must be a proper subject for shareholder action and must have been (i) specified in the written notice of the meeting (or any supplement thereto) given to shareholders who were shareholders on the record date for such meeting by or at the direction of the Board of Directors, (ii) brought before the meeting at the direction of the Board of Directors or the Chairman of the meeting, selected as provided in Section 3.12 hereof, or (iii) specified in a written notice given by or on behalf of a shareholder who was a shareholder on the record date for such meeting entitled to vote thereat or a duly authorized proxy for such shareholder, in accordance with Section 3.07(b) and (c) hereof. (b) A shareholder notice referred to in Section 3.07(a)(iii) hereof must be delivered personally to, or mailed to and received at, the principal executive office of the corporation, addressed to the attention of the Secretary, not more than ten (10) days after the date of the initial notice referred to in Section 3.07(a)(i) hereof, in the case of business to be brought before a special meeting of shareholders, and not less than thirty (30) days prior to the anniversary date of the initial notice referred to in Section 3.07(a)(i) hereof with respect to the previous year's annual meeting, in the case of business to be brought before an annual meeting of shareholders. (c) A shareholder notice referred to in Section 3.07(a)(iii) hereof shall set forth: (i) a full description of each item of business proposed to be brought before the meeting and the reasons for conducting such business at such meeting; (ii) the name and address of the person proposing to bring such business before the meeting; (iii) the class and number of shares held of record, held beneficially, and represented by proxy by such person as of the record date for the meeting, if such date has been made publicly available, or as of a date not later than thirty (30) days prior to the delivery of the initial notice referred to in Section 3.07(a)(i) hereof, if the record date has not been made publicly available; (iv) if any item of business involves a nomination for director, all information regarding each such nominee that would be required to be set forth in a definitive proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto, and the written consent of each such nominee to serve if elected; (v) any material interest of such shareholder in the specified business; (vi) whether or not such shareholder is a member of any partnership, limited partnership, syndicate, or other group pursuant to any agreement, arrangement, relationship, understanding, or otherwise, whether or not in writing, organized 4 5 in whole or in part for the purpose of acquiring, owning, or voting shares of the corporation; and (vii) all other information that would be required to be filed with the Securities and Exchange Commission, if, with respect to the business proposed to be brought before the meeting, the person proposing such business was a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto. No business shall be brought before any meeting of the shareholders of the corporation otherwise than as provided in this Section 3.07. (d) Notwithstanding the provisions of this Section 3.07, the Board of Directors shall not be obligated to include information as to any shareholder nominee for director or any other shareholder proposal in any proxy statements or other communication sent to shareholders. (e) The Chairman of the meeting may, if the facts warrant, determine that any proposed item of business was not brought before the meeting in accordance with the provisions of this Section 3.07, and if he or she should so determine, he or she shall so declare to the meeting and the defective item of business shall be disregarded. 3.08. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy duly executed in writing by the shareholder or the shareholder's duly authorized attorney-in-fact. Such proxy shall comply with law and shall be filed with the Secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. The burden of proving the validity of any undated, irrevocable, or otherwise contested proxy at a meeting of the shareholders will rest with the person seeking to exercise the same. A facsimile appearing to have been transmitted by a shareholder or by such shareholder's duly authorized attorney-in-fact may be accepted as a sufficiently written and executed proxy. 3.09. Voting of Shares. Unless otherwise provided in the Articles or the Arizona Business Corporation Act, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareholders. 3.10. Voting for Directors. Unless otherwise provided in the Articles, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present at the time of such vote. As provided by law, shareholders shall be entitled to cumulative voting in the election of directors. 3.11. Election Inspectors. The Board of Directors, in advance of any meeting of the shareholders, may appoint an election inspector or inspectors to act at such meeting (and at any adjournment thereof). If an election inspector or inspectors are not so appointed, the chairman of the meeting may, or upon request of any person entitled to vote at the meeting will, make such appointment. If any person appointed as an inspector fails to appear or to act, a substitute may be appointed by the chairman of the meeting. If appointed, the election inspector or inspectors (acting through a majority of them if there be more than one) will determine the number of shares outstanding, the authenticity, validity, and effect of proxies, the credentials of persons purporting to be shareholders or persons named or referred to in proxies, and the number of shares represented at the meeting in person and by proxy; will 5 6 receive and count votes, ballots, and consents and announce the results thereof; will hear and determine all challenges and questions pertaining to proxies and voting; and, in general, will perform such acts as may be proper to conduct elections and voting with complete fairness to all shareholders. No such election inspector need be a shareholder of the corporation. 3.12. Organization and Conduct of Meetings. Each meeting of the shareholders will be called to order and thereafter chaired by the Chairman of the Board of Directors if there is one, or, if not, or if the Chairman of the Board is absent or so requests, then by the President, or if both the Chairman of the Board and the President are unavailable, then by such other officer of the corporation or such shareholder as may be appointed by the Board of Directors. The corporation's Secretary or in his or her absence, an Assistant Secretary will act as secretary of each meeting of the shareholders. If neither the Secretary nor an Assistant Secretary is in attendance, the chairman of the meeting may appoint any person (whether a shareholder or not) to act as secretary for the meeting. After calling a meeting to order, the chairman thereof may require the registration of all shareholders intending to vote in person and the filing of all proxies with the election inspector or inspectors, if one or more have been appointed (or, if not, with the secretary of the meeting). After the announced time for such filing of proxies has ended, no further proxies or changes, substitutions, or revocations of proxies will be accepted. If directors are to be elected, a tabulation of the proxies so filed will, if any person entitled to vote in such election so requests, be announced at the meeting (or adjournment thereof) prior to the closing of the election polls. Absent a showing of bad faith on his or her part, the chairman of a meeting will, among other things, have absolute authority to fix the period of time allowed for the registration of shareholders and the filing of proxies, to determine the order of business to be conducted at such meeting, and to establish reasonable rules for expediting the business of the meeting and preserving the orderly conduct thereof (including any informal, or question and answer portions thereof). 3.13. Shareholder Approval or Ratification. The Board of Directors may submit any contract or act for approval or ratification of the shareholders at a duly constituted meeting of the shareholders. Except as otherwise required by law, if any contract or act so submitted is approved or ratified by a majority of the votes cast thereon at such meeting, the same will be valid and as binding upon the corporation and all of its shareholders as it would be if it were the act of its shareholders. 3.14. Informalities and Irregularities. All informalities or irregularities in any call or notice of a meeting of the shareholders or in the areas of credentials, proxies, quorums, voting, and similar matters, will be deemed waived if no objection is made at the meeting. 3.15. Shareholder Action by Written Consent. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if one (1) or more consents in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. The consents shall be delivered to the corporation for inclusion in the minutes or filing with the corporate record. Action taken by consent is effective when the last shareholder signs the consent, unless the consent specifies a different effective date, except that if, by law, the action to be taken requires that notice be given to shareholders who are not entitled to vote on the matter, the effective date shall not be prior to ten (10) days after the corporation shall give such shareholders written notice of the proposed action, which notice shall contain or be accompanied by the same material that would have been required if a formal meeting had been called to consider the action. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. 6 7 V. BOARD OF DIRECTORS 4.01. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors. 4.02. Number, Tenure, and Qualification of Directors. Unless otherwise provided in the Articles of Incorporation, the authorized number of directors shall be not less than five (5) nor more than nine (9). The number of directors in office from time to time shall be within the limits specified above, as prescribed from time to time by resolution adopted by either the shareholders or the Board of Directors. The Board of Directors shall consist of Class A Directors and Class B Directors. The Class A directors shall be elected for a term of two years at the annual meeting of shareholders of the corporation held in every odd numbered year. The Class B directors shall be elected for a term of two years at the annual meeting of shareholders of the corporation held in every even numbered year. When an uneven number of directors has been set by the Board of Directors, there shall be an even number of Class A directors and Class B directors. All directors of the corporation shall be shareholders of the corporation and no person who has attained the age of seventy (70) years shall be eligible for election or appointment to the Board of Directors. 4.03. Regular Meetings of the Board of Directors. A regular annual meeting of the Board of Directors is to be held as soon as practicable after the adjournment of each annual meeting of the shareholders, either at the place of the shareholders meeting or at such other place as the directors elected at the shareholders meeting may have been informed of at or prior to the time of their election. Additional regular meetings may be held at regular intervals at such places and at such times as the Board of Directors may determine. 4.04. Special Meetings of the Board of Directors. Special meetings of the Board of Directors may be held whenever and wherever called for by the Chairman of the Board or, at the request of three members of the Board of Directors, by the Secretary. 4.05. Notice of, and Waiver of Notice for, Directors Meetings. No notice need be given of regular meetings of the Board of Directors. Notice of the time and place of any special directors meeting shall be given at least 48 hours prior thereto. Notice shall be given in accordance with and shall be deemed to be effective at the time and in the manner described in Arizona Revised Statutes Section 10-141. Any director may waive notice of any meeting and any adjournment thereof at any time before, during, or after it is held. Except as provided in the next sentence below, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records. The attendance of a director at or participation of a director in a meeting shall constitute a waiver of notice of such meeting, unless the director at the beginning of the meeting (or promptly upon his/her arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. 4.06. Director Quorum. A majority of the number of directors prescribed according to Section 4.02 above, or if no number is so prescribed, the number in office immediately before the meeting begins, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, unless the Articles require a greater number. 7 8 4.07. Directors, Manner of Acting. (a) If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present shall be the act of the Board of Directors unless the Articles require a greater percentage. (b) Unless the Articles provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. (c) A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (1) the director objects at the beginning of the meeting (or promptly upon his/her arrival) to holding it or transacting business at the meeting; or (2) his/her dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) he/she delivers written notice of his/her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation before 5:00 p.m. on the next business day after the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 4.08. Director Action Without a Meeting. Unless the Articles provide otherwise, any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if the action is taken by unanimous written consent of the Board of Directors as evidenced by one (1) or more written consents describing the action taken, signed by each director and filed with the minutes or corporate records. Action taken by consent is effective when the last director signs the consent, unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document. 4.09. Removal of Directors by Shareholders. The shareholders may remove one (1) or more directors at a meeting called for that purpose if notice has been given that a purpose of the meeting is such removal. The removal may be with or without cause unless the Articles provide that directors may only be removed with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in a shareholder vote to remove him. If less than the entire Board of Directors is to be removed, a director may not be removed if the number of votes sufficient to elect the director under cumulative voting is voted against the director's removal. 4.10. Board of Director Vacancies. (a) Unless the Articles provide otherwise, if a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, either the shareholders or the Board of Directors may fill the vacancy. (b) If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders. 8 9 (c) A vacancy that will occur at a specific later date (by reason of resignation effective at a later date) may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. (d) The term of a director elected to fill a vacancy expires at the next shareholders meeting at which directors are elected. 4.11. Director Compensation. Unless otherwise provided in the Articles by resolution of the Board of Directors, each director may be paid his/her expenses, if any, of attendance at each meeting of the Board of Directors or any committee thereof, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board of Directors or any committee thereof, or both. No such payment shall preclude any director from serving the corporation in any capacity and receiving compensation therefor. 4.12. Director Committees. (a) Creation of Committees. In addition to the committees set forth in this Article IV and unless the Articles provide otherwise, the Board of Directors may create one (1) or more other committees and appoint members of the Board of Directors to serve on them. Each committee shall have one (1) or more members, who serve at the pleasure of the Board of Directors. (b) Selection of Members. The creation of a committee and appointment of members to it shall be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the Articles to take such action. (c) Required Procedures. Sections 4.03 through 4.08 of this Article IV, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors, apply to committees and their members. (d) Authority. Unless limited by the Articles, each committee may exercise those aspects of the authority of the Board of Directors which the Board of Directors confers upon such committee in the resolution creating the committee, provided, however, that a committee may not: (1) authorize distributions; (2) approve or propose to shareholders action that requires shareholder approval under the Arizona Business Corporation Act; (3) fill vacancies on the Board of Directors or on any of its committees; (4) amend the Articles of Incorporation without shareholder action as provided by law; (5) adopt, amend or repeal these Bylaws; (6) approve a plan of merger not requiring shareholder approval; (7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; (8) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except within limits specifically prescribed by the Board of Directors; or (9) fix the compensation of directors for serving on the Board of Directors or any committee of the Board of Directors. 4.13. Executive Committee. The Board of Directors shall appoint an executive committee, consisting of at least three directors, including the Chairman of the Board, who shall be the chairman of the Committee. The committee shall have and exercise all lawfully delegable powers of the Board of Directors while the Board is not in session, except as such delegation of powers may be limited from time to time by resolution of the Board of Directors. 9 10 4.14. Audit Committee. The Board of Directors shall appoint an audit committee, consisting of at least two directors, provided, however, that directors who are also officers of the corporation shall not be eligible for membership on the committee. The audit committee shall: (a) recommend the auditors; (b) review the overall scope of the audit and the final opinion of the external auditors; (c) review the financial and accounting policies and procedures used by the corporation; (d) approve the organization and procedures of the internal accounting and auditing departments; (e) prepare a report of the Board of Directors; (f) assure compliance with ethical standards. 4.15. Compensation and Nominating Committee. The Board of Directors shall appoint a compensation and benefits committee, consisting of a least two non-officer directors. The committee shall recommend to the Board candidates for membership on the Board of Directors, and shall be empowered to administer and make final decisions concerning: a) employees' salaries and bonuses; b) the company's Restricted Stock Plan; c) the company's Incentive Bonus Plan; d) all other company compensation and benefit plans. 