FIRST AMENDED CERTIFICATE OF LIMITED PARTNERSHIP
AND
AMENDED AGREEMENT OF
THE SEDONA REAL ESTATE LIMITED PARTNERSHIP #1
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EFFECTIVE DATE: March 1, 1996
GENERAL PARTNER: LOMACASI RESORT INCORPORATED, an Arizona corporation,
a wholly-owned subsidiary of GENESIS INVESTMENT GROUP,
INC., an Arizona corporation, a wholly-owned subsidiary
of ILX INCORPORATED ("ILX"), an Arizona corporation
LIMITED PARTNERS: THE SEDONA LAND COMPANY, a Nevada corporation ("SLC")
CURTIS TRUST
RECITALS:
The Limited Partners, among others, have formed an Arizona limited
partnership to acquire the Lomacasi Resort in Sedona, Arizona, more specifically
described in Exhibit A (the "Property") and to own and operate the Property as a
hotel.
This First Amended Certificate of Limited Partnership and Amended
Agreement of the Sedona Real Estate Limited Partnership #1 (the "Agreement")
amends and supersedes in its entirety the Partnership Agreement recorded at the
Office of the Coconino County Recorder on January 19, 1996 in Docket 1840, Page
352 et seq.
Pursuant to this Agreement, the General Partner and Limited Partners
intend to own and operate the Property as a hotel and to sell timeshare
intervals in the Property and operate the Property as a timeshare project.
AGREEMENT
The General Partner and the Limited Partners mutually agree as follows:
SECTION 1
DEFINITIONS
When used in this Agreement, the following terms shall have the
meaning set forth in this section.
"Adjusted Capital Contribution" means, as of any day, a General
Partner's or Limited Partner's Capital Contribution reduced by the amount of
cash and the Gross Asset Value of any Partnership property distributed to such
Partner pursuant to Sections 6 and 12 hereof.
"Affiliate" means (i) any person ("first person") who directly or
indirectly controls a second person or owns or controls 10% or more of the
outstanding securities of the second person; (ii) any officer, director or
partner or any member of the immediate family of the first person; and (iii) if
the second person is an officer, director or partner, any company for which the
second person acts in that capacity. Person includes any natural person,
partnership, corporation, association or other legal entity, "control" includes
the terms "controlled by" and "under common control with" and means the
possession, direct or indirect of the power to direct or cause the direction of
the management and policies of a person whether through the ownership of voting
securities by contract or otherwise.
"Capital Account" is defined in Section 6.3.
"Capital Contribution" means with respect to any Partner the amount of
money and initial Gross Asset Value of any property (other than money)
contributed to the Partnership with respect to the interest in the Partnership
held by such Partner.
"Cash Available for Distribution" means total cash revenues generated
by the Partnership from all sources, including but not limited to operations,
sales, borrowings, capital contributions, refinancing, condemnation, insurance
awards and other miscellaneous sources less cash expenditures including debt
service, operating expenses, Partnership expenses, amounts set aside for
reserves in the General Partner's sole discretion, and expenses relating to the
transaction generating such revenues.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period,
"depreciation" shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of
such asset as of the date of contribution, as determined and mutually
agreed upon by the contributing Partner and the Partnership;
(ii) The Gross Asset Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Partners, as of the following times: (a) the
acquisition of an additional interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property as consideration
for any interest in the Partnership if the Partners reasonably
determine that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
and (c) the liquidation of the Partnership within the meaning of
Regulations ss. 1.704-1(b) (2) (ii) (g);
(iii) The Gross Asset Value of any Partnership asset distributed
to any Partner shall be the gross fair market value of such asset on
the date of distribution;
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code ss. 734 (b) or Code ss. 743(b),
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulations ss. 1.704-1(b)
(2) (iv) (m) and Section 6.4 (d) hereof; provided, however that Gross
Asset Values shall not be adjusted pursuant to this subsection (iv) to
the extent the Partners determine that an adjustment pursuant to
subsection (ii) hereof is necessary or appropriate in connection with
a transaction that would otherwise result in an adjustment pursuant to
this subsection (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to (i), (ii) or (iv) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
the purposes of computing Profits and Losses.
