Exhibit 10.6OPTION AGREEMENTAPOLLO GROUP, INC., OPTION GRANTORandMACQUARIE RIVERPOINT AZ, LLC, OPTION HOLDER
 

 
OPTION AGREEMENT     THIS OPTION AGREEMENT (this “**Agreement**”) is made as of June 20, 2006 (the“**Agreement Date**”) by and between APOLLO GROUP, INC., an Arizona corporation, a dulyorganized and existing Arizona corporation, being hereafter referred to as “**OptionGrantor**”, and MACQUARIE RIVERPOINT AZ, LLC, a duly organized and existing Delaware limitedliability company, herein referred to as “**Option Holder**” concerning the sale and assignmentof all of the membership interests of RIVERPOINT LOTS 1/3/5, LLC, a duly organized Arizona limitedliability company (“**Riverpoint 1/3/5**”) and RIVERPOINT LOT 2, LLC, a duly organized Arizonalimited liability company (“**Riverpoint 2**”). Riverpoint 1/3/5 and Riverpoint 2 are eachreferred to in this Agreement as a “**Company**” and collectively as the “**Companies**”.RECITALS:     WHEREAS, Option Grantor is the owner of one hundred percent (100%) of the membership interestsin the Companies (the “**Membership Interests**”).     WHEREAS, Riverpoint 1/3/5 is the owner of that certain real property to be improved, commonlyknown as Lot 1 and Lot 3 of Riverpoint, according to the plat recorded in Book 566 of Maps, page04, records of Maricopa County, Arizona (“**Lots l and 3**”), and located at 4015 S. RiverpointParkway and 4050 S. Riverpoint Parkway in Phoenix, Arizona, respectively.     WHEREAS, Riverpoint 2 is the owner of that certain real property to be improved, commonlyknown as Lot 2 of Riverpoint, according to the plat recorded in Book 566 of Maps, page 04, recordsof Maricopa County, Arizona (“**Lot 2**”), and located at 4025 S. Riverpoint Parkway inPhoenix, Arizona. Lots 1 and 3 and Lot 2 are hereinafter referred to as the “**RealProperty**”. A site plan of the Real Property is attached hereto as **Exhibit “A”**.     WHEREAS, the Companies intend to improve the Real Property with a multi-level parking garage,surface parking spaces, and an office tower with a cafe (collectively, the “**Improvements**”)in accordance with and as more particularly described in the plans and specifications listed on**Exhibit “B”** (as modified by any Change Orders permitted under this Agreement, the“**Plans and Specifications**”).     WHEREAS, Option Grantor has agreed to grant to Option Holder an Option to acquire theMembership Interests in the Companies following completion of the Improvements on the terms andconditions set forth in this Agreement.     WHEREAS, if Option Holder exercises its option to purchase the Membership Interests, (i)Option Holder will cause the Companies to enter into a commercial lease of the Real Property andcompleted Improvements (the “**Assets**”) in the form attached hereto as **Exhibit “C”**(the “**UOP Lease**”) without modification with The University of Phoenix, Inc, as tenant(“**Tenant**”) and (ii) Option Grantor shall cause Tenant to enter into the UOP Lease and shallenter into a guarantee of the UOP Lease.