4.16. Retirement Plan Administrative Committee. The Board of Directors shall appoint an administrative committee consisting of three individuals to establish and maintain the corporation's funding policy for its Retirement Plan and Trust for Salaries employees and to act a fiduciary thereunder. Individuals may be eligible for membership on the administrative committee without being directors of the corporation. 4.17. Director Resignations. Any director or committee member may resign from his or her office at any time by written notice delivered to the Board of Directors, the Chairman of the Board, or the corporation at its known place of business. Any such resignation will be effective upon its receipt unless some later time is therein fixed, and then from that time. The acceptance of a resignation will not be required to make it effective. V. OFFICERS 5.01. Number of Officers. The officers of the corporation shall be a President, a Secretary, and a Treasurer, each of whom shall be appointed by the Board of Directors. Such other officers and assistant officers as may be deemed necessary, including any Vice Presidents, may be appointed by the Board of Directors. If specifically authorized by the Board of Directors, an officer may appoint one (1) or more other officers or assistant officers. The same individual may simultaneously hold more than one (1) office in the corporation. 5.02. Appointment and Term of Office. The officers of the corporation shall be appointed by the Board of Directors for a term as determined by the Board of Directors. The designation 10 11 of a specified term grants to the officer no contract rights, and the Board of Directors can remove the officer at any time prior to the termination of such term. If no term is specified, an officer of the corporation shall hold office until he or she resigns, dies, or until he or she is removed in the manner provided by law or in Section 5.03 of this Article V. The regular election or appointment of officers will take place at each annual meeting of the Board of Directors, but elections of officers may be held at any other meeting of the Board. 5.03. Resignation and Removal of Officers. An officer may resign at any time by delivering written notice to the corporation at its known place of business. A resignation is effective when the notice is delivered unless the notice specifies a later effective date or event. Any officer may be removed by the Board of Directors at any time, with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment of an officer shall not of itself create contract rights. 5.04. Duties of Officers. Officers of the corporation shall have authority to perform such duties as may be prescribed from time to time by law, in these Bylaws, or by the Board of Directors, the President, or the superior officer of any such officer. Each officer of the corporation (in the order designated herein or by the Board) will be vested with all of the powers and charged with all of the duties of his or her superior officer in the event of such superior officer's absence, death, or disability. 5.05. Bonds and Other Requirements. The Board of Directors may require any officer to give bond to the corporation (with sufficient surety and conditioned for the faithful performance of the duties of his or her office) and to comply with such other conditions as may from time to time be required of him or her by the Board of Directors. 5.06. Chairman of The Board. The Chairman shall be appointed by the Board of Directors and shall preside at all meetings of the shareholders and of the Board of Directors. He shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. Unless he also serves as the Chief Executive Officer, the Chairman shall not be considered an employee of the corporation. 5.07. Chief Executive Officer. The Chief Executive Officer shall be appointed by the Board of Directors and shall be responsible for the general supervision of the business and property of the corporation. He shall possess the same power as the president to sign all documents authorized by the Board of Directors, unless restricted by law. In the absence of the Chairman, the Chief Executive Officer shall preside at meetings of the shareholders and of the Board. He shall have the power, subject to the authority of the Board of Directors, to appoint and discharge all officers (except those required by these bylaws to be appointed by the Board), employees, and agents; to define their duties, and to fix their compensation, provided that any compensation over $50,000 per year must first be approved by the Board. In the absence of the Chairman, or the President, or both, the Chief Executive Officer shall undertake those duties and responsibilities, if so directed by the Board. The Chief Executive Officer shall have such other powers and responsibilities as may be assigned to him by the Board. 5.08. President. Unless otherwise specified by resolution of the Board of Directors, the President shall be the corporation's Chief Operating Officer and, subject to the control of the Board of Directors, shall supervise and control all of the business and affairs of the corporation and the performance by all of its other officers of their respective duties and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. The President shall, when present, and in the absence of a Chairman of the Board and the Chief Executive 11 12 Officer, preside at all meetings of the shareholders and of the Board of Directors. The President will be a proper officer to sign on behalf of the corporation any deed, bill of sale, assignment, option, mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to service of process or otherwise), agreement, indenture, contract, or other instrument, except in each such case where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. The President may represent the corporation at any meeting of the shareholders or members of any other corporation, association, partnership, joint venture, or other entity in which the corporation then holds shares of capital stock or has an interest, and may vote such shares of capital stock or other interest in person or by proxy appointed by him or her, provided that the Board of Directors may from time to time confer the foregoing authority upon any other person or persons. 5.09. The Vice-President. If appointed, in the absence of the President or in the event of his/her death or disability, the Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated at the time of their election, or in the absence of any such designation, then in the order of their appointment) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. If there is no Vice-President or in the event of the death or disability of all Vice-Presidents, then the Treasurer shall perform such duties of the President in the event of his or her absence, death, or disability. Each Vice-President will be a proper officer to sign on behalf of the corporation any deed, bill of sale, assignment, option, mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to service of process or otherwise), agreement, indenture, contract, or other instrument, except in each such case where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed. Any Vice-President may represent the corporation at any meeting of the shareholders or members of any other corporation, association, partnership, joint venture, or other entity in which the corporation then holds shares of capital stock or has an interest, and may vote such shares of capital stock or other interest in person or by proxy appointed by him or her, provided that the Board of Directors may from time to time confer the foregoing authority upon any other person or persons. A Vice-President shall perform such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. 5.10. The Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors and any committee of the Board of Directors and all unanimous written consents of the shareholders, Board of Directors, and any committee of the Board of Directors in one (1) or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the corporation; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the address of each shareholder which shall be furnished to the Secretary by such shareholder; and (f) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. Except as may otherwise be specifically provided in a resolution of the Board of Directors, the Secretary will be a proper officer to take charge of the corporation's stock transfer books and to compile the voting record pursuant to Section 3.05 above, and to impress the corporation's seal, if any, on any instrument signed by the President, any Vice President, or any other duly authorized person, and to attest to the same. In the absence of the Secretary, a secretary pro tempore may be chosen by the directors or shareholders as appropriate to perform the duties of the Secretary. 12 13 5.11. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such bank, trust companies, or other depositories as shall be selected by the Board of Directors or any proper officer; (c) keep full and accurate accounts of receipts and disbursements in books and records of the corporation; and (d) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. The Treasurer will render to the President, the directors, and the shareholders at proper times an account of all his or her transactions as Treasurer and of the financial condition of the corporation. The Treasurer shall be responsible for preparing and filing such financial reports, financial statements, and returns as may be required by law. 5.12. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries and the Assistant Treasurers, when authorized by the Board of Directors, may sign with the President or a Vice-President certificates for shares of the corporation, the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 5.13. Chairman of the Board. The Board of Directors may elect a Chairman to serve as a general executive officer of the corporation, and, if specifically designated as such by the Board of Directors, as the chief executive officer of the corporation. If elected, the Chairman will preside at all meetings of the Board of Directors and be vested with such other powers and duties as the Board of Directors may from time to time delegate to him or her. 5.14. Salaries. The salaries of the officers of the corporation may be fixed from time to time by the Board of Directors or (except as to the President's own) left to the discretion of the President. No officer will be prevented from receiving a salary by reason of the fact that he or she is also a director of the corporation. 5.15. Additional Appointments. In addition to the officers contemplated in this Article V, the Board of Directors may appoint other agents of the corporation with such authority to perform such duties as may be prescribed from time to time by the Board of Directors. VI. EXECUTION OF DOCUMENTS 6.01. Contracts, Etc. All contracts, conveyances, leases or other corporate instruments shall be executed on behalf of the corporation by the Chairman of the Board, by the President, the Sr.Vice President, or by such other officer or officers of the corporation to whom the Chairman of the Board, the President or the Board of Directors may delegate such authority, subject to the following: (a) No loan greater than $1,000,000 shall be contracted on behalf of the corporation unless authorized by the Board of Directors. (b) No real property of the corporation may be sold for more than $1,000,000, nor exchanged for other property valued at more than $1,000,000 unless authorized by the Board of Directors. (c) A capital expenditure in excess of $1,000,000 for any one purpose or project shall be authorized by the Board of Directors. 13 14 (d) In matters of auction bidding for property or property rights, no bids totalling over $1,000,000 per auction shall be made without the authorization of the Board of Directors. The Chairman or President shall report to the Board the total capital expenditures, the total dollar amount of sales or exchanges, and the total dollar amount of auction bids made which did not require Board approval. 6.02. Proxies. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board may in the name and on behalf of the corporation appoint an attorney or attorneys, agent or agents of the corporation (who may be or include himself or herself), in the name and on behalf of the corporation to cast the votes which the corporation may be entitled to cast as a shareholder or otherwise in any other corporation any of whose shares or other securities may be held by the corporation, at meetings of the holders of the shares or other securities of such other corporation, or to consent in writing to any action by such other corporation, may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name of, on behalf of, and under the corporate seal of, the corporation all written proxies or other instruments as may be necessary or proper to evidence the appointment of such attorneys and agents. VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER 7.01. Certificates for Shares. (a) Content. Certificates representing shares of the corporation shall, at a minimum, state on their face the name of the issuing corporation and that it is formed under the laws of the State of Arizona, the name of the person to whom issued, and the number and class of shares and the designation of the series, if any, the certificate represents. Such certificates shall be signed (either manually or by facsimile to the extent allowable by law) by one or more officers of the corporation, as determined by the Board of Directors, or, if no such determination is made, by any of the Chairman of the Board (if any), the President, any Vice-President, the Secretary, or the Treasurer of the corporation, and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified and will exhibit such information as may be required by law. If a supply of unissued certificates bearing the facsimile signature of a person remains when that person ceases to hold the office of the corporation indicated on such certificates, they may still be countersigned, registered, issued, and delivered by the corporation's transfer agent and/or registrar thereafter, as though such person had continued to hold the office indicated on such certificate. (b) Legend as to Class or Series. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge. 14 15 (c) Shareholder List. The name and address of the person to whom shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. (d) Lost Certificates. In the event of the loss, theft, or destruction of any certificate representing shares of the corporation or of any predecessor corporation, the corporation may issue (or, in the case of any such shares as to which a transfer agent and/or registrar have been appointed, may direct such transfer agent and/or registrar to countersign, register, and issue) a new certificate, and cause the same to be delivered to the registered owner of the shares represented thereby; provided that such owner shall have submitted such evidence showing the circumstances of the alleged loss, theft, or destruction, and his, her, or its ownership of the certificate, as the corporation considers satisfactory, together with any other facts that the corporation considers pertinent; and further provided that, if so required by the corporation, the owner shall provide a bond or other indemnity in form and amount satisfactory to the corporation (and to its transfer agent and/or registrar, if applicable). 7.02. Registration of the Transfer of Shares. Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the corporation will be entitled to treat the registered owner of any share of the capital stock of the corporation as the absolute owner thereof and, accordingly, will not be bound to recognize any beneficial, equitable, or other claim to, or interest in, such share on the part of any other person, whether or not it has notice thereof, except as may expressly be provided by applicable law. 7.03. Shares Without Certificates. The Board of Directors may authorize the issuance of uncertificated shares by the corporation and may prescribe procedures for the issuance and registration of transfer thereof and with respect to such other matters as the Board of Directors shall deem necessary or appropriate. VIII. INDEMNIFICATION OF DIRECTORS AND OFFICERS 8.01. Indemnification. Unless otherwise provided by these bylaws, the corporation shall hold harmless and indemnify each of its directors and officers ("indemnities") to the fullest extent permitted by Arizona law. 8.02. Effect of Repeal. No repeal or amendment of this Article shall diminish indemnitee's right to indemnification for acts taken before the date of repeal or amendment. IX. DISTRIBUTIONS 9.01. Distributions. Subject to such restrictions or requirements as may be imposed by applicable law or the corporation's Articles or as may otherwise be binding upon the corporation, the Board of Directors may from time to time declare, and the corporation may pay or make, dividends or other distributions to its shareholders. 15 16 X. CORPORATE SEAL 10.01. Corporate Seal. The Board of Directors may provide for a corporate seal of the corporation that will have inscribed thereon any designation including the name of the corporation, Arizona as the state of incorporation, the year of incorporation, and the words "Corporate Seal." XI. EXEMPTION 11.02. Exemption From The Arizona Corporate Takeover Act. The corporation, pursuant to the provisions of ARS 10-1211(A)(2) and 10-1223(A)(2), and pursuant to the approval of the shareholders on May 10, 1991, has chosen to exempt itself from the provisions of ARS 10- 1211 through 10-1223, concerning Control Share Acquisitions and Business Combinations. This amendment does not apply to any "control share acquisition" as defined in ARS 10-1201(9) made on or before May 10, 1991, or to any "business combination" as defined in ARS 10-1201(10) whose "share acquisition date" as defined in ARS 10-1201(14) is on or before May 10, 1991.(1) XII. AMENDMENTS 12.01. Amendments. The corporation's Board of Directors may amend or repeal the corporation's Bylaws unless: (a) the Articles or the Arizona Business Corporation Act reserve this power exclusively to the shareholders in whole or part; or (b) the shareholders in adopting, amending, or repealing a particular Bylaw provide expressly that the Board of Directors may not amend or repeal that Bylaw. The corporation's shareholders may amend or repeal the corporation's Bylaws even though the Bylaws may also be amended or repealed by its Board of Directors. I certify that the foregoing is a true and correct copy of the bylaws of New Mexico and Arizona Land Company as last amended. DATED as of this 8th day of March, 1996. /s/E. M. Bedewi - ------------------------------------ - -------- (1)The statutory references in this Section 11.04 have changed as a result of the Arizona Business Corporation Act effective January 1, 1996. 16 17 Secretary 17 EX-10.3 4 401(K) PLAN, DATED JANUARY 1, 1992 1 EXHIBIT 10.3 SCUDDER 401(k) PROTOTYPE PLAN ----------------------------- Summary Plan Description Employer Instructions After establishing a 401(k) Plan, you are required to provide a Summary Plan Description to all of your participants within 120 days. You are also required to provide the Summary to new participants within 90 days after they become eligible for the plan, and to beneficiaries within 90 days after benefits have commenced. If you ever amend the plan, you must provide participants and beneficiaries with an updated Summary Plan Description. If you do not amend the plan, you must provide the Summary to participants and beneficiaries every 10 years. In addition, you must submit a copy of the Summary to the Department of Labor (DOL) after you adopt the plan and whenever you update and distribute the Summary to participants. The address for the DOL is: SPD Pension and Welfare Benefit Programs U.S. Department of Labor 200 Constitution Ave., N.W., Room N4641 Washington, D.C. 20216 The Summary Plan Description that you distribute must be thorough, accurate and complete and must follow a prescribed set of rules. To help you comply with this requirement, you may use the attached version of the Summary. Once you complete this with the information from your Adoption Agreement (abbreviated as "AA" in the Summary), this "model" Summary will accurately reflect the provisions of your plan. 2 Scudder 401(k) Plan Summary Plan Description Table of Contents -----------------