"Interest" or "Partnership Interest" means the entire ownership
interest (which may be segmented into and/or expressed as a percentage of
various rights and/or liabilities) of a Partner in the Partnership at any
particular time, including a share in Profits, Losses and distributions of the
Partnership under this Agreement, the right of such Partner to any and all
benefits to which a Partner may be entitled as provided in this Agreement and in
the Act (as defined herein), together with the obligations of such Partner to
comply with all the terms and provisions of the Agreement and of the Act.
"Nonrecourse Deductions" shall have the meaning set forth in
Regulations ss. 1.704-2(b)(1) and shall be computed in accordance with
Regulation ss. 1.704-2(c).
"Partner" means any person named as a general or limited partner in
this Agreement and the successor or assignee of any Partner, provided that such
successor or assignee has been admitted as a Partner in compliance with this
Agreement.
"Partnership Minimum Gain" shall have the meaning set forth in
Regulations ss. 1.704-2(b) and 1.704-2(d).
"Profits" and "Losses" means, with respect to any fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code ss. 703(a) (for this purpose,
all items of income, gain, loss or deductions required to be stated separately
pursuant to Code ss. 703 (a) (1) shall be included in taxable income or loss),
with the following adjustments:
(i) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits
or Losses pursuant to this definition shall be added to such taxable
income or loss;
(ii) Any expenditures of the Partnership described in Code ss.
705 (a) (2) (B) or treated as Code ss. 705(a)(2)(B) expenditures
pursuant to Regulations ss. 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses hereunder shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to subsections (ii) or (iii) of the definition of
Gross Asset Value herein, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such asset for
purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss, if any, would be
recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of the Partnership property
disposed of, notwithstanding that the adjusted tax basis of such
Partnership property may differ from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year or other period, in accordance with the definition
set forth herein; and
(vi) Notwithstanding any other provision of this definition, any
item which is specially allocated pursuant to Sections 6.4 or 6.7 of
this Agreement shall not be taken into, account in computing Profits
or Losses,
"Property" means the real property described in Exhibit A attached
hereto and incorporated herein, including all appurtenant rights in and to
adjoining streets, rights of way and easements.
"Regulations" means the income tax regulations promulgated under the
Code, including temporary regulations, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
SECTION 2
ORGANIZATION
2.1 Formation. The Partners hereby agree to restate in their entirety
the provisions with respect to a limited partnership previously formed, pursuant
to the provisions of the Arizona Uniform Limited Partnership Act (the "Act")
upon the terms and conditions set forth herein. If any conflict arises between
any provisions of this Agreement and the provisions of the Act which shall be
mandatory requirements thereunder for qualification and existence as a limited
partnership, the provisions of the Act shall control.
2.2 Certificate. All Partners shall execute, and the General Partner
shall cause to be filed with the Office of the Secretary of State of Arizona,
the Certificate of Limited Partnership in the form and manner prescribed by the
Act, along with any amendments to the Certificate of Limited Partnership as
required by the Act. The Partners waive the requirement of A.R.S. ss. 29-316
that a copy of the Certificate of Limited Partnership be delivered to them after
filing.
2.3 Name/Place of Business. The name of the Partnership is THE SEDONA
REAL ESTATE LIMITED PARTNERSHIP #1 and its initial office and principal place of
business shall be 2777 East Camelback, Phoenix, Arizona 85016 and thereafter,
such other place or places in Arizona as the General Partner may from time to
time determine with prior written notice thereof to be given to the Limited
Partners.
2.4 Agent for Service of Process. Joseph P. Martori, 2777 East
Camelback, Phoenix, Arizona 85016, shall be the initial agent for service of
process for the Partnership. The General Partner may replace the agent upon
notice to the agent then serving.
2.5 Purpose and Business of the Partnership. The purpose and business
of the Partnership shall be to develop, own and operate the Property as a hotel
and to sell timeshare intervals in the Property and operate the Property as a
timeshare project.
SECTION 3
TERM
3.1 Commencement. The Limited Partnership, as amended, shall commence
as of the date of filing of the Certificate with the Office of the Secretary of
State of Arizona pursuant to the terms and conditions set forth herein.