 

 
     WHEREAS, the UOP Lease shall have an initial term of twelve (12) years and shall be guaranteedby Option Grantor.     NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings set forthherein, and for good and valuable consideration, the receipt and sufficiency of which is herebyacknowledged, Option Grantor and Option Holder hereby agree as follows:     1. Recitals. Each of the recitals set forth above are incorporated herein ascovenants and agreements of the parties hereto.     2. Construction of Improvements; Material Change Orders.          (a) Option Grantor shall cause the Companies to construct the Improvements substantially inaccordance with the Plans and Specifications and all applicable laws. If during the constructionof the Improvements, the Companies desire to, or are required by law or by governmental authoritieswith jurisdiction over the Improvements to, make modifications to the Plans and Specifications(i.e., “**Change Orders**”), the Companies retain the right to make such Change Orders,provided that (a) the Companies disclose to Option Holder in writing a complete accounting of allChange Orders, along with modifications to the Plans and Specifications and/or the constructioncontract(s) required to document such Change Order, and (b) if the Change Order is a MaterialChange Order, as such term is defined herein, the Companies follow the process outlined below.“**Material Change Orders**” is defined herein to mean any changes to the Plans andSpecifications that are not required by law or by governmental authorities with jurisdiction overthe Improvements and that do one or more of the following:               (i) Decrease the overall quality of the materials, workmanship or equipment of theImprovements, which shall be determined by the project architect in his sole and absolute judgment,               (ii) Increase the frequency of on-going maintenance/replacement or otherwise increase the costof on-going maintenance/replacement of materials and equipment for the Improvements,               (iii) Decrease the aesthetic quality of the original architectural design, which shall bedetermined by the project architect in his sole and absolute judgment,               (iv) Modify in more than an inconsequential manner any of the Major Components of the centralheating ventilation and air conditioning systems and electrical (power and lighting) capacity.“**Major Components**” are thereby defined to include all energy management systems, chillers,cooling towers, air handler units, main switchboard, main mechanical switchboard and central airdistribution and collection ductwork and equipment. Major Components specifically exclude changesto air distribution, collection, and energy management components (including ductwork, VAV boxes,thermostats, etc.) utilized to control, zone and ventilate heated and chilled air on each of theImprovement’s 10 floors,               (v) Alter the structural design of the Improvements, including but not limited to the seismicor structural integrity of the Improvement’s foundation, columns, beams, girders, floor slabs andceiling joists,
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               (vi) Modify the floor to floor height or floor to ceiling height, other than normalconstruction tolerances,               (vii) Modify the exterior wall systems of the Improvements, including design details for thepre-cast panels, glass, glazing, insulation, flashings and other exterior claddings in such amanner as to decrease the life expectancy of such components or to increase probability of waterinfiltration inside the wall cavity,               (viii) Modify in more than an inconsequential manner the life safety design or life safetysystems of the Improvements, including fire sprinklers, smoke or fire detection systems, emergencypower back-up systems, and fire ingress and egress, or any other design or equipment change whichimpacts human life safety,               (ix) Modify the site plan or floor plan in such a manner to decrease the rentable area below265,000 rentable square feet of the office tower or increase the rentable area above 290,000 (asmeasured in accordance with the BOMA Standard defined below) or the number of surface andstructured parking spaces so that the parking ratio is less than 7.5 per 1,000 square feet ofrentable area,               (x) Modify the site plan in such a manner to decrease or in any adverse manner change thequality or means of ingress or egress to and from the Improvements,               (xi) Modify the specifications to decrease the number of cabs, decrease weight capacities inmore than an inconsequential manner, decrease the cab dimensions, increase response time, decreasehandling capacity or transportation speeds of the elevators, or change the quantity or location ofstair shafts, or               (xii) Modify in any adverse manner any warranty provisions, defect liability periods and/orwarranty maintenance obligations.     If Change Orders made by the Companies are Material Change Orders, the Companies shall provideto Roger Dahlin of Pritchard Associates (the “**Construction Monitor**”) and Todd Felger ofPrincipal Real Estate Investors, LLC, copies of all documentation received from the GeneralContractor and architect to disclose the reason for the change order, including without limitation,the specific changes to the construction materials, specifications, and methods of installation,any drawings depicting the Material Change Order, material data sheets, if any, and informationrelated to the cost of the Material Change Order, if applicable. Upon receipt of such information,Option Holder shall have two (2) business days to respond to such Material Change Order andinstruct the Companies in writing whether Option Holder approves or disapproves of such MaterialChange Order, and if it disapproves the Material Change Order specifying the reasons therefor. Afailure by Option Holder to disapprove a Material Change Order within such two (2) business dayshall be deemed an approval of such Material Change Order. Option Holder’s Construction Monitorshall have the authority to approve or disapprove all Material Change Orders on behalf of OptionHolder, and the Construction Monitor’s written decisions or failure to act shall be binding onOption Holder. In the event Option Holder approves the Material Change Order, then the Companiesmay implement such Material Change Order, without credit, offset or adjustment to the PurchasePrice.