Page ---- 1. INTRODUCTION ................................................. 1 2. DEFINITIONS .................................................. 2 "Compensation" ....................................... 2 "Employer" ........................................... 3 "Highly Compensated Employee" ........................ 3 "Hours of Service" ................................... 4 "Key Employee" ....................................... 4 "One-Year Break in Service" .......................... 5 "Participant" ........................................ 5 "Plan Year" .......................................... 5 "Top Heavy" .......................................... 5 "Year of Service" .................................... 5 "Vesting Year" ....................................... 6 3. BELONGING TO THE PLAN ........................................ 7 4. CONTRIBUTIONS TO THE PLAN .................................... 9 EMPLOYEE CONTRIBUTIONS ....................................... 9 Salary Reduction Contributions ....................... 9 Deferred Cash Contributions .......................... 10 Rollover Contributions ............................... 10 Nondeductible Voluntary Contributions ................ 11 EMPLOYER CONTRIBUTIONS ....................................... 11 Profit Sharing Contributions ......................... 11 Matching Contributions ............................... 12 TAXATION OF CONTRIBUTIONS .................................... 13 VESTING OF CONTRIBUTIONS ..................................... 13 5. BENEFITS AND DISTRIBUTIONS FROM THE PLAN ..................... 14 TIMING OF DISTRIBUTIONS ...................................... 14 Normal Distribution Time ............................. 14 Hardship Distributions ............................... 15 Other Distribution Times ............................. 16 FORMS OF DISTRIBUTIONS ....................................... 16 Normal Distribution Form ............................. 16 Optional Distribution Forms .......................... 17 DISTRIBUTIONS OF BENEFITS UPON YOUR DEATH .................... 17 Pre-retirement Death Benefits ........................ 17 Post-retirement Death Benefits ....................... 17
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Page ---- 6. MISCELLANEOUS ................................................ 18 Nondiscrimination Testing ............................ 18 Investment of the Trust Fund ......................... 18 Loans ................................................ 19 Amendment and Termination of Plan .................... 19 Administration ....................................... 20 Claims and Review Procedure .......................... 20 "Spendthrift" Provisions ............................. 21 Trust Fund not Insured................................ 21 Inability to Locate Person to Receive Payment, Incompetent Beneficiary ...................... 22 Special Rights under ERISA ........................... 22 7. REFERENCES ................................................... 26
4 1. INTRODUCTION This is a summary of the New Mexico and Arizona Land Company 401(k) Plan which has recently been established or amended. The purpose of the Plan is to provide retirement income for those eligible. The effective date of the Plan or amendment is l/l/92 (insert date specified in Section XIV of AA). We prepared this Summary to comply with a legal requirement for a "summary plan description," describing your rights and obligations as a Participant in the Plan in language which should be easy for you to understand. In this Summary, we may have unintentionally left out or misstated some items. However, please remember that this Summary cannot cover all the details of the Plan or act as a substitute for the Plan document which contains all of the provisions of the Plan. If there is any inconsistency between this Summary and the actual provisions of the Plan, the actual provisions will control. If you have any questions about the Plan or about your benefits under the Plan, please contact your Plan Administrator, NM and AZ Land Co. Name of Plan Administrator (the Employer unless Employer appoints someone else to act as Plan Administrator) 1 5 2. DEFINITIONS Here are definitions for some terms that are used throughout this Summary and the Plan. Since these words may have technical meanings slightly different from their ordinary meanings, please refer to these definitions when you are reading this summary or the Plan document. "Compensation" means the amount paid to you by the Employer during any Plan Year (defined below) as reported to the federal government for purposes of withholding federal income taxes for that Plan Year plus any salary reduction contributions you make to a 401(k), 403(b), Salary Reduction SEP or a Cafeteria Plan. Compensation for Purposes of Profit Sharing Contributions will (check the appropriate box according to Sec. VIII.A. of AA): /X/ include Salary Reduction Contributions, Deferred Cash Contributions (which you did not elect to take in cash), and other amounts which are excluded from your income as reported to the federal government. / / not include Salary Reduction Contributions, Deferred Cash Contributions (which you did not elect to take in cash), and other amounts which are excluded from your income as reported to the federal government. The maximum amount of Compensation which may be considered for most purposes under the Plan is limited to $200,000 per Plan Year (as indexed for inflation, $228,860 for 1992). If you are self-employed, Compensation means earned income as defined by the Internal Revenue Code. 2 6 "Employer" means the organization named in the Adoption Agreement, any successor organization adopting this Plan, and all organizations and entities which are required by the Internal Revenue Code to be aggregated with the organization named in the Adoption Agreement. "Highly Compensated Employee" is an employee who: - owns or owned more than 5% of the Employer during the Plan Year or the preceding Plan Year, - earned more than $75,000 (as indexed for inflation) in annual compensation from the Employer during the preceding Plan Year, - earns more than $75,000 (as indexed for inflation) in annual compensation from the Employer during the Plan Year and is among the 100 most compensated employees during the current year, - earned more than $50,000 (as indexed for inflation) in annual compensation from the Employer during the preceding Plan Year and was in the "top-paid group" of employees for the same year. "Top-paid group" means the top 20% of employees, based on compensation for the year, - earns more than $50,000 (as indexed for inflation) in annual compensation from the Employer during the Plan Year and is both a member of the "top-paid group" and among the l00 most compensated employees during the Plan Year, 3 7 - was an officer of the Employer and earned more than $45,000 (as indexed for inflation), during the preceding Plan Year, or - is an officer and earns more than $45,000 (as indexed for inflation) for the Plan Year. "Hours of Service" means any hours for which you are either paid or entitled to be paid by the Employer for performing duties or for other reasons such as vacation, holidays, sick days, maternity or paternity leave, disability, jury or military duty, layoff or authorized leave of absence. Hours of Service are used when determining whether you have met the eligibility and vesting requirements of the Plan. Please note that Hours of Service you may have accumulated for reasons other than performing duties, such as vacation, maternity leave, etc., cannot exceed 501 hours for each continuous period during which you do not perform any duties. "Key Employee" is an employee who at any time during the Plan Year, or any of the preceding four Plan Years, is one or more of the following: - an individual owning more than 5% of the business - an individual owning more than 1% of the business and earning more than $150,000 4 8 - an officer of the business earning more than $45,000 (as indexed for inflation) - one of the 10 employees earning more than $30,000 and owning the largest interests in the Employer "One-Year Break in Service" is a 12 month period during which you complete 500 or less Hours of Service (see definition above). The 12 month periods are measured from the day you began working for the Employer or