3.2 Dissolution. The Partnership shall dissolve upon the occurrence of
the earliest of the following:
(a) December 31, 2011;
(b) The date on which the Partnership is dissolved in accordance with
the terms of this Agreement; or
(c) The date on which the Partnership is dissolved by operation of law
or judicial decree.
SECTION 4
PARTNERS
4.1 General Partner. Lomacasi Resort Incorporated shall be the General
Partner and has its principal business office at 2777 East Camelback, Phoenix,
Arizona 85016. Except as the context of this Agreement may otherwise require,
the General Partner shall initially have a seventy-five percent (75%)
Partnership Interest.
4.2 Limited Partner's Interest. The Limited Partners, collectively,
shall initially have a 25% Partnership Interest.
4.3 Admission of Additional Partners. Additional Partners shall be
admitted only with the unanimous consent of all the Partners, which consent may
be arbitrarily withheld, provided, however, that the General Partner may assign,
at any time or from time to time, all, or any part, of its Partnership Interest
to an Affiliate as defined above. Any such admission must otherwise also be
consistent with the terms and conditions of this Agreement and in compliance
with federal and state law.
SECTION 5
ACQUISITION OF INTERESTS
5.1 Acquisition of General Partner Interest. The General Partner shall
contribute cash in the amount of $25,000.00 in exchange for its Interest as
General Partner.
5.2 Acquisition of Limited Partners' Interests. The Limited Partners
have previously acquired their respective Interests in the Partnership. The
Capital Accounts of the Limited Partners on the date of this Agreement are zero.
5.3 Additional Capital Requirements. No Partner shall be required to
make any additional contribution, except upon such Partner's consent.
SECTION 6
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES
6.1 Distribution of Partnership Funds.
(a) Cash Available for Distribution shall be distributed at such
times as deemed appropriate by the General Partner as follows:
(i) To the Partners pro-rata in proportion to the cumulative
Profits allocated to the Partners pursuant to Section 6.2
until each Partner has received thirty percent (30%) of the
cumulative Profits allocated to such Partner for the current
and all prior years.
(ii) To the General Partner until the Capital Account of
General Partner is equal to the Capital Account of the
Limited Partner.
(iii) Thereafter, Cash Available for Distribution shall be
distributed to the Partners proportionately in accordance
with their Partnership Interests. (b) Upon a liquidation of
the Partnership, distributions shall be made to the Partners
in accordance with their Capital Accounts.
6.2 Allocations of Profits. Profits and losses shall be allocated to
the Partners pro rata in proportion to their Interests in the Partnership.
6.3 Maintenance of Capital Accounts. The Partnership shall maintain a
Capital Account for each Partner in accordance with the following provisions:
(a) To each partner's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive share of
Profits and the amount of any Partnership liabilities assumed by such Partner or
which are secured by any Partnership property distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership property distributed
to such Partner pursuant to any provision of this Agreement and such Partner's
distributive share of Losses.
(c) In the event that any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.
(d) If the gross asset values of the Partnership's assets are
adjusted pursuant to this Agreement, the Capital Accounts of all Partners shall
be adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership had recognized gain or loss equal to the amount of such aggregate
net adjustment and the resulting gain or loss had been allocated among the
Partners in accordance with this Agreement.
(e) In determining the amount of any liability for purposes of
Subsections (a) and (b) above, there shall be taken into account Code ss. 752
(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations ss. 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities that are secured by contributed or distributed
property or that are assumed by the Partnership or the Partners), are computed
in order to comply with such Regulations, the General Partner shall make such
modification provided that it shall not affect the amounts distributable to any
Partner pursuant to Section 6.1 hereof upon the dissolution of the Partnership.
SECTION 7
MANAGEMENT OF PARTNERSHIP
7.1 Management. The General Partner shall manage the Partnership in
exchange for reimbursement no less frequently than monthly, for all costs and
expenses paid or incurred on behalf of the Partnership, other than indirect
costs and expenses such as general administrative costs and overhead.
7.2 Powers of the General Partner. Except as provided in Section 7.4,
the General Partner shall have the full and exclusive power to manage and
conduct the business of the Partnership, including without limitation, the
following powers, in addition to any powers now or subsequently conferred by
law:
(a) To manage, improve, control, subdivide, plan, assess project
feasibility, rezone, develop and operate the Partnership and any property, real
or personal, now or hereafter acquired by the Partnership.
