SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997 Commission file number
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UP SEDONA, INC.
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(Exact name of registrant as specified in its charter)
Arizona 86-0849531
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5745 North Scottsdale Road, Suite B-101, Scottsdale, Arizona 85250
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(Address of principal executive offices) (Zip Code)
(602) 947-2255
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Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of each class)
This report is filed pursuant to Section 15(d) with respect to the filing
of Registration Statement No. 333-22643 on Form S-11. Registration Statement No.
333-22643 became effective on August 15, 1997.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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. [X]
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
PART I................................................................... 2
ITEM 1. BUSINESS................................................... 2
ITEM 2. PROPERTIES................................................. 22
ITEM 3. LEGAL PROCEEDINGS.......................................... 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 25
PART II.................................................................. 26
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......................... 26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA....................... 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................... 28
PART III................................................................. 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 29
ITEM 11. EXECUTIVE COMPENSATION..................................... 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................... 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 30
PART IV.................................................................. 31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.................................. 31
SIGNATURES............................................................... 32
FINANCIAL STATEMENTS..................................................... FS-1
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PART I
ITEM 1. BUSINESS
INTRODUCTION
UP Sedona, Inc., an Arizona corporation ("UP Sedona") was formed
solely to design, develop, finance, construct and market for sale 225
condominiums as resort hotel investment units (the "Units") in a hotel called
ShadowRock Sedona Golf Resort and Conference Center. Each owner will own his
unit, which includes an undivided interest in the common areas of the hotel.
Each unit is subject to a mandatory Hotel Operating and Rental Pool Agreement
that appoints Delta Hotels International, Inc. as the manager of the hotel. The
mandatory rental pool provides for the pooling of both revenue, adjusted for
personal usage, and expenses. Distributions are based on the assigned percentage
interest of a unit.
The hotel is located in the Village of Oak Creek, Arizona, near the
city of Sedona. Construction of the hotel began in April 1997 and is anticipated
to be completed by December 31, 1998. The hotel will contain 225 suites (hotel
rooms), a conference center, lobby, ballroom, restaurant, pool and parking
facilities. Owners of Units and guests of the hotel will also be able to use the
golf course of Sedona Golf Resort and the Ridge Spa and Racquet Club at
discounted rates but will not participate in any revenue generated from the golf
or spa facilities. UP Sedona will finance the construction of the hotel through
third-party construction financing, internally generated equity funds and loans
from its parent corporation. The total estimated acquisition, construction,
development (including funding of the obligation for a break-even cash flow for
the first year), marketing costs, financing costs (including a return on
internally generated funds), and overhead costs in connection with the project
are estimated to be $34,850,000. Actual costs may vary depending on final
design, control of construction costs, the length of time to construct and
market the project and unforeseen factors such as labor and material shortages.
At no time will proceeds from the sale of Units be used to provide financing for
the construction of the hotel.
UP Sedona is an indirect wholly-owned subsidiary of United
Properties, Ltd., a British Columbia, Canada company ("United Properties").
United Properties was incorporated in 1975 and operates in British Columbia and
the Northwest United States. It has developed approximately 4,500 residential
units having an aggregate sales value in excess of $650 million (Canadian).
Management of UP Sedona includes certain members of management of United
Properties and, together with certain other officers of United Properties, will
provide expertise in project development, finance, marketing and administration.
MARKET OVERVIEW
The lodging industry is very cyclical and profitability is
determined by the relative availability of hotel room supply to actual lodging
demand. Demand is closely linked to the strength of the economy. The growth of
hotel supply, however, is closely linked to the availability of capital, which
may lag behind an increase in demand for hotel room supply. Accordingly,
historical supply growth has not always matched demand successfully.
According to published industry sources, demand for lodging
accommodations rose significantly from 1991 to 1995, while only a limited amount
of new hotels were constructed resulting in improved operating performance. In
1995, annual average occupancy levels in the United States reached 66.3%, the
highest level in more than 12 years. As occupancy levels increased, hotel
operators were able to raise rooms rates. In addition to increased occupancy
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and room rates, the hotel industry has benefitted from technological advances.
Hotels operating in today's environment are more labor efficient, energy
efficient, and generally more cost effective in virtually every department when
compared to those operating as recently as 10 years ago. Improvements in hotel
management and lower interest rates have also contributed to the lodging
industry's overall performance. The U.S. lodging industry generated $7.6 billion
in pretax hotel profits in 1995. All of the above factors have contributed to
increased profitability, which in turn has increased the attractiveness of hotel
investment for both current and potential owners.
The performance of the U.S. industry as a whole may not be
indicative of results that can be achieved in a specific geographic area.
Factors that would not necessarily have a material effect on the national
industry because it is geographically diverse may have a significant impact on a
smaller market. Individual hotel markets may underperform or outperform the
industry as a whole.
RESORT MARKET
Resort hotels showed significant improvement in both their market
and financial performance in 1995. As the economy continues its steady pace of
growth and consumer confidence slowly improves, it appears that business and
leisure travelers alike are seeking the luxurious facilities and services
offered at the nation's resorts. In 1995, resort hotels achieved the highest
average room rate of all property types according to PKF Consulting - Trends
1996.
Seasonality is a major factor affecting the performance of hotels in
the resort segment of the lodging industry. In their Trends 1996 report, PKF
Consulting indicates that resorts have softened the depressing effects of
off-season demand by attracting demand from the corporate and group/meetings
business. Leisure travel occupancy in resorts has declined from 62% in 1990 to
54% in 1995 while corporate and meetings business has risen from 33% in 1990 to
44% in 1995.
THE SEDONA MARKET
SEDONA
Sedona is located in the central portion of the State of Arizona in
a mountainous area known for its majestic red rocks, some of the most
spectacular geological formations in the United States, and recreational and
cultural activities. Sedona is approximately 120 miles north of Phoenix and 30
miles south of Flagstaff, Arizona. While Sedona has four distinct seasons, it is
known for its mild climate, with an average daily maximum temperature of 74.7
degrees. Approximately 3.5 million visitors travel through Sedona annually to
view the rock formations and to take advantage of the recreational
opportunities. Sedona is well located as a base for day trip activities and as a
hub for visitors to northern Arizona. Sedona is convenient to many of northern
Arizona's numerous scenic attractions including Oak Creek Canyon, Slide Rock
State Park, Grand Canyon National Park, Sunset Crater, Walnut Canyon and
Montezuma's Castle. The Sedona market includes the Village of Oak Creek.
MARKET OVERVIEW
According to the Sedona Chamber of Commerce, there are approximately
1,800 hotel/motel rooms and 100 bed and breakfast rooms in the greater Sedona
market and an estimated 3.5 million visitors annually. Currently, only five
properties in the lodging supply offer over 80 rooms. Resort and full service
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hotels account for approximately 40% of the hotel rooms. The balance represent
limited service hotels and bed and breakfast facilities. There was no
significant new hotel development in the Sedona market from 1988 through 1994.
In response to this pent-up demand, certain existing hotels have begun expansion
projects and a number of new properties have recently opened or are currently
under construction. According to information from the Sedona Planning
Department, a total of 491 rooms have been added to the Sedona lodging market
since 1995. An additional 355 rooms (excluding the subject property) are
expected to be available within the next two to three years. The new hotel
construction is primarily of the "limited-service" variety except for the
proposed The Cliffs at Oak Creek, the expansion at Bell Rock Inn and the
expansion at Poco Diablo Resort, which are all "full-service" hotels. The
Holiday Inn Express, the Desert Quail Inn and the expansion at Bell Rock Inn
represent recent development in the Village of Oak Creek.
SEDONA HOTEL DEVELOPMENT ACTIVITY
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PROPERTY DEVELOPMENT STATUS NO. OF ROOMS
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COMPLETED NEW HOTELS
Desert Quail Inn: Opened 1995 21 rooms
Village of Oak Creek
Comfort Inn: Sedona Opened 1995 53 rooms
Southwest Inn: West Sedona Opened 1995 28 rooms
Best Western Inn at Sedona: Opened 1996 110 rooms
West Sedona
Holiday Inn Express: Opened 1996 102 rooms
Village of Oak Creek
Comfort Suites: West Sedona Opened 1996 37 rooms
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Sub Total: 351 rooms
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EXPANSION
Bell Rock Inn: Expanded 1995 52 rooms*
Village of Oak Creek
Quality Inn King's Ransom: Expanded 1995 60 rooms
Sedona
Poco Diablo Resort: Sedona Expanded 1996 28 rooms*
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Sub Total: 140 rooms
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Total Completed New Rooms 491 ROOMS
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================================================================================
PROPERTY DEVELOPMENT STATUS NO. OF ROOMS
================================================================================
UNDER DEVELOPMENT
Hampton Inn: Central Under Construction 52 rooms
Sedona
Sedona Real: West Sedona Under Construction 47 rooms
Homewood Suites: Approved for Construction 70 rooms
Central Sedona
Sleep Inn: West Sedona Preliminary Planning Process 60 rooms
The Cliffs at Oak Creek: Preliminary Planning Process 70 rooms*
Central Sedona
Unnamed Motel: West Preliminary Planning Process 56 rooms
Sedona --------
Total Rooms Under Development 355 ROOMS
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TOTAL 846 ROOMS
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*Full-service hotels represent 18% of total new rooms.
Source: Sedona Planning Department
COMPETITION
UP Sedona believes that six properties in the Sedona market are
directly competitive with the Hotel. These are the Enchantment Resort, L'Auberge
de Sedona, Los Abrigados Resort, Poco Diablo Resort, Junipine Resort and Best
Western Arroyo Roble. The following chart sets forth the characteristics of
these properties, which constitute the competitive supply, together with those
of the subject hotel:
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================================================================================
YEAR NO. OF
PROPERTY OPENED ROOMS FACILITIES / AMENITIES
================================================================================
ShadowRock Sedona Golf Anticipated 225 Restaurant, lounge, pool,
Resort and Conference Opening whirlpool spa, 10,000 square
Center (Subject January feet of conference space
hotel/Village of Oak Creek) 1999 including a 5,000 square foot
ballroom, one-bedroom fully
furnished suites with full
kitchens and fully furnished
studio suites with kitchenettes
and access to golf, spa, fitness
and tennis facilities
The Enchantment Resort 1987 165 Restaurant, lounge, 4 pools,
West Sedona/Boynton Canyon whirlpool spas, spa and fitness
center, tennis center, pitch and
putt golf course, full kitchens
in some units, rental facilities
L'Auberge de Sedona 1985 97 Two restaurants, lounge, pool,
Central Sedona/creekside whirlpool spa; villa units
location located along Oak Creek
Los Abrigados 1986 50(1) Multiple restaurants, lounge,
Central Sedona/creekside spa and fitness center, pool,
location whirlpool spa, tennis courts,
indoor/outdoor meetings/
conference and function space;
guest rooms have a suite
orientation
Poco Diablo Resort 1978 137 Restaurant, lounge, pool,
Southern Sedona/proximate whirlpool spas, par 3 golf
to Oak Creek course, tennis and racquetball
courts, 6,000 square feet of
conference space, each room
equipped with wet-bar and
refrigerator; suites available
Junipine Resort 1986 50 Restaurant, all units are one/
Upper Oak Creek Canyon/ two bedroom fully equipped
creekside location condominiums
Best Western Arroyo Roble/ 1983 60 Pool, whirlpool spa, tennis
Central Sedona courts, a 15,000 square foot
clubhouse with a variety of
recreational/fitness amenities;
fully equipped suites available
---
784
===
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(1) At year-end 1995, Los Abrigados had approximately 50 of its total 172
suites available for use by the resort as hotel rooms. The property has
been involved with a timeshare conversion for the past several years. It
is estimated that the remaining inventory will be reduced by approximately
25 units per year during the sell-out of timeshare units.
The factors considered in determining this competitive supply
included: (i) the number of rooms and amount and quality of meeting space, (ii)
quality and value of overall facilities and amenities, (iii) character and style
of the hotel, (iv) rate structure and market position, and (v) location factors
such as surrounding land uses.
With the exception of Poco Diablo Resort, all of the properties in
the competitive resort supply were developed in the early to mid-1980's. The
upper end of the competitive supply is represented by Enchantment Resort,
L'Auberge de Sedona, Los Abrigados and the Junipine Resort. These properties
generally offer higher quality facilities and amenities and capture the highest
average rates in the Sedona marketplace. Poco Diablo and Arroyo Roble represent
the lower end of the competitive continuum, primarily due to rate structure and
overall facilities and amenities. The average rate at Poco Diablo will likely be
enhanced as a result of the recent opening of 28 suites and renovation efforts.
Of the competitive supply, Los Abrigados and Enchantment offer suite
amenities. A portion of the units at Enchantment have full kitchens. As noted
above, Los Abrigados is being converted to timeshare and the rooms will no
longer be available for use as hotel rooms.
The Bell Rock Inn and the Best Western at Sedona are not included in
the competitive supply. The Bell Rock Inn has a lower rate structure and
virtually no meeting facilities. The Best Western Inn at Sedona has recently
opened and represents a limited service hotel with a lower rate structure.
RESORT MARKET SEASONALITY
The Sedona resort market is affected by seasonality with demand
fluctuating at different levels throughout the year. The severity of demand
fluctuation has lessened in recent years as a result of the increasing
popularity of the area. Peak season in demand occurs in Spring, Summer and Fall.
Specifically, the peak season extends from April through August and includes the
month of October. During peak periods, occupancy in Sedona ranges from 80% - 90%
and there is less disparity between weekend and weekday demand. As a result, the
resort market experiences numerous fill nights (periods in which the market is
at capacity) during the peak season.
The "shoulder" season includes February and March, September and
early November. Occupancy percentages generally range from the 60s to the 70s
during this period. Group meetings and group tour demand bolsters mid-week
occupancies and individual tour demand is mainly oriented to the weekends. The
resort market experiences numerous fill nights on the weekends during the
shoulder season.
The low season is represented by the later part of November and the
months of December and January. The Red Rock Fantasy, as well as other events
held in the area during this period have helped to increase demand activity
during this low season. Market occupancy ranges from 50-60% during this period.
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UP Sedona believes that there remains a misconception that the
weather in Sedona is similar to the extreme cold of other northern areas of the
State such as Flagstaff. However, much of the area outdoor recreational activity
(golf, hiking, etc.) is available on a year-round basis. The two main golf
courses in Sedona each recorded less then 10 "no play" days on average over the
past two years as a result of poor weather.
UNSATISFIED DEMAND
As a result of significant tourist activity, Sedona experiences high
levels of unsatisfied demand during certain times of the year. Unsatisfied
demand is that demand which is not able to be accommodated in the direct market
area due to facility size or capacity constraints and exists whenever a market
experiences periods of 100% occupancy. As a result of seasonality, unsatisfied
demand can exist even though the average annual occupancy for the market is less
than 100%. The level of unsatisfied demand is extremely important when
considering the potential support for new hotel development in a particular
area.
MARKET DEMAND
The overall demand for resort lodging accommodations in the Sedona
area is generated primarily by three market segments: individual leisure, group
meetings and group tours. Based on information obtained through interviews with
Sedona hotel operators, it is estimated that the commercial demand segment
comprised only approximately 3% of the total number of rooms rented in Sedona in
1995 due to the minimal commercial activity in Sedona and was primarily
satisfied by properties in the downtown area of the City of Sedona. UP Sedona
does not expect a substantial amount of business from commercial travelers.
INDIVIDUAL LEISURE. The "individual leisure" market segment consists
of tours requiring accommodations in the area for general sightseeing, weekend
"get-aways", cultural activities and a variety of recreational and special
events throughout the year. This demand segment is strongest in the Spring,
Summer and Fall. Individual leisure demand is characterized by multiple
occupancy. Based on information obtained through interviews with Sedona hotel
operators, it is estimated that this market segment accounted for approximately
77% of the total rooms rented in the competitive supply in Sedona in 1995. UP
Sedona believes that individual leisure travelers generally select
accommodations based on the following factors:
+ Aesthetic appeal of surrounding area
+ Proximity to area attractions
+ Overall quality of the facilities
+ Quality and variety of recreational facilities
+ Value offered
+ Name identity/affiliation and/or reputation
GROUP MARKET. Group meeting demand is typically comprised of smaller
regional/state associations, state corporations and state government. Corporate
meeting business consists primarily of executive/incentive retreats and
conferences. Group demand in Sedona typically peaks during March-April and
September-October. Based on information obtained through interviews with Sedona
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hotel operators, it is estimated that group meeting demand accounted for
approximately 20% of the total rooms rented in Sedona in 1995 by the hotels in
the competitive supply.
UP Sedona believes there has been support from the group market in
the past in Sedona and that, with the loss of the meeting space at Los
Abrigados, there is a significant opportunity for new group-oriented resort
hotel business in the Sedona market. Currently, only a few of the properties
competitive with the hotel specifically cater to the group demand segment. The
design of the hotel has specifically taken into consideration the requirements
to meet this demand. It believes that certain factors that contribute to group
use of a particular facility include the following:
+ Image and reputation
+ Quality, flexibility, and size of meeting facilities
+ Quality of support services provided to group meeting
planners and their attendees
+ Distance/travel time to airport
+ Convenience of access to shopping, restaurants services,
attractions and recreational facilities (especially golf)
+ Quality, variety, and size of food and beverage outlets
+ Quality and consistence of service in all areas of the hoteL
+ Pricing
FUTURE DEMAND GROWTH
UP Sedona estimates that demand will increase at approximately 3
percent annually starting in 1998, the point in which new supply is expected to
enter the competitive marketplace. This growth is consistent with the demand
growth experienced by the competitive supply between 1992 and 1994.
UP Sedona also anticipates that the new additions to the competitive
supply, specifically the subject hotel, will induce demand into the market.
Induced demand is new demand that enters a market as a direct result of the
introduction of a new hotel product. This demand is over and above the normal
demand growth experienced by the marketplace. As a result of their more unique
physical attributes, variety of amenities, and ability to cater to all demand
segments, resort oriented hotels, more than any other lodging type, possess the
ability to induce new demand into a marketplace.
PROSPECTIVE NEW RESORT SUPPLY
UP Sedona estimates that 440 new hotel units (including the subject
hotel) will be constructed within the next three years. These new rooms,
combined with a 50 room reduction at a competitive hotel, result in a net
increase of 390 rooms. The recent addition of 28 rooms at Poco Diablo, the
proposed 70 room The Cliffs at Oak Creek (lodging and timeshare), the proposed
70 room Homewood Suites, and the 47 room Sedona Real are the only additions to
the competitive supply. Other recent additions and proposed additions have been
primarily in the limited-service category and are not viewed as competitive to
the hotel.
Further potential supply is restrained both by inadequate sewer
capacity and the current community plan that does not anticipate the zoning of
new properties for hotel development.
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ESTIMATED PERFORMANCE FOR THE HOTEL
MARKET PENETRATION
UP Sedona's estimates of operating results are predicated on a
number of assumptions relating to the physical and locational characteristics of
the hotel. These assumptions include the overall facility program, as well as
the fact that the hotel has a preferential tee time agreement with Sedona Golf
Resort. UP Sedona believes that the resort-oriented facilities and dedicated
golf agreement will provide a significant competitive advantage for the hotel in
the Sedona marketplace. Additionally, UP Sedona considered the following factors
in estimating the hotel's future performance:
+ the estimated future performance of the overall competitive
lodging market
+ the advantages and disadvantages of the hotel relative to
the existing and future competitive market (assuming its
location, overall facilities program, and golf agreement)
+ the estimated mix of different types of demand for the hotel
+ the estimated rate structure for the hotel and
+ the impact of potential new hotel supply in the competitive
market.
Market penetration serves as a basis for UP Sedona's estimates of future
occupancy performance for the hotel. Market penetration is a measurement of the
level of demand captured by a given hotel in relation to its fair market share
based on the number of hotel rooms it has relative to the number of hotel rooms
in the market. Market penetration is expressed as a percentage, with a hotel
capturing its fair market share having a market penetration rate of 100%. UP
Sedona's analysis considered the hotel's competitive advantages and
disadvantages in order to determine prospective future penetration of the group
and individual tourist/leisure segments. UP Sedona's analysis breaks market
penetration down into individual and group demand segments, as is discussed in
the following paragraphs.
INDIVIDUAL TOURIST/LEISURE DEMAND. As discussed under "Market
Demand," individual leisure demand for the competitive supply accounted for
approximately 77% of the total occupied rooms in 1995. UP Sedona estimates that
the leisure market will account for approximately 55% of the occupied rooms in
the hotel during a stabilized year of operations, which is more than 20% less
than that experienced by the competitive supply. The remaining demand will be
filled by the group market.
Factors that contribute to the hotel's ability to attract leisure
travelers include the following:
+ Unsatisfied demand within the competitive supply during the
peak season
+ The hotel's suite orientation
+ The fact that it is the only hotel located on an 18 hole
golf course in Sedona/Oak Creek offering preferential tee
times and discounted green fees
+ A competitive rate structure just below the mid-range
+ The guest privileges at the Ridge Spa
+ The full service nature of the hotel
GROUP DEMAND. Of the competitive supply, only Poco Diablo,
Enchantment and Arroyo Roble offer group-oriented facilities. Poco Diablo offers
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the largest meeting space (6,000 square feet). UP Sedona believes that the
removal from the market of the Los Abrigados meeting space (10,000 square feet)
has created significant unsatisfied demand for meeting facilities. The group
market is estimated to account for 45% of the occupied rooms in the hotel upon
stabilization. Although this is significantly higher than the 20% experienced by
the competitive supply in 1995, UP Sedona believes that the hotel will be well
positioned to capture this proportion of the group demand for the following
reasons:
+ The hotel will provide modern meeting facilities that will
be superior to those offered by any of the properties in the
competitive supply
+ The hotel's suite orientation
+ The hotel will provide a variety of resort oriented
facilities and recreational amenities, including on-site
golf and spa privileges. This will provide the hotel with a
significant competitive advantage when considering groups
that emphasize golf as an important component of their
itinerary
+ The hotel's location provides a more remote and resort
oriented atmosphere, yet is convenient to all the facilities
and attractions recognized throughout the city of Sedona and
the surrounding region
Based on the above factors, UP Sedona believes that the hotel will
be unique in the market and will be able to induce new demand into the market
along with accommodating unsatisfied demand that currently exists. Further,
given the hotel's facilities and access to recreational amenities (specifically
golf and spa), UP Sedona believes the hotel will have a competitive advantage
over the existing and future competitive supply.
OCCUPANCY
As indicated in the following table, UP Sedona estimates that the
hotel's occupancy will increase from 59 percent in year one to 72 percent in
year three of operations. Beyond year three, the hotel is estimated to operate
at a more stabilized level of 74 to 75 percent. UP Sedona believes the hotel
will open with a market penetration rate slightly above its fair market share.
Upon reaching a more stabilized level of operations in year three and beyond,
the market penetration rate is expected to remain relatively constant and range
between 105% to 106%. The market penetration rate is heavily impacted by the
timing of new supply entering the market. Because the hotel is competing in a
growing market, occupancy can increase without significantly impacting market
penetration.
The initial year disparity in occupancy is typical of a new hotel
entering a market. The period between when a hotel opens and when it reaches
stabilization can vary dramatically based on the type of hotel, its physical and
locational characteristics, its market mix, and prevailing market conditions. It
generally takes a longer period of time to effectively penetrate the group
market given the exposure and recognition a hotel will need to establish with
meeting planners, both locally and nationally, as well as the fact that group
business is typically booked well in advance. As a result, UP Sedona believes
the vast majority of the hotel's estimated demand growth will be within the
group market during years one through three as the hotel reaches the expected
level of occupancy by the group market.
The determination of the occupancy upon opening and the period
necessary to reach stabilization is subjective and is based on all of the
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factors discussed herein regarding the hotel facilities, the impact of new
supply (including the impact of the subject hotel), the level of unsatisfied
demand and induced demand, the mix between leisure and group demand and overall
market conditions. No one factor is determinative and no particular weight is
assigned to any one factor.
The following table sets forth the resulting occupancy estimates for
the hotel during its first five years of operation:
ESTIMATED OCCUPIED ROOMS AND OCCUPANCY FOR THE HOTEL
================================================================================
ESTIMATED ESTIMATED
OCCUPIED ROOM OCCUPIED ROOM TOTAL ESTIMATED ESTIMATED
YEAR NIGHTS: LEISURE NIGHTS:GROUP OCCUPIED ROOM OCCUPANCY RATE
SECTOR SECTOR NIGHTS FOR THE HOTEL
================================================================================
Year 1 ending
Dec. 31, 1999 31,284 17,170 48,454 59%
- --------------------------------------------------------------------------------
Year 2 ending
Dec. 31, 2000 32,426 22,598 55,024 67%
- --------------------------------------------------------------------------------
Year 3 ending
Dec. 31, 2001 33,704 25,426 59,130 72%
- --------------------------------------------------------------------------------
Year 4 ending
Dec. 31, 2002 34,033 26,740 60,773 74%
- --------------------------------------------------------------------------------
Year 5 ending
Dec. 31, 2003(1) 34,329 27,265 61,594 75%
================================================================================
(1) Forecasted first year of stabilized operating performance
AVERAGE DAILY RATE
The ADR in the competitive supply has escalated at a consistent pace
since 1992. Properties in the upper tier achieved an ADR in the $160 to $180
range and properties in the lower tier achieved an ADR in the $100 to $110 range
in 1995. The anticipated quality, proposed facilities and amenities, and
golf/spa affiliation should allow the hotel to be positioned well above the
mid-range established by the upper and lower competitive properties. The average
ADR for all properties in the competitive supply was $160 in 1996. UP Sedona is
targeting the ADR for the hotel at approximately $145 (in 1996 dollars) during
the first year of operations. This rate is below the ADR currently being
achieved by the competitive supply in 1996. UP Sedona believes the targeted ADR
is appropriate based on the higher mix of group versus leisure and believes that
the rate will provide a competitive advantage given the rate disparity between
the high and low end in the competitive supply. Based on a 3% inflation factor,
the ADR in 1999 is estimated to be $155. UP Sedona believes that, over time, the
hotel will be able to achieve an ADR above the midpoint range.
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CONCLUSION
UP Sedona believes that the Sedona lodging market will experience
continued growth into the foreseeable future. Factors contributing to the
strength of the market and its overall potential growth are:
+ Projected growth of tourism throughout the northern Arizona
region;
+ Increased desirability of locations within Arizona as
destinations for group meeting planners;
+ Local municipal commitment to aggressive tourism marketing;
+ Positive economic trends within the State of Arizona;
+ Enhanced interest in Arizona as a premiere resort and golf
destination;
+ Proposed expansion projects at Sky Harbor International
Airport (Phoenix); and
+ Continued growth in the slow season demand.