an anniversary of that day. (Note: if a "Year of Service" is defined below as a 12 month period during which you complete 501 or less Hours of Service, then a One-Year Break in Service is a 12 month period during which you do not complete the number of Hours of Service specified in the "Year of Service" definition below. "Participant" means an employee who has satisfied the eligibility requirements of the Plan and is thereby eligible to participate in the Plan. See Section 3. of this Summary for the Plan's eligibility requirements. "Plan Year" means the 12-month period ending on the last day of December ----------------------- over which Plan records are maintained. (complete by referring to Sec. XV.A. of your AA) "Top Heavy" describes a Plan in which the sum of account balances of Key Employees (defined above) exceeds 60% of the sum of account balances of all Participants. "Year of Service" is a 12-consecutive-month period during which you have worked 1,000 Hours of Service --------------- (complete by referring to Sec. I.E. of your AA) 5 9 beginning on the day you first complete an Hour of Service or on an anniversary of that day. For example, if you started to work for the Employer on October 4, a "Year of Service" would run from that October 4 to the next October 3. "Vesting Year" means a year to be accrued on the vesting schedule (see "Vesting of Contributions" on page 13). A Vesting Year will be credited to you whenever you complete during the appropriate measuring period (complete by referring to Sec. V.E. of your AA): /X/ 1,000 Hours of Service (insert # from Sec. I.E. of your AA). / / ______Hours of Service (insert # from Sec. I.E. of your AA) or receive an allocation of the Employer's Profit Sharing Contribution for that Plan Year, or both. A Vesting Year will be measured (complete by referring to Sec. V.D. of your AA): / / on the 12-consecutive-month period beginning on the first day you complete an Hour of Service or an anniversary of that date. /X/ on the Plan Year. When calculating your Vesting Years, the Employer will also include your employment (check appropriate boxes, if any, according to Sec. V.C. of your AA): /X/ before this Plan or a predecessor plan was established. / / before the first Plan Year in which you reached the age of 18. / / after five consecutive One-Year Breaks in Service (but this inclusion will apply only for the purpose of computing the vested percentage of Employer Profit Sharing and Matching Contributions made before such break). 6 10 3. BELONGING TO THE PLAN Before you become a Participant in the Plan, you must satisfy certain eligibility requirements. These requirements are explained in this section. You have the right to make Salary Reduction Contributions and/or Deferred Cash Contributions to the Plan after you complete One Year (insert "One Hour" if you chose immediate participation in Sec. I.A. of AA; otherwise insert the time period specified in Sec. I.A. of AA) of Service for the Employer. You have the right to receive Employer Profit Sharing and Matching CONtributions made to the Plan after you complete One Year (insert "One hour" if you chose immediate participation in Sec. I.C. of AA; otherwise insert the time period specified in Sec. I.C. of AA) of Service for the Employer. If you are required to complete a number of years to be eligible to participate, for example, 1 or 2 years, you must complete 1,000 Hours of Service (complete by referring to Sec. I.E. of AA) during each of the years in order for the year to count as a Year of Service. The years are measured over 12-month periods beginning with the day you began working for the Employer or an anniversary of that date. When calculating your Hours of Service for each week during which you work at least one hour for the Employer, your Employer will credit you with (complete by referring to Sec. I.F. of AA): 7 11 /X/ the actual number of hours for which you performed services for the Employer during that week. / / 45 Hours of Service. If you are required to complete a fraction of a year to participate in the Plan, for example, 2 1/2 years or 1 1/2 years, you do not have to complete any specified number of Hours of Service to receive credit for the fraction of a year. All employees who have completed the necessary length of service stated above and who are at least 21 years of age (complete by referring to Sec. I.G. of AA or strike out if inapplicable) are eligible to participate except (complete by referring to Sec. I.H. of AA): /X/ Non-resident aliens who work for the Employer outside of the United States. /X/ Individuals covered by a collective bargaining contract. (Please refer to Plan document for specific details). You will become a Participant for Salary Reduction Contributions and/or Deferred Cash Contributions on (complete by referring to Sec. I.B. of AA): / / the first day you complete all of the above applicable requirements. / / the first day of the next month after you complete all of the above applicable requirements. / / The first day of the next pay period after you complete all of the above applicable requirements. /X/ the first day of the next quarter of the Plan Year after you complete all of the above applicable requirements. 8 12 You will become a Participant for Employer Contributions on (complete by referring to Sec. I. D. of AA) : / / the first day you complete all of the above applicable requirements. / / the first day of the next month after you complete all of the above applicable requirements. / / the first day of the next pay period after you complete all of the above applicable requirements. /X/ the first day of the next quarter of the Plan Year after you complete all of the above applicable requirements. If you leave your job with the Employer, you cease to become a Participant on the day you leave. If you return to work with the Employer, however, you will immediately became a Participant again and in most cases will receive credit for any Years of Service and Vesting Years you had accumulated previously. You will not receive credit for these years if you left your job before becoming vested or you left for a period of time longer than all of your previous years of service or five years, whichever is greater. 4. CONTRIBUTIONS TO THE PLAN EMPLOYEE CONTRIBUTIONS Salary Reduction Contributions You may elect to have part of your Compensation contributed to the plan through salary reduction. These contributions are called "Salary Reduction Contributions." The minimum percent of your Compensation that you may contribute is 0 (complete by referring to II. (A) of AA), and the maximum percent of your Compensation that you are allowed to contribute is 20 (complete by referring to II. (A) of your AA). 9 13 Deferred Cash Contributions (refer to Sec. II. (B) of your AA; strike out if inapplicable) You may elect to have all or a portion of any cash bonuses you receive from your Employer contributed to the plan as "Deferred Cash Contributions." The Employer will give you a reasonable time to elect to contribute cash bonuses to the plan. Your Salary Reduction and Deferred Cash Contributions together are limited for each calendar year to $7,000, as indexed to inflation. For 1991, the indexed limit is $8,475, 1992, $38,728. If you contribute more than is allowed for any year, you should notify your Employer between January and March 1 of the following year so that the Employer will be able to have the excess removed by April 15th of that same following year to avoid any tax penalty. Rollover Contributions (strike out if inapplicable) If the Plan Administrator allows it, you may make a Rollover Contribution to the Plan from another tax-qualified plan. You must make a Rollover Contribution within 60 days of receiving the rollover amount. In most cases, the Plan Administrator will require that you state in writing that the amount is eligible for a rollover according to the Internal Revenue Code requirements. Any Rollover Contributions and their earnings are always 100% vested, and you may withdraw all or a portion of your Rollover Contributions and any earnings on those contributions at any time, as long as you give at least 30 days' written notice to the Plan Administrator. 10 14 Non-deductible Voluntary Contributions (refer to Sec. XI of AA; strike out if inapplicable) You may make Non-deductible Voluntary Contributions on your own behalf whenever the Plan Administrator allows you to. The maximum amount you may contribute may not exceed 10% of your total compensation while you have been a Participant in the Plan. These voluntary contributions and their earnings are always 100% vested. You may withdraw all or a portion of your Non-deductible Voluntary Contributions and any earnings on those contributions at any time, as long as you give at least 30 days, written notice to the Plan Administrator. EMPLOYER CONTRIBUTIONS You will qualify to receive an allocation of any Employer Profit Sharing and Matching Contributions if you are a Participant (complete by referring to Sec. VI.A. of AA): /X/ at any time during the Plan Year regardless of the number of Hours of Service you completed during the Plan Year. / / at any time during the Plan Year if you completed (insert # of hours from Sec. VI.A. of AA) Hours of Service during the Plan Year. Profit Sharing Contributions (Refer to Sec. III. of AA; strike out if inapplicable) For each Plan Year, the Employer may make a contribution out of profits. Your Employer will make Profit Sharing Contributions on behalf of (complete by referring to VI.B. of AA) : /X/ every Participant entitled to an allocation. / / only those Participants entitled to an allocation who are Non-Highly Compensated Employees. 