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     In the event Option Holder disapproves of such Material Change Order, then the Companies shalleither (x) instruct the General Contractor that such change order is not acceptable and completethe construction substantially in accordance with the original Plans and Specifications (asmodified by any prior Change Orders permitted under this Agreement), (y) make modifications to theMaterial Change Order to address the objections specified in the Option Holder’s response andthereafter repeat the same notice provisions for approval by the Option Holder, (z) make any changereflected in a Material Change Order that is disapproved pursuant to this Section, in which eventOption Holder’s sole remedy shall be to terminate this Agreement, receive an immediate full refundof the Option Payment less $75,000, which shall be paid to Option Grantor as consideration fortaking the Membership Interests off the market.     (b) The Companies shall provide the Construction Monitor with reasonable access to theImprovements to review the status of the construction. At a minimum, Rick Mason, or any otherperson designated in writing by notice to Option Holder as the project manager for the Companies(the “**Project Manager**”), shall update Option Holder as to the construction progress at ameeting to take place on the next business day following the monthly on-site meeting with theProject Manager and the General Contractor superintendent; provided that the Project Manager mayreschedule such meeting, but will give the Construction Monitor at least five (5) business daysprior notice. The Project Manager will deliver copies of the meeting minutes for the monthlyon-site meeting and copies of other materials related to such meeting within two (2) business daysfollowing receipt thereof. All visits to the site by the Construction Monitor shall be coordinatedthrough the Project Manager. The Construction Monitor shall not directly contact the projectsuperintendent, architect or any other members of the construction team regarding the Improvementsor construction thereof.     Within two (2) business days of Project Manager’s receipt thereof, the Construction Monitorshall be provided copies of construction documentation exchanged between the General Contractor andthe Project Manager, including:               (i) Copies of updated milestone calendars for completion of the Improvements;               (ii) Copies of any material testing or sample reports (i.e. compaction reports, concrete coresamples, etc.); and               (iii) Copies of any modifications to Plans and Specifications as a result of change orders.     Notwithstanding the foregoing, (i) the Companies shall not be required to provide copies ofany General Contractor applications for payment and (ii) the Companies shall only be required tofurnish copies of all General Contractor or subcontractor lien waivers following the completion ofthe Improvements.     The Construction Monitor shall not access the job site at any time without the advancepermission of the Project Manager, which access shall not be unreasonably withheld, delayed orconditioned. The Construction Monitor shall take all reasonable steps to avoid disruption to thejob site, construction schedule, or superintendent management of the overall construction of theImprovements and shall follow all reasonable restrictions or limitations imposed by the ProjectManager or the employees at the job site. Option Holder shall indemnify, defend and hold
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harmless Option Grantor, the Companies, Project Manager and the General Contractor for fromand against any loss, cost, damage or expense as the result of or arising from the ConstructionMonitor’s entry onto the Property or exercise of the rights granted under this Section.     Upon completion of the Improvements, the Construction Monitor shall also be afforded aninvitation to attend the construction walk-through along with the Project Manager and the projectsuperintendent at which a final punch list is prepared. The Construction Monitor’s attendance atthe walk-thru shall be as a silent observer, but following the walk-thru Project Manager shallschedule a meeting to afford the Construction Monitor any opportunity to provide input into thedocumentation of the final punch list. The Construction Monitor’s recommendations regarding finalpunch list shall include only items necessary to conform the Improvements to the Plans andSpecifications as modified by Change Orders permitted under this Agreement, and the projectarchitect shall determine whether the recommended punch list items are necessary to conform theImprovements to the Plans and Specifications. If the Construction Monitor requests any punch listitem that is inconsistent with or would require changes to the Plans and Specifications, OptionGrantor may accept or reject such item, in its sole and absolute discretion, or may condition itsacceptance of the item on any terms the Companies deem appropriate, including without limitation,Option Holder agreeing to pay any increased cost resulting from the requested punch list item.     3. Option to Purchase.          (a) Option Grantor hereby grants to Option Holder, an exclusive and irrevocable right andoption (the “**Option**”) to purchase the Membership Interests upon and subject to the terms,conditions and limitations hereafter set forth.          (b) Option Grantor shall notify Option Holder the date that it anticipates that Completion (asdefined in the following sentence) of the Improvements will occur (the “**Estimated CompletionNotice**”). Option Grantor shall provide written notice to Option Holder (and evidence of thecompletion of each thereof) (the “**Completion Notice**”), within five (5) business days afterthe last to occur of (i) final completion of the Improvements substantially in accordance with thePlans and Specifications; (ii) receipt of a notice of substantial completion from Option Grantor’sarchitect; and (ii) issuance of an unconditional final certificate of occupancy from the City ofPhoenix (“**Completion**”). Option Holder may exercise the Option by giving written notice(the “**Option Exercise Notice**”) of the exercise thereof to Option Grantor on or before thelater of (i) five (5) business days following delivery by Option Grantor to Option Holder of theCompletion Notice or (ii) sixty (60) days after the delivery by Option Grantor to Option Holder ofthe Estimated Completion Notice (the “**Option Exercise Date**”).          (c) If the Option Exercise Date has not occurred on or before September 30, 2007 (as the samemay be extended for any Force Majeure Delay), Option Holder, at its absolute discretion and as itssole remedy, may either (i) terminate this Agreement by written notice and receive an immediaterefund of the Option Payment or (ii) extend from time to time and as often as Option Holder electsthe period for the Option Exercise Date to occur; provided, however, that notwithstanding anythingcontained herein to the contrary, in no event shall Option Holder be entitled to extend beyondMarch 30, 2008 (the “**Outside Expiration Date**”). For purposes of this Agreement, a“**Force Majeure Delay**” shall mean any delay caused by strike, other labor trouble,governmental preemption of priorities or other controls in connection with a national or
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other public emergency, or shortages of fuel, supplies or labor resulting therefrom or anyother cause, similar to the above, beyond a party’s reasonable control. Notwithstanding anythingcontained in this Agreement to the contrary, if the Option Exercise Date has not occurred by theOutside Expiration Date (without regard to any Force Majeure Event), the Option shall lapse, theOption Payment shall be refunded to Option Holder, and Option Holder shall have no further Optionto purchase the Membership Interests.          (d) The giving of the Option Exercise Notice shall create a valid and binding contract betweenOption Grantor, as seller, and Option Holder, as purchaser, whereby seller shall be bound to sell,and purchaser shall be bound to purchase, the Membership Interests, upon and subject to the terms,conditions, and limitations set forth in the form of purchase and sale agreement attached hereto as**Exhibit “D”** (the “**Purchase and Sale Agreement**”), which Option Grantor and OptionHolder agree to execute without modification and deliver to the other within five (5) business daysafter the exercise of the Option to memorialize such contract.          (e) From and after the date of this Agreement, and until the first to occur of (i) the lapseor expiration of the Option or (ii) the Closing, Option Grantor shall neither sell, transfer,convey or otherwise alienate the Membership Interests, and the Companies shall neither sell,transfer, convey or otherwise alienate the Assets or any part thereof or interest therein, norgrant or create or suffer the creation of any mortgage, trust deed, lien, charge, or encumbrance ofor on the Assets or any part thereof or interest therein that cannot be and is not released byOption Grantor at the Closing, nor grant or enter into any lease of the Assets or any part thereof(other than licenses or subleases that would otherwise be permitted under the terms of the UOPLease).          (f) From time to time after the date hereof and prior to Closing, Option Holder shall beentitled to reasonable access to the Real Property and the Improvements, after prior written noticeto Project Manager; provided that Project Manager may limit such entry to periods when ProjectManager or his designee is available to accompany Option Holder on its entry on to the Property andmay impose reasonable requirements intended to minimize interference with the construction andinsure safety to persons on-site. Option Holder shall not create any liens on the Real Property orthe Improvements by virtue of its access to or entry thereon and will indemnify, defend, and holdOption Grantor and the Companies harmless for, from and against all loss, cost, damage and expense,including, but not limited to, claims asserted by third parties against Option Grantor or theCompanies to recover for personal injury or property damage as a result of Option Holder’s entryonto or activities at the Real Property and Improvements. In the course of its investigationsOption Holder may make reasonable inquiries to third parties, including, without limitation partiesto service contracts, municipal, local and other government officials and representatives, butexcluding architects, contractors and subcontractors in which case communications shall be limitedto those set forth in Section 2, and Option Grantor and the Companies consent to suchinquiries.          (g) Prior to the Agreement Date, the Companies provided to Option Holder the due diligencematerials listed on **Exhibit “E”** (collectively, the “**Due Diligence Items**”). NeitherOption Grantor nor the Companies make any representation as to the accuracy of any Due DiligenceItem or the content therein. The Companies are providing such reports to Option Holder forinformational purposes only. In the event the transaction contemplated herein does
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not close for any reason other than a default by Option Grantor, Option Holder shall promptlyreturn the Due Diligence Items and any copies thereof to the Companies.     On or before 5:00 p.m. (Central Time) on the date which is the tenth (10th) business dayfollowing the Agreement Date (the “**Approval Date**”), if Option Holder disapproves of any ofthe Due Diligence Items or the Assets, for any reason or for no reason, this Agreement shallterminate without any liability on the part of either party and the Option shall lapse. In theevent of such termination and lapse, the Option Payment shall be immediately returned to OptionHolder, and Option Holder shall promptly return to the Companies all Due Diligence Items and anycopies of same. If by 5:00 p.m. (Central Time) on the Approval Date Option Holder does not deliveran approval notice to Option Grantor (the “**Approval Notice**”), there shall be a conclusivepresumption that Option Holder has disapproved the Due Diligence Items or the Assets, thisAgreement shall terminate without any liability on the part of either party, and the Option Paymentshall be immediately returned to Option Holder. If by 5:00 p.m. (Central Time) on the ApprovalDate, Option Holder delivers an