UP Sedona believes that the hotel, with its larger one-bedroom Units
with full kitchens, will provide an attractive alternative to the more standard
guest rooms offered by the majority of the competitive hotels. The hotel's
conference facilities will be the largest of any of the competitive hotels.
Further, the hotel will be the only property offering on-site championship golf
facilities. UP Sedona believes that the hotel's anticipated quality, proposed
meeting space, recreational amenities and golf and spa affiliations will
position the hotel to attract individual leisure and group travelers and create
additional demand for lodgings in the Sedona market. The hotel will represent
the newest full service hotel addition to the competitive supply since
Enchantment was built in 1987. UP Sedona anticipates that the hotel will be
positioned below both the midpoint rate range and the market leaders and
anticipates that it will achieve occupancy levels above the competitive supply.
MANAGEMENT OF THE HOTEL AND THE RENTAL POOL
THE HOTEL OPERATOR
Delta Hotels International, Inc., a wholly-owned subsidiary of Delta
Hotels Limited, will serve as the hotel operator pursuant to the Hotel Operating
and Rental Pool Agreement. The hotel operator will manage the hotel and the
rental pool, and maintain the hotel on behalf of the owners pursuant to the
Hotel Operating and Rental Pool Agreement. Delta Hotels Limited, as measured by
annual revenue, is Canada's largest privately owned hotel company. Delta Hotels
Limited and its affiliates are not affiliated in any way with UP Sedona or
United Properties Ltd. Delta Hotels Limited opened its first hotel in 1962 in
Vancouver, British Columbia. Based in Toronto, Ontario, Delta Hotels Limited has
grown to become a leader in the Canadian hospitality market, with representation
in every major city in Canada. Significant development of the Delta chain and
brand has occurred under its present ownership by RH Corporation and
Transtrend-Canada Ltd., affiliates of Realstar Group of Toronto and Lai Sun
Group of Hong Kong. Delta Hotels Limited has expanded from 14 hotel properties
under management in Canada in 1987 to a present portfolio of 21 Canadian hotel
properties under management totalling 6,886 guest rooms. An additional five
Canadian hotel properties are presently under development, which will add
another 1,400 guest rooms to the existing portfolio.
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From its strong Canadian base, Delta Hotels Limited has expanded its
international presence in recent years to destinations frequented by Canadian
travellers. Through its affiliates, Delta Hotels Limited manages two Delta
branded hotel properties totalling 266 guest rooms in the Caribbean, one 800
room Delta branded property in Florida and one additional 290 room property
under development in the Caribbean. Through Delta Asia Limited, an affiliate of
Delta Hotels Limited, the Delta brand has also been expanded into Thailand,
Vietnam, and Malaysia, with three Delta branded hotel properties under
management totalling 665 rooms, and an additional property under development
totalling 325 rooms.
Delta hotels are positioned in the first class category of the
hospitality sector with many of its hotels rated "four-star" by the
Canadian/American Automobile Association. Delta hotels have a solid reputation
among business and leisure travellers, and enjoy very high guest loyalty. An
independent research study of Canadian frequent business travellers recently
conducted by the Angus Reid Group reported that Delta hotels achieved a higher
guest satisfaction rating in 1996 than their competitors, and their guest
satisfaction rating increased substantially over the 1995 rating. Delta Hotels
Limited has been innovative in introducing new products and service to the
hospitality industry. Delta Hotels Limited's guest recognition program, Delta
Privilege, is the largest program of its kind in Canada. Delta Hotels Limited
was also the first chain in Canada to introduce an in-room office program.
Delta Hotels Limited has consistently delivered higher net income
per available room from its Canadian portfolio than the hotel industry average
in Canada. Compared with other major first class hotel brands, including
Doubletree, Sheraton, Hilton, Westin, Radisson and Marriott, Delta is a much
lower cost operator when comparing similar brand costs, including franchise
fees, national advertising and marketing and reservation fees.
Results that may be achieved at other hotels in different markets
may not be indicative of results that can be achieved at the subject hotel.
MANAGEMENT OF THE RENTAL POOL
MANDATORY PARTICIPATION IN THE RENTAL POOL
Participation for all Unit owners in the rental pool in accordance
with the Hotel Operating and Rental Pool Agreement is mandatory. In addition,
any Units that have not been sold by UP Sedona will be placed in the rental
pool. UP Sedona, and any affiliates that purchase Units, will be treated the
same as any other owner and will receive their share of revenue and bear its
share of expenses for such Units. A Unit will automatically be placed in the
rental pool when the Unit is not reserved for use by the owner. Each owner
appoints the hotel operator as his exclusive agent for management of the rental
pool and the bookings of the owner's Unit and agrees to honor and be bound by
the rental booking of his Unit made by the hotel operator in accordance with the
Hotel Operating and Rental Pool Agreement. Units may not be used for any purpose
other than as hotel suites in accordance with the Hotel Operating and Rental
Pool Agreement, the Declaration and other condominium documents governing the
hotel. The hotel operator has complete discretion to establish Unit rental rates
including offering the use of Units at low promotional rental rates and offering
Units on a complimentary basis from time to time to guests of the hotel.
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The initial operating period of the rental pool will commence on the
date that the Hotel is opened by the hotel operator for business as a hotel in
the hotel operator's hotel system and will conclude on December 31 in that year.
Thereafter, operating periods for the rental pool will run 12 months based on
the calendar year.
OWNERS' USE OF UNITS
An owner is guaranteed to be able to use his Unit for a total of 14
days per calendar year. In addition, an owner may be able to use his Unit for up
to an additional 14 days per calendar year depending upon certain factors set
forth below. The executive Units will not be available for personal use. If an
owner reserves the use of his Unit for a stay which commences at or after 2:00
p.m. on a Friday or a Saturday, the owner must reserve the Unit for a minimum
two night stay. An owner may use his Unit no more than four times a year with
respect to two or three night stays that commence at or after 2:00 p.m. on a
Friday or a Saturday. If an owner reserves the use of his Unit by written notice
to the hotel operator no less than six months prior to the date the owner
intends to use the Unit, the owner is guaranteed to be able to use his Unit for
a total of up to 14 days. Additionally, an owner may be permitted to use his
Unit for a total of up to an additional 14 days if the owner reserves the use of
his Unit by written notice to the hotel operator no more than 15 days prior to
the date the owner intends to use his Unit and, at the time the owner gives such
notice to the hotel operator, (i) the Unit is not subject to a prior reservation
for any of the requested time, and (ii) the hotel is less than 80% reserved for
any of the requested time. If an owner does not use all of his allotted days in
a calendar year, the owner will not be entitled to accumulate the unused days
for use in any subsequent year.
Furthermore, if an owner reserves the use of his Unit, but does not
actually use the Unit at the reserved time, the owner will nonetheless be deemed
to have used the Unit unless the owner has canceled the reservation with the
approval of the hotel operator no less than 30 days prior to the owner's
scheduled use or five days if the use is pursuant to the 15 day notice
requirement and the Unit is made available for rental to the public. So long as
an owner is deemed to have used his Unit (regardless of whether the owner
actually uses the Unit and regardless of whether the Unit is later rented to
hotel guests during that time), the Unit will not be deemed to be in the rental
pool. However, any revenues generated from the rental of the Unit to hotel
guests during the time that had been reserved by the Unit owner will be for the
benefit of other owners whose Units are in the rental pool at that time.
An owner will be required to pay a mandatory room cleaning charge in
connection with the owner's use of his Unit. Subject to adjustments to
subsequent operating budgets, the current charge for a one-bedroom Unit is $30
and for a studio Unit is $20. In addition, an owner will pay the standard
charges established by the hotel operator for, among other amenities, long
distance telephone calls, movie rentals, room service and restaurant usage, and
the purchase of other goods and services at the hotel. All of the furniture,
fixtures and equipment located in and around the hotel (excluding any such items
located in a Unit) will be owned collectively by the owners. Any furniture,
fixtures and equipment located within a Unit will be owned by the owner of the
Unit but cannot be removed or changed except as set forth in the Hotel Operating
and Rental Pool Agreement.
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ALLOCATION OF REVENUE AND EXPENSES
The Hotel Operating and Rental Pool Agreement describes the manner
in which income from Unit rentals is divided among the owners. For each day that
a Unit is in the rental pool, the owner of that Unit will be entitled to share
in the Gross Revenue from the operation of the hotel, regardless of whether the
owner's Unit generated rental income on that particular date. "Gross Revenue"
consists of all revenue of any kind derived directly or indirectly from the
operation of the hotel and specifically includes (i) revenue from the use and
enjoyment of the hotel by guests and owners such as, for example, room revenue,
revenue generated by the restaurant, the conference center, and any use of the
recreational facilities, housekeeping charges, revenue from movie rentals,
minibar and telephone usage, and (ii) parking revenue, proceeds from business
interruption insurance, revenue from other hotel amenities (such as vending
machines) and fees from concessionaires operating at the hotel. Gross Revenue
does not include most taxes, capital gains, condemnation awards, rebates or
discounts, proceeds from most types of insurance and gratuities paid to hotel
employees. An owner's allocable share of the gross revenue will be determined
based on the percentage interest of the Unit. The percentage interest of a Unit
will be determined according to the following formula as provided in the
Declaration:
Seller's initial value of a Unit as established
by UP Sedona
Percentage Interest = -----------------------------------------------
of a Unit $43,827,100
An owner's allocable share of gross revenue for a day in which the owner's Unit
is in the rental pool (not reserved for use by the owner) will be determined
according to the following formula:
Gross revenues from Percentage Interest of a Unit
the operation of X -----------------------------------------------
the hotel Sum of Percentage Interests of all Units in
the rental pool on that day
An owner's allocable share of all hotel expenses and other costs attributable to
the owners under the Hotel Operating and Rental Pool Agreement will be
determined according to the following formula:
Total hotel expenses
and other costs X Percentage Interest of a Unit
An owner will be responsible for his allocable share of the costs attributable
to the owners for each day that the hotel is operating, regardless of whether
the owner's Unit is in the rental pool on any particular day. The owners bear
all of the costs and expenses of operating, maintaining and repairing the hotel,
the hotel grounds and the contents of the hotel. These costs include, for
example: (i) repair and maintenance of hotel buildings, grounds, furniture,
fixtures and equipment located at the hotel; (ii) purchasing all supplies
including food, beverages, linens, and cleaning products necessary for the
operation of the hotel; (iii) costs associated with hiring, firing and
compensating employees necessary to staff the hotel; (iv) fees paid to the hotel
operator; (v) utilities and insurance; and (vi) marketing and promotion
expenses, reservation fees and travel agent commissions. These expenses are
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divided in accordance with industry standards between departmental expenses,
undistributed expenses, and fixed expenses.
DIRECT EXPENSES OF OWNERS
Each owner will be personally responsible for the payment of all
taxes applicable to the owner arising out of the ownership of a Unit, amounts
owed under any financing of the Unit, and all assessments made by the
Association. The amount of property taxes to be paid by each owner will be
determined annually by the Yavapai County Assessor's Office. Property taxes will
be assessed against each owner as of the date the Unit is purchased by the
owner. UP Sedona's estimate of taxes is based on application of 1996 tax rates
to such property. The amounts for the first year range from $1,672 to $2,095.
The actual tax may differ from the projected amount when actually assessed.
Subsequent transfers of one or more Units may cause further reassessments of one
or more Units and tax increases. Property taxes may increase for all owners even
in years in which no reassessment from any sale or transfer occurs.
The assessments payable by an owner to the Association and the
method of billing and collecting are more fully described in the section
entitled Summary of Declaration and Related Documents. The amount of each annual
assessment initially is based upon the annual projected operating budget
prepared by the hotel operator. If any estimated budget understate net cash
flow, the Association may amend the budget and increase the annual assessments
against all Units, based upon each Units allocable share. The estimated
Association budget for the first operational year for the hotel, after taking
into account hotel revenue and expenses, is $50,000, which is intended to cover
fees for professional services and administrative expenses incurred by the
Association. Each Unit will be assessed its share of such budgeted amount based
on the percentage interest for the Unit, which amounts range from $189 to $227
per year. The assessments for future years will depend upon hotel revenues and
expenses for those years.
If a Unit owner fails to pay property taxes, the taxing authorities
may place a tax lien on the delinquent owner's Unit and foreclose the tax lien
if the delinquent tax is not paid prior to the tax sale. If a Unit owner fails
to pay any financing of the Unit, the lender may elect to pursue collection of
the debt against the delinquent owner with or without foreclosing any mortgage
lien against the delinquent owner's unit given to secure such financing. If a
Unit owner fails to pay its assessments to the Association, the Association may
elect to pursue collection of the delinquent assessment with or without
foreclosing the assessment lien which the Association has against the delinquent
owner's Unit.
RENTAL POOL REPORTS
For each calendar month, the hotel operator will prepare detailed
statements of operations that describe, among other things, the gross revenue
from the hotel, hotel operating expenses, capital expenditures, reserves, and
the amount of cash flow, if any, distributable to an owner for that month. A
summary of these statements of operations will be mailed to each owner no later
than the 20th day following the end of each calendar month. In addition, the
hotel operator will provide each owner with a monthly statement for the previous
month that describes how many days in that month the unit was occupied and how
many days the Unit was in the rental pool. The hotel operator will also prepare
and mail to each owner within 75 days after the end of an operating year
statements of operations for the entire operating year and individual statements
relative to each owner's Unit. The statements of operations will be audited for
the first year of operations. Unless otherwise agreed in advance by the Board of
Directors, the statements of operations will be audited for each year
thereafter. The individual statements will serve as the basis for reporting to
the Internal Revenue Service and other appropriate taxing authorities.
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DISTRIBUTIONS FROM RENTAL POOL
The amount distributable to an owner will be computed each month by
subtracting the following amounts from the owner's share of gross revenue from
hotel operations: (i) the owner's share of hotel operating expenses; (ii) the
owner's share of amounts necessary to fund or replenish operating and capital
expenditure reserves, make capital lease payments and pay the hotel operator's
Incentive Fee; (iii) the owner's share of capital expenditures exceeding amounts
paid out of the appropriate reserve; (iv) the owner's share of repayment
expenses in connection with a previous operating shortfall, if any, (see
"Shortfalls" below) after depletion of reserves (see "Reserves" below); (v) any
assessment payable by the owner pursuant to the Declaration; (vi) expenses
associated with an owner's personal use of the hotel (for example, the cleaning
charge); (vii) bed taxes and other similar taxes imposed or collected in
connection with the use of the hotel by the hotel patrons; (viii) withholding
taxes, if applicable; and (ix) any other amounts payable by the owner to Delta
pursuant to the Hotel Operating and Rental Pool Agreement.
The amount distributable to an owner, if any, will be sent to the
owners with the monthly financial summary (see, "Rental Pool Reports" above).
Alternatively, the hotel operator may prepare a reasonable estimate of the
amount distributable to the owners on an annual basis and distribute to the
owners the estimated amount, less an amount (not to exceed 20%) established by
the hotel operator for seasonal working capital requirements, in 12 equal
monthly installments. If the hotel operator elects to distribute an estimated
amount, at the end of the operating year the hotel operator will calculate the
actual amount distributable to each owner and pay to each owner the balance of
the amount, if any, distributable for that operating year. This last payment
will be sent 75 days after the end of the operating year with the annual
financial statements.
RESERVES
An operating cash reserve in the amount of $250,000 will be
established when the hotel commences operations. Upon the closing of the
purchase of a Unit, the Unit owner will be required to contribute to the
operating cash reserve an amount equal to the percentage interest of the Unit
being purchased multiplied by $250,000, which amounts range from $946 to $1,186.
This reserve will be available to the hotel operator for working capital in
connection with the operation of the hotel commencing in the second year of
operations. Reserves will be established for capital expenditures for repair and
replacement of the hotel premises and repair and replacement of furniture,
fixtures and equipment as follows:
Amount to be Reserved Each
Year Expressed as a
Percentage of Gross Revenue
Year in that Year
---------- ---------------------------
1 0%
2 2%
3 3%
4 4%
5 and subsequent years 5%
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SHORTFALLS
If at any time the funds derived from the operations of the hotel
(including established reserves) are not sufficient to pay when due all expenses
incurred in connection with the operation of the hotel, capital expenditures and
other amounts for which the owners are liable (such as may occur from time to
time as a result of, among other causes, seasonal fluctuations in the use of the
hotel by owners and other patrons), the hotel operator may require each owner to
remit to the hotel operator the owner's allocable share of the shortfall. The
owner's allocable share of the shortfall is determined by multiplying the total
amount of the shortfall by the Percentage Interest of a Unit. The formula for
determining the Percentage Interest of a Unit is described above in the section
entitled "Allocation of Revenues and Expenses." The hotel operator may elect,
but is not obligated, to advance the shortfall and obtain repayment of the
shortfall, plus interest accruing at the designated prime rate plus 2%, out of
the cash flow from the operations of the hotel. Payment of the shortfall by the
owner is obligatory and may be enforced by, among other methods, enforcement by
the Association of an assessment lien against the Units.
HOTEL OPERATOR MAY RELY UPON ACTS OF BOARD OF DIRECTORS
The Board of Directors of the Association elected in accordance with
the provisions of the Declaration will represent the owners in all respects
concerning the hotel operator. All of the owners will be bound by the acts of
the Board of Directors on behalf of the owners and the hotel operator will be
entitled to rely upon the acts of the Board of Directors as the authorized acts
of the owners. The Board of Directors and the hotel operator will meet not less
frequently than quarterly.
MANAGEMENT AND MAINTENANCE OF THE HOTEL
The hotel operator will perform, on an exclusive basis, all duties
and obligations within the scope of the management, maintenance, and marketing
of the hotel, including the restaurant and conference facilities. The hotel
operator will, among other things, use all reasonable efforts to maintain and
operate the hotel as a first-class resort hotel, market and sell the rental use
of the Units and other facilities of the hotel, furnish bookkeeping, inventory
control, reservations, marketing and advertising services, direct, in
consultation with the Board of Directors, litigation in respect of the hotel,
supervise the use of the hotel by guests and owners, hire, train, terminate and
perform other managerial functions with respect to the staff necessary to the
operation of the hotel, and obtain for itself or on behalf of the owners all
insurance, licenses and permits necessary to the operation of the hotel. The
hotel operator may make, at the owners' expense, but subject to the then current
approved operating plan and budget and other limitations, reasonable changes to
the hotel.
The hotel operator will prepare, on or before December 1 of each
year, an annual operating plan and budget for the operation of the hotel during
the following operating year. The annual operating plan and budget will be
subject to the reasonable approval of the Board of Directors of the Association
and a summary of the operating plan and budget will be sent to all of the owners
after it has been approved by the Board of Directors. Either the hotel operator
or the Board of Directors may elect to have disputes regarding the operating
plan and budget resolved by arbitration.
The hotel operator will obtain and maintain, as an operating expense
of the hotel, public liability, fire and casualty, business interruption,
workmen's compensation and other insurance reasonably necessary to the operation
of the hotel, naming the owners, the hotel operator and the Association as
insureds.
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Under the Hotel Operating and Rental Pool Agreement, the hotel
operator may, in its discretion, assign all or a portion of its rights and
obligations under the Hotel Operating and Rental Pool Agreement to an affiliate
of the hotel operator or any successor in interest to the hotel operator.
FEES PAID TO HOTEL OPERATOR
As a compensation for its services provided under the Hotel
Operating and Rental Pool Agreement, the hotel operator will be paid various
fees. The hotel operator's fees will be paid out of the gross revenue of the
hotel and will be affected by reduced revenue as a result of personal usage by
owners to the extent that such usage denies the rental of a room to a paying
guest. The hotel operator will receive a Base Fee of $10,000 per month for the
12 month period following the opening of the hotel and 3.0% of gross revenue
thereafter. The Base Fee will be payable in monthly installments. In addition,
the hotel operator will be paid an Incentive Fee based on a tiered scale if the
hotel operator achieves certain performance standards in respect of the
operations of the hotel based on Net Hotel Return. "Net Hotel Return" is
computed as follows:
-------
|
| expenses of the operation of the
| hotel
| +
| amount contributed to reserve for
Net Hotel Return = Gross Revenue minus | replacement of furniture, fixtures
| and equipment and capital
| improvements
|
| +
| real property taxes
-------
Depending upon the performance of the hotel, the Incentive Fee payable to the
hotel operator may range from 0% of Net Hotel Return (if net hotel return is
less than $3.2 million) to 30% of the amount by which Net Hotel Return exceeds
$4.2 million in the first full operating year, decreasing to 10% of the amount
by which Net Hotel Return exceeds $4.2 million in the sixth and subsequent
operating years. Specifically, the Incentive Fee will be computed as follows:
INCENTIVE FEE
- --------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
NET HOTEL RETURN 1 2 3,4,5 6,7,8,9,10
- --------------------------------------------------------------------------------
Less than $3.2 Million 0.0% 0.0% 0.0% 0.0%
Over $3.2 Million and 15.0% 15.0% 12.0% 10.0%
up to $4.2 Million of the amount by which Net Hotel Return exceeds
$3.2 Million
Over $4.2 Million 30.0% 25.0% 22.50% 20.0%
of the amount by which Net Hotel Return exceeds
$4.2 Million
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If the term of the Hotel Operating and Rental Pool Agreement is renewed (see the
discussion regarding the rental terms below in the section entitled "Termination
of Hotel Operator") the Incentive Fee will be computed in the same manner as in
year 10.
The hotel operator will also receive reimbursement for marketing and
reservations system costs incurred in connection with the operation of the
hotel. The hotel operator will also be paid a monthly Administration Fee in the
amount of $5 per month per Unit. In addition, the hotel operator will be
entitled to be reimbursed for costs incurred by the hotel operator in connection
with special promotional programs, training materials, travel by head office
personnel and others on matters directly involving the hotel, and other similar
expenses. Subject to approval by the Board of Directors of the Association as
part of the annual hotel operating budget approval process, the hotel operator
may retain an affiliate or division as a consultant to perform technical
services in connection with any substantial remodeling, repairs, construction or
other capital improvements to the hotel and the hotel operator and its affiliate
will be entitled to be compensated by the owners for their services.
TERMINATION OF HOTEL OPERATOR
The appointment of the hotel operator under the Hotel Operating and
Rental Pool Agreement will run continuously from the date that the hotel is
opened by the hotel operator for business as a hotel in the hotel operator's
hotel system until December 31, 2008, unless earlier terminated. The appointment
of the hotel operator will be automatically renewed for two additional terms of
5 years each provided the following conditions have been satisfied: (a) the
owners have not previously terminated the appointment of the hotel operator; (b)
the hotel operator has not elected to terminate its own appointment or given
notice to the board of directors of the Association of its election not to seek
renewal of its appointment; and (c) the appointment of the hotel operator has
been extended for all prior periods. The appointment of the hotel operator may
also be renewed by agreement of the owners and the hotel operator (regardless of
whether the conditions described above have been satisfied). The hotel operator
may terminate its appointment under the Hotel Operating and Rental Pool
Agreement at any time upon 60 days' prior notice to the Board of Directors of
the Association if the owners fail to make or authorize the hotel operator to
make capital expenditures without which the hotel cannot be operated as a
first-class hotel (in the discretion of the hotel operator) or if the number of
Units subject to the Hotel Operating and Rental Pool Agreement is less than 200.
The appointment of the hotel operator under the Hotel Operating and Rental Pool
Agreement may be terminated by a vote of 75% of the Units entitled to vote on
the matter if the hotel operator is in default under the Hotel Operating and
Rental Pool Agreement and the hotel operator fails to cure the breach within the
required time.
The appointment of the hotel operator under the Hotel Operating and
Rental Pool Agreement may also be terminated by a vote of 75% of the Units
entitled to vote thereon if, commencing in the ninth operating year, the hotel
operator fails to achieve minimum performance standards. These minimum
performance standards will not be met if in two consecutive operating years the
REVPAR for the hotel is not at least 90% of the average REVPAR of a sample of
competitors of the hotel, or if in two consecutive operating years the hotel
fails to produce a Net Hotel Return greater than $3,625,000 in years 2007 and
2008, and $3,750,000 in year 2009 and subsequent years. The sample of
competitors of the hotel for purposes of the REVPAR test initially consists of
five hotels/resorts designated in the Hotel Operating and Rental Pool Agreement.
These hotels/resorts are currently operating in the vicinity of Sedona and Oak
Creek Canyon, Arizona, offer first-class accommodations and recreation and
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restaurant facilities, and serve similar market segments to the hotel. The
sample of competitors may be changed by agreement of the owners and the hotel
operator where one of the existing sample competitors ceases to operate or no
longer qualifies as a comparable hotel/resort or where an additional comparable
hotel/resort opens in the vicinity of the hotel and completes two full years of
operation. In addition, the sample of competitors and the 90% benchmark will be
reevaluated and, if appropriate, changed by agreement of UP Sedona and the hotel
operator approximately five months prior to the opening of the hotel. However,
if the hotel operator fails to achieve such minimum performance standards, the
hotel operator has the option to contribute an amount necessary to be deemed to
have achieved the minimum performance standards in lieu of being terminated.
If the appointment of the hotel operator is terminated, the hotel
operator will be paid the amount of its fees that have accrued or been earned up
to the date of termination. Fees that are computed on an annual or other
periodic basis will be amortized and prorated based on the date of termination.
To the extent the hotel operator or its affiliates own Units, with
respect to any vote of the owners to terminate the hotel operator, the hotel
operator for itself and on behalf of its affiliates irrevocably appoints the
president of the Association as its proxy for the limited purpose of casting the
hotel operator's and its affiliates votes as abstentions on such matters.
Furthermore, for purpose of determining whether the required number of Units
have voted to terminate the hotel operator, votes recorded as abstentions shall
not be counted toward a quorum or as having been entitled to vote on such
matters.