11 15 Profit Sharing contributions will be divided among the accounts of the Participants entitled to an allocation according to this formula: Participant's Compensation Total Employer X for the Plan Year = Amount Contribution Total Compensation for Credited to Plan Year for all Participant's Participants Entitled Account to a Contribution. The explanation of how Compensation is defined for the purpose of Profit Sharing Contributions can be found on pages 2-3 of this Summary. Matching Contributions (see Sec. IV.A. of AA; strike out if inapplicable) Your Employer will match your: /X/ Salary Reduction Contributions / / Deferred Cash Contributions by the following amount(s) (complete by referring to Sec. IV.B. of AA): 100% of first 3% of salary However, your Employer will not match your contributions below 0 (indicate dollar or percentage from. Sec. IV.C. of AA) of your Compensation and will not match your contributions by more than 3% (indicate dollar or percentage from Sec. IV.C. of AA) of your Compensation. The explanation of how Compensation is defined for the purpose of Employer Matching Contributions can be found on page 2 of this Summary. Your Employer will make these contributions on behalf of (complete by referring to Sec. VI.C. of AA): 12 16 /X/ every Participant entitled to an allocation. / / only those Participants entitled to an allocation who are Non-Highly Compensated Employees. TAXATION OF CONTRIBUTIONS All contributions made to your Account, other than Non-deductible Voluntary Contributions, are not currently subject to federal tax, but will be subject to federal income taxation along with their earnings when benefits are paid to you or your beneficiaries. VESTING OF CONTRIBUTIONS All contributions you make (Salary Reduction Contributions, Deferred Cash Contributions, Rollover, Non-deductible Voluntary Contributions) are fully vested and nonforfeitable when made. Once assets are vested, " they are "non-forfeitable", that is, not lost or taken away even if you leave your job. All Profit Sharing Contributions made by the Employer on your behalf and any earnings on those contributions will vest and become non-forfeitable (complete by referring to Section V.A. of AA): /X/ immediately. / / in 20% increments beginning after you have completed 2 Vesting Years so that you will be 100% vested after completing 6 Vesting Years. / / according to this vesting schedule:
Vesting Years Percent Vested ------------- -------------- 1 --------------- 2 --------------- 3 --------------- 4 --------------- 5 --------------- 6 ---------------
13 17 All Matching Contributions and any earnings on those contributions will vest and become non-forfeitable (complete by referring to Sec. V.B.): /X/ immediately. / / in 20% increments beginning after you have completed 2 Vesting Years so that you will be 100% vested after completing 6 Vesting Years. / / according to this vesting schedule:
Vesting Years Percent Vested ------------- -------------- 1 --------------- 2 --------------- 3 --------------- 4 --------------- 5 --------------- 6 ---------------
5. BENEFITS AND DISTRIBUTIONS FROM THE PLAN TIMING OF DISTRIBUTIONS Normal Distribution Time Your Normal Retirement Date will be when you reach the age of 59 1/2 (insert age from Sec. IX. of AA). You may receive distributions from your account in monthly installments beginning within 60 days after the end of the Plan year in which you either reach your Normal Retirement Date (stated above) or when you stop working for the Employer, Whichever is later. In most cases, these monthly installments will be paid to you for 120 months (see "Normal Distribution Form", page 16). However, you must begin to receive benefits when you reach the age of 70 1/2, even if you are still working for the Employer. You are required to start receiving benefits not later than the April 1st following the year in which you reach age 70 1/2, and you must take minimum distributions for each following year by December 31st of each year. If you do not receive your required minimum distribution for any year, you will be subject to an IRS penalty of 50% of the amount that you did not receive. 14 18 Hardship Distributions (see Sec. X. of AA; strike out if inapplicable) You are also eligible to receive distributions from your account if you encounter financial hardship. Hardship distributions will be only granted for an immediate and heavy financial need resulting from one or more of the following: 1. Medical expenses for you, your spouse, or any of your dependents but only to the extent that the expenses are deductible from your income on your federal income tax return. 2. Purchase of a principal residence for you (this does not include mortgage payments) 3. Payment of tuition for the next semester or quarter of post-secondary education for you, your spouse, your children or your dependents. 4. Payment to prevent your eviction from your principal residence or to prevent foreclosure on the mortgage on your principal residence. You must also satisfy the following conditions to receive a hardship distribution: 1. You must have taken all other permissible distributions or nontaxable loans from this Plan or any other plan of the Employer. 19 2. You will riot be able to make Salary Reduction Contributions, Deferred Cash Contributions, and Nondeductible Voluntary Contributions for twelve months after you take a hardship distribution. 3. The hardship distribution cannot exceed the amount of your immediate and heavy financial need. 4. For the year following the year in which you took the hardship distribution, the maximum amount that you will be able to contribute to the Plan by Salary Reduction Contributions and Deferred Cash Contributions will be the difference between (a) the limit on Salary Reduction and Deferred Cash Contribution for that year ($7,000 as indexed for inflation) and (b) the amount you contributed to the Plan by Salary Reduction and Deferred Cash Contributions in the year you took the hardship distribution. Other Distribution Times You may elect an earlier time for distributions to begin, provided that distributions do not begin before you have reached age 59 1/2, become disabled, or separated from service. FORM OF DISTRIBUTIONS Normal Distribution Form Under the normal distribution form, your vested account balance will be distributed to you in substantially equal monthly installments over a ten year period, unless you elect one of the optional forms described 16 20 below . However, the normal distribution form for a Hardship Distribution is a single payment. Optional Distribution Forms If you elect not to have your vested account balance distributed in the normal method, i.e., installments for ten years, you may have your vested account balance distributed in a lump sum or fixed installment payments to be paid to you over a period not greater than the joint life expectancy of you and a designated Beneficiary. DISTRIBUTIONS OF BENEFITS UPON YOUR DEATH Pre-retirement Death Benefits If you are married and you die before distributions from your account have begun, your vested account balance will be distributed to your Spouse, unless you designate an alternative Beneficiary (or Beneficiaries) for all or a portion of your account with your Spouse's written consent. If you are unmarried at the time of your death, your vested account balance will be paid to your designated Beneficiary or Beneficiaries. Distribution(s) to your spouse or Beneficiary will be made in the form(s) determined by each spouse or Beneficiary. Post-retirement Death Benefits If you die after the distribution of your vested account balance has already commenced, the remainder of your vested account balance will be distributed to your Spouse or the Beneficiary (or Beneficiaries) you properly designated before your death. 17 21 6. MISCELLANEOUS Nondiscrimination Testing Each year the Employer is required to test the plan for nondiscrimination. The test is performed by comparing the average percentage of Compensation contributed on behalf of the Highly Compensated Employees with the average percentage of Compensation contributed on behalf of the non-Highly Compensated Employees. The average percentage for the Highly Compensated cannot exceed the average percentage for the non-Highly Compensated by more than a certain amount. If the plan fails the nondiscrimination test, the Employer will be required to take steps, which may include returning some of the contributions made on behalf of the Highly Compensated Employees, to bring the plan into compliance with the nondiscrimination rules. Investment of the Trust Fund All contributions in your name are held in a separate account maintained in your name and invested by the Trustee. The Trust Fund is maintained strictly for the benefit of Participants and their Beneficiaries; the Trustee is required to act only in their interest. Decisions with respect to the investment of the assets in your particular account will be made by (check appropriate box according to Sec. XII. of AA): /X/ you. / / the Plan Administrator. 