(b) To enter into loans with such parties as General Partner
shall deem appropriate to finance the development of the Property, to finance
operations through the factoring of promissory notes acquired by the Partnership
through sales of timeshare intervals, or for other Partnership purposes.
(c) To sell timeshare intervals in the Property in the ordinary
course of business and to operate the Property as a timeshare project.
(d) To repay in whole or in part any Partnership obligation,
whether or not before the due date.
(e) To employ, either in its own name or in the name of the
Partnership, employees, agents and counsel, including, but not limited to, any
custodian, accountant, attorney, property manager, construction manager, project
manager, purchasing agent, corporate fiduciary, bank or other reputable
financial institution, to assist the General Partner in the management of
Partnership business, to rely on the advice given by these employees and/or
agents and to cause the Partnership to pay reasonable compensation for all such
services performed by these employees and/or agents. Limited Partners
acknowledge and agree that a management fee of $10,000 per month shall be paid
to, or accrued on behalf of, an Affiliate of General Partner.
(f) To carry reasonable and adequate insurance coverage and all
Partners shall be named individually as co-insureds.
(g) To make, execute, acknowledge, and deliver on behalf of the
Partnership any document that may be necessary or appropriate to carry out any
Partnership purpose;
(h) To sell, exchange, convey title, grant options or contracts
for the sale of the Property;
(i) To encumber the Property by deed of trust and/or other
security documents as security for repayment of any construction and/or
development and/or permanent loans to the Partnership; obtain refinancing of any
debt secured by the Property; modify, consolidate or extend any deed of trust
and/or other security, or debt secured by deed of trust and/or other security,
on the Property;
(j) To commence or defend, at the Partnership's expense,
litigation that pertains to the Partnership or any Partnership asset;
(k) To confess a judgment against the Partnership; and
(l) To compromise, arbitrate, and otherwise adjust claims of any
kind in favor of or against the Partnership.
(m) To take any such other action as is deemed by the General
Partner, in its sole and exclusive discretion, to be in the best interests of
the Partnership.
7.3 Duties of the General Partner. The General Partner shall perform,
or cause to be performed at the expense of the Partnership, the following
services:
(a) Establish books of account, record and payment procedures as
provided in Section 8.1, including individual Capital Accounts of the Partners;
(b) Provide overriding management, financial and business
planning services to the Partnership;
(c) Disburse all receipts and make all necessary payments and
expenditures;
(d) Make all reports to the Partners required by this Agreement
or by law; and
(e) Open and maintain one or more separate bank accounts in the
State of Arizona in the name of the Partnership in which there shall be
deposited all of the funds of the Partnership. No
other funds shall be deposited in the accounts. The funds in the accounts shall
be used solely for the business of the Partnership, and all withdrawals
therefrom are to be made only on checks signed by authorized agents of the
General Partner.
7.4 Limitations on Powers of General Partner. The General Partner,
without prior written consent or ratification of the Limited Partner, which
shall not be unreasonably withheld or delayed shall have no authority to:
(a) Do any act in contravention of this Agreement;
(b) Possess Partnership property or borrow money in the
Partnership name or secured by the Partnership property for other than a
Partnership purpose, or assign to any party any rights in specific Partnership
property, for other than a Partnership purpose;
(c) Amend this Agreement.
SECTION 8
BOOKS, REPORTS AND FISCAL MATTERS
8.1 Books.
(a) The General Partner shall maintain, at Partnership expense,
full and complete books and records for the Partnership at the Partnership's
principal office in the State of Arizona, which books and records shall include,
but not be limited to:
(i) A current list of the full name and last known business
or residence address of each Partner, together with the contribution
and share in Profits and Losses of each Partner.
(ii) A copy of the Certificate of Limited Partnership and
all Certificates of Amendment, and executed copies of any powers of
attorney pursuant to which any certificate has been executed.
(iii) Copies of the Partnership's federal, state and local
income tax or information returns and reports, if any, for the three
(3) most recent taxable years commencing on or after the date of this
Agreement.
(iv) Copies of this Agreement and all amendments to this
Agreement.