REMOVAL OF THE HOTEL OPERATOR'S BRAND
Pursuant to the Declaration, which constitutes a recorded
restriction on the hotel and each Unit, all of the Units must, at all times, be
subject to the Hotel Operating and Rental Pool Agreement. Unless the Hotel
Operating and Rental Pool Agreement is amended to remove this requirement, any
existing Unit will automatically be subject to the Agreement. However, the hotel
operator reserves the right to cease to operate or identify the hotel as a hotel
in the Delta Group if at any time for any reason (which reasons are not now
foreseeable) five or more Units are not subject to the Hotel Operating and
Rental Pool Agreement (except for temporary removal as a result of a fire or
other casualty). If the hotel is no longer operated as part of the Delta group,
the hotel operator may carry out its duties through a subsidiary or assign its
rights under the Hotel Operating and Rental Pool Agreement to a subsidiary. In
addition, the name of the hotel will be changed to remove references to "Delta"
and alternate reservation and marketing services will be provided by the hotel
operator and its subsidiary at a cost to be agreed upon with the Board of
Directors.
ITEM 2. PROPERTIES
THE HOTEL
GENERAL
The hotel will consist of 225 suites and will be located on a 7.43
acre site within the Sedona Golf Resort commercial/residential master planned
community. The Sedona Golf Resort is situated in the Village of Oak Creek, a
residential area located approximately five miles south of Sedona, Arizona. (See
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"The Sedona Golf Resort" below.) The hotel will be three stories and have a
grand lobby, conference center, ballroom, and recreational amenities, including
a swimming pool and whirlpool spa. The hotel will offer food and beverage
service from a lounge and a restaurant. The restaurant will offer all day full
service and room service targeted to the mid-price range.
The hotel will be located within the Sedona Golf Resort master
planned community, which includes a retail/commercial center, multi- and
single-family residential development, timeshare properties, the golf course,
the Ridge Spa and Racquet Club (see "Recreational Amenities" below"), and the
proposed hotel. UP Sedona believes that the hotel will fill a void in the Sedona
market for first-class full-service hotel facilities and that the mix of
residential, recreational and commercial uses within the Sedona Golf Resort is
an ideal setting for the proposed development.
THE UNITS
The hotel will comprise a mix of one-bedroom, executive and studio
Units. All Units include a patio or balcony and offer scenic views of the
adjacent golf course and/or the red rocks of Sedona. Six one-bedroom plans, two
studio plans and one executive plan have been designed; the plan of a Unit will
depend upon its location within the hotel. All of the Units will have similar
furnishings depending on size, except for the executive Units. One-bedroom Units
will include a separate living/sleeping area, full kitchen and fireplace and the
studio Units will have a living/sleeping area and a kitchenette. Each of the
studio Units will be adjacent to a one-bedroom Unit, allowing a one-bedroom Unit
and a studio Unit to be rented as a two-bedroom suite. Each executive Unit will
be equipped for small meetings with a conference table and will have a Murphy
bed.
Currently only one of the hotel properties in the Sedona market
offers comparable suites in both size and amenity package. In response to UP
Sedona's market studies, UP Sedona has determined that a mix of 171 one-bedroom
Units, six executive Units and 48 studio Units will best serve the combination
of individual and group travel.
CONFERENCE FACILITIES
UP Sedona believes that there is a significant need for additional
quality conference facilities in the Sedona market. See "The Hotel Industry -
The Sedona Market" above. Conference facilities planned for the hotel will
comprise 10,000 square feet of meeting space, including a 5,000 square foot
ballroom, several "breakout" conference rooms and hospitality suites and
pre-function, storage and kitchen spaces. UP Sedona believes that the hotel's
planned meeting space will be the largest, most flexible facility available in
northern Arizona.
OTHER FACILITIES
The hotel will include a 125 seat full-service restaurant, a lobby
lounge, and an outdoor swimming pool and whirlpool spa. The hotel will offer
pool side food and beverages in the area surrounding the swimming pool.
23
<PAGE>
RECREATIONAL AMENITIES
UP Sedona believes that access to golf activities is an important
factor for a successful resort hotel. It has therefore entered into an agreement
with the Sedona Golf Resort (see below) pursuant to which guests of the hotel
will receive preferential tee times and a ten percent discount on greens fees.
Owners will not participate in any revenue from the golf course operations. The
agreement permits the hotel to reserve rounds for its guests up to 40% of the
total rounds played in the previous year. In 1996, approximately 43,000 rounds
were played, which would have entitled the hotel to reserve approximately 17,200
rounds in 1997 if it were to have been operational. The golf course can
accommodate approximately 45,000 rounds of golf per year. In addition, the Ridge
Spa and Racquet Club, a full-service private health/fitness facility located
within a short walk from the hotel, has agreed to allow guests of the hotel to
use its facilities at a one-third discount off the current daily guest fee of
$20. The services offered by the spa include a fitness center, aerobic room,
heated lap pool and outdoor whirlpool spa, three racquetball courts, three
lighted tennis courts, social lounge with courtyard seating, full service pro
shop, juice and snack bar, and sauna and steam room facilities.
THE SEDONA GOLF RESORT
The following discussion is intended to provide an overall
description of the Sedona Golf Resort and the projects that are being built as
part of the overall master plan. Owners of Units will not acquire any interest
in any of these projects.
THE GOLF COURSE
The golf course at Sedona Golf Resort, the only 18-hole public golf
course in the Sedona area, is recognized as one of the premiere golf courses in
the United States and was recently rated as the second best course in Arizona by
The Arizona Republic. The course provides scenic views of Sedona's red rocks and
can be played year-round. In November 1996, the owner and developer of the golf
course opened a new 18,000 square foot clubhouse facility adjacent to the hotel
site that offers a full-service restaurant and lounge, a retail facility, men's
and women's locker facilities and a small meeting room. The golf course also
includes a driving range and professional instruction.
MULTI/SINGLE FAMILY RESIDENTIAL DEVELOPMENT
Residential development is a significant component of the Sedona
Golf Resort master plan. Currently there are approximately 50 multi-family
condominium units located west of the hotel site, adjacent to the Ridge Spa and
Racquet Club. The current master plan provides for the development of 300 single
family homes throughout the resort. Golden Heritage Homes, the exclusive home
builder in the development, intends to sell lots ranging from 6,600 square feet
to 10,000 square feet, with finished home prices ranging from $250,000 to
$310,000. Custom homes will be available on some of the larger lots. Home
construction began in November 1996.
COMMERCIAL/RETAIL DEVELOPMENT
The master plan also includes neighborhood/tourist retail and food
and beverage development, to be located between the hotel site and State Route
179 in the northeastern portion of the master plan.
24
<PAGE>
THE RIDGE TIMESHARE RESORT
An unaffiliated developer has begun construction of a 120-unit
timeshare resort, to be situated on a 11.5 acre parcel located southwest of the
hotel. The first phase of construction began in October 1996 and is expected to
include 12 units and an 11,000 square foot clubhouse and sales center. The
developer of this timeshare resort also owns and operates the Ridge Spa and
Racquet Club. All timeshare owners will have membership access to the spa
facilities and have the right to reserve up to 10% of the total rounds played in
the previous year on the golf course at Sedona Golf Resort.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
25
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PLAN OF DISTRIBUTION
The Units are being offered on a best efforts basis by United
Property Investments Corp., a broker-dealer affiliated with UP Sedona, as
principal distributor, and by broker-dealers selected by UP Sedona who are
members of the National Association of Securities Dealers, Inc. The minimum
subscription is one Unit. Broker-dealers including the principal distributor
will receive a commission of up to 2?% of the sales price of a Unit for each
Unit sold. The principal distributor will also receive a fee of 2% of the total
purchase price of the Units for acting as principal distributor and for expenses
incurred in connection with coordinating sales efforts and performing
"wholesaling" activities.
The closing on the sale of Units will not occur until the hotel is
completed and ready for operation. No minimum number of Units must be sold
before UP Sedona can close on the Units. Subsequent closings will occur upon the
sale of each Unit. The offering will terminate two years from August 15, 1997.
Retirement plans and individual retirement accounts may not purchase
Units. No sales will be made to discretionary accounts without prior written
approval of the prospective investor.
UP Sedona and each broker-dealer participating in the offering have
agreed to indemnify each other against certain liabilities including liabilities
under the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, and the Arizona Securities Act.
RESALE OF UNITS
There can be no assurance that there will be an organized resale
market for the Units and owners may not be able to readily resell their Units.
Unit owners will be able to offer their Units for resale personally or through
their securities broker.
There are certain conditions that must be satisfied in connection
with the sale of a Unit by an owner. Prior to entering into an agreement for the
sale of a Unit, the selling owner must provide the proposed purchaser with a
copy of the Hotel Operating and Rental Pool Agreement and must notify the
proposed purchaser of any proposed bookings of the Unit by the selling owner. In
addition, the purchaser must, as a condition of the purchase, ratify the Hotel
Operating and Rental Pool Agreement, appoint the hotel operator as its exclusive
agent for the management and rental of the hotel and the Unit, and expressly
assume the obligations of an owner pursuant to a form acceptable to the hotel
operator. The Hotel Operating and Rental Pool Agreement does not terminate upon
the death or the attempted withdrawal of an owner or upon the sale or transfer
of a Unit by an owner.
26
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
UP SEDONA, INC.
BALANCE SHEET
AUGUST 31, 1997
ASSETS
Real Estate Under Development $5,837,155
Other Assets 412,566
----------
$6,249,721
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts Payable and Accrued Expenses $ 214,033
Notes Payable 3,094,288
Due to Related Parties 1,441,400
----------
Total Liabilities: $4,749,721
----------
Shareholder's Equity:
Preferred Stock $1,000,000
Common Stock 1
Additional Paid in Capital 499,999
----------
Total Shareholder's Equity: $1,500,000
----------
$6,249,721
==========
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UP Sedona was formally organized as an Arizona corporation in
December, 1996 to acquire and develop real estate for future sale. UP Sedona
acquired a parcel of land in Sedona, Arizona in December, 1996 and intends to
develop a resort hotel to be known as ShadowRock Sedona Golf Resort and
Conference Center which will be subdivided into condominium units. The
condominium units will be offered for sale to individual purchasers, who will be
required as part of the sales transaction, to enter into the hotel operating and
rental pool agreement. UP Sedona has incurred certain project development costs
and has only recently commenced construction and its marketing campaign.
UP Sedona is funding construction of the resort hotel with a
construction development loan from an independent lender. The terms will include
interest at market rates, the property will collateralize the debt obligation
and the parent company of UP Sedona's shareholder will guarantee the obligation.
It is anticipated that the loan will be repaid when UP Sedona's receives the
proceeds from the sale of the condominium units.
As UP Sedona sells condominium units, the funds will be placed into
an escrow account. Upon construction completion, the funds will be transferred
to UP Sedona through a closing and the condominium unit owners will receive
title to their unit. At that time, revenue will be recognized from the sale of
the condominium units and the costs associated with revenue will be expensed
with a corresponding reduction to real estate under development.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Financial Statements, the notes thereto and
Report of Independent Public Accounts thereon commencing at Page FS-1 of this
Report, which Financial Statements, Notes and Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT
UP Sedona, Inc., an Arizona corporation, is an indirect wholly-owned
subsidiary of United Properties Ltd., a British Columbia, Canada, company
("United Properties"). The management of UP Sedona is made up of the following:
NAME POSITION
---- --------
Victor D. Setton Chairman and Director
William S. Oliver President
Elias D. Setton Vice President
Raymond J. Langrish Secretary and Treasurer
VICTOR D. SETTON, age 51, has been President and Director since 1975
of United Properties, which specializes in the development, construction and
marketing of multi-family residential projects in the Lower Mainland of
Vancouver, B.C. and in the Pacific Northwest United States and Arizona, and
Chairman and Director of UP Sedona since 1996. He was elected President of the
Urban Development Institute in 1986, was re-elected for a two year term in 1987,
and in 1988 received its Highest Honour Award for his outstanding contribution
to professionalism, leadership, and commitment to excellence in urban
environment. Mr. Setton has been a participant in the Urban Design Advisory
Panel for the City of Vancouver.
WILLIAM OLIVER, age 63, joined the United Properties group in July
1996 and has served as President of UP Sedona since its incorporation. From 1993
to June 1996 he was President of Rio Rico Properties, a real estate development
company. Prior thereto he was President of his own development company in
Arizona from 1973 to 1993. He has extensive experience in the building industry,
specifically in recreation/resort development and construction and has also
developed residential and commercial properties for major development companies
in the United States.
ELIAS D. SETTON, age 39, has served as Manager, Land Development
since 1990 of United Properties and as Vice President of UP Sedona since 1996.
During the past two years his primary role has been overseeing the development
of hotels within Canada and the United States. Mr. Setton holds a Diploma in
Urban Land Economics in both Appraisal and Real Estate Management from the
University of British Columbia. He is currently a Director of the Urban
Development Institute.
RAYMOND J. LANGRISH, age 52, has served as Vice President, Finance
since joining United Properties in 1987 and Secretary, Treasurer of UP Sedona
since 1996. Prior to joining United Properties, Mr. Langrish held similar
positions over the previous 20 years with various real estate development
companies, both public and private. He qualified as a Certified Management
Accountant in 1972 and is a former member of the Accounting Standards Committee
of the Canadian Institute of Public Real Estate Companies.
29
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Mr. Oliver received no compensation from UP Sedona in 1997. His
compensation will be paid in the form of a bonus based on the performance of the
project under development. Mr. Oliver received no grants or options in
connection with his service as President of UP Sedona. None of the other
executive officers of UP Sedona earned more than $100,000 in the last fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
UP Sedona is 100% owned by United Properties, Inc., an Arizona
corporation. United Properties, Inc. is 100% owned by Internorth Development
Ltd., a Washington corporation. Internorth Development is 100% owned by United
Properties, Ltd., a British Columbia Canada company. United Properties, Ltd. is
100% owned by Jenvic Holdings, Ltd. Victor Setton, David Setton, and Deborah
Setton own 75%, 12.5%, and 12/5% of Jenvic Holdings, Ltd., respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 3.1 Articles of Incorporation of the Registrant (1)
3.2 Bylaws of the Registrant (1)
10.1 Golf Facilities Agreement (1)
10.1(a) Amendment to Golf Facilities Agreement
10.2 Reciprocal Easement Agreement with Covenants and Restrictions (1)
10.3 Condominium Declaration
10.4 Articles of Incorporation of Condominium Association (2)
10.5 Bylaws of Condominium Association (2)
10.6 Hotel Operating and Rental Pool Agreement (3)
23 Consent of Toback CPA's, P.C.
27 Financial Data Schedule
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement filed
on Form S-11 with the Commission on or about March 3, 1997.
(2) Incorporated by reference to the Registrant's Registration Statement filed
on Form S-11 with the Commission on or about March 3, 1997 as Annexes D and
E, respectively, to the Prospectus.
(3) Incorporated by reference to the Registrant's Amendment No. 4 to
Registration Statement No. 333-22643 filed with the Commission on or about
August 11, 1997 as Annex B to the Prospectus.
31
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
UP SEDONA, INC.
Date: December 17, 1997 By: /s/ William Oliver
------------------- ------------------------------
William Oliver, President
Pursuant to the requirements of the Securities 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 dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
By /s/ William Oliver Chief Executive Officer and December 17, 1997
--------------------------- President (Principal Executive
William Oliver Officer)
By /s/ Raymond J. Langrish Secretary and Treasurer December 17, 1997
--------------------------- (Principal Financial and
Raymond J. Langrish Accounting Officer)
By /s/ Victor D. Setton Chairman of the Board and December 17, 1997
--------------------------- Director
Victor D. Setton
32
<PAGE>
UP SEDONA, INC.
BALANCE SHEET
AUGUST 31, 1997
FS-1
<PAGE>
UP SEDONA, INC.
BALANCE SHEET
AUGUST 31, 1997
CONTENTS
Page
----
Independent auditor's report FS-3
Balance sheet FS-4
Notes to balance sheet FS-5 - FS-9
FS-2
<PAGE>
Board of Directors
UP Sedona, Inc.
Phoenix, Arizona
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of UP Sedona, Inc. as of
August 31, 1997. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of UP Sedona, Inc. as of August
31, 1997, in conformity with generally accepted accounting principles.
Toback CPAs, P.C.
December 12, 1997
FS-3
<PAGE>
UP SEDONA, INC.
BALANCE SHEET
August 31, 1997
ASSETS
Cash $ 3,770
Real estate under development (Note 2) 5,837,155
Escrow account for currency exchange fluctuations (Note 3) 121,032
Deferred placement costs 286,070
Organization costs 1,694
----------
$6,249,721
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, including retentions of $9,143 $ 127,850
Accrued Interest 86,183
Notes payable (Note 3) 3,094,288
Due to related parties (Notes 4 and 5) 1,441,400
----------
Total liabilities 4,749,721
----------
Commitments (Note 5)
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, limited voting rights, 18 shares
issued and outstanding, dividend distributions
at the rate of 18% of corporate profits,
payable quarterly, cumulative 1,000,000
Common stock, no par value, stated value $.01 per
share, 2,000,000 shares authorized, one vote per
share, 82 shares issued and outstanding 1
Additional paid in capital 499,999
----------
Total shareholders' equity 1,500,000
----------
$6,249,721
==========
The accompanying notes are an integral part of this balance sheet.
FS-4
<PAGE>
UP SEDONA, INC.
NOTES TO BALANCE SHEET
1. Nature of business and summary of significant accounting policies:
The Company was formally organized as an Arizona corporation in December,
1996 to acquire and develop real estate for future sale. The Company
acquired a parcel of land in Sedona, Arizona in December, 1996 and
intends to develop a resort hotel to be known as ShadowRock Sedona Golf
Resort and Conference Center which will be subdivided into condominium
units. The condominium units will be offered for sale to individual
purchasers, who will be required, as part of the sales transaction, to
enter into the hotel operating and rental pool agreement with the hotel
operator. The Company has incurred certain project development costs and
has commenced construction and its marketing campaign.
The Company funds construction of the resort hotel with a construction
development loan from an independent lender. The terms include interest
at market rates, the property collateralizes the debt obligation and the
parent company of a Company shareholder guarantees the obligation. It is
anticipated that the loan will be repaid when the Company receives the
proceeds from the sale of the condominium units.
As the Company sells condominium units, the funds will be placed into an
escrow account. Upon construction completion, the funds will be
transferred to the Company through a closing and the condominium unit
owners will receive title to their unit. At that time, revenue will be
recognized for the sale of the condominium units and the costs
associated with revenue will be expensed with a corresponding reduction
to real estate under development.
Real estate under development:
Real estate under development is stated at cost which is not in excess of
net realizable value, and includes direct costs of land, land
development, construction and all other costs relative to the
development and sale of the project.
Deferred placement costs:
Deferred placement costs consist of legal and other fees incurred in the
preparation of a securities prospectus for the sale of condominium
units. These costs have been deferred as of August 31, 1997 and will be
charged against future sales of the condominium units.
Organization costs:
Organization costs consist of legal fees which will be amortized on a
straight-line basis over five years.
FS-5
<PAGE>
1. Nature of business and summary of significant accounting policies,
continued:
Translation of foreign currencies:
The Company has debt due to Canadian banks and transactions with related
parties based in Canada. Foreign currency transactions are translated to
U.S. dollars in accordance with SFAS 52. Under this statement, balance
sheet accounts are translated at the current exchange rate. Resulting
translation adjustments, if any, are made directly to a separate
component of stockholders' equity. There was no material adjustment
required at August 31, 1997.
Accounting 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
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Real estate under development:
Real estate under development consists of the following:
Land $2,665,000
Capitalized closing costs 11,592
Project development costs:
Architectural costs 459,740
Capitalized interest and financing fees 438,818
Construction costs 536,505
Sewer system fees 578,130
Other development costs (A) 1,147,370
----------
$5,837,155
==========
FS-6
<PAGE>
2. Real estate under development, continued:
(A) Other development costs consist of:
Engineering $ 61,900
Insurance 34,893
Legal and accounting 198,554
Management fees (Note 5) 274,128
Marketing costs 383,217
Permits and other costs 123,946
Property development and feasibility consulting 70,732
----------
$1,147,370
==========
3. Notes payable:
Construction loan:
The Company has entered into a land acquisition and construction financing
agreement with a Canadian lender to loan approximately $22,500,000 to
construct the project. The Company may draw on the loan as construction
and related costs are incurred. Interest is charged at 11%. The interest
rate reduces to 9% in December, 1997. The loan is secured by first deed
of trust, security agreement, assignment of rents and leases and a
fixture filings for the benefit of the lender. The loan is due May,
1999. At August 31, 1997, the balance due on the loan is approximately
$2,918,000.
In addition, the loan agreement requires the Company to deposit an amount
equal to 4% of each loan advance in an account to ensure that the
Canadian lender receives payment of the loan and all interest in
Canadian dollars equivalent to the funds advanced by the lender in U.S.
dollars. The funds held shall bear interest at market rate. At August
31, 1997, the Company had approximately $121,000 in a currency exchange
holdback account.
FS-7
<PAGE>
3. Notes payable, continued:
Land loan:
A note payable is due to the seller of the property in five annual
installments of $50,000. The payments commence on the first anniversary
of receipt of the certificate of occupancy for the operation as a resort
hotel, and are due each year thereafter until paid. The Company
anticipates receiving a certificate of occupancy in December 1998. The
note is non-interest bearing, unsecured and is guaranteed by the parent
company of a shareholder. The note has been adjusted for unamortized
discount of $74,000 based on an imputed interest rate of 10%. At August
31, 1997, the note balance is $176,000.
At August 31, 1997, the approximate aggregate maturities of notes payable
for the succeeding five years are estimated as follows:
1998 --
1999 2,918,000
2000 34,000
2001 38,000
2002 41,000
4. Due to related parties:
Amounts due to related parties are for real estate development advances
including a construction loan held by a related party, related accrued
interest and accrued management fees (see Note 5). The advances are
interest bearing, unsecured and have no fixed repayment terms. The
advances will be repaid from future cash flows as they become available.
5. Related party transactions:
Shareholder's agreement:
The Company's preferred stock is owned by two shareholders and the common
stock is owned by United Properties, Inc., an Arizona corporation. The
common shareholder is the managing shareholder.
The shareholders of the Company have entered into an agreement regarding
capital contributions, management, distributions and other business
matters affecting the Company. As part of this agreement, the managing
shareholder will be paid 5% of the costs of developing the project, as
defined in the agreement. The payment also includes compensation for
certain operating and administrative expenses, among other items.
FS-8
<PAGE>
5. Related party transactions, continued:
Shareholder's agreement, continued:
Management fees under this agreement of approximately $274,000 were
accrued during the period ended August 31, 1997. These fees have been
capitalized into real estate under development and are included in the
amount due to related parties.
Construction management agreement:
A related company has entered into an agreement with a construction manager
for the project. The construction manager will be paid a contract fee
payable monthly in an amount equal to 2.9% of the costs of the project,
subject to certain adjustments. Contract fees of approximately $31,000
were paid during the period ended August 31, 1997. These fees were
capitalized into real estate under development as part of the
construction costs.
FS-9
EXHIBIT 10.1(a)
AMENDMENT TO GOLF FACILITIES AGREEMENT
This Amendment is entered into this 31 day of October, 1997 by SEDONA GOLF
RESORT, L.C., an Arizona limited liability company ("SGR") and UP SEDONA, INC.,
an Arizona corporation ("Hotel Owner"). For good an valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, SGR and Hotel Owner
hereby amend that Golf Facilities Agreement dated December 19, 1996 as follows:
1. HOTEL GUEST DEFINITION. Section 2.2 of the Agreement is amended to
provide that the definition of Hotel Guest shall also include the owner(s) of
hotel condominium units ("Unit Owners") within the Hotel, irrespective of
whether the Unit Owners are then registered in the Hotel. All tee times for Unit
Owners shall be made through the Hotel in the same manner as made by the Hotel
for Hotel Guests, and subject to the same restrictions set forth in the
Agreement. In any event, the total number of Hotel Guest Rounds in a calendar
year shall not exceed forty percent (40%) of the prior calendar years total
rounds. Hotel Guest Rounds include all players in any tournament scheduled by
the Hotel regardless of whether such player is actually staying at the Hotel.
2. MISCELLANEOUS. All capitalized terms not otherwise defined in this
Amendment shall have the same meaning as set forth in the Agreement. This
Amendment may be executed in counterparts.
3. NO OTHER AMENDMENTS. Except as hereby amended, all terms of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been entered into effective as of
the day and year first set forth above.
"SGR" "HOTEL OWNER"
SEDONA GOLF RESORT, L.C., an UP SEDONA, INC., an Arizona corporation
Arizona Limited Liability company
By: SunCor Development Company, an By: /s/ Elias D. Setton
Arizona corporation, its Managing ------------------------------------
Member Its: Vice President, Hotel Development
-----------------------------------
By: /s/ Tom Patrick
-----------------------------------
Its: Vice President
----------------------------------
EXHIBIT 10.3
WHEN RECORDED, RETURN TO:
Michael E. Woolf
O'Connor, Cavanagh, et al.