18 22 Loans (Check appropriate box according to Sec. XIII. of AA): / / Loans are not permitted. /X/ Loans are permitted. Loans are made only from your account and are subject to the nondiscriminatory terms and conditions prescribed by the Administrator, as described in the loan policy attached to this Summary. Amendment and Termination of Plan The Employer has the right to amend or terminate the Plan at any time. However, the Plan has the following provisions to protect your benefits if the Plan is either amended or terminated: once the Employer has made a valid contribution to the Trust, the Employer cannot recover it. Similarly, once you have a vested benefit, it cannot be taken away. Finally, unless the law requires it, or the government gives special permission, the amount in your account cannot be reduced and the Plan's distribution options cannot be changed. Once you become a Participant in the Plan, you will maintain your interest in all future Employer contributions regardless of whether the Employer changes the Plan's eligibility and/or vesting requirements. If the vesting schedule is changed, Participants with 3 or more Vesting Years (5 or more Vesting Years for Participants who have not been credited with an Hour of Service in a Plan Year beginning after 12/31/88) may choose to keep the old vesting schedule for their accounts. If the Plan is combined in any way with another plan, your benefit under the combined plan will not be less than it would have been if the Plan had terminated, instead of being combined with the other plan. If the Plan terminates or the Employer completely discontinues contributions, the Administrator will instruct the Trustee as to whether and how to distribute Participants' accounts. 19 23 The Employer has delegated a limited power to amend the Plan to Scudder Investor Services, Inc. Administration The Individual or entity whose name appears on page 25 will serve as Administrator of the Plan. It is the Administrator's job to keep lists of Participants and their Beneficiaries, to process disbursement orders, to take care of bookkeeping, recordkeeping and to prepare reports for employees and government agencies. The Administrator will also have the authority to decide all questions about the interpretation of Plan provisions and to hold hearings on disputed claims for benefits. Claims And Review Procedure The Administrator will administer the Plan to provide benefits to you automatically as soon as you are entitled to receive them; however, the following procedure is available to you if you feel that you are entitled to a benefit you are not receiving: (a) Making a Claim You must make a claim to the Administrator in writing unless the Administrator agrees that this formality is not required. (b) Notice of Reason For Denial If the Administrator denies your claim to a benefit, you must receive written notice of the denial within 60 days after the day you filed your claim. This notice must give you the reasons for the denial and a description of what your rights are for review of the denial. 20 24 (c) Review You will have 60 days from the day you received a denial from the Administrator to make a written application for review. You may have a hearing at that review session if you ask for it. If you request a hearing, you may have a lawyer with you, you may examine the Plan documents, and you may submit your own comments in writing. The Administrator must make a decision on the review within 60 days of your application, except that up to 60 more days may be taken if the Administrator finds that special circumstances exist, such as the need to hold a hearing. You will receive the Administrator's decision in writing, including reasons for that decision. "Spendthrift" Provisions Generally, the Plan does not allow you to pledge, give away or sell your rights to your account. Except to the extent that the plan permits you to take out loans on your account, and except as ordered by a court pursuant to a qualified domestic relations order, your account balance may not be reduced for any reason. Trust Fund Not Insured The funds in the Plan are not insured because insurance is not available for this type of retirement plan. Pension insurance is available only for plans in which the actual dollar amount of the benefits is known. In this Plan, the actual dollar amount of the contributions varies from year to year, and the amount in your account depends on the investment results in the Trust Fund. The value in dollars of your benefits will therefore not be known until you are entitled to receive them. Consequently, the Plan is not eligible for insurance. 21 25 Inability to Locate Person to Receive Payment, Incompetent Beneficiary If the person eligible to receive any benefit from the Plan is unable to be located or identified, the Administrator, in his/her discretion, may direct the Trustee to: (1) forfeit and reallocate the benefit to the remaining Participants, (2) retain the benefit in the Trust, or (3) pay the benefit to a court pending judicial determination of who is entitled to the benefit. However, if the benefit is forfeited and reallocated, the Employer will be required to reinstate the benefit if the person eligible to receive the benefit is later located or identified. If the Administrator decides that any person to whom a benefit is payable is physically or mentally incapable of handling his or her financial affairs, the Administrator may direct the Trustee to make payments that would normally be due to that individual, either to the individual's legal representative or to any of the individual's relatives or friends, or directly for the individual's support and maintenance. Special Rights under ERISA As a participant in the Plan, you are entitled to certain rights and protections under ERISA (Employee Retirement Income Security Act of 1974). ERISA provides that all participants will be entitled to: (a) Examine without charge, at the Administrator's office, all Plan documents including insurance contracts and copies of all documents filed by the Plan with the U.S. Department of Labor, such as annual reports and Plan descriptions. 22 26 (b) Obtain copies of all Plan documents and other Plan information upon written request to the Administrator. The Administrator may make a reasonable charge for the copies. (c) Receive a summary of the Plan's annual financial report. The Plan Administrator is required by law to furnish each participant with a copy of this summary financial report. (d) Obtain a statement telling you whether you have a right to receive a pension at normal retirement age, and if so, what your benefits would be at normal retirement age if you stop working under the Plan now. If you do not have a right to a benefit, the statement will tell you how many more years you have to work to have a right to a benefit. You must request this statement in writing. The Plan Administrator is not required to provide this statement more than once a year, but must provide the statement free of charge. (e) In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your plan, the Administrator and the Trustee, are called "Fiduciaries" of the plan, and have a duty to act prudently and in the interest of you and other Plan Participants and Beneficiaries. No one, including the Fiduciaries, your Employer, your union or any other person, may fire you or otherwise discriminate against 23 27 you in any way to prevent you from obtaining a pension benefit or exercising your rights under ERISA. If your claim for a pension benefit is denied in whole or in part, the Plan Administrator must provide you with a written explanation of the reason for the denial. You also have the right to have the Administrator review and reconsider your claim. You can take the following steps to enforce the above rights under ERISA: 1. if you request materials from the Plan Administrator and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. 2. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. 3. If the Plan Fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may ask for assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to 24 28 pay these costs and fees. If you lose, the court may order you to pay these costs and fees if, for example, it finds your claim is frivolous. If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor. 25 29 7. REFERENCES Name of Plan: NZ 401(k) Plan --------------------------------- Plan Number: (enter the 3 digit number assigned by the Employer to the Plan: it will be 001 if this is the first plan the Employer has adopted, 002 if the second, etc. It is not the numbers printed on the first page of the AA, for example, 001 or 002.) 002 --------------------------------- Plan Year: The 12-month period ending on the last day of: (enter last month of Plan Year; see Sec. XV.A. of AA) December Name, Address and Phone Number of Employer: New Mexico and Arizona Land Company 2810 N. 3rd Street, Suite 203 Phoenix, AZ 85004 (602)266-5455 Employer Identification Number: 43 - 0433090 Employer's Fiscal Year: The 12-month period ending on the last day of: December Name and Address of Plan Administrator (if Employer intends to serve as Administrator, fill in the Employer's name and address; otherwise insert the name and address of the person the Employer has designated to serve as Administrator) New Mexico and Arizona Land Company 2810 N. 3rd Street, Suite 203 Phoenix, AZ 85004 26 30 Name and Address of Agent for Service of Legal Process: (Complete with name and address of an individual upon whom legal process may be served. If such individual is not the Administrator, also insert "legal process may also be served on the Administrator." W. M. Kelley, VP-Law New Mexico and Arizona Land Company 2810 N. 3rd Street, Suite 203 Phoenix, AZ 85004 Name and Address of Trustee: Scudder Trust Company 76 Northeastern Boulevard Suite 34 Nashua, NH 03062 :mmm - d:\mm\forms\401kspd5 03/25/92 27 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 DEC-31-1996 7,142 0 9,848 0 0 0 47,478 5,293 52,771 0 0 0 0 13,738 21,890 66,328 18,964 23,660 10,569 11,576 450 0 963 8,046 3,200 4,846 0 0 0 4,846 1.61 1.61
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