(V) Financial statements of the Partnership for the three
(3) most recent fiscal years commencing on or after the date of this
Agreement.
(vi) The Partnership's books and records for the current
fiscal year, said books and records to be maintained for three (3)
years.
(b) Upon the request of a Limited Partner, the General Partner
shall promptly deliver to the requesting Limited Partner, at the expense of the
Partnership, a copy of the information required to be maintained as described
above. The Limited Partners and their legal representatives have the right, upon
reasonable request, to: (i) inspect and copy during normal business hours any of
the Partnership records required to be maintained as described above, and (ii)
obtain from the General Partner, promptly after becoming available, a copy of
the Partnership's federal, state and local income tax or information returns for
each year.
(c) The General Partner shall use all reasonable efforts to cause
the Partnership to send to the Limited Partners within one hundred eighty (180)
days after the end of each taxable year the information necessary for the
Limited Partners to complete their federal and state income tax or information
returns, which shall include a copy of the Partnership's federal, state and
local income tax or information returns for the year.
(d) The General Partner shall cause to be entered fully and
accurately all of the business transactions of the Partnership. The books of
account shall be kept on an accrual basis for income tax purposes, and for
preparing all financial statements and reports. The Partnership shall adopt an
accounting year beginning January 1 and ending December 31 for each year, if
said books are to be kept at any place other than at the principal place of
business of the Partnership, then the other Partner shall be immediately
notified in writing.
8.2 Reports. The General Partner shall cause to be prepared, at the
expense of the Partnership, the following reports:
(a) Within forty-five (45) days after the end of each fiscal
quarter each Partner shall be sent: (i) a balance sheet as of the end of such
fiscal calendar quarter together with statements of operations, Partners' equity
and changes in financial position for such quarter, which balance sheet and such
statements (other than the cash flow statement) shall be prepared in accordance
with generally accepted accounting principles consistently applied; (ii) a
report on distributions to each Partner for such period; and (iii) summary
reports of the activities of the Partnership for such prior quarter; including
any matters which occurred during the prior quarter which adversely affected the
Partnership's business or operations.
(b) Within one hundred eighty (180) days after the end of each
calendar year, each Partner shall be sent a copy of the certified financial
statements prepared by the certified public accountants regularly employed by
the Partnership.
SECTION 9
POWERS OF THE LIMITED PARTNERS
9.1 No Control of Business or Right to Act for Partnership. A Limited
Partner shall take no part in or interfere in any manner with the conduct or
control of the business of the Partnership and shall have no right or authority
to act for or bind the Partnership.
9.2 Restrictions of Power to Amend. No Partner shall have any right to
change the Partnership to a general partnership or to change the limited
liability of a Limited Partner.
9.3 Limitation of Limited Partner's Liabilities. No Limited Partner
shall be personally liable for any of the debts of the Partnership or any of the
losses thereof beyond the amount contributed by such Limited Partner to the
Partnership capital, the share of undistributed funds of the Partnership
allocable to such Limited Partner and the amount of any sums theretofore paid to
such Limited Partner and required to be returned pursuant to A.R.S. ss. 29-338.
9.4 Certain Rights, Powers or Priorities. Except as provided in
Section 6.1 above, no Limited Partner shall have the right or power to: (i)
withdraw or reduce its Capital Contribution to the Partnership except as a
result of the dissolution of the Partnership or as otherwise provided herein or
by law (ii) bring an action for partition against the Partnership, (iii) cause
the termination and dissolution of the Partnership by court decree or otherwise
except as set forth in this Agreement, (iv) demand or receive property other
than cash in return for its Capital Contribution, or (v) receive interest on
capital contributed to the Partnership. Except as provided in this Agreement, no
Limited Partner shall have priority over any other Limited Partner, if any,
either as to the return of Capital Contributions or as to allocations of the
Profits, Losses or distributions of the Partnership. Other than upon the
termination and dissolution of the Partnership as provided by this Agreement,
there has been no time agreed upon when the Capital Contribution of each Limited
Partner is to be returned other than as set forth herein.