One E. Camelback Road
Suite 1100
Phoenix, Arizona 85012-1656
CONDOMINIUM DECLARATION
FOR
SHADOWROCK SEDONA GOLF RESORT & CONFERENCE CENTER,
A CONDOMINIUM
<PAGE>
CONDOMINIUM DECLARATION
FOR
SHADOWROCK SEDONA GOLF RESORT & CONFERENCE CENTER,
A CONDOMINIUM
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS.............................................................. 1
1.1 General Definitions................................................. 1
1.2 Defined Terms....................................................... 1
1.2.1 "ARTICLEs"................................................. 1
1.2.2 "Assessments".............................................. 1
1.2.3 "Assessment Lien".......................................... 1
1.2.4 "Association".............................................. 1
1.2.5 "Board of Directors"....................................... 1
1.2.6 "Buildings"................................................ 1
1.2.7 "Bylaws"................................................... 1
1.2.8 "Common Elements".......................................... 1
1.2.9 "Common Expenses".......................................... 2
1.2.10 "Common Expense Assessment"................................ 2
1.2.11 "Common Expense Liability"................................. 2
1.2.12 "Condominium".............................................. 2
1.2.13 "Condominium Act".......................................... 2
1.2.14 "Condominium Documents".................................... 2
1.2.15 "Declarant"................................................ 2
1.2.16 "Declaration".............................................. 2
1.2.17 "Development Rights"....................................... 2
1.2.18 "Eligible Insurer or Guarantor"............................ 3
1.2.19 "Eligible Mortgage Holder"................................. 3
1.2.20 "Exchange Program"......................................... 3
1.2.21 "Exchange Program User".................................... 3
1.2.22 "First Mortgage"........................................... 4
1.2.23 "First Mortgagee".......................................... 4
1.2.24 "Guests.................................................... 4
1.2.25 "Hotel Operating and Rental Pool Agreement"................ 4
1.2.26 "Hotel Facilities"......................................... 4
1.2.27 "Hotel Furnishings"........................................ 4
1.2.28 "Hotel Operator............................................ 4
1.2.29 "Improvement".............................................. 4
i
<PAGE>
1.2.30 "Limited Common Elements".................................. 4
1.2.31 "Member"................................................... 4
1.2.32 "Percentage Interest"...................................... 5
1.2.33 "Period of Declarant Control".............................. 5
1.2.34 "Person"................................................... 5
1.2.35 "Plat"..................................................... 5
1.2.36 "Public"................................................... 5
1.2.37 "Public Rental Residential Use"............................ 5
1.2.38 "Purchaser"................................................ 5
1.2.39 "Reciprocal Easement"...................................... 5
1.2.40 "Rules".................................................... 5
1.2.41 "Special Declarant Rights"................................. 5
1.2.42 "Unit"..................................................... 6
1.2.43 "Unit Furnishings"......................................... 6
1.2.44 "Unit Owner"............................................... 6
1.2.45 "Year"..................................................... 6
1.2.46 "Zoning Ordinance"......................................... 6
ARTICLE 2
SUBMISSION OF PROPERTY; UNIT BOUNDARIES; ALLOCATION OF
PERCENTAGE INTERESTS, VOTES AND COMMON EXPENSE LIABILITIES............... 6
2.1 Submission of Property............................................. 7
2.2 Name of Condominium................................................ 7
2.3 Name of Association................................................ 7
2.4 Identifying Numbers of Units....................................... 7
2.5 Unit Boundaries.................................................... 7
2.6 Allocation of Common Element Interest and Common
Expense Liabilities............................................... 8
2.7 Allocation of Votes in the Association............................. 8
2.8 Allocation of Limited Common Elements.............................. 8
ARTICLE 3
EASEMENTS................................................................ 9
3.1 Utility Easement................................................... 9
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3.2 Easements for Ingress and Egress................................... 9
3.3 Unit Owners' Easements of Enjoyment................................ 10
3.4 Declarant's Use for Sales Purposes................................. 11
3.5 Declarant's Rights and Easements................................... 11
3.6 Easement for Support............................................... 12
3.7 Common Elements Easement in Favor of the Association and
Hotel Operator.................................................... 12
3.8 Common Elements Easement in Favor of Unit Owners................... 12
3.9 Units and Limited Common Elements Easement in Favor of Association
and Hotel Operator................................................ 13
3.10 Easement for Unintended Encroachments.............................. 13
ARTICLE 4
USE AND OCCUPANCY RESTRICTIONS........................................... 14
4.1 Public Rental Residential Use...................................... 14
4.2 Hotel Operating and Rental Pool Agreement.......................... 14
4.3 Access to Hotel Operator........................................... 14
4.4 Hotel Facilities................................................... 14
4.5 Compliance with Laws............................................... 15
4.6 No Acts in Contravention of Hotel Operating and Rental
Pool Agreement.................................................... 15
4.7 Limitation on Right to Lease or Use Unit........................... 15
4.8 Residential Use by Unit Owners..................................... 15
4.9 Antennas........................................................... 16
4.10 Utility Service.................................................... 16
4.11 Improvements and Alterations....................................... 17
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4.12 Trash Containers and Collection.................................... 17
4.13 Machinery and Equipment............................................ 17
4.14 Animals............................................................ 17
4.15 Clothes Drying Facilities.......................................... 17
4.16 Mineral Exploration................................................ 17
4.17 Diseases and Insects............................................... 17
4.18 Trucks, Trailers, Campers and Boats................................ 17
4.19 Motor Vehicles..................................................... 18
4.20 Towing of Vehicles................................................. 18
4.21 Signs.............................................................. 18
4.22 Lawful Use......................................................... 18
4.23 Nuisances and Offensive Activity................................... 18
4.24 Window Coverings................................................... 18
4.25 Limitation on Leasing of Units..................................... 19
4.26 Furnishings........................................................ 19
ARTICLE 5
MAINTENANCE AND REPAIR OF COMMON ELEMENTS AND UNITS...................... 19
5.1 Repair of Common Elements.......................................... 19
5.2 Repair of Units.................................................... 19
5.3 Repair or Restoration Necessitated by Owner........................ 19
5.4 Repair and Recovery Rights of Association.......................... 20
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ARTICLE 6
THE ASSOCIATION; RIGHTS AND DUTIES; MEMBERSHIP........................... 20
6.1 Rights, Powers and Duties of the Association....................... 20
6.2 Directors and Officers............................................. 23
6.3 Rules.............................................................. 23
6.4 Composition of Members............................................. 23
6.5 Personal Liability................................................. 23
6.6 Implied Rights..................................................... 24
6.7 Voting Rights...................................................... 24
6.8 Voting Procedures.................................................. 24
6.9 Transfer of Membership............................................. 24
6.10 Suspension of Voting Rights........................................ 24
6.11 Conveyance or Encumbrance of Common Elements....................... 25
ARTICLE 7
ASSESSMENTS.............................................................. 25
7.1 Preparation of Budget.............................................. 25
7.2 Common Expense Assessment.......................................... 25
7.3 Special Assessments................................................ 26
7.4 Effect of Nonpayment of Assessments; Remedies of the Association... 27
7.5 Subordination of Assessment Lien to Mortgages...................... 27
7.6 Exemption of Unit Owner............................................ 27
7.7 Certificate of Payment............................................. 28
7.8 No Offsets......................................................... 28
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7.9 Reserve Fund....................................................... 28
7.10 Surplus Funds...................................................... 28
7.11 Monetary Penalties................................................. 28
7.12 Transfer Fee....................................................... 28
7.13 Additional Reserves................................................ 29
7.14 Hotel Operating Revenues........................................... 29
7.15 Unit Taxes......................................................... 29
7.16 Utilities.......................................................... 29
ARTICLE 8
INSURANCE................................................................ 29
8.1 Scope of Coverage.................................................. 29
8.2 Fidelity Bonds..................................................... 31
8.3 Payment of Premiums................................................ 32
8.4 Insurance Obtained by Unit Owners.................................. 32
8.5 Payment of Insurance Proceeds...................................... 32
8.6 Certificate of Insurance........................................... 32
8.7 Delegation of Insurance Responsibility............................. 32
ARTICLE 9
RIGHTS OF FIRST MORTGAGEES............................................... 33
9.1 Notification to First Mortgagees................................... 33
9.2 Approval Required for Amendment to Declaration, ARTICLEs or Bylaws. 33
9.3 Right of Inspection of Records..................................... 34
9.4 Prior Written Approval of First Mortgagees......................... 35
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9.5 Condemnation or Insurance Proceeds................................. 35
9.6 Limitation on Partition and Subdivision............................ 35
9.7 Conflicting Provisions............................................. 36
ARTICLE 10
RESERVATION OF DEVELOPMENTAL AND
SPECIAL DECLARANT'S RIGHTS............................................... 36
10.1 Developmental Rights............................................... 36
10.2 Right to Complete Improvements and Construction Easement........... 36
10.3 Offices, Model Units and Promotional Signs......................... 36
10.4 Appointment and Removal of Directors and Officers.................. 36
ARTICLE 11
GENERAL PROVISIONS....................................................... 37
11.1 Enforcement....................................................... 37
11.2 Severability...................................................... 37
11.3 Duration.......................................................... 37
11.4 Termination of Condominium........................................ 37
11.5 Amendment......................................................... 37
11.6 Remedies Cumulative............................................... 38
11.7 Notices........................................................... 38
11.8 Binding Effect.................................................... 38
11.9 Gender............................................................ 39
11.10 Topic Headings.................................................... 39
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11.11 Survival of Liability............................................. 39
11.12 Construction...................................................... 39
11.13 Joint and Several Liability....................................... 39
11.14 Guests and Tenants................................................ 39
11.15 Attorneys' Fees................................................... 39
11.16 Number of Days.................................................... 40
11.17 Declarant's Right to Use Similar Name............................. 40
11.18 Notice of Violation............................................... 40
11.19 No Absolute Liability............................................. 40
Exhibits
Exhibit A Legal Description
Exhibit B Percentage Interest
Exhibit C Advance Booking/Use Rights
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CONDOMINIUM DECLARATION
FOR
SHADOWROCK SEDONA GOLF RESORT & CONFERENCE CENTER,
A CONDOMINIUM
This Condominium Declaration for ShadowRock Sedona Golf Resort &
Conference Center, a condominium, is made this 30th day of October, 1997, by UP
SEDONA, INC., an Arizona corporation.
ARTICLE 1
DEFINITIONS
1.1 GENERAL DEFINITIONS. Capitalized terms not otherwise defined in
this Declaration shall have the meanings specified for such terms in the Arizona
Condominium Act, A.R.S. ss.33-1201, ET SEQ., as amended from time to time.
1.2 DEFINED TERMS. The following capitalized terms shall have the
general meanings described in the Condominium Act and for purposes of this
Declaration shall have the specific meanings set forth below:
1.2.1 "ARTICLES" means the ARTICLEs of Incorporation of the
Association, as amended from time to time.
1.2.2 "ASSESSMENTS" means the Common Expense Assessments and
Special Assessments levied and assessed against each Unit pursuant to ARTICLE 7
of this Declaration.
1.2.3 "ASSESSMENT LIEN" means the lien granted to the
Association by the Condominium Act to secure the payment of Assessments,
monetary penalties and other charges owed to the Association.
1.2.4 "ASSOCIATION" means ShadowRock Sedona Golf Resort &
Conference Center Condominium Association, an Arizona nonprofit corporation, its
successors and assigns.
1.2.5 "BOARD OF DIRECTORS" means the Board of Directors of
the Association.
1.2.6 "BUILDINGS" means the structures designated as
buildings on the Plat.
1.2.7 "BYLAWS" means the Bylaws of the Association, as
amended from time to time.
1.2.8 "COMMON ELEMENTS" means all portions of the
Condominium other than the Units, including but not limited to Tracts A and B on
the Plat.
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1.2.9 "COMMON EXPENSES" means expenditures made by or
financial liabilities of the Association, together with any allocations to
reserves, including, without limitation, (i) the cost of cleaning, maintenance,
management, operation, repair and replacement of the Common Elements and all
Improvements thereon; (ii) the cost of centrally metered utilities and trash
removal which serve the Units and/or the Common Elements; (iii) the cost of
insurance premiums for the policies and coverages required pursuant to ARTICLE 8
of this Declaration; (iv) the cost of compensation, wages, materials, services,
supplies and other expenses required for the administration, operation,
maintenance and repair of the Condominium, including landscape renovation and
maintenance; (v) the costs of rendering to the Unit Owners all services required
to be rendered by the Association under the Condominium Documents; (vi) such
other funds as may be necessary to provide general operating reserves and
reserves for contingencies and replacements deemed appropriate by the Board of
Directors; (vii) maintenance, repair and other reimbursement obligations under
the Reciprocal Easement attributable to the Condominium; and (viii) the cost of
any other item or items incurred by the Association, for any reason whatsoever
in connection with the Condominium, for the common benefit of the Unit Owners.
1.2.10 "COMMON EXPENSE ASSESSMENT" means the assessment
levied against the Units pursuant to SECTION 7.2 of this Declaration.
1.2.11 "COMMON EXPENSE LIABILITY" means the liability for
Common Expenses allocated to each Unit by this Declaration.
1.2.12 "CONDOMINIUM" means the real property located in
Yavapai County, Arizona, which is described in EXHIBIT "A" attached to this
Declaration, together with all Buildings and other Improvements located thereon.
1.2.13 "CONDOMINIUM ACT" means the Arizona Condominium Act,
A.R.S. ss.33-1201, ET SEQ., as amended from time to time.
1.2.14 "CONDOMINIUM DOCUMENTS" means this Declaration and
the ARTICLEs, Bylaws, Rules, and the Plat.
1.2.15 "DECLARANT" means UP Sedona, Inc., an Arizona
corporation, and its successors and any person or entity to whom it may transfer
any Special Declarant Rights.
1.2.16 "DECLARATION" means this Condominium Declaration, as
amended from time to time.
1.2.17 "DEVELOPMENT RIGHTS" means any right or combination
of rights reserved by or granted to the Declarant in this Declaration to do any
of the following:
(i) Add real estate to the Condominium;
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(ii) Create easements, Units, Common Elements or
Limited Common Elements within the Condominium, including without limitation the
right to enclose the patio allocated to any Unit as a Limited Common Element;
(iii) Subdivide Units, convert Units into Common
Elements or convert Common Elements into Units;
(iv) Withdraw real estate from the Condominium;
(v) Make the Condominium part of a larger
condominium or planned community;
(vi) Amend the Declaration during the Period of
Declarant Control to comply with the Condominium Act or any other applicable
law, or to correct any error or inconsistency in the Declaration provided the
amendment does not adversely affect the rights of any Unit Owner;
(vii) Amend the Declaration during the Period of
Declarant Control to comply with (a) the rules or guidelines, in effect from
time to time, of any governmental or quasi-governmental entity or federal
corporation guaranteeing or insuring mortgage loans or governing transactions
involving mortgage instruments, including, without limitation, the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal Housing Administration ("FHA") or the
Veterans Administration ("VA"), or (d) the rules or requirements of any federal,
state or local governmental entity or agency whose approval of the Condominium,
the Plat or the Condominium Documents is required by law or requested by
Declarant.
1.2.18 "ELIGIBLE INSURER OR GUARANTOR" means an insurer or
governmental guarantor of a First Mortgage who has requested notice
of certain matters in accordance with SECTION 9.1 of this Declaration.
1.2.19 "ELIGIBLE MORTGAGE HOLDER" means a First Mortgagee
who has requested notice of certain matters from the Association in accordance
with SECTION 9.1 of this Declaration.
1.2.20 "EXCHANGE PROGRAM" means any program developed by
Declarant or an affiliate of Declarant, whether now or in the future, which
entitles an Owner to exchange its right to use and occupy its Unit under the six
months advance use rights more fully set forth on EXHIBIT "C" for the right to
occupy a unit in another resort or project owned, developed or operated by
Declarant or an affiliate of Declarant; however, nothing herein shall be deemed
to obligate Declarant or any of its affiliates to initiate or continue the
operation of any such Exchange Program, if one is ever initiated, and nothing
herein shall obligate any Unit Owner to participate in any such Exchange
Program.
1.2.21 "EXCHANGE PROGRAM USER" means a participant in the
Exchange Program who has a reservation to use an Owner's Unit, which has been
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confirmed by the Hotel Operator at least six (6) months (but in no event more
than twelve (12) months) prior to the proposed exchange use of the Unit.
1.2.22 "FIRST MORTGAGE" means any mortgage or deed of trust
on a Unit with first priority over any other mortgage or deed of trust on the
same Unit.
1.2.23 "FIRST MORTGAGEE" means the holder of any First
Mortgage.
1.2.24 "GUESTS" means those Persons who use and occupy the
Units from time to time and their permitted additional occupants, invitees and
guests, excluding Unit Owners using their Units in accordance with EXHIBIT "C".
1.2.25 "HOTEL OPERATING AND RENTAL POOL AGREEMENT" means an
agreement entered into by and between the Unit Owners and a Hotel Operator for
the purpose of operating the Condominium for Public Rental Residential Use.
1.2.26 "HOTEL FACILITIES" means that portion of the Common
Elements consisting of the front desk, restaurant, conference rooms, fitness
rooms, linen closets not included within Units, janitor closets, laundry rooms,
offices, lobby areas, mechanical rooms, parking areas, recreation areas and
other areas of the Common Elements which are required or reasonably convenient
for the use and operation of a hotel facility.
1.2.27 "HOTEL FURNISHINGS" means those furnishings,
including furniture, art work, shutters, blinds, curtains, appliances,
decorations, fixtures and other personal property installed or located within
the Condominium, but excluding the Unit Furnishings and further excluding any
fixtures or personal property owned or leased by the Hotel Operator.
1.2.28 "HOTEL OPERATOR" means a hotel manager engaged by or
on behalf of the Unit Owners pursuant to a Hotel Operating and Rental Pool
Agreement to operate and manage the condominium-hotel business for the
Condominium, as such Hotel Operator may change from time to time.
1.2.29 "IMPROVEMENT" means any physical structure, fixture
or facility existing or constructed, placed, erected or installed on the land
included in the Condominium, including, but not limited to, buildings, private
drives, walkways, tennis courts, basketball hoops and poles, pools, spas,
paving, fences, walls, hedges, plants, trees, shrubs and landscaping of every
type and kind.
1.2.30 "LIMITED COMMON ELEMENTS" means a portion of the
Common Elements specifically designated in this Declaration as a Limited Common
Element and allocated by this Declaration or by operation of the Condominium Act
for the exclusive use of one or more but fewer than all of the Units.
1.2.31 "MEMBER" means any Person who is or becomes a member
of the Association.
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1.2.32 "PERCENTAGE INTEREST" means for each Unit that
percentage applicable to the Unit as more fully set forth on EXHIBIT "B"
attached hereto.
1.2.33 "PERIOD OF DECLARANT CONTROL" means the time period
commencing on the date this Declaration is recorded with the County Recorder of
Yavapai County, Arizona, and ending on the earlier of: (i) ninety (90) days
after the conveyance of seventy-five percent (75%) of the Units which may be
created to Unit Owners other than the Declarant; (ii) four (4) years after all
Declarants have ceased to offer Units for sale in the ordinary course of
business; or (iii) the date Declarant records an instrument with the County
Recorder of Yavapai County relinquishing its right to appoint and remove
officers and members of the Board of Directors of the Association.
1.2.34 "PERSON" means a natural person, corporation,
business trust, estate, trust, partnership, limited liability company,
association, joint venture, government, governmental subdivision or agency, or
other legal or commercial entity.
1.2.35 "PLAT" means the Condominium Plat for Sedona Hotel
Resort, a condominium, which plat has been recorded in Book of Maps, page ,
records of Yavapai County, Arizona, and any amendments, supplements or
corrections thereto.
1.2.36 "PUBLIC" means all Persons other than a Unit Owner
and family members of such Unit Owner.
1.2.37 "PUBLIC RENTAL RESIDENTIAL USE" means use of a Unit
for commercial rental to the Public for tourist, visitor and transient traveller
accommodation.
1.2.38 "PURCHASER" means any Person, other than the
Declarant, who by means of a voluntary transfer becomes a Unit Owner, except for
(i) a Person who purchases a Unit and then leases it to the Declarant for use as
a model in connection with the sale of other Units, or (ii) a Person who, in
addition to purchasing a Unit, is assigned any Special Declarant Right.
1.2.39 "RECIPROCAL EASEMENT" means that Reciprocal Easement
Agreement with Covenants and Restrictions Affecting Land recorded in Book 3332,
page 279, records of Yavapai County, Arizona, which establishes reciprocal
rights and obligations between the Condominium and the health club facility
located adjacent to the Condominium.
1.2.40 "RULES" means the rules and regulations adopted by
the Association, as amended from time to time.
1.2.41 "SPECIAL DECLARANT RIGHTS" means any right or
combination of rights reserved by or granted to the Declarant in this
Declaration or by the Condominium Act to do any of the following:
(i) Construct Improvements provided for in this
Declaration or shown on the Plat;
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(ii) Exercise any Development Right;
(iii) Maintain sales offices, management offices,
models, and signs advertising the Condominium;
(iv) Use easements through the Common Elements for
the purpose of making Improvements within the Condominium; and
(v) Appoint or remove any officer of the
Association or any member of the Board of Directors during the Period of
Declarant Control.
1.2.42 "UNIT" means a portion of the Condominium designated
for separate ownership or occupancy, the boundaries of which are described in
SECTION 2.5 of this Declaration.
1.2.43 "UNIT FURNISHINGS" means those furnishings,
including, furniture, art work, shutters, blinds, curtains, appliances,
decorations, fixtures and other personal property initially installed by
Declarant in each Unit and all replacements, substitutions, supplements and
additions thereto.
1.2.44 "UNIT OWNER" means the record owner, whether one or
more Persons, of beneficial or equitable title (and legal title if the same has
merged with the beneficial or equitable title) to the fee simple interest of a
Unit. Unit Owner shall not include Persons having an interest in a Unit merely
as security for the performance of an obligation, or a Guest or lessee, tenant,
or licensee of a Unit. Unit Owner shall include a purchaser under a contract for
the conveyance of real property, a contract for deed, a contract to convey, an
agreement for sale or any similar contract subject to A.R.S. ss.33-741, ET SEQ.
Unit Owner shall not include a purchaser under a purchase contract and receipt,
escrow instructions or similar executory contracts which are intended to control
the rights and obligations of the parties to executory contracts pending the
closing of a sale or purchase transaction. In the case of Units the fee simple
title to which is vested in a trustee pursuant to A.R.S. ss.33-801, ET SEQ., the
trustor shall be deemed to be the Unit Owner. In the case of Units the fee
simple title to which is vested in a trustee pursuant to a subdivision trust
agreement or similar agreement, the beneficiary of any such trust who is
entitled to possession of the Unit shall be deemed to be the Unit Owner.
1.2.45 "YEAR" means a calendar year.
1.2.46 "ZONING ORDINANCE" means the Yavapai County Zoning
Code applicable to the Condominium and the applicable zoning and development
stipulations of Yavapai County, which limit the use of the Condominium for
Public Rental Residential Use.
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ARTICLE 2
SUBMISSION OF PROPERTY; UNIT BOUNDARIES; ALLOCATION OF
PERCENTAGE INTERESTS, VOTES AND COMMON EXPENSE LIABILITIES
2.1 SUBMISSION OF PROPERTY. Declarant hereby submits the real
property described on EXHIBIT "A" attached to this Declaration, together with
all Improvements situated thereon and all easements, rights and appurtenances
thereto, to the provisions of the Condominium Act for the purpose of creating a
condominium in accordance with the provisions of the Condominium Act and hereby
declares that the real property described on Exhibit "A" attached to this
Declaration, together with all Improvements situated thereon, and all easements,
rights and appurtenances thereto, shall be held and conveyed subject to the
terms, covenants, conditions and restrictions set forth in this Declaration.
2.2 NAME OF CONDOMINIUM. The name of the Condominium created by this
Declaration is ShadowRock Sedona Golf Resort & Conference Center, a condominium.
2.3 NAME OF ASSOCIATION. The name of the Association is ShadowRock
Sedona Golf Resort & Conference Center Condominium Association.
2.4 IDENTIFYING NUMBERS OF UNITS. The identifying numbers of the
Units are as set forth on EXHIBIT "B" attached hereto.
2.5 UNIT BOUNDARIES.
2.5.1 The boundaries of each Unit are the interior
unfinished surfaces of the perimeter walls, floors, ceiling, doors and windows
of the Unit. All lath, furring, wallboard, plasterboard, plaster, paneling,
tiles, wallpaper, paint, finished flooring and any other materials constituting
any part of the finished surfaces of the walls, floors and ceilings are part of
the Unit, and all other portions of the walls, floors and ceilings are part of
the Common Elements.
2.5.2 Any chute, flue, duct, wire, conduit, bearing wall,
bearing column or other fixture, whether located within or outside of the
boundaries of a Unit, which serve only that Unit, is a Limited Common Element
allocated solely to that Unit, and any portion serving more than one Unit or any
portion of the Common Elements is a part of the Common Elements.
2.5.3 Subject to the provisions of SUBSECTION 2.5.2 of this
Declaration, all spaces, interior partitions and other fixtures and Improvements
within the boundaries of a Unit are part of the Unit; provided, however, any
entryway, vestibule or foyer shown on the Plat which serves as an entrance to
more than one Unit shall not be considered part of any Unit so served but shall
instead be considered a Limited Common Element allocated to the Units so served.
2.5.4 Any shutters, awnings, window boxes, doorsteps,
stoops, porches, balconies, entryways or patios, and all exterior doors
(including doors from any entryway, vestibule or foyer) and windows or other
fixtures designed to serve a single Unit, but located outside the Unit's
boundaries, are Limited Common Elements allocated exclusively to that Unit.
2.5.5 In the event of any inconsistency or conflict between
the provisions of this ARTICLE 2 and the Plat, this ARTICLE 2 shall control.
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2.5.6 The physical boundaries of a Unit shall be considered
to be the proper boundaries regardless of the settling, rising or lateral
movement of the Buildings and regardless of any variances between the boundaries
shown on the Plat and the actual physical boundaries.
2.5.7 Subject to and in accordance with A.R.S. ss. 33-1222,
Declarant reserves the right to relocate the boundaries between adjoining Units
owned by the Declarant and to reallocate each such Unit's Common Element
interest, votes in the Association, and Common Expense Liabilities.
2.6 ALLOCATION OF COMMON ELEMENT INTEREST AND COMMON EXPENSE
LIABILITIES. The allocation of undivided interests in the Common Elements and in
the Common Expenses of the Association is based upon the ratio of Declarant's
initial determination of value attributable to the initial sales offering price
of each of the Units to Declarant's initial determination of the aggregate value
of all of the Units (such aggregate value being $43,827,100). Nothing herein
shall obligate Declarant to sell any Unit for Declarant's initial determination
of value for such Unit and Units may be sold for more or less than Declarant's
initial determination of value for such units without any adjustment to the
allocation of undivided interests in the Common Elements and the Common
Expenses. The percentage interest for each Unit in the Common Elements and the
Common Expenses of the Association is set forth on EXHIBIT "B" hereto.
2.7 ALLOCATION OF VOTES IN THE ASSOCIATION. The total votes in the
Association shall be equal to the number of Units in the Condominium. The votes
in the Association shall be allocated equally among all the Units, with each
Unit having one (1) vote.
2.8 ALLOCATION OF LIMITED COMMON ELEMENTS.
2.8.1 The following portions of the Common Elements are
Limited Common Elements and are allocated to the exclusive use of one or more
Units as follows:
(i) Each first floor Unit is allocated the patio
adjoining the Unit, if any, as shown on the Plat;
(ii) Each second and third floor Unit is allocated
the balcony adjoining the Unit, if any, as shown on the Plat;
(iii) Each Unit to which access is provided via an
entryway, vestibule or foyer which serves another Unit, is allocated use of such
area, as shown on the Plat, and use is exclusively limited to those Units so
served.
(iv) Any chute, flue, pipe, duct, wire, conduit,
bearing wall, bearing column or other fixtures, whether located within or
outside of the boundaries of a Unit, which serve only one Unit is a Limited
Common Element allocated solely to the Unit served;
(v) If a chute, flue, pipe, duct, wire, conduit,
bearing wall, bearing column or other fixtures lies partially within and
partially outside the designated boundaries of a Unit, the portion serving only
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the Unit is a Limited Common Element allocated solely to the Unit, the use of
which is limited to that Unit and any portion serving more than one Unit or a
portion of the Common Elements is a part of the Common Elements;
(vi) Any shutters, awnings, window boxes, doorsteps,
stoops, porches and exterior doors and windows or other fixtures designed to
serve a single Unit, located outside the boundaries of the Unit, are Limited
Common Elements allocated exclusively to the Unit and their use is limited to
that Unit; and
(vi) Any gas, electric or water meter which serves
only one Unit is allocated to the Unit it serves.
2.8.2 A Limited Common Element may be reallocated by an
amendment to this Declaration made in accordance with the provisions of A.R.S.
ss. 33-1218(B) of the Condominium Act.
2.8.3 The Board of Directors shall have the right, without a
vote of the Members, to allocate as a Limited Common Element any portion of the
Common Elements not previously allocated as a Limited Common Element. Any such
allocation by the Board of Directors shall be made by an amendment to this
Declaration and an amendment to the Plat if required by the Condominium Act.
ARTICLE 3
EASEMENTS
3.1 UTILITY EASEMENT. There is hereby created an easement upon,
across, over and under the Common Elements for reasonable ingress, egress,
installation, replacing, repairing or maintaining of all utilities, including,
but not limited to, gas, water, sewer, telephone, cable television and
electricity. By virtue of this easement, it shall be expressly permissible for
the providing utility company to erect and maintain the necessary equipment on
the Common Elements, but no sewers, electrical lines, water lines, or other
utility or service lines may be installed or located on the Common Elements
except as initially designed, approved and constructed by the Declarant or as
approved by the Board of Directors. This easement shall in no way affect any
other recorded easements on the Common Elements.
3.2 EASEMENTS FOR INGRESS AND EGRESS. There is hereby created
easements for ingress and egress for pedestrian traffic over, through and across
sidewalks, paths, walks, and lanes that from time to time may exist upon the
Common Elements. There is also created an easement for ingress and egress for
pedestrian and vehicular traffic over, through and across such driveways and
parking areas as from time to time may be paved and intended for such purposes
except that such easements shall not extend to any Limited Common Elements. Such
easements shall run in favor of and be for the benefit of the Hotel Operator,
the Unit Owners, Guests and their families and permitted tenants and invitees.
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3.3 UNIT OWNERS' EASEMENTS OF ENJOYMENT.
3.3.1 Every Unit Owner shall have a right and easement of
enjoyment in and to the Common Elements, which right and easement shall be
appurtenant to and shall pass with the title to every Unit, subject to the
following provisions:
(i) The right of the Association to adopt reasonable
rules and regulations governing the use of the Common Elements;
(ii) The right of the Association to convey the
Common Elements or subject the Common Elements to a mortgage, deed of trust, or
other security interest, in the manner and subject to the limitations set forth
in the Condominium Act;
(iii) All rights, easements and restrictions set forth
in this Declaration including, but not limited to, the provisions of SECTION
3.3.2 and the rights and easements granted to the Declarant by SECTIONs 3.4 and
3.5 of this Declaration;
(iv) The right of the Association to suspend the
right of a Unit Owner and any occupant of such Unit Owner's Unit (other than a
Guest) to use the Common Elements for any period during which the Unit Owner is
in violation of any provision of the Condominium Documents;
(v) The right of the Hotel Operator to make use of
the Common Elements (including exclusive use of the Hotel Facilities) in
accordance with the terms of the Hotel Operating and Rental Pool Agreement; and
(vi) The right of each Owner to make use of the
Common Elements shall be limited to those times when the Owner has the right to
occupy its Unit, and then in accordance with the terms of the Hotel Operating
and Rental Pool Agreement.
3.3.2 If a Unit is leased, rented or otherwise made
available for hotel use, the Guest and the family members residing with such
Guest and any permitted invitees and guests shall have the right to use the
Common Elements during the occupancy term, subject to any limitation established
pursuant to SECTION 3.3.3. Unless a Unit Owner is occupying a Unit as a Guest or
is exercising its rights to occupy its own Unit pursuant to the rights of
occupancy set forth in any Hotel Operating and Rental Pool Agreement then in
effect, no Unit Owner shall have the right to occupy or utilize its own Unit or
the Common Elements, it being understood that such use rights have been
delegated and assigned for the use of the Hotel Operator and Guests pursuant to
the Hotel Operating and Rental Pool Agreement.
3.3.3 The Board of Directors shall have the right to limit
the number of guests and invitees of Unit Owners and Guests who may use the
Common Elements at any one time and may restrict the use of the Common Elements
by Unit Owners, Guests and their respective guests and invitees to certain
specified times. The Board of Directors may delegate this right to restrict use
of the Common Elements to any Hotel Operator.
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3.3.4 Subject to the assignment set forth in any Hotel
Operating and Rental Pool Agreement for the benefit of Guests, a Unit Owner's
right and easement of enjoyment in and to the Common Elements shall not be
conveyed, transferred, alienated or encumbered separate and apart from a Unit.
Such right and easement of enjoyment in and to the Common Elements shall be
deemed to be conveyed, transferred, alienated or encumbered upon the sale of any
Unit, notwithstanding that the description in the instrument of conveyance,
transfer, alienation or encumbrance may not refer to such right and easement.
3.3.5 Notwithstanding anything to the contrary in this
SECTION 3.3, the right to the use of the Limited Common Elements that are
allocated to one or more but less than all of the Units shall be limited to
those Persons who have the right to use the Unit to which the Limit Common
Elements are appurtenant.
3.4 DECLARANT'S USE FOR SALES PURPOSES.
3.4.1 Declarant shall have the right and an easement to
maintain sales offices, management offices and models throughout the Condominium
and to maintain one or more advertising signs on the Common Elements while the
Declarant is selling Units in the Condominium. Declarant reserves the right to
place models, management offices and sales offices in any Units owned by
Declarant and on any portion of the Common Elements in such number, of such size
and in such locations as Declarant deems appropriate.
3.4.2 Declarant may from time to time relocate models,
management offices and sales offices to different locations within the
Condominium. Upon the relocation of a model, management office or sales office
from any area constituting a Common Element, Declarant may remove all personal
property and fixtures therefrom.
3.4.3 The Declarant reserves the right to retain all
personal property and equipment used in the sales, management, construction and
maintenance of the Condominium that has not been represented in writing by
Declarant as being property of the Association. The Declarant reserves the right
to remove from the Condominium any and all goods and improvements used in
development, marketing and construction, whether or not they have become
fixtures.
3.5 DECLARANT'S RIGHTS AND EASEMENTS.
3.5.1 Declarant shall have the right and an easement on and
over the Common Elements to construct the Common Elements and the Units shown on
the Plat and all other Improvements the Declarant may deem necessary, and to use
the Common Elements and any Units owned by Declarant for construction or
renovation related purposes including the storage of tools, machinery,
equipment, building materials, appliances, supplies and fixtures, and the
performance of work in the Condominium.
3.5.2 Declarant shall have the right and an easement on,
over and under those portions of the Common Elements not located within the
Buildings for the purpose of correcting drainage of surface, roof or storm
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water, for so long as Declarant has any legal obligation to correct drainage.
The easement created by this SUBSECTION 3.5.2 expressly includes the right to
cut any trees, bushes, or shrubbery, to grade the soil or to take any other
action reasonably necessary.
3.5.3 The Declarant shall have an easement within and
through the Units for any access necessary to complete any construction,
renovations, warranty work or modifications to be performed by Declarant.
3.5.4 The Declarant shall have the right and an easement on,
over, and through the Common Elements as may be reasonably necessary for the
purpose of discharging its obligations and exercising Special Declarant Rights
whether arising under the Condominium Act or reserved in this Declaration.
3.6 EASEMENT FOR SUPPORT. To the extent necessary, each Unit shall
have an easement for structural support over every other Unit in the Buildings,
the Common Elements and the Limited Common Elements, and each Unit and the
Common Elements shall be subject to an easement for structural support in favor
of every other Unit in the Buildings, the Common Elements and the Limited Common
Elements.
3.7 COMMON ELEMENTS EASEMENT IN FAVOR OF THE ASSOCIATION AND HOTEL
OPERATOR. The Common Elements shall be subject to an easement in favor of the
Association and the Hotel Operator and their respective agents, employees and
independent contractors for the purpose of inspection, upkeep, maintenance,
repair and replacement of the Common Elements and for the purpose of operating
the Condominium as a hotel and exercising all rights of the Association and the
Hotel Operator and discharging all obligations of the Association and the Hotel
Operator as set forth in this Declaration or in the Hotel Operating and Rental
Pool Agreement.
3.8 COMMON ELEMENTS EASEMENT IN FAVOR OF UNIT OWNERS. The Common
Elements shall be subject to the following easements in favor of the Units
benefitted:
3.8.1 For the installation, repair, maintenance, use,
removal or replacement of pipes, ducts, heating and air conditioning equipment
and systems, electrical, telephone and other communication wiring and cables,
plumbing lines and fixtures, fire sprinkler lines and systems, structural
systems, and all other utility lines and conduits which are a part of or serve
any Unit and which pass across or through a portion of the Common Elements.
3.8.2 For the installation, repair, maintenance, use,
removal or replacement of lighting fixtures, electrical receptacles, panel
boards and other electrical installations which are a part of or serve any Unit
but which encroach into a part of a Common Element adjacent to such Unit;
provided that the installation, repair, maintenance, use, removal or replacement
of any such item does not unreasonably interfere with the common use of any part
of the Common Elements, adversely affect either the thermal or acoustical
character of the Buildings or impair or structurally weaken the Buildings.
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3.8.3 For driving and removing nails, screws, bolts and
other attachment devices into the Unit side surface of the stone, block, brick
or other masonry walls bounding the Unit and the Unit side surface of the studs
which support the dry wall or plaster perimeter walls bounding the Unit, the
bottom surface of floor joists above the Unit and the top surface of the floor
joists below the Unit to the extent such nails, screws, bolts and other
attachment devices may encroach into a part of a Common Element adjacent to such
Unit; provided that any such action will not unreasonably interfere with the
common use of any part of the Common Elements, adversely affect either the
thermal or acoustical character of the Buildings or impair or structurally
weaken the Buildings.
3.8.4 For the maintenance of any lighting devices, outlets,
medicine cabinets, exhaust fans, ventilation ducts, registers, grilles and
similar fixtures which serve only one Unit but which encroach into any part of
the Common Elements.
3.9 UNITS AND LIMITED COMMON ELEMENTS EASEMENT IN FAVOR OF
ASSOCIATION AND HOTEL OPERATOR. The Units and the Limited Common Elements are
hereby made subject to the following easements in favor of the Association and
the Hotel Operator and their respective agents, employees and independent
contractors:
3.9.1 For inspection of the Units and Limited Common
Elements in order to verify the performance of all required items of
maintenance, repair and replacement required by the terms of this Declaration or
the Hotel Operating and Rental Pool Agreement;
3.9.2 For inspection, maintenance, repair and replacement of
the Common Elements or the Limited Common Elements situated in or accessible
from such Units or Limited Common Elements;
3.9.3 For correction of emergency conditions in one or more
units or Limited Common Elements or casualties to the Common Elements, the
Limited Common Elements or the Units.
3.9.4 For the purpose of enabling the Association, the Board
of Directors or any other committees appointed by the Board of Directors to
exercise and discharge their respective rights, powers and duties under the
Condominium Documents and for the purpose of enabling the Hotel Operator to
exercise and discharge its respective rights, powers and duties under any Hotel
Operating and Rental Pool Agreement.
3.9.5 For inspection, at reasonable times and upon
reasonable notice to the Unit Owner, of the Units and the Limited Common
Elements in order to verify that the provisions of the Condominium Documents are
being complied with.
3.10 EASEMENT FOR UNINTENDED ENCROACHMENTS. To the extent that any
Unit or Common Element encroaches on any other Unit or Common Element as a
result of original construction, shifting or settling, or alteration or
restoration authorized by this Declaration or any reason other than the
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intentional encroachment on the Common Elements or any Unit by a Unit Owner, a
valid easement for the encroachment, and for the maintenance thereof, exists.
ARTICLE 4
USE AND OCCUPANCY RESTRICTIONS
4.1 PUBLIC RENTAL RESIDENTIAL USE. All Units shall be used, improved
and devoted exclusively to Public Rental Residential Use in accordance with the
Zoning Ordinance, subject only to the Unit Owner's limited right to occupy the
Unit as described in SECTION 4.8 below. No use of any Unit shall be permitted
which violates the Zoning Ordinance.
4.2 HOTEL OPERATING AND RENTAL POOL AGREEMENT. Each Unit Owner
acknowledges and agrees that the development in which the Units are located is a
condominium-hotel project and that rights of the Unit Owner to use the Units and
the Common Elements are subject to the terms of the Hotel Operating and Rental
Pool Agreement, and that the Condominium shall be operated by the Hotel Operator
for the benefit of the Unit Owner pursuant to the terms of such Hotel Operating
and Rental Pool Agreement. Each Unit Owner shall subject its Unit to the effect
of the Hotel Operating and Rental Pool Agreement and no Unit Owner shall have
the right to use or permit its Unit to be used in any manner contrary to the
terms of the Hotel Operating and Rental Pool Agreement and this Declaration. If
at any time a Hotel Operating Rental Pool Agreement terminates or otherwise
expires without a new Hotel Operating and Rental Pool Agreement being in place
and effective, the Board of Directors shall arrange for the Condominium to be
operated as a condominium-hotel project with a rental pool for the benefit of
all Owners (the terms of such rental pool to be substantially similar to the
terms of the rental pool in effect immediately prior to termination or
expiration of the Hotel Operating and Rental Pool Agreement), and the Board of
Directors shall have the right to hire such managers and other personnel as may
be necessary and appropriate until a new Hotel Operator is engaged pursuant to a
new Hotel Operating and Rental Pool Agreement.
4.3 ACCESS TO HOTEL OPERATOR. The Hotel Operator, its employees,
agents, contractors and permittees shall at all times have access to and use of
all portions of the Condominium as are reasonably required for the operation of
the condominium-hotel from time to time, as determined by the Hotel Operator,
acting reasonably, including, without limitation, all Hotel Facilities. During
the term of any Hotel Operating and Rental Pool Agreement, the Hotel Operator
shall have the exclusive right to (i) make use of the Hotel Facilities; and (ii)
make Units available to Guests (who may also have access to the right to use
those portions of the Common Elements authorized by Hotel Operator) and no Unit
Owner shall interfere with such exclusive rights.
4.4 HOTEL FACILITIES. The Hotel Operator shall be entitled to set up
and maintain within the Common Elements any facilities as are reasonably
required by the Hotel Operator in connection with the operation of the
condominium-hotel, including, without limitation, the Hotel Facilities and any
interior or exterior signage reasonably desired by the Hotel Operator.
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4.5 COMPLIANCE WITH LAWS. The Hotel Operator shall comply with all
governmental and other regulatory statutes, laws, bylaws, rules, regulations,
codes, ordinances and licensing requirements related to the operation of a
condominium-hotel.
4.6 NO ACTS IN CONTRAVENTION OF HOTEL OPERATING AND RENTAL POOL
AGREEMENT. All Unit Owners agree that all bylaws, rules and regulations of the
Association shall be consistent with the operation of the Condominium as a
condominium-hotel in accordance with the Hotel Operating and Rental Pool
Agreement, as in effect from time to time, and that they will not impair,
interfere with or adversely affect such operation. The Unit Owners further agree
that they will not do any act or thing and shall cause the Association to
refrain from doing any act or thing which may impair, interfere with or limit
the ability of the Hotel Operator to operate the Condominium as a
condominium-hotel in accordance with the Hotel Operating and Rental Pool
Agreement.
4.7 LIMITATION ON RIGHT TO LEASE OR USE UNIT. No Unit Owner shall
rent, lease or otherwise use its Unit for any purpose, including personal use by
the Unit Owner, except as expressly permitted pursuant to SECTION 4.8 hereof and
the applicable provisions of the Hotel Operating and Rental Pool Agreement.
4.8 RESIDENTIAL USE BY UNIT OWNERS. Notwithstanding anything in
this ARTICLE 4 to the contrary, a Unit Owner may use its Unit only as follows:
4.8.1 In order to use its Unit, the Unit Owner must reserve
the Unit in accordance with and otherwise comply with the provisions of this
SECTION 4.8 and EXHIBIT "C" attached hereto.
4.8.2 A Unit Owner may use its Unit only in accordance with
the advance reservation and occupancy duration provisions of EXHIBIT "C". If a
Unit Owner reserves its Unit pursuant to Paragraph 2 of EXHIBIT "C", but does
not actually use the Unit during the time reserved, the Unit Owner shall still
be deemed to have used the Unit for the time so reserved unless, at least thirty
(30) days prior to the Unit Owner's scheduled use of the Unit, the Unit Owner
cancels such reservation with the approval of the Hotel Operator. If a Unit
Owner reserves its Unit pursuant to Paragraph 3 of EXHIBIT "C" but does not
actually use the Unit during the time reserved, the Unit Owner shall still be
deemed to have used the Unit for the time so reserved unless, at least five (5)
days prior to the Unit Owner's scheduled use of the Unit, the Unit Owner cancels
such reservation with the approval of the Hotel Operator.
4.8.3 If a Unit Owner does not reserve or use the full
amount of days permitted to be used by the Unit Owner pursuant to EXHIBIT "C" in
any Year, the Unit Owner shall not be entitled to accumulate or otherwise use
the unused days in any future Year.
4.8.4 Subject to the use by Unit Owners of their Units as
permitted by this SECTION 4.8 and the rights of Declarant as set forth in
SECTION 3.4, all Units shall be made available at all times for rental to or use
by the Public in accordance with the terms of the Hotel Operating and Rental
Pool Agreement. The Hotel Operator may accept reservations at any time from the
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Public for the use of any Unit for any future day or days; however, provided a
Unit Owner has booked the use of its Unit in accordance with the terms of
EXHIBIT "C", use of the Unit by the Unit Owner shall take precedence.
4.8.5 Each Unit Owner acknowledges that at all times while
it is occupying and making use of its Unit (or if such Unit Owner has reserved
its Unit but does not actually use the Unit during the time reserved, without
having provided the Hotel Operator prior written notice of intent not to use the
Unit as set forth in SECTION 4.8.2), the Unit Owner will not share in the rental
pool proceeds for the days the Unit Owner occupies, or is deemed to have
occupied the Unit.
4.8.6 Anything in this SECTION 4.8 to the contrary
notwithstanding, the Owner of a Unit designated as an Executive Unit on EXHIBIT
"B" may not reserve, use or authorize or assign to any other Person the right to
use or occupy its Executive Unit, except that the Hotel Operator may make use
and allow others to make use of such Executive Unit as part of the normal
operation of the condominium - hotel.
4.8.7 Anything in this Declaration to the contrary
notwithstanding, in the event any Unit Owner sells, transfers or conveys its
interest in a Unit, either voluntarily or involuntarily (including, without
limitation, a transfer of a Unit pursuant to the exercise of any remedies by a
secured party under any deed of trust or other instrument or lien encumbering a
Unit), then the successor Unit Owner (including any trustee or third-party
foreclosure purchaser) shall be obligated to honor any outstanding commitments
to any Exchange Program User for use of the Unit which have been confirmed by
the Hotel Operator as of the date of transfer of the Unit to such successor Unit
Owner.
4.9 ANTENNAS. The Board of Directors shall regulate, to the extent
permitted under federal, state and local law, any antenna, aerial, satellite
television dish or other device for the transmission or reception of television
or radio signals or any other form of electromagnetic radiation proposed to be
erected, used or maintained outdoors on any portion of the Condominium whether
attached to a Building or structure or otherwise. To the extent permitted by
applicable law, the prior approval of the Board of Directors shall be required
for the installation, use or maintenance of any such device, which approval the
Board may condition upon the satisfaction of certain conditions including, but
not limited to, the size, placement, height, means of installation and screening
of such devices.
4.10 UTILITY SERVICE. Except for lines, wires and devices existing
on the Condominium as of the date of this Declaration and maintenance and
replacement of the same, without the prior written approval of the Association,
no lines, wires, or other devices for the communication or transmission of
electric current or power, including telephone, television, and radio signals,
shall be erected, placed or maintained anywhere in or upon the Condominium
unless they are installed and maintained underground or concealed in, under, or
on Buildings or other structures permitted under this Declaration. No provision
hereof shall be deemed to forbid the erection of temporary power or telephone
structures incident to the operation of the Condominium as a hotel or
construction of Buildings or structures permitted under this Declaration.
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4.11 IMPROVEMENTS AND ALTERATIONS. No structural additions,
alterations or improvements shall be made to any Building, Common Area or within
a Unit, unless prior to the commencement of each addition, alteration or
improvement, the Board of Directors has given its prior written approval (which
may be withheld in the sole and absolute discretion of the Board of Directors)
and, if required by the Board of Directors, an architect or engineer, licensed
in Arizona, certifies that such addition, alteration or improvement will not
impair the structural, electrical, mechanical, plumbing or functional integrity
of the Building or Unit to or within which such addition, alteration or
improvement is to be made.
4.12 TRASH CONTAINERS AND COLLECTION. No garbage or trash shall be
placed or kept on the Condominium except in covered containers of a type, size
and style which are approved by the Board of Directors and the Hotel Operator.
The Board of Directors or the Hotel Operator shall have the right to subscribe
to a trash service for the use and benefit of the Hotel Operator, the
Association and all Unit Owners. The Board of Directors and the Hotel Operator
together may adopt and promulgate rules and regulations regarding garbage,
trash, trash containers and collection. No incinerators shall be kept or
maintained in any Unit.
4.13 MACHINERY AND EQUIPMENT. No machinery or equipment of any kind
shall be placed, operated or maintained upon the Condominium except such
machinery or equipment as is usual and customary in connection with the use,
maintenance or construction of buildings, improvements or structures which are
within the uses permitted by this Declaration, and except for such machinery and
equipment as the Hotel Operator reasonably deems necessary in order to permit
the Hotel Operator to operate the Condominium as a condominium-hotel.
4.14 ANIMALS. No animals, birds, fowl, poultry or livestock shall be
maintained or kept in any Units or on any other portion of the Condominium,
except for physical impairment, assistive animals, to the extent that a Unit
Owner or Guest or any employee or contractor of the Association or the Hotel
Operator requires the use of such assistive animals, and in any such instance,
in accordance with any Association rules and regulations which then may be in
effect.
4.15 CLOTHES DRYING FACILITIES. Outside clotheslines or other
outside facilities for drying or airing clothes shall not be erected, placed or
maintained on the Condominium.
4.16 MINERAL EXPLORATION. No portion of the Condominium shall be
used in any manner to explore for or to remove any water, oil or other
hydrocarbons, minerals of any kind, gravel, earth, or any earth substance of any
kind.
4.17 DISEASES AND INSECTS. No Unit Owner shall permit any thing or
condition to exist upon the Condominium which could induce, breed or harbor
infectious plant diseases or noxious insects.
4.18 TRUCKS, TRAILERS, CAMPERS AND BOATS. No truck, mobile home,
travel trailer, tent trailer, trailer, camper shell, detached camper,
recreational vehicle, boat, boat trailer, or other similar equipment or vehicle
may be parked, kept, maintained, constructed, reconstructed or repaired on any
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part of the Condominium, except for temporary parking for Guests which must be
in accordance with applicable Association rules and regulations.
4.19 MOTOR VEHICLES. Except for emergency repairs, no automobile,
motorcycle, motorbike or other motor vehicle shall be constructed,
reconstructed, serviced or repaired on any portion of the Condominium, and no
inoperable vehicle may be stored or parked on any portion of the Condominium. No
automobile, motorcycle, motorbike or other motor vehicle shall be parked upon
any part of the Condominium except in such parking spaces as may exist from time
to time on the Common Elements and then only in accordance with parking
regulations jointly adopted by the Board of Directors and the Hotel Operator.
4.20 TOWING OF VEHICLES. The Board of Directors and the Hotel
Operator shall have the right to have any truck, mobile home, travel trailer,
tent trailer, trailer, camper shell, detached camper, recreational vehicle,
boat, boat trailer or similar equipment or vehicle or any automobile,
motorcycle, motorbike, or other motor vehicle parked, kept, maintained,
constructed, reconstructed or repaired in violation of the Condominium Documents
or any parking regulation adopted by the Hotel Operator or the Board of
Directors towed away at the sole cost and expense of the owner of the vehicle or
equipment. Any expense incurred by the Association or the Hotel Operator in
connection with the towing of any vehicle or equipment shall be paid upon demand
by the owner of the vehicle or equipment.
4.21 SIGNS. Except for signs of the Hotel Operator incidental to the
operation of the Condominium as a hotel as reasonably determined to be
appropriate by the Hotel Operator and any "For Sale" or other advertising signs
which Declarant may elect to post in connection with its marketing of the
development, no signs (including, but not limited to, "For Sale" or "For Rent"
signs) shall be permitted on the exterior of any Unit or Building or any other
portion of the Condominium without the prior written approval of the Board of
Directors and any Hotel Operator.
4.22 LAWFUL USE. No immoral, improper, offensive, or unlawful use
shall be made of any part of the Condominium. All valid laws, zoning ordinances,
and regulations of all governmental bodies having jurisdiction over the
Condominium shall be observed. Any violation of such laws, zoning ordinances or
regulations shall be a violation of this Declaration.
4.23 NUISANCES AND OFFENSIVE ACTIVITY. No nuisance shall be
permitted to exist or operate upon the Condominium, and no activity shall be
conducted upon the Condominium which is offensive or detrimental, or is an
annoyance, to any portion of the Condominium or any occupant of the Condominium.
No exterior speakers, horns, whistles, bells or other sound devices, except (i)
security or other emergency devices used exclusively for security or emergency
purposes, or (ii) sound systems used by or with the consent of the Hotel
Operator for outdoor functions and activities in connection with the operation
of the Condominium as a hotel, shall be located, used or placed on the
Condominium.