SECTION 10
SALE, TRANSFER OR MORTGAGE
10.1 General.
(a) Required Consents. Except as expressly permitted herein, no
Partner shall directly or indirectly sell, assign, transfer, mortgage, charge or
otherwise encumber, or suffer any third party to sell, assign, transfer,
mortgage, charge or otherwise encumber, or contract to do or permit any of the
foregoing, whether voluntarily or by operation of law (collectively called a
"transfer") any part or all of its Partnership Interest without the written
consent of the Partners and any attempt to do so shall be void. The giving of
such consent in any one or more instances shall not limit or waive the need for
such consent in any other or subsequent instances. Notwithstanding the foregoing
or any other provision of this Agreement, General Partner may transfer its
Interest to any Affiliate of General Partner without restriction provided that,
without the consent of Limited Partner, General Partner shall not be relieved of
its obligations hereunder upon such transfer.
10.2 Dissolution of Limited Partner. The dissolution of a Limited
Partner shall not dissolve or terminate the Partnership; provided, however, the
General Partner shall be entitled to purchase the Interest of a Limited Partner
at the then fair market value of such Limited Partner's Interest upon the
dissolution of such Limited Partner or upon the occurrence, with respect to any
Limited Partner, of any of the following events:
(a) An order for relief concerning a Limited Partner is
entered under the federal bankruptcy law, or a Limited Partner: (i) makes a
general assignment for the benefit of creditors, (ii) files a voluntary petition
under the federal bankruptcy law, (iii) files a petition or answer seeking for
that Partner any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law, or
regulation, (iv) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against that Partner in any
proceeding of this nature, or (v) seeks, consents to, or acquiesces in the
appointment of a trustee, receiver, or liquidator of the Limited Partner or of
all or any substantial part of that Partner's properties;
(b) Sixty (60) days after the commencement of any proceeding
against the Limited Partner seeking reorganization, arrangement, composition,
readjustment, liquidations dissolution or similar relief under any statutes, law
or regulation, if the proceeding has not been dismissed, or if within sixty (60)
days after the appointment without said partner's consent or acquiescence of a
trustee, receiver, or liquidator of the Limited Partner or of all or any
substantial part of the Partner's properties, the appointment is not vacated or
stayed, or within sixty (60) days after the expiration of any such stay, the
appointment is not vacated.
10.3 Limited Partner's Option to Acquire General Partnership Interest.
The Limited Partner shall be granted an option by the General Partner to acquire
its Interest on the following terms and conditions.
(a) If the General Partner or ILX (i) files a voluntary petition
in bankruptcy; (ii) is adjudicated a bankrupt or insolvent; (iii) files a
petition or answer seeking for itself any reorganizations arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
statute, law or rule; (iv) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against it in
any proceeding described in item (v) of this section; or (vi) seeks, consents
to, or acquiesces in the appointment of a trustee, receiver, or liquidator of
the General Partner or ILX or of all or any substantial part of the General
Partner's or ILX's properties, the Limited Partner shall have an option to
acquire the General Partner's Interest.
(b) The commencement of any proceedings against the General
Partner or ILX seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or rule and
the proceeding has not been dismissed, or the appointment of a trustee, receiver
or liquidator of the General Partner or ILX or of all or any substantial part of
their properties, in which event the Limited Partner shall have an option to
acquire the General Partner's Interest.
(c) The Limited Partner may exercise any option granted to it
pursuant to Sections 10.3 (a) or (b) at any time within 30 days after notice of
the occurrence of the event giving rise to such option is given to the Limited
Partner.
(d) If the Limited Partner elect to exercise an option arising
under sections 10.3 (a) or (b), the purchase price for the General Partner's
Interest shall be equal to the fair market value of the General Partner's
Interest as of the date of exercise.
(e) The purchase price for any Interest acquired shall be
tendered upon exercise of the option, and the General Partner shall execute any
and all documents required to assign its Interests within 10 days thereafter.
SECTION 11
DISSOLUTION AND TERMINATION
OF THE PARTNERSHIP
11.1 Dissolution. No Partner shall have the right to cause the
dissolution of the Partnership before the expiration of the term for which it is
formed, except upon the terms and conditions set forth in this Agreement.
SECTION 12
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
12.l Liquidation. On dissolution of the Partnership, the General
Partner (or, in the absence of a General Partner, a liquidating trustee
appointed by the Limited Partner) shall wind up the affairs of the Partnership,
liquidate the Partnership assets, and pay the debts of the Partnership in the
following order:
(a) Those owing to third-party creditors, in the order of
priority as provided by law;
(b) Those owing to the General Partner in respect of compensation
or expense reimbursement provided for herein; and
(c) Those owing to the General Partner other than for capital and
profits and the matters described in (b) above including but not limited to any
loans from the General Partner to the Partnership.
(d) To retire the balance of the Capital Accounts of the Partners
12.2 Compliance With Liquidation Requirements of Regulation.
(a) In the event the Partnership is "liquidated" within the
meaning of Regulations ss. 1.704-1 (b) (2) (ii) (g), (i) distributions shall be
made (if such liquidation constitutes a dissolution of the Partnership) to the
Partners who have positive Capital Accounts in compliance with Regulation ss.
1.704-1 (b) (2) (ii) (b) (2), and (ii) if any Partner's Capital Account has a
deficit balance (after giving effect to all contributions, distributions and
allocations for all taxable years, including the year during which such
liquidation occurs), such Partner shall be allocated income in the amount
necessary to restore such deficit balance to zero by the end of such taxable
year (or, if later, within 90 days after the date of such liquidation) in
compliance with Regulations ss. 1.704-1 (b) (2) (ii) (b) (3). Notwithstanding
anything to the contrary in this Agreement, upon a liquidation within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any
Partner has a negative Capital Account balance (after giving effect to all
contributions, distributions, allocations and other Capital Account adjustments
for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership,
and the negative balance of such Partner's Capital Account shall not be
considered a debt owed by such Partner to the Partnership's or to any other
person for any purpose whatsoever.
(b) Notwithstanding anything in this Section 12 to the contrary,
if the Partnership is liquidated for federal income tax purposes under Code ss.
708 (b) (1) (B) and the Partnership has not otherwise dissolved pursuant to the
terms of this Agreement, the assets of the Partnership shall be deemed to have
been distributed to the then Partners in-kind in accordance with their
respective positive Capital Accounts (as determined taking into account all
Profit or Loss deemed realized by the Partnership with respect to such in-kind
distribution) and immediately thereafter recontributed by such Partners to the
Partnership. Such termination shall be deemed to constitute a liquidation of the
Partnership for purposes of any Partner's obligation to restore any deficit
balances in their Capital Accounts.
(c) The Limited Partners shall look solely to the assets of the
Partnership for the return of their Capital Accounts and, if Partnership assets
remaining after the payment or discharge of the debts and liabilities of the
Partnership are not sufficient to return the Capital Accounts of the Limited
Partners, such Limited Partners shall have no recourse against the General
Partner or any other Limited Partner.
12.3 Time of Liquidation. A reasonable time shall be allowed for the
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the Partnership to maximize the profits
or minimize the losses attendant upon a liquidation.
12.4 Liquidation Statement. Each of the Partners shall be furnished
with a statement prepared or caused to be prepared by the General Partner, which
shall set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon the General Partner complying with the foregoing
distribution plan, the Limited Partners shall cease to be such, and the General
Partner, as the remaining Partner of the Partnership, shall execute, acknowledge
and cause to be filed a Certificate of Dissolution in the time and manner as
required by the Act.
SECTION 13
INDEMNIFICATION
13.1 Actions by Third Parties. Subject to Sections 13.2 and 13.3
below, the Partnership, its receiver or its trustee, shall indemnify, save
harmless and pay all judgments and claims against the General Partner from any
liability or damage incurred by reason of any act performed or omitted to be
performed by the General Partner in connection with the business of the
Partnership, including reasonable attorneys' fees incurred by it in connection
with the defense of any action based on any such act or omission, which
attorneys' fees may be paid as incurred, including all such liabilities under
state and federal securities laws (including the Securities Act of 1933) as
permitted by law; provided, however, that the General Partner must have
determined in good faith and for reasonable cause, that such course of conduct
was in the best interest of the Partnership. If a claim for indemnification
(other
than for expenses incurred in a successful defense) is asserted is against the
Partnership by the General Partner under this Agreement or otherwise, the
Partnership will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy and
will be governed by the final adjudication of such issue.
13.2 Actions Between Partners. In the event of any action by a Partner
or the Partnership against any other Partner, including a Partnership derivative
suit, the Partnership will indemnify, save harmless and pay all expenses of the
Partner being sued, including attorneys' fees incurred in the defense of said
action, only if (i) such Partner being sued is successful in said action, or
(ii) the action is settled without any payment to the plaintiff before such
action is tried on its merits.
13.3 Liability of a Partner. Notwithstanding the provisions of
Sections 13.1 and 13.2, a Partner shall not be exonerated from or indemnified
against any other liability arising out of or by reason of such Partner's fraud,
bad faith, intentional misconduct, gross negligence, breach of this Agreement or
any other liability if such exoneration or indemnification is prohibited by law
or against public policy. All judgments against the Partnership and a Partner
wherein the Partner is entitled to indemnification, may be satisfied solely from
Partnership assets.
SECTION 14
GENERAL PROVISIONS
14.1 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given or is telecopied or telexed to the person to whom notice is to be
given, or on the second business day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, postage prepaid, and properly
addressed to the party at his address set forth in Section 4 of this Agreement,
or any other address that any party may designate by written notice to the
others.
14.2 Outside Activities. The General Partner need not devote all of
its business time to the affairs of the Partnership, but shall devote so much of
its time and attention as is necessary, in the reasonable exercise of the
General Partner's discretion, to manage the Partnership's business. Each
Partner, General or Limited, hereby acknowledges that this Partnership pertains
solely to the purposes set forth in section 2.5 above, and to the business
operations conducted in connection therewith. Each Partner expressly recognizes
that the other Partners are or may be active in other real estate investment and
development transactions. Nothing in this Agreement shall be construed so as to
grant any right, privilege or option to a Partner to participate in any manner
in any other Partnership venture or investment in which the other Partners
hereto now or hereafter may participate. Each of the Partners expressly waives
the doctrine of Partnership opportunity and consents to investment by the other
Partners, and any officer, director, stockholder, associate or employee of any
Partnership or corporation in which the other Partners shall be affiliated, in
any real estate investment, development, promotion, purchase or sale without
consulting with the other Partners or the Partnership, and without offering the
other Partners or the Partnership any, Interest in such other activity.
14.3 Survival of Rights. This Agreement shall be binding upon and
inure to the benefit of the Partners and their respective heirs, legatees, legal
representatives, successors and assigns.
14.4 Amendment. This Agreement may not be amended, modified or changed
except by the unanimous affirmative vote of the General and the Limited
Partners.
14.5 Headings. The captions of the Articles and Sections of this
Agreement are for convenience only and shall not be deemed part of the context
of this Agreement.
14.6 Agreement in Counterparts. This Agreement may be executed by each
of the Partners on separate counterparts, all of which, taken together, shall
constitute one (1) agreement to be effective as of the day and year first above
written.
14.7 Governing Law. This Agreement shall be governed and construed
according to the laws of the State of Arizona.
14.8 Time. Time is of the essence of this Agreement.
14.9 Additional Documents. Each Partner, upon the request of the
others, agrees to perform any further acts and execute and deliver any documents
which may be reasonably necessary to carry out the provisions of this Agreement.
14.10 Validity. If any portion of this Agreement be declared invalid
and unenforceable, then such portion shall be deemed to be severable from this
Agreement and shall not affect the remainder hereof.
14.11 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
14.12 Authority. Each person executing this Partnership Agreement on
behalf of a party hereto represents and warrants that he or she has the full
right and authority to do so, and that such action has been fully authorized by
all requisite corporate/Partnership action by, for and on behalf of such party.
EXECUTED as of the date set forth above.
GENERAL PARTNER:
LOMACASI RESORT INCORPORATED an
Arizona corporation
By: /s/ Joseph P. Martori
----------------------
Its: Chairman
LIMITED PARTNERS:
THE SEDONA LAND COMPANY, a Nevada corporation
By: /s/ Malcolm Gentry
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Its: Agent
Limited Partner: 15.0%
THE CURTIS TRUST
By: /s/ Marth Jo Curtis 3/1/96 Trustee
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Its: Trustee
Limited Partner 10.0%