4.24 WINDOW COVERINGS. No reflective materials, including, but
without limitation, aluminum foil, reflective screens or glass, mirrors or
similar items, shall be installed or placed upon the outside or inside of any
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windows of a Unit or of any Limited Common Elements allocated to the Unit
without the prior written approval of the Board of Directors. No enclosures,
drapes, blinds, shades, screens or other items affecting the exterior appearance
of a Unit or any Limited Common Elements allocated to the Unit shall be
constructed or installed without the prior written consent of the Board of
Directors.
4.25 LIMITATION ON LEASING OF UNITS. No Unit Owner may lease its
Unit or permit any Person to use its Unit or any of the Common Elements except
in accordance with this ARTICLE 4. Under no circumstances will any Unit Owner
directly or indirectly charge rent or any form of consideration for the use of
such Unit Owner's Unit except in accordance with the terms of the Hotel
Operating and Rental Pool Agreement.
4.26 FURNISHINGS. No Owner may remove, replace, substitute, alter,
repair or add to any of the Unit Furnishings or Hotel Furnishings. Redecorating
and repair, refurbishment and replacement of Unit Furnishings and Hotel
Furnishings shall be scheduled and accomplished by the Hotel Operator, in
accordance with the terms of the Hotel Operating and Rental Pool Agreement.
ARTICLE 5
MAINTENANCE AND REPAIR OF COMMON ELEMENTS AND UNITS
5.1 REPAIR OF COMMON ELEMENTS. Except as otherwise set forth in
SECTION 5.3, the Association shall clean, maintain, repair and replace all
Common Elements and all Limited Common Elements. Subject to the provision of
SECTION 5.3, the expense thereof shall be a Common Expense.
5.2 REPAIR OF UNITS.The repair and maintenance of the Units and the
cost of repairs, refurbishing, replacement and maintenance of all Furnishings
shall be the responsibility of the Unit Owners, each of which shall cause its
Unit and the Furnishings for such Unit to be maintained in good order and
repair, reasonable wear and tear excepted. To enable the Condominium to be
properly operated as a hotel, each Owner shall delegate its obligation under
this SECTION to the Hotel Operator under the Hotel Operating and Rental Pool
Agreement, and except as set forth in SECTION 5.3, all costs of such cleaning,
repair, maintenance, refurbishing and replacement of the Units and their
Furnishing shall be jointly shared by all Unit Owners, as part of the operating
costs of the hotel operation.
5.3 REPAIR OR RESTORATION NECESSITATED BY OWNER. Each Unit Owner
shall be liable to the extent permitted by Arizona law, for any damage to such
Unit Owner's Unit, any Furnishings within its Unit, or the Common Elements
(including the Improvements, landscaping, personal property or equipment) which
results from the negligence or willful conduct of the Unit Owner or its family
members or invitees (other than Guests). If the Association or Hotel Operator
pays the cost of any such repair, maintenance or replacements required by such
act of a Unit Owner, the Unit Owner shall pay all such costs upon demand. The
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Association may enforce collection of any such amounts in the same manner and to
the same extent as provided for in this Declaration for the collection of
Assessments.
5.4 REPAIR AND RECOVERY RIGHTS OF ASSOCIATION. It is anticipated
that the Hotel Operator will undertake the responsibility to perform the
cleaning, repair, maintenance, replacement and refurbishment of the Units, the
Unit Furnishings, Hotel Furnishings, Common Elements and Limited Common
Elements, pursuant to the terms of the Hotel Operating and Rental Pool Agreement
and that the costs thereof will be jointly charged to the Unit Owners. To the
extent such costs are included in the annual proposed operating budget submitted
to the Association by the Hotel Operator, such costs relating to the Common
Elements and Limited Common Elements shall not be included in initially
establishing the annual Assessments to be levied by the Board of Directors
pursuant to SECTION 7.2; however, if at any time (i) a Hotel Operating and
Rental Pool Agreement is not in effect; or (ii) such agreement does not provide
for the Hotel Operator to pay the costs of complying with SECTIONs 5.1 and 5.2;
or (iii) the Hotel Operator is in default under such agreement and is not paying
such costs, the Association shall be responsible for assuring compliance with
SECTION 5.1 and 5.2, and any costs incurred by the Association in performing any
cleaning, repair, maintenance, refurbishing or replacement obligations of
SECTIONs 5.1 or 5.2 shall become Common Expenses and shall be payable in
accordance with the terms of SECTION 7.21 and the Association may enforce
collection of any such amounts in the same manner and to the same extent as
provided for in this Declaration for the collection of Assessments.
ARTICLE 6
THE ASSOCIATION; RIGHTS AND DUTIES; MEMBERSHIP
6.1 RIGHTS, POWERS AND DUTIES OF THE ASSOCIATION. No later than the
date on which the first Unit is conveyed to a Purchaser, the Association shall
be organized as a nonprofit Arizona corporation. The Association shall be the
entity through which the Unit Owners shall act. Unless the Condominium Documents
or the Condominium Act specifically require a vote of the Members, approvals or
actions to be given or taken by the Association shall be valid if given or taken
by the Board of Directors. The Association shall have such rights, powers and
duties as are prescribed by law and as are set forth in the Condominium
Documents together with such rights, powers and duties as may be reasonably
necessary in order to effectuate the objectives and purposes of the Association
as set forth in this Declaration and the Condominium Act. The rights and
obligations of the Association under this Declaration may be assigned and
delegated to a Hotel Operator to enable the Hotel Operator to comply with its
obligations under any Hotel Operating and Rental Pool Agreement. Without
limiting the generality of the foregoing, the Association shall have the
following rights, powers and duties:
6.1.1 The Association shall have the right to finance
capital improvements in the Condominium by encumbering future Assessments if
such action is approved by the written consent or affirmative vote of Unit
Owners representing more than fifty percent (50%) of the votes in the
Association.
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6.1.2 The Association has the specific duty to make
available, during normal business hours, to the Declarant, Eligible Mortgage
Holders, Unit Owners, and Eligible Insurers or Guarantors, current copies of the
Declaration, Bylaws, ARTICLEs, Rules and other books, records and financial
statements of the Association as may be requested from time to time by such
parties. Such requests shall be in writing, and the Association shall have the
right to charge for copying expenses.
6.1.3 The Association shall control, manage and administer
the Common Elements for the benefit of all Unit Owners, subject to the rights
granted to the Hotel Operator under any Hotel Operating and Rental Pool
Agreement.
6.1.4 The Association shall assure that the Units and the
Common Elements and all Limited Common Elements are kept and maintained in a
clean, safe and attractive condition and in a state of good and serviceable
repair (reasonable wear and tear excepted) and that all Unit Furnishings and all
Hotel Furnishings are properly maintained, repaired and replaced and if not so
maintained by the Unit Owners (or on their behalf by the Hotel Operator), the
Association is authorized to undertake all such upkeep, maintenance, repair and
replacement and recover the cost thereof from any Person(s) responsible
therefor.
6.1.5 Subject to the right of the Association to pay amounts
to the Hotel Operator as set forth in this Declaration, the Association shall
collect and receive all Assessments levied by the Association and other amounts
payable to the Association and shall pay all sums of money properly required to
be paid on account of all services, supplies and obligations pertaining to or
for the benefit of the Association.
6.1.6 The Association shall conduct all negotiations with
the Hotel Operator on behalf of the Unit Owners, including but not limited to
negotiating the terms of the Hotel Operating and Rental Pool Agreement and all
extensions, renewals, amendments, supplements and replacements thereto and
perform all reasonable obligations undertaken by the Association under any such
agreement.
6.1.7 The Association may:
(i) purchase, hire or otherwise acquire personal
property to enable the Condominium to be used for hotel purposes;
(ii) borrower money required by it in the
performance of its duties or the exercise of its powers, including arranging an
operating line of credit, on terms and at rates of interest which are consistent
with prudent business practices;
(iii) secure the repayment of money borrowed by it,
and the payment of interest, by negotiable instrument or encumbrance of unpaid
Assessments, whether levied or not, or mortgage any property vested in it, or by
combination of those means;
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(iv) invest, as it may determine, in separate
accounts, Association funds, including but not limited to reserve funds;
(v) designate by special resolution an area as
Limited Common Element and specify the Unit or Units that are to have the use of
such Limited Common Element;
(vi) do all things necessary for the enforcement
of this Declaration, the Bylaws and the Rules of the Association, and for the
control, management and administration of the Common Elements or other assets of
the Association, including removing privileges for the use of certain
facilities, or fixing and collecting fines for contravention of the Declaration,
Bylaws or Rules;
(vii) set up and maintain separate contingency
reserve funds for such purposes and in such amounts as the Board of Directors
deems appropriate;
(viii) grant, revise, amend and supplement easements
over Common Elements (including but not limited to parking areas) for the
benefit of any governmental agency (including the County of Yavapai), for the
use of the general public and for the benefit of adjoining landowners, upon such
terms as the Board of Directors deems to be reasonably prudent;
(ix) hire a management company, managing agent or
executive director and establish committees to assist the Association and the
Board of Directors in performing their respective duties and responsibilities;
and
(x) initiate, pursue, compromise, and settle
(including dismissal) real estate tax protests and appeals relative to the
Condominium, including individual Units, in the name of the Association and/or
the individual Unit Owners, and upon request, each Unit Owner will grant to the
Association a limited power of attorney, in the form required by any taxing
authority, to permit the Association to pursue any such real estate tax protest
or appeal on behalf of the respective Unit Owner.
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6.2 DIRECTORS AND OFFICERS.
6.2.1 During the Period of Declarant Control, the Declarant
shall have the right to appoint and remove the members of the Board of Directors
and the officers of the Association. Such members of the Board of Directors and
officers are not required to be Unit Owners.
6.2.2 Upon the termination of the Period of Declarant
Control, the Unit Owners shall elect the Board of Directors which must consist
of at least five (5) members, at least a majority of whom must be Unit Owners.
The Board of Directors elected by the Unit Owners shall then elect the officers
of the Association.
6.2.3 The Declarant may voluntarily surrender its right to
appoint and remove the members of the Board of Directors and the officers of the
Association before termination of the Period of Declarant Control, and in that
event the Declarant may require, for the duration of the Period of Declarant
Control, that specified actions of the Association or the Board of Directors, as
described in a recorded instrument executed by the Declarant, be approved by the
Declarant before they become effective.
6.3 RULES. The Board of Directors, from time to time and subject to
the provisions of this Declaration and the Condominium Act, may adopt, amend,
and repeal Rules. The Rules may, among other things, restrict and govern the use
of any area by any Guest, any Unit Owner, or by any family member or invitee of
such Unit Owner; provided, however, that the Rules may not unreasonably
discriminate among Unit Owners and shall not be inconsistent with the
Condominium Act, this Declaration, the ARTICLEs, Bylaws or any Hotel Operating
and Rental Pool Agreement, nor shall such Rules discriminate against the Hotel
Operator or unreasonably restrict the Hotel Operator from performing its duties
or exercising its rights under the Hotel Operating and Rental Pool Agreement. A
copy of the Rules as they may from time to time be adopted, amended or repealed,
shall be mailed or otherwise delivered to each Unit Owner and may be recorded.
6.4 COMPOSITION OF MEMBERS. Each Unit Owner shall be a Member of the
Association. The membership of the Association at all times shall consist
exclusively of all the Unit Owners. A Unit Owner (including Declarant) of a Unit
shall automatically, upon becoming the Unit Owner thereof, be a Member of the
Association and shall remain a Member of the Association until such time as such
Unit Owner's ownership ceases for any reason, at which time, such Unit Owner's
membership in the Association shall automatically cease.
6.5 PERSONAL LIABILITY. Neither Declarant nor any member of the
Board of Directors or of any committee of the Association, any officer of the
Association nor any manager or other employee of the Association shall be
personally liable to any Member, or to any other person or entity, including the
Association, for any damage, loss or prejudice suffered or claimed on account of
any act, omission, error or negligence of the Declarant, the Association, the
Board of Directors, the manager, any representative or employee of the
Association, or any committee, committee member or officer of the Association;
provided, however, the limitations set forth in this SECTION 6.5 shall not apply
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to any person who has failed to act in good faith or has engaged in wilful or
intentional misconduct.
6.6 IMPLIED RIGHTS. The Association may exercise any right or
privilege given to the Association expressly by the Condominium Documents and
every other right or privilege reasonably to be implied from the existence of
any right or privilege given to the Association by the Condominium Documents or
reasonably necessary to effectuate any such right or privilege.
6.7 VOTING RIGHTS. Subject to SECTION 6.8 below, each Unit Owner of
a Unit, including Declarant, shall be entitled to cast one (1) vote for each
Unit owned by such Unit Owner, on any Association matter which is put to a vote
of the membership in accordance with this Declaration, the ARTICLEs and/or
Bylaws.
6.8 VOTING PROCEDURES. No change in the ownership of a Unit shall be
effective for voting purposes unless and until the Board of Directors is given
actual written notice of such change and is provided satisfactory proof thereof.
The vote for each such Unit must be cast as a unit, and fractional votes shall
not be allowed. In the event that a Unit is owned by more than one (1) Person
and such Unit Owners are unable to agree among themselves as to how their vote
or votes shall be cast, they shall lose their right to vote on the matter in
question. If any Member casts a vote representing a certain Unit, it will
thereafter be conclusively presumed for all purposes that such Unit Owner was
acting with the authority and consent of all other Unit Owners of the same Unit
unless objection thereto is made at the time the vote is cast. In the event more
than one (1) vote is cast by a Member for a particular Unit, none of the votes
shall be counted and all of the votes shall be deemed void.
6.9 TRANSFER OF MEMBERSHIP. The rights and obligations of any Member
other than the Declarant shall not be assigned, transferred, pledged, conveyed
or alienated in any way except upon transfer of ownership of a Unit Owner's
Unit, and then only to the transferee of ownership to the Unit. A transfer of
ownership to a Unit may be effected by deed, intestate succession, testamentary
disposition, foreclosure of a mortgage of record, or such other legal process as
now in effect or as may hereafter be established under or pursuant to the laws
of the State of Arizona. Any attempt to make a prohibited transfer shall be
void. Any transfer of ownership to a Unit shall operate to transfer the
membership appurtenant to said Unit to the new Unit Owner thereof. Each
Purchaser of a Unit shall notify the Association of its purchase within ten (10)
days after becoming the Unit Owner of a Unit.
6.10 SUSPENSION OF VOTING RIGHTS. If any Unit Owner fails to pay any
Assessments or other amounts due to the Association under the Condominium
Documents within fifteen (15) days after such payment is due or if any Unit
Owner violates any other provision of the Condominium Documents and such
violation is not cured within fifteen (15) days after the Association notifies
the Unit Owner of the violation, the Board of Directors shall have the right to
suspend such Unit Owner's right to vote until such time as all payments,
including interest and attorneys' fees, are brought current, and until any other
infractions or violations of the Condominium Documents are corrected.
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6.11 CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS. The Common
Elements shall not be mortgaged, transferred, dedicated or encumbered without
the prior written consent or affirmative vote of Unit Owners representing at
least eighty percent (80%) of the votes of the Members. In addition, any
conveyance, encumbrance, judicial sale or other transfer (whether voluntary or
involuntary) of an individual interest in the Common Elements shall be void
unless the Unit to which that interest is allocated also is transferred.
ARTICLE 7
ASSESSMENTS
7.1 PREPARATION OF BUDGET.
7.1.1 At least thirty (30) days before the beginning of each
fiscal year of the Association commencing with the fiscal year in which the
first Unit is conveyed to a Purchaser, the Board of Directors shall adopt a
budget for the Association containing an estimate of the total amount of funds
which the Board of Directors believes will be required during the ensuing fiscal
year to pay all Common Expenses, excluding any Common Expenses which are
proposed to be paid by the Hotel Operator pursuant to the terms of the annual
operating budget prepared by the Hotel Operator for the ensuing year. The budget
shall separately reflect any Common Expenses to be assessed against less than
all of the Units pursuant to SUBSECTION 7.2.4 of this Declaration.
7.1.2 Within thirty (30) days after the adoption of a
budget, the Board of Directors shall send to each Unit Owner the budget or a
summary of the budget and a statement of the amount of the Common Expense
Assessment assessed against the Unit of the Unit Owner in accordance with
SECTION 7.2 of this Declaration. The failure or delay of the Board of Directors
to prepare or adopt a budget for any fiscal year shall not constitute a waiver
or release in any manner of a Unit Owner's obligation to pay his allocable share
of the Common Expenses as provided in SECTION 7.2 of this Declaration, and each
Unit Owner shall continue to pay the Common Expense Assessment against his Unit
as established for the previous fiscal year until notice of the Common Expense
Assessment for the new fiscal year has been established by the Board of
Directors.
7.1.3 The Board of Directors is expressly authorized to
adopt and amend budgets for the Association, and no ratification of any budget
or amended budget by the Unit Owners shall be required.
7.2 COMMON EXPENSE ASSESSMENT.
7.2.1 For each fiscal year of the Association commencing
with the fiscal year in which the first Unit is conveyed to a Purchaser, the
Common Expense Assessment for each Unit shall be determined by multiplying the
total estimated Common Expenses set forth in the budget adopted by the Board of
Directors (except for the Common Expenses which are to be assessed against less
than all of the Units pursuant to SUBSECTION 7.2.4) times the applicable
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Percentage Interest as set forth on EXHIBIT "B" attached hereto (the "Common
Expense Share"). If the Board of Directors determines during any fiscal year
that funds budgeted or available for that fiscal year are or will become
inadequate to meet all Common Expenses for any reason, including, without
limitation, reduced income and expense reimbursement from the operation of the
hotel, or increased Common Expenses, nonpayment of Assessments by Members, or
nonpayment of hotel operating costs (including maintenance and repairs of the
Common Elements, Unit Furnishings, Hotel Furnishings and Units by the Hotel
Operator) the Board of Directors may increase and reallocate the Common Expense
Assessment for that fiscal year and the revised Common Expense Assessment for
each Unit shall commence on the date designated by the Board of Directors.
7.2.2 The Common Expense Assessments shall commence as to
all Units on the first day of the month following the conveyance of the first
Unit to a Purchaser. The first Common Expense Assessment shall be adjusted
according to the number of months remaining in the fiscal year of the
Association. The Board of Directors may require that the Common Expense
Assessments or be paid in installments. For the period from the date upon which
this Declaration is recorded through the first day of the month following the
conveyance of the first Unit to a Purchaser, the Declarant shall be responsible
for assuring that the actual Common Expenses accrued through such date are paid.
7.2.3 Except as otherwise expressly provided for in this
Declaration, all Common Expenses shall be assessed against all of the Units in
accordance with SUBSECTION 7.2.1 of this Declaration.
7.2.4 If any Common Expense is caused by the negligence or
other misconduct of any Unit Owner, or if any Unit Owner fails to pay when due
any amount owing to the Hotel Operator under the Hotel Operating and Rental Pool
Agreement (a "Rental Pool Delinquency"), the Association (i) shall assess any
such Common Expense exclusively against such Unit Owner to the extent not
covered by insurance; and (ii) may assess any such Rental Pool Delinquency
exclusively against such Unit Owner.
7.2.5 All Assessments, monetary penalties and other fees and
charges levied against a Unit shall be the personal obligation of the Unit Owner
of the Unit at the time the Assessments, monetary penalties or other fees and
charges became due. The personal obligation of a Unit Owner for Assessments,
monetary penalties and other fees and charges levied against his Unit shall not
pass to the Unit Owner's successors in title unless expressly assumed by them.
7.3 SPECIAL ASSESSMENTS. In addition to Common Expense Assessments,
the Association may levy, in any fiscal year of the Association, a special
assessment applicable to that fiscal year only for the purpose of defraying, in
whole or in part, the cost of any construction, reconstruction, repair or
replacement of a capital improvement of one or more Units and/or the Common
Elements, including fixtures and personal property related thereto, or for any
other lawful Association purpose, provided that any Special Assessment shall
have first been approved by Unit Owners representing two-thirds (2/3) of the
votes in the Association who are voting in person or by proxy at a meeting duly
called for such purpose. Unless otherwise specified by the Board of Directors,
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Special Assessments shall be due thirty (30) days after they are levied by the
Association and notice of the Special Assessment is given to the Unit Owners.
7.4 EFFECT OF NONPAYMENT OF ASSESSMENTS; REMEDIES OF THE
ASSOCIATION.
7.4.1 Any Assessment, or any installment of an Assessment,
which is not paid within five (5) days after the Assessment first became due
shall be deemed delinquent and shall bear interest from the date of delinquency
at the rate of interest established from time to time by the Board of Directors.
7.4.2 All Assessments, monetary penalties and other fees and
charges imposed or levied against any Unit or Unit Owner shall be secured by the
Assessment Lien as provided for in the Condominium Act. The recording of this
Declaration constitutes record notice and perfection of the Assessment Lien, and
no further recordation of any claim of lien shall be required. Although not
required in order to perfect the Assessment Lien, the Association shall have the
right but not the obligation, to record a notice setting forth the amount of any
delinquent assessments, monetary penalties or other fees or charges imposed or
levied against a Unit or the Unit Owner which are secured by the Assessment
Lien.
7.4.3 The Association shall have the right, at its option,
to enforce collection of any delinquent Assessments, monetary penalties and all
other fees and charges owed to the Association in any manner allowed by law
including, but not limited to: (i) bringing an action at law against the Unit
Owner personally obligated to pay the delinquent amounts and such action may be
brought without waiving the Assessment Lien securing any such delinquent
amounts; or (ii) bringing an action to foreclose its Assessment Lien against the
Unit in the manner provided by law for the foreclosure of a realty mortgage. The
Association shall have the power to bid at any foreclosure sale and to purchase,
acquire, hold, lease, mortgage and convey any and all Units purchased at such
sale.
7.5 SUBORDINATION OF ASSESSMENT LIEN TO MORTGAGES. The Assessment
Lien shall be subordinate to the lien of any First Mortgage. Any First Mortgagee
or any other party acquiring title or coming into possession of a Unit through
foreclosure of a First Mortgage, purchase at a foreclosure sale or trustee sale,
or through any equivalent proceedings, such as, but not limited to, the taking
of a deed in lieu of foreclosure, shall acquire title free and clear of any
claims for unpaid Assessments, monetary penalties and other fees and charges
against the Unit which became payable prior to such sale or transfer. Any
delinquent Assessments, monetary penalties and other fees and charges which are
extinguished pursuant to this SECTION 7.5 may be reallocated and assessed to all
Units as at Common Expense. Any Assessments, monetary penalties and other fees
and charges against the Unit which accrue prior to such sale or transfer shall
remain the obligation of the defaulting Unit Owner.
7.6 EXEMPTION OF UNIT OWNER. No Unit Owner may exempt itself from
liability for payment of Assessments, monetary penalties and other fees and
charges levied pursuant to the Condominium Documents by waiver and nonuse of any
of the Common Elements or by the abandonment or non-use of its Unit.
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7.7 CERTIFICATE OF PAYMENT. The Association on written request shall
issue or cause to be issued to a lienholder, Unit Owner or Person designated by
a Unit Owner, a statement setting forth the amount of unpaid Assessments against
the Unit. The statement shall be furnished within fifteen (15) days after
receipt of the request and the statement is binding on the Association, the
Board of Directors, and every Unit Owner. In addition, upon receipt of a written
notice of a pending sale that contains the name and address of the Purchaser,
the Association shall mail or deliver to a Purchaser within seven (7) days after
receipt of the notice a written statement setting forth the amount of the Common
Expense Assessment for the Unit and any unpaid Common Expense Assessment, fee or
charge currently due from the selling Unit Owner, together with such other
information as may be required under the Condominium Act. The Association may
charge the Unit Owner a reasonable fee in an amount established by the Board of
Directors for each such statement.
7.8 NO OFFSETS. All Assessments, monetary penalties and other fees
and charges shall be payable in accordance with the provisions of this
Declaration, and no offsets against such Assessments, monetary penalties and
other fees and charges shall be permitted for any reason, including, without
limitation, a claim that the Association is not properly exercising its duties
and powers as provided in the Condominium Documents or the Condominium Act or
that insufficient revenue is being generated by the Hotel Operator.
7.9 RESERVE FUND. To assist the Association in maintaining adequate
funds to pay any hotel operation expenses and to establish appropriate reserves
therefor, each Purchaser of a Unit from the Declarant shall pay to the
Association, immediately upon becoming the Unit Owner of the Unit, an operating
cash reserve fund payment equal to $250,000 multiplied times the Percentage
Interest attributable to the Unit as such amount is set forth on EXHIBIT "B" for
each Unit. Such amount shall not be considered as an advance payment of any
Assessments levied by the Association pursuant to this Declaration. The
Association shall make such reserve fund payment available to the Hotel Operator
following the first year's operation of the Hotel to apply against any operating
cash required to be funded by the Unit Owners pursuant to the term of the Hotel
Operating and Rental Pool Agreement.
7.10 SURPLUS FUNDS. Surplus funds of the Association remaining after
payment of or making provisions for Common Expenses and establishing any
reserves may in the discretion of the Board of Directors either be returned to
the Unit Owners pro rata in accordance with each Unit Owner's Common Expense
Liability or be credited on a pro rata basis to the Unit Owners to reduce each
Unit Owner's future Common Expense Assessments or may be added to any
contingency or other reserve funds maintained by the Association.
7.11 MONETARY PENALTIES. In accordance with the procedures set forth
in the Bylaws, the Board of Directors shall have the right to levy reasonable
monetary penalties against a Unit Owner for violations of the Condominium
Documents.
7.12 TRANSFER FEE. Each Purchaser of a Unit shall pay to the
Association immediately upon becoming the Owner of the Unit a transfer fee in
such amount as is established from time to time by the Board of Directors.
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7.13 ADDITIONAL RESERVES. The Association may establish and
maintain, from Common Expense Assessments, additional reserves to provide for
the replacement and capital repairs of the Common Elements, Unit Furnishings,
Hotel Furnishings and other Improvements to the Condominium which the
Association is obligated to repair, maintain and replace. In determining whether
to establish such reserves and the amount of such reserves, the Board of
Directors may take into account the reserves provided for in SECTION 7.9 and any
other reserves established by the Hotel Operator pursuant to the Hotel Operating
and Rental Pool Agreement which are established for similar purposes. The
Association may make such additional reserves available to the Hotel Operator in
order to enable the Hotel Operator to comply with its obligations under the
Hotel Operating and Rental Pool Agreement to repair or replace Improvements,
Unit Furnishings and Hotel Furnishings.
7.14 HOTEL OPERATING REVENUES. Notwithstanding anything contained in
this ARTICLE 7 to the contrary, all or any portion of distributions otherwise
due and payable to a Unit Owner pursuant to the Hotel Operating and Rental Pool
Agreement may be collected by the Association from the Hotel Operator upon
demand and may be used by the Association to pay and offset against all or any
portion of the Assessments or other amounts due and payable by such Unit Owner
pursuant to this Declaration. The foregoing shall not, however, relieve any such
Unit Owner of its obligation to pay Assessments or any deficiencies resulting
after the application of revenues from the Hotel Operating and Rental Pool
Agreement.
7.15 UNIT TAXES. Each Unit Owner shall be responsible for all real
estate taxes attributable to its Unit and all income, sales, use, privilege,
bed, lodging and other taxes attributable to any revenue earned by such Unit
Owner in connection with participating in the rental pool arrangement or any
other income produced relative to its respective Unit. It is anticipated that
the Hotel Operator will file and remit to the appropriate governmental agencies
the sales, use, privilege, bed or lodging taxes applicable to the rental pool
arrangement.
7.16 UTILITIES. Utility usage shall be considered a Common Expense
and as such shall be governed by the provisions of SUBSECTION 7.1 and 7.2.
ARTICLE 8
INSURANCE
8.1 SCOPE OF COVERAGE.
8.1.1 Commencing not later than the date of the first
conveyance of a Unit to a Purchaser, the Association shall maintain, to the
extent reasonably available, the following insurance coverage from generally
acceptable insurance carriers:
(i) Property insurance on the Common Elements and
Units, including Hotel Furnishings and Unit Furnishings but exclusive of all
other personal property of Unit Owners, issued under a standard form "All Risk
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of Direct Physical Loss Form" in an amount equal to the maximum insurable
replacement value of the Common Elements and Units, as determined by the Board
of Directors; provided, however that the total amount of insurance after
application of any deductibles shall not be less than one hundred percent (100%)
of the current replacement cost of the insured property, exclusive of land,
excavations, foundations and other items normally excluded from a property
insurance policy.
(ii) Broad form comprehensive general liability
insurance, for a limit to be determined by the Board, but not less than
$1,000,000.00 for any single occurrence. Such insurance shall cover all
occurrences commonly insured against for death, bodily injury and property
damage arising out of or in connection with the use, ownership or maintenance of
the Common Elements. Such policy shall include (i) a cross liability clause to
cover liabilities of the Unit Owners as a group to a Unit Owner, (ii) medical
payments insurance and contingent liability coverage arising out of the use of
hired and nonowned automobiles, and (iii) coverage for any legal liability that
results from lawsuits related to employment contracts to which the Association
is a party.
(iii) Worker's compensation insurance to the extent
necessary to meet the requirements of the laws of Arizona.
(iv) Directors' and officers' liability insurance
covering all the directors and officers of the Association in such limits as the
Board of Directors may determine from time to time.
(v) Such other insurance as the Association shall
determine from time to time to be appropriate to protect the Association, the
members of the Board of Directors, the members of any committee or the Board of
Directors or the Unit Owners.
(vi) The insurance policies purchased by the
Association shall, to the extent reasonably available, contain the following
provisions:
(a) Each Unit Owner shall be an insured under
the policy with respect to liability arising out of his ownership of an
undivided interest in the Common Elements or membership in the Association.
(b) There shall be no subrogation with respect
to the Association, its agents, servants, and employees against Unit Owners and
members of their household.
(c) No act or omission by any Unit Owner shall
void the policy or be a condition to recovery on the policy.
(d) The coverage afforded by such policy
shall be primary and shall not be brought into contribution or proration with
any insurance which may be purchased by Unit Owners or their mortgagees or
beneficiaries under deeds of trust.
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(e) A "severability of interest" endorsement
which shall preclude the insurer from denying the claim of a Unit Owner because
of the negligent acts of the Association or other Unit Owners.
(f) The Association shall be the insured
for use and benefit of the individual Unit Owners (designated by name if
required by the insurer).
(g) For policies of hazard insurance, a
standard mortgagee clause providing that the insurance carrier shall notify the
Association and each First Mortgagee named in the policy at least thirty (30)
days in advance of the effective date of any substantial change in coverage or
cancellation of the policy.
(h) Any insurance trust agreement will be
recognized by the insurer.
(vii) Boiler explosion insurance evidenced by the
standard form of boiler machinery insurance policy and providing coverage in the
minimum amount of $50,000.00 per accident per location.
(viii) If the Condominium is located in an area
identified by the Secretary of Housing & Urban Development as an area having
special flood hazards, a "blanket policy" of flood insurance on the Condominium
in the lesser of one hundred percent (100%) of the current replacement cost of
the Buildings and any other property covered on the required form of policy or
the maximum limit of coverage available under the National Insurance Act of
1968, as amended.
(ix) "Agreed Amount" and "Inflation Guard"
endorsements.
8.1.2 If, at the time of a loss insured under an insurance
policy purchased by the Association, the loss is also insured under an insurance
policy purchased by a Unit Owner, the Association's policy shall provide primary
coverage.
8.2 FIDELITY BONDS.
8.2.1 The Association shall maintain blanket fidelity bonds
for all officers, directors, trustees and employees of the Association and all
other persons handling or responsible for funds of or administered by the
Association including, but without limitation, officers, directors and employees
of any management agent of the Association, whether or not they receive
compensation for their services. The total amount of the fidelity bonds
maintained by the Association shall be based upon the best business judgment of
the Board of Directors, and shall not be less than the greater of the estimated
maximum funds, including reserve funds, in the custody of the Association or the
management agent, as the case may be, at any given time during the term of each
bond, or the sum equal to three months aggregate Common Expense Assessments on
all Units plus reserve funds. Fidelity bonds obtained by the Association must
also meet the following requirements:
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(i) The fidelity bonds shall name the Association as
an obligee;
(ii) The bonds shall contain waivers by the issuers
of the bonds of all defenses based upon the exclusion of persons serving without
compensation from the definition of "employees" or similar terms or expressions;
(iii) The bonds shall provide that they may not be
cancelled or substantially modified (including cancellation from nonpayment of
premium) without at least ten (10) days prior written notice to the Association
and each First Mortgagee.
8.2.2 The Association shall require any management agent of
the Association to maintain its own fidelity bond in an amount equal to or
greater than the amount of the fidelity bond to be maintained by the Association
pursuant to SUBSECTION 8.2.1 of this Declaration. The fidelity bond maintained
by the management agent shall cover funds maintained in bank accounts of the
management agent and shall name the Association as an obligee.
8.3 PAYMENT OF PREMIUMS. Premiums for all insurance obtained by the
Association pursuant to this ARTICLE shall be Common Expenses and shall be paid
for by the Association.
8.4 INSURANCE OBTAINED BY UNIT OWNERS. The issuance of insurance
policies to the Association pursuant to this ARTICLE shall not prevent a Unit
Owner from obtaining insurance for its own benefit and at its own expense
covering its Unit, its personal property and providing personal liability
coverage.
8.5 PAYMENT OF INSURANCE PROCEEDS. Any loss covered by property
insurance obtained by the Association in accordance with this ARTICLE shall be
adjusted with the Association and the insurance proceeds shall be payable to the
Association and not to any mortgagee or beneficiary under a deed of trust. The
Association shall hold any insurance proceeds in trust for Unit Owners and
lienholders as their interests may appear, and the proceeds shall be disbursed
and applied as provided for in A.R.S. ss.33-1253.
8.6 CERTIFICATE OF INSURANCE. An insurer that has issued an
insurance policy pursuant to this ARTICLE shall issue certificates or memoranda
of insurance to the Association and, on written request, to any Unit Owner or
First Mortgagee. The insurer issuing the policy shall not cancel or refuse to
renew it until thirty (30) days after notice of the proposed cancellation or
nonrenewal has been mailed to the Association, each Unit Owner, and each First
Mortgagee to whom a certificate or memorandum of insurance has been issued at
their respective last known addresses.
8.7 DELEGATION OF INSURANCE RESPONSIBILITY. The Association shall be
deemed to have complied with its obligations under this ARTICLE 8 if the
insurance required by the terms hereof is obtained by the Hotel Operator. Any
such insurance may include the Hotel Operator as a named insured and any such
insurance may include business interruption insurance to the extent required in
any Hotel Operating and Rental Pool Agreement.
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ARTICLE 9
RIGHTS OF FIRST MORTGAGEES
9.1 NOTIFICATION TO FIRST MORTGAGEES. Upon receipt by the
Association of a written request from a First Mortgagee or insurer or
governmental guarantor of a First Mortgage informing the Association of its
correct name and mailing address and number or address of the Unit to which the
request relates, the Association shall provide such Eligible Mortgage Holder or
Eligible Insurer or Guarantor with timely written notice of the following:
9.1.1 Any condemnation loss or any casualty loss which
affects a material portion of the Condominium or any Unit on which there is a
First Mortgage held, insured or guaranteed by such Eligible Mortgage Holder or
Eligible Insurer or Guarantor;
9.1.2 Any delinquency in the payment of Assessments or
charges owed by a Unit Owner subject to a First Mortgage held, insured or
guaranteed by such Eligible Mortgage Holder or Eligible Insurer or Guarantor or
any other default in the performance by the Unit Owner of any obligation under
the Condominium Documents, which delinquency or default remains uncured for the
period of sixty (60) days;
9.1.3 Any lapse, cancellation or material modification of
any insurance policy or fidelity bond maintained by the Association;
9.1.4 Any proposed action which requires the consent of a
specified percentage of Eligible Mortgage Holders as set forth in SECTION 9.2 of
this Declaration.
9.2 APPROVAL REQUIRED FOR AMENDMENT TO DECLARATION, ARTICLES OR
BYLAWS.
9.2.1 The approval of Eligible Mortgage Holders holding
First Mortgages on Units owned by Unit Owners who have at least fifty-one
percent (51%) of the votes in the Association allocated to Unit Owners of all
Units subject to First Mortgages held by Eligible Mortgage Holders shall be
required to add or amend any material provisions of the Declaration, ARTICLEs or
Bylaws which establish, provide for, govern or regulate any of the following:
(i) Voting rights;
(ii) Assessments, assessment liens or subordination
of assessment liens;
(iii) Reserves for maintenance, repair and
replacement of Common Elements;
(iv) Insurance or fidelity bonds;
(v) Responsibility for maintenance and repairs;
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(vi) Expansion or contraction of the Condominium,
or the addition, annexation or withdrawal of property to or from the
Condominium;
(vii) Boundaries of any Unit;
(viii) Reallocation of interests in the Common
Elements or Limited Common Elements or rights to their use;
(ix) Convertibility of Units into Common Elements or
of Common Elements into Units;
(x) Use of the Units for other than Public Rental
Residential Use;
(xi) Imposition of any restrictions on a Unit
Owner's right to sell or transfer its Unit;
(xii) A decision by the Association to establish
self-management when professional management previously had been required by an
Eligible Mortgage Holder;
(xiii) Restoration or repair of the Condominium
(after a hazard damage or partial condemnation) in a manner other than that
specified in the Condominium Documents;
(xiv) Any action to terminate the legal status of the
Condominium after substantial destruction or condemnation occurs;
(xv) Any provisions which expressly benefit First
Mortgagees, Eligible Mortgage Holders or Eligible Insurers or Guarantors.
9.2.2 Any action to terminate the legal status of the
Condominium for reasons other than substantial destruction or condemnation of
the Condominium must be approved by Eligible Mortgage Holders holding First
Mortgages on Units owned by Unit Owners who have at least sixty-seven percent
(67%) of the votes in the Association allocated to Unit Owners of all Units
subject to First Mortgages held by Eligible Mortgage Holders.
9.2.3 Any First Mortgagee who receives a written request to
approve additions or amendments to the Declaration, ARTICLEs or Bylaws, who does
not deliver or mail to the requesting party a negative response within thirty
(30) days shall be deemed to have approved such request, provided the notice was
delivered by certified or registered mail, with a return receipt requested.
9.2.4 The approvals required by this SECTION 9.2 shall not
apply to amendments that may be executed by the Declarant in the exercise of its
Development Rights.
9.3 RIGHT OF INSPECTION OF RECORDS. Any Unit Owner, First Mortgagee
or Eligible Insurer or Guarantor will, upon written request, be entitled to: (i)
inspect the current copies of the Condominium Documents and the books, records
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and financial statements of the Association during normal business hours; (ii)
receive within ninety (90) days following the end of any fiscal year of the
Association, an audited financial statement of the Association for the
immediately preceding fiscal year of the Association, free of charge to the
requesting party; and (iii) receive written notice of all meetings of the
Members of the Association and be permitted to designate a representative to
attend all such meetings.
9.4 PRIOR WRITTEN APPROVAL OF FIRST MORTGAGEES. Except as provided
by statute in case of condemnation or substantial loss to the Units or the
Common Elements, unless at least two-thirds (2/3) of all First Mortgagees (based
upon one vote for each First Mortgage owned) or Unit Owners (other than the
Declarant or other sponsor, developer or builder of the Condominium) of the
Units have given their prior written approval, the Association shall not be
entitled to:
9.4.1 By act or omission, seek to abandon or terminate this
Declaration or the Condominium;
9.4.2 Change the pro rata interest or obligations of any
individual Unit for the purpose of: (i) levying Assessments or charges or
allocating distributions of hazard insurance proceeds or condemnation awards, or
(ii) determining the pro rata share of ownership of each Unit in the Common
Elements;
9.4.3 Partition or subdivide any Unit;
9.4.4 By act or omission, seek to abandon, partition,
subdivide, encumber, sell or transfer the Common Elements. The granting of
easements for public utilities or for other public purposes consistent with the
intended use of the Common Elements shall not be deemed a transfer within the
meaning of this Subsection; or
9.4.5 Use hazard insurance proceeds for losses to any Units
or the Common Elements for any purpose other than the repair, replacement or
reconstruction of such Units or the Common Elements.
Nothing contained in this SECTION 9.4 or any other provisions of this
Declaration shall be deemed to grant the Association the right to partition any
Unit without the consent of the Unit Owners thereof. Any partition of a Unit
shall be subject to such limitations and prohibitions as may be set forth
elsewhere in this Declaration or as provided under Arizona law.
9.5 CONDEMNATION OR INSURANCE PROCEEDS. No Unit Owner, or any other
Person, shall have priority over any rights of any First Mortgagee of the Unit
pursuant to its mortgage in the case of a distribution to such Unit Owner of
insurance proceeds or condemnation awards for losses to or a taking of Units
and/or Common Elements.
9.6 LIMITATION ON PARTITION AND SUBDIVISION. No Unit shall be
partitioned or subdivided without the prior written approval of the Holder of
any First Mortgage on such Unit.
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9.7 CONFLICTING PROVISIONS. In the event of any conflict or
inconsistency between the provisions of this ARTICLE and any other provision of
the Condominium Documents, the provisions of this ARTICLE shall prevail;
provided, however, that in the event of any conflict or inconsistency between
the different SECTIONs of this ARTICLE or between the provisions of this ARTICLE
and any other provision of the Condominium Documents with respect to the number
or percentage of Unit Owners, First Mortgagees, Eligible Mortgage Holders or
Eligible Insurers or Guarantors that must consent to (i) an amendment of the
Declaration, ARTICLEs or Bylaws, (ii) a termination of the Condominium, or (iii)
certain actions of the Association as specified in SECTIONs 9.2 and 9.4 of this
Declaration, the provision requiring the consent of the greatest number or
percentage of Unit Owners, First Mortgagees, Eligible Mortgage Holders or
Eligible Insurers or Guarantors shall prevail; provided, however, that the
Declarant, without the consent of any Unit Owner or First Mortgagee being
required, shall have the right to amend this Declaration, the Plat, the ARTICLEs
or the Bylaws as set forth in SECTION 11.5.3.
ARTICLE 10
RESERVATION OF DEVELOPMENTAL AND
SPECIAL DECLARANT'S RIGHTS
Pursuant to the Condominium Act, Declarant reserves all of the
development and special declarant rights in the Condominium afforded under
A.R.S. ss.ss.33-1202(14) and (21), respectively, subject to the expiration
deadlines set forth below. Specifically, but without limitation, Declarant
reserves the following rights:
10.1 DEVELOPMENTAL RIGHTS. Declarant hereby reserves, during the
Period of Declarant Control, all Development Rights under A.R.S. ss.33-1202(14).
10.2 RIGHT TO COMPLETE IMPROVEMENTS AND CONSTRUCTION EASEMENT.
Declarant hereby reserves the right, for a period of five (5) years following
the recordation of this Declaration, to complete the construction of
Improvements on the Condominium, and an easement over and through the
Condominium, including all Common Elements, for the purpose of doing so. Any
damage caused to a Unit or the Common Elements by Declarant or its agents in the
use or exercise of such right and/or easement shall be repaired by and at the
expense of Declarant.
10.3 OFFICES, MODEL UNITS AND PROMOTIONAL SIGNS. Declarant reserves
the right to maintain offices for sales and management and models as provided in
SECTION 3.4 above, and to maintain signs on the Common Elements for so long as
Declarant owns one or more Units and is actively marketing the Units for sale.
10.4 APPOINTMENT AND REMOVAL OF DIRECTORS AND OFFICERS. Declarant
reserves the right to appoint and remove any officer of the Association or any
member of the Board of Directors as set forth in SECTION 6.2 above, for the time
period set forth therein.
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ARTICLE 11
GENERAL PROVISIONS
11.1 ENFORCEMENT. The Association, or any Unit Owner, shall have
the right to enforce, by any proceeding at law or in equity, all restrictions,
conditions, covenants, reservations, liens and charges now or hereafter imposed
by the provisions of the Condominium Documents. Failure by the Association or by
any Unit Owner to enforce any covenant or restriction contained in the
Condominium Documents shall in no event be deemed a waiver of the right to do so
thereafter.
11.2 SEVERABILITY. Invalidation of any one of these covenants or
restrictions by judgment or court order shall in no way affect any other
provisions which shall remain in full force and effect.
11.3 DURATION. The covenants and restrictions of this Declaration
shall continue in full force and effect and run with and bind the Condominium
until terminated in accordance with the provisions of SECTION 11.4.
11.4 TERMINATION OF CONDOMINIUM. The Condominium may be terminated
only in the manner provided for in the Condominium Act.
11.5 AMENDMENT.
11.5.1 Except in cases of amendments that may be executed by
a Declarant in the exercise of its Development Rights or under A.R.S.
ss.33-1220, by the Association under A.R.S. ss.ss.33-1206 or 33-1216(D), or by
certain Unit Owners under A.R.S. ss.ss.33-1218(B), 33-1222, 33-1223 or
33-1228(B), or in cases where a higher percentage is required by the Condominium
Act, the Declaration, including the Plat, may be amended only by a vote of the
Unit Owners to which at least sixty-seven percent (67%) of the votes in the
Association are allocated.
11.5.2 An amendment to the Declaration shall not terminate
or decrease any unexpired Development Right, Special Declarant Right or Period
of Declarant Control unless the Declarant approves the amendment in writing.
11.5.3 During the Period of Declarant Control, the Declarant
shall have the right to amend the Declaration, including the Plat, to (i) comply
with the Condominium Act or any other applicable law if the amendment does not
adversely affect the rights of any Unit Owner, (ii) correct any error or
inconsistency in the Declaration if the amendment does not adversely affect the
rights of any Unit Owner, (iii) comply with the rules or guidelines in effect
from time to time of any governmental or quasi-governmental entity or federal
corporation guaranteeing or insuring mortgage loans or governing transactions
involving mortgage instruments, including without limitation, the VA, the FHA,
the FNMA or the FHLMC, or (iv) the rules or requirements of any federal, state
37
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or local governmental entity or agency whose approval of the Condominium, the
Plat or the Condominium Documents is required by law or requested by Declarant.
11.5.4 To the extent that any First Mortgages insured by the
FHA or guaranteed by the VA are held on any of the Units at the time of
amendment, and to the extent that it is required by any regulations governing
FHA/VA mortgages, during the Period of Declarant Control, any amendment to the
Declaration or the Plat must be approved by the VA or the FHA.
11.5.5 Any amendment adopted by the Unit Owners pursuant to
SUBSECTION 11.5.1 of this Declaration shall be signed by the President or Vice
President of the Association and shall be recorded with the County Recorder of
each County in which any portion of the Condominium is located. Any such
amendment shall certify that the amendment has been approved as required by this
SUBSECTION 11.5.5. Any amendment made by the Declarant pursuant to SUBSECTION
11.5.3 of this Declaration or the Condominium Act shall be executed by the
Declarant and shall be recorded with the County Recorder of each County in which
any portion of the Condominium is located.
11.6 REMEDIES CUMULATIVE. Each remedy provided herein is
cumulative and not exclusive.
11.7 NOTICES. All notices, demands, statements or other
communications required to be given to or served on a Unit Owner under this
Declaration shall be in writing and shall be deemed to have been duly given and
served if delivered personally or sent by United States mail, postage prepaid,
return receipt requested, addressed to the Unit Owner, at the address which the
Unit Owner shall designate in writing and file with the Association or, if no
such address is designated, at the address of the Unit of such Unit Owner. A
Unit Owner may change his address on file with the Association for receipt of
notices by delivering a written notice of change of address to the Association
pursuant to this SECTION 11.7. A notice given by mail, whether regular,
certified, or registered, shall be deemed to have been received by the person to
whom the notice was addressed on the earlier of the date the notice is actually
received or three days after the notice is mailed. If a Unit is owned by more
than one person, notice to one of the Unit Owners shall constitute notice to all
Unit Owners of the same Unit. Each Unit Owner shall file its correct mailing
address with the Association, and shall promptly notify the Association in
writing of any subsequent change of address.
11.8 BINDING EFFECT. By acceptance of a deed or by acquiring any
ownership interest in any portion of the Condominium, each Person, for himself,
his heirs, personal representatives, successors, transferees and assigns, binds
himself, his heirs, personal representatives, successors, transferees and
assigns, to all of the provisions, restrictions, covenants, conditions, rules,
and regulations now or hereafter imposed by the Condominium Documents and any
amendments thereof. In addition, each such Person by so doing thereby
acknowledges that the Condominium Documents set forth a general scheme for the
improvement and development of the real property covered thereby and hereby
evidences his intent that all the restrictions, conditions, covenants,
easements, rules and regulations contained in the Condominium Documents shall
run with the land and be binding on all subsequent and future Unit Owners,
grantees, purchasers, assignees, and transferees thereof. Furthermore, each such
38
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person fully understands and acknowledges that the Condominium Documents shall
be mutually beneficial, prohibitive and enforceable by the various subsequent
and future Unit Owners. Declarant, its successors, assigns and grantees,
covenants and agrees that no Unit and the membership in the Association and the
other rights created by the Condominium Documents related to such Unit shall be
separated or separately conveyed, and such membership and other rights shall be
deemed to be conveyed or encumbered with the respective Unit even though the
description in the instrument of conveyance or encumbrance may refer only to the
Unit.
11.9 GENDER. The singular, wherever used in this Declaration, shall
be construed to mean the plural when applicable, and the necessary grammatical
changes required to make the provisions of this Declaration apply either to
corporations or individuals, or men or women, shall in all cases be assumed as
though in each case fully expressed.
11.10 TOPIC HEADINGS. The marginal or topical headings of the
SECTIONs contained in this Declaration are for convenience only and do not
define, limit or construe the contents of the SECTIONs or of this Declaration.
11.11 SURVIVAL OF LIABILITY. The termination of membership in the
Association shall not relieve or release any such former Unit Owner or Member
from any liability or obligation incurred under, or in any way connected with,
the Association during the period of such ownership or membership, or impair any
rights or remedies which the Association may have against such former Unit Owner
or Member arising out of, or in any way connected with, such ownership or
membership and the covenants and obligations incident thereto.
11.12 CONSTRUCTION. In the event of any discrepancies,
inconsistencies or conflicts between the provisions of this Declaration and the
ARTICLEs, Bylaws or the Association Rules, the provisions of this Declaration
shall prevail.
11.13 JOINT AND SEVERAL LIABILITY. In the case of joint ownership of
a Unit, the liabilities and obligations of each of the joint Unit Owners set
forth in, or imposed by, the Condominium Documents shall be joint and several.
11.14 GUESTS AND TENANTS. Each Unit Owner shall be responsible for
compliance by his agents, tenants, guests, invitees, licensees and their
respective servants, agents, and employees with the provisions of the
Condominium Documents. A Unit Owner's failure to insure compliance by such
Persons shall be grounds for the same action available to the Association or any
other Unit Owner by reason of such Unit Owner's own noncompliance.
Notwithstanding the foregoing, no Unit Owner shall be responsible for the acts
or omissions of any Guest who may occupy the Unit Owner's Unit.
11.15 ATTORNEYS' FEES. In the event the Declarant, the Association
or any Unit Owner employs an attorney or attorneys to enforce a lien or to
collect any amounts due from a Unit Owner or to enforce compliance with or
recover damages for any violation or noncompliance with the Condominium
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Documents, the prevailing party in any such action shall be entitled to recover
from the other party his reasonable attorneys' fees incurred in the action.
11.16 NUMBER OF DAYS. In computing the number of days for purposes
of any provision of the Condominium Documents, all days shall be counted
including Saturdays, Sundays and holidays; provided, however, that if the final
day of any time period falls on a Saturday, Sunday or holiday, then the next day
shall be deemed to be the next day which is not a Saturday, Sunday or holiday.
11.17 DECLARANT'S RIGHT TO USE SIMILAR NAME. The Association hereby
irrevocably consents to the use by any other nonprofit corporation which may be
formed or incorporated by Declarant of a corporate name which is the same or
deceptively similar to the name of the Association provided one or more words
are added to the name of such other corporation to make the name of the
Association distinguishable from the name of such other corporation. Within five
(5) days after being requested to do so by the Declarant, the Association shall
sign such letters, documents or other writings as may be required by the Arizona
Corporation Commission in order for any other nonprofit corporation formed or
incorporated by the Declarant to use a corporate name which is the same or
deceptively similar to the name of the Association.
11.18 NOTICE OF VIOLATION. The Association shall have the right to
record a written notice of a violation by any Unit Owner of any restriction or
provision of the Condominium Documents. The notice shall be executed and
acknowledged by an officer of the Association and shall contain substantially
the following information: (i) the name of the Unit Owner; (ii) the legal
description of the Unit against which the notice is being recorded; (iii) a
brief description of the nature of the violation; (iv) a statement that the
notice is being recorded by the Association pursuant to this Declaration; and
(v) a statement of the specific steps which must be taken by the Unit Owner to
cure the violation. Recordation of a Notice of Violation shall serve as a notice
to the Unit Owner and to any subsequent purchaser of the Unit that there is a
violation of the provisions of the Condominium Documents. If, after the
recordation of such notice, it is determined by the Association that the
violation referred to in the notice does not exist or that the actual violation
referred to in the notice has been cured, the Association shall record a notice
of compliance which shall state the legal description of the Unit against which
the Notice of Violation was recorded, the recording data of the Notice of
Violation, and shall state that the violation referred to in the notice of
violation has been cured, or if such be the case, that it did not exist.
11.19 NO ABSOLUTE LIABILITY. No provision of the Condominium
Documents shall be interpreted or construed as imposing on any Unit Owner
absolute liability for damage to the Common Elements or the Units. A Unit Owner
shall only be responsible for damage to the Common Elements or Units caused by
such Unit Owner's negligence or intentional acts.
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UP Sedona, Inc.,
an Arizona corporation
By: William S. Oliver
-----------------------------
Name: /s/ William S. Oliver
---------------------------
Its: President
----------------------------
STATE OF ARIZONA }
} ss.
County of Maricopa }
The foregoing instrument was acknowledged before me this 24th day
of October, 1997, by William S. Oliver, the President of UP Sedona, Inc., an
Arizona corporation, on behalf of the corporation.
/s/ Stacia M. Poirier
-----------------------------
Notary Public
My commission expires: May 27, 2001
-------------
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EXHIBIT A
Legal Description of Property Submitted to Condominium
A portion of the Northeast quarter of Section 24, Township 16 North, Range 5
East of the Gila and Salt River Base and Meridian, Yavapai County, Arizona, more
particularly described as follows:
COMMENCING at the Northeast corner of said Section 24;
thence North 89 degrees 54 minutes 13 seconds West along the North line of
said Section, 799.11 feet to the TRUE POINT OF BEGINNING, said point
lying on the South line of RIDGEVIEW as recorded in Book 13 of Maps and
Plots, Page 35 of Records of Yavapai County;
thence departing said North line, South 10 degrees 56 minutes 23 seconds West
320.00 feet, to a point on a curve the radius of which bears South 10
degrees 04 minutes 30 seconds East 60.50 feet;
thence Southeasterly along the arc said curve through a central angle of 63
degrees 29 minutes 38 second a distance of 67.05 feet to a point
of tangency;
thence South 36 degrees 34 minutes 52 seconds East 230.39 feet;
thence South 00 degrees 21 minutes 42 seconds West 137.06 feet;
thence North 89 degrees 51 minutes 40 seconds West 149.11 feet;
thence South 86 degrees 46 minutes 34 seconds West 440.73 feet to a point on
the Easterly line of AMENDMENT NO. 1 TO THE RIDGE AT SEDONA as recorded
on Book 23 of Maps & Plots, Pages 85--88 of Records of Yavapai County,
the following courses will follow said Easterly line until otherwise
mentioned;
thence North 00 degrees 21 minutes 42 seconds East 370.00 feet;
thence South 89 degrees 43 minutes 59 seconds East 21.99 feet;
thence North 00 degrees 21 minutes 53 seconds East 60.94 feet;
thence North 89 degrees 31 minutes 27 seconds West 21.97 feet;
thence North 00 degrees 20 minutes 34 seconds East 253.94 feet to a point on the
North line of said Section 24;
thence South 89 degrees 54 minutes 13 seconds East along said North line
450.00 feet to the TRUE POINT OF BEGINNING.
A-1
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EXHIBIT B
SEDONA GOLF RESORT AND CONFERENCE CENTER
OPERATING
UNIT UNIT UNIT PERCENTAGE CASH
NUMBER TYPT DESCRIPTION INTEREST RESERVE
- ------ ---- ----------- -------- -------
1008 OB 1 1 BED 0.448353% $1,121
1009 ST 1 STUDIO 0.378533% $946
1010 OB 1 1 BED 0.448353% $1,121
1011 EX 1 EXECUTIVE 0.436488% $1,091
1012 OB 1 1 BED 0.448353% $1,121
1013 EX 1 EXECUTIVE 0.436488% $1,091
1014 OB 1 1 BED 0.448353% $1,121
1015 OB 1 1 BED 0.448353% $1,121
1016 OB 1 1 BED 0.448353% $1,121
1017 OB 1 1 BED 0.448353% $1,121
1018 OB 8 1 BED 0.455426% $1,139
1019 OB 1 1 BED 0.448353% $1,121
1020 OB 1 1 BED 0.448353% $1,121
1021 OB 1 1 BED 0.448353% $1,121
1022 OB 1 1 BED 0.448353% $1,121
1023 OB 8 1 BED 0.455426% $1,139
1024 ST 1 STUDIO 0.378533% $946
1025 ST 1 STUDIO 0.378533% $946
1026 OB 1 1 BED 0.448353% $1,121
1027 OB 3 1 BED 0.455426% $1,139
1028 OB 1 1 BED 0.448353% $1,121
1030 OB 2 1 BED 0.455426% $1,139
1032 OB 2 1 BED 0.455426% $1,139
1034 OB 1 1 BED 0.448353% $1,121
1035 OB 3 1 BED 0.455426% $1,139
1036 OB 1 1 BED 0.448353% $1,121
1037 ST 1 STUDIO 0.378533% $946
1038 ST 1 STUDIO 0.378533% $946
1039 OB 1 1 BED 0.448353% $1,121
1040 OB 1 1 BED 0.448353% $1,121
1041 ST 1 STUDIO 0.378533% $946
1042 ST 1 STUDIO 0.378533% $946
1043 OB 7 1 BED 0.455426% $1,139
1044 OB 7 1 BED 0.455426% $1,139
1052 EX 1 EXECUTIVE 0.436488% $1,091
1053 ST 1 STUDIO 0.378533% $946
1054 EX 1 EXECUTIVE 0.436488% $1,091
B-1
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SEDONA GOLF RESORT AND CONFERENCE CENTER
OPERATING
UNIT UNIT UNIT PERCENTAGE CASH
NUMBER TYPT DESCRIPTION INTEREST RESERVE
- ------ ---- ----------- -------- -------
1055 EX 1 EXECUTIVE 0.436488% $1,091
1056 OB 1 1 BED 0.448353% $1,121
1057 EX 1 EXECUTIVE 0.436488% $1,091
1058 OB 1 1 BED 0.448353% $1,121
1059 OB 1 1 BED 0.448353% $1,121
1060 OB 1 1 BED 0.448353% $1,121
1061 OB 1 1 BED 0.448353% $1,121
1062 OB 8 1 BED 0.455426% $1,139
1063 OB 1 1 BED 0.448353% $1,121
1064 OB 1 1 BED 0.448353% $1,121
1065 OB 1 1 BED 0.448353% $1,121
1066 OB 1 1 BED 0.448353% $1,121
1067 OB 8 1 BED 0.455426% $1,139
1068 ST 1 STUDIO 0.378533% $946
1069 ST 1 STUDIO 0.378533% $946
1070 OB 1 1 BED 0.448353% $1,121
1071 OB 3 1 BED 0.455426% $1,139
1072 OB 1 1 BED 0.448353% $1,121
1074 OB 2 1 BED 0.455426% $1,139
1076 OB 2 1 BED 0.455426% $1,139
1078 OB 1 1 BED 0.448353% $1,121
1079 OB 3 1 BED 0.455426% $1,139
1080 OB 1 1 BED 0.448353% $1,121
1081 ST 1 STUDIO 0.378533% $946
1082 ST 1 STUDIO 0.378533% $946
1083 OB 1 1 BED 0.448353% $1,121
1084 OB 1 1 BED 0.448353% $1,121
1085 ST 1 STUDIO 0.378533% $946
1086 ST 1 STUDIO 0.378533% $946
1087 OB 7 1 BED 0.455426% $1,139
1088 OB 7 1 BED 0.455426% $1,139
2003 OB 8 1 BED 0.468432% $1,171
2005 OB 1 1 BED 0.461358% $1,153
2006 OB 10 1 BED 0.461358% $1,153
2007 ST 2 STUDIO 0.397015% $993
2008 OB 1 1 BED 0.461358% $1,153
2009 ST 1 STUDIO 0.391539% $979
2010 OB 1 1 BED 0.461358% $1,153
2011 OB 1 1 BED 0.461358% $1,153
B-2
<PAGE>
SEDONA GOLF RESORT AND CONFERENCE CENTER
OPERATING
UNIT UNIT UNIT PERCENTAGE CASH
NUMBER TYPT DESCRIPTION INTEREST RESERVE
- ------ ---- ----------- -------- ------
2012 OB 1 1 BED 0.461358% $1,153
2013 OB 1 1 BED 0.461358% $1,153
2014 OB 1 1 BED 0.461358% $1,153
2015 OB 1 1 BED 0.461358% $1,153
2016 OB 1 1 BED 0.461358% $1,153
2017 OB 1 1 BED 0.461358% $1,153
2018 OB 8 1 BED 0.468432% $1,171
2019 OB 1 1 BED 0.461358% $1,153
2020 OB 1 1 BED 0.461358% $1,153
2021 OB 1 1 BED 0.461358% $1,153
2022 OB 1 1 BED 0.461358% $1,153
2023 OB 8 1 BED 0.468432% $1,171
2024 ST 1 STUDIO 0.391539% $979
2025 ST 1 STUDIO 0.391539% $979
2026 OB 1 1 BED 0.461358% $1,153
2027 OB 3 1 BED 0.468432% $1,171
2028 OB 1 1 BED 0.461358% $1,153
2030 OB 2 1 BED 0.468432% $1,171
2032 OB 2 1 BED 0.461358% $1,153
2034 OB 1 1 BED 0.454285% $1,136
2035 OB 3 1 BED 0.468432% $1,171
2036 OB 1 1 BED 0.454285% $1,136
2037 ST 1 STUDIO 0.391539% $979
2038 ST 1 STUDIO 0.384465% $961
2039 OB 1 1 BED 0.461358% $1,153
2040 OB 1 1 BED 0.454285% $1,136
2041 ST 1 STUDIO 0.391539% $979
2042 ST 1 STUDIO 0.384465% $961
2043 OB 7 1 BED 0.468432% $1,171
2044 OB 7 1 BED 0.461358% $1,153
2047 OB 8 1 BED 0.468432% $1,171
2049 OB 1 1 BED 0.461358% $1,153
2051 ST 2 STUDIO 0.397015% $993
2052 OB 1 1 BED 0.454285% $1,136
2053 ST 1 STUDIO 0.391539% $979
2054 OB 1 1 BED 0.454285% $1,136
2055 OB 1 1 BED 0.461358% $1,153
2056 OB 1 1 BED 0.454285% $1,136
2057 OB 1 1 BED 0.461358% $1,153
B-3
<PAGE>
SEDONA GOLF RESORT AND CONFERENCE CENTER
OPERATING
UNIT UNIT UNIT PERCENTAGE CASH
NUMBER TYPT DESCRIPTION INTEREST RESERVE
- ------ ---- ----------- -------- -------
2058 OB 1 1 BED 0.454285% $1,136
2059 OB 1 1 BED 0.461358% $1,153
2060 OB 1 1 BED 0.454285% $1,136
2061 OB 1 1 BED 0.461358% $1,153
2062 OB 8 1 BED 0.461358% $1,153
2063 OB 1 1 BED 0.461358% $1,153
2064 OB 1 1 BED 0.454285% $1,136
2065 OB 1 1 BED 0.461358% $1,153
2066 OB 1 1 BED 0.454285% $1,136
2067 OB 8 1 BED 0.468432% $1,171
2068 ST 1 STUDIO 0.384465% $961
2069 ST 1 STUDIO 0.391539% $979
2070 OB 1 1 BED 0.454285% $1,136
2071 OB 3 1 BED 0.461358% $1,153
2072 OB 1 1 BED 0.454285% $1,136
2074 OB 2 1 BED 0.468432% $1,171
2076 OB 2 1 BED 0.468432% $1,171
2078 OB 1 1 BED 0.461358% $1,153
2079 OB 3 1 BED 0.461358% $1,153
2080 OB 1 1 BED 0.461358% $1,153
2081 ST 1 STUDIO 0.384465% $961
2082 ST 1 STUDIO 0.391539% $979
2083 OB 1 1 BED 0.454285% $1,136
2084 OB 1 1 BED 0.461358% $1,153
2085 ST 1 STUDIO 0.384465% $961
2086 ST 1 STUDIO 0.391539% $979
2087 OB 7 1 BED 0.461358% $1,153
2088 OB 7 1 BED 0.468432% $1,171
3001 ST 1 STUDIO 0.397471% $994
3002 OB 1 1 BED 0.460218% $1,151
3003 OB 8 1 BED 0.474364% $1,186
3004 OB 1 1 BED 0.460218% $1,151
3005 OB 1 1 BED 0.467291% $1,168
3006 OB 10 1 BED 0.467291% $1,168
3007 ST 2 STUDIO 0.402947% $1,007
3008 OB 1 1 BED 0.467291% $1,168
3009 ST 1 STUDIO 0.397471% $994
3010 OB 1 1 BED 0.467291% $1,168
3011 OB 1 1 BED 0.467291% $1,168
B-4
<PAGE>
SEDONA GOLF RESORT AND CONFERENCE CENTER
OPERATING
UNIT UNIT UNIT PERCENTAGE CASH
NUMBER TYPT DESCRIPTION INTEREST RESERVE
- ------ ---- ----------- -------- -------
3012 OB 1 1 BED 0.467291% $1,168
3013 OB 1 1 BED 0.467291% $1,168
3014 OB 1 1 BED 0.467291% $1,168
3015 OB 1 1 BED 0.467291% $1,168
3016 OB 1 1 BED 0.467291% $1,168
3017 OB 1 1 BED 0.467291% $1,168
3018 OB 8 1 BED 0.474364% $1,186
3019 OB 1 1 BED 0.467291% $1,168
3020 OB 1 1 BED 0.467291% $1,168
3021 OB 1 1 BED 0.467291% $1,168
3022 OB 1 1 BED 0.467291% $1,168
3023 OB 8 1 BED 0.474364% $1,186
3024 ST 1 STUDIO 0.397471% $994
3025 ST 1 STUDIO 0.397471% $994
3026 OB 1 1 BED 0.467291% $1,168
3027 OB 3 1 BED 0.474364% $1,186
3028 OB 1 1 BED 0.467291% $1,168
3030 OB 2 1 BED 0.474364% $1,186
3032 OB 2 1 BED 0.467291% $1,168
3034 OB 1 1 BED 0.460218% $1,151
3035 OB 3 1 BED 0.474364% $1,186
3036 OB 1 1 BED 0.460218% $1,151
3037 ST 1 STUDIO 0.397471% $994
3038 ST 1 STUDIO 0.390398% $976
3039 OB 1 1 BED 0.467291% $1,168
3040 OB 1 1 BED 0.460218% $1,151
3041 ST 1 STUDIO 0.397471% $994
3042 ST 1 STUDIO 0.390398% $976
3043 OB 7 1 BED 0.474364% $1,186
3044 OB 7 1 BED 0.467291% $1,168
3045 ST 1 STUDIO 0.397471% $994
3046 OB 1 1 BED 0.460218% $1,151
3047 OB 8 1 BED 0.474364% $1,186
3048 OB 1 1 BED 0.460218% $1,151
3049 OB 1 1 BED 0.467291% $1,168
3050 OB 10 1 BED 0.460218% $1,151
3051 ST 2 STUDIO 0.402947% $1,007
3052 OB 1 1 BED 0.460218% $1,151
3053 ST 1 STUDIO 0.397471% $994
B-5
<PAGE>
SEDONA GOLF RESORT AND CONFERENCE CENTER
OPERATING
UNIT UNIT UNIT PERCENTAGE CASH
NUMBER TYPT DESCRIPTION INTEREST RESERVE
- ------ ---- ----------- -------- -------
3054 OB 1 1 BED 0.460218% $1,151
3055 OB 1 1 BED 0.467291% $1,168
3056 OB 1 1 BED 0.460218% $1,151
3057 OB 1 1 BED 0.467291% $1,168
3058 OB 1 1 BED 0.460218% $1,151
3059 OB 1 1 BED 0.467291% $1,168
3060 OB 1 1 BED 0.460218% $1,151
3061 OB 1 1 BED 0.467291% $1,168
3062 OB 8 1 BED 0.467291% $1,168
3063 OB 1 1 BED 0.467291% $1,168
3064 OB 1 1 BED 0.460218% $1,151
3065 OB 1 1 BED 0.467291% $1,168
3066 OB 1 1 BED 0.460218% $1,151
3067 OB 8 1 BED 0.474364% $1,186
3068 ST 1 STUDIO 0.390398% $976
3069 ST 1 STUDIO 0.397471% $994
3070 OB 1 1 BED 0.460218% $1,151
3071 OB 3 1 BED 0.467291% $1,168
3072 OB 1 1 BED 0.460218% $1,151
3074 OB 2 1 BED 0.474364% $1,186
3076 OB 2 1 BED 0.474364% $1,186
3078 OB 1 1 BED 0.467291% $1,168
3079 OB 3 1 BED 0.467291% $1,168
3080 OB 1 1 BED 0.467291% $1,168
3081 ST 1 STUDIO 0.390398% $976
3082 ST 1 STUDIO 0.397471% $994
3083 OB 1 1 BED 0.460218% $1,151
3084 OB 1 1 BED 0.467291% $1,168
3085 ST 1 STUDIO 0.390398% $976
3086 ST 1 STUDIO 0.397471% $994
3087 OB 7 1 BED 0.467291% $1,168
3088 OB 7 1 BED 0.474364% $1,186
TOTAL 100% $250,000
B-6
<PAGE>
EXHIBIT C
SEDONA GOLF RESORT & CONFERENCE CENTER
USE OF UNITS BY OWNERS
1. DEFINITIONS. For the purposes of this EXHIBIT C:
(a) capitalized terms used in this EXHIBIT C and not defined herein have
the meanings ascribed to such terms in the Declaration;
(b) "Day" means any period of 24 consecutive hours, commencing at 2:00
p.m. on any day and ending at 2:00 p.m. on the immediately following
day;
(c) "Public" means all persons other than the Unit Owner;
(d) "Registered Owner" means the person shown in the Official Records of
Yavapai County, Arizona as owner in fee simple of the Unit;
(e) "Unit Owner" means the Registered Owner and the spouse, children and
parents of such Registered Owner and the parents of the Registered
Owner's spouse; and where there is more than one Registered Owner, all
the Registered Owners and their spouses, children, parents and the
parents of their spouses will together constitute the "Unit Owner" for
the Unit and, where the Registered Owner is a corporation or
corporations, all directors, officers, shareholders and employees and
the spouses, children and parents of corporations constitute the "Unit
Owner" for the Unit; and "Unit Owner" will include any person
permitted by any of the foregoing to Use the Unit free of charge,
including an Exchange Program User;
(f) "Use" includes the purpose to which the Unit is put, and includes
reside, sleep, inhabit, or otherwise occupy;
(g) "Year" means a calendar year.
2. SIX MONTH ADVANCE RESERVATIONS.
(a) A Unit Owner (other than an Exchange Program User) may reserve and Use
its Unit for up to a maximum of 14 days per Year provided that the
Registered Owner (or any other person permitted by the Hotel Operator,
in its sole discretion, to reserve the use of the Unit on behalf of
the Unit Owner) first reserves the Use of the Unit by a notice in
writing to the Hotel Operator at least six months prior to the
commencement of the period in which the Unit Owner wishes to Use the
Unit. In no event may a Unit Owner reserve the Use of any Unit more
than twelve (12) months in advance of the commencement of the period
in which the Unit Owner wishes to Use the Unit.
C-1
<PAGE>
(b) If a Unit is reserved for a stay which commences at or after 2:00 p.m.
on a Friday or a Saturday, the Unit must be reserved for Use for a
minimum of 2 Days. A Unit Owner may use the Unit no more than 4 times
per Year (including any use pursuant to Paragraph 3 below) with
respect to 2 or 3 Day stays that commence at or after 2:00 p.m. on a
Friday or a Saturday.
(c) If the Unit Owner (or any other person permitted by the Hotel
Operator, in its sole discretion, to reserve the Use of the Unit on
behalf of the Registered Owner other than an Exchange Program User)
reserves the Use of the Unit pursuant to this Paragraph 2, the Unit
Owner shall be entitled to Use such Unit during the period or periods
so reserved regardless of whether the Hotel Operator has accepted a
reservation from the Public for the Use of the Unit for the period or
periods reserved by the Registered Owner. Use shall be in accordance
with the applicable provisions of the Hotel Operating and Rental Pool
Agreement, including Section 10.3 of the Hotel Operating and Rental
Pool Agreement regarding payment for any services utilized by the Unit
Owner and payment of any restocking/cleaning charges. For purposes of
determining whether the Registered Owner participates in any rental
pool provided for in the Hotel Operating and Rental Pool Agreement (or
as operated by the Association, if no Hotel Operating and Rental Pool
Agreement is in effect), a Registered Owner will be deemed to have
Used the Unit during the period or periods so reserved, whether or not
the Unit Owner actually Uses or occupies the Unit during such period
or periods unless the Unit is available for rental to the Public and
at least 30 Days prior to the Unit Owner's scheduled Use of the Unit
the Unit Owner cancels such reservation, with the approval of the
Hotel Operator, acting reasonably.
(d) If the Unit Owner does not Use the Unit for the full 14 Days permitted
to be Used by the Unit Owner pursuant to this Paragraph 2 in any Year,
the Unit Owner will not be entitled to accumulate or otherwise use the
unused Days in any future Year.
(e) The Unit may only be reserved and Used for a total of 14 Days per Year
pursuant to this Paragraph 2, regardless of the number of Registered
Owners of the Unit or Unit Owners during such Year.
3. FIFTEEN DAY ADVANCE RESERVATION. In addition to the reservation and Use
rights set forth in Paragraph 2 above, a Unit Owner may reserve and Use the
Unit under the following terms and conditions:
(a) The Unit Owner (other than an Exchange Program User) may request that
the Hotel Operator reserve the Unit for Use by the Unit Owner no more
than 15 Days prior to the date of requested Use.
(b) If less than 80% of the Units available for rental to the Public are
booked for all Days requested as of the date the reservation is
C-2
<PAGE>
requested and the Unit has not been reserved for Use by a Guest, the
Unit shall be reserved for Use by the Unit Owner.
(c) Use shall be in accordance with the applicable provisions of the Hotel
Operating and Rental Pool Agreement, including Section 10.3 of the
Hotel Operating and Rental Pool Agreement regarding payment for any
services and payment of any restocking/cleaning charges.
(d) If a Unit is reserved for a stay which commences at or after 2:00 p.m.
on a Friday or a Saturday, the Unit must be reserved for Use for a
minimum of 2 Days. A Unit Owner may Use the Unit no more than 4 times
per Year (including any use pursuant to Paragraph 2 above) with
respect to 2 or 3 Day stays that commence at or after 2:00 p.m. on a
Friday or a Saturday.
(e) For purposes of determining whether the Registered Owner participates
in any rental pool provided for in the Hotel Operating and Rental Pool
Agreement (or as operated by the Association, if no Hotel Operating
and Rental Pool Agreement is in effect), the Registered Owner will be
deemed to have Used the Unit for the Days so reserved whether or not
the Unit Owner actually uses or occupies the Unit during such Days
unless, at least 5 Days prior to the Unit Owner's scheduled Use of the
Unit, the Unit Owner cancels such reservation with the approval of the
Hotel Operator.
(f) The Unit may only be reserved and Used for a total of 14 Days per year
pursuant to this Paragraph 3, regardless of the number of Registered
Owners of the Unit or Unit Owners during such Year.
(g) If the Unit Owner does not Use the Unit for the full 14 Days permitted
to be Used by the Unit Owner pursuant to this Paragraph 3 in any Year,
the Unit Owner will not be entitled to accumulate or otherwise use the
unused Days in any future Year.
(h) The Registered Owner understands that there may be adverse tax
consequences in making Use of the Unit for more than 14 Days a Year
and neither Declarant nor the Hotel Operator shall have any liability
or responsibility for such tax consequences if the Registered Owner
exercises its rights under this section and Uses the Unit for more
than 14 Days per Year.
(i) In no event may a Unit Owner reserve the Use of any Unit more than
twelve (12) months in advance of the commencement of the period in
which the Unit Owner wishes to Use the Unit.
4. Subject to the Use by the Unit Owners pursuant to this EXHIBIT C, the Unit
will be available at all times for rental to the Public; the Hotel Operator
may accept reservations from the Public for the Use of the Unit for any
future Day or Days, unless the Registered Owner has already reserved that
Day or those Days pursuant to section 2 or 3 hereof.
C-3
<PAGE>
THERE ARE TAX CONSEQUENCES TO A REGISTERED OWNER (SOME OF
WHICH MAY BE ADVERSE) THAT RESULT FROM THE USE OF A UNIT BY A
UNIT OWNER. THE REGISTERED OWNER SHOULD CONSULT ITS TAX
ADVISOR REGARDING HOW THE USE OF THE UNIT MAY AFFECT THE
REGISTERED OWNER'S TAX SITUATION.
THE REGISTERED OWNER IS RESPONSIBLE FOR MONITORING THE IMPACT ANY USE OF ITS
UNIT MAY HAVE ON THE REGISTERED OWNER'S TAXES. NEITHER DECLARANT NOR THE HOTEL
OPERATOR SHALL HAVE ANY LIABILITY OR RESPONSIBILITY FOR THE TAX CONSEQUENCES TO
A REGISTERED OWNER RESULTING FROM THE USE OF THE REGISTERED OWNER'S UNIT BY A
UNIT OWNER.
C-4
[LETTERHEAD OF TOBACK CPAs, P.C.]
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in the Annual Report on Form 10-K of UP
Sedona, Inc. of our report dated December 12, 1997, on our audit of the balance
sheet of UP Sedona, Inc. as of August 31, 1997.
/s/ Toback CPAs, P.C.
----------------------------
Toback CPAs, P.C.
Phoenix, Arizona
December 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,249
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,249
<CURRENT-LIABILITIES> 3,308
<BONDS> 0
0
1,000
<COMMON> 500
<OTHER-SE> 1,441
<TOTAL-LIABILITY-AND-EQUITY> 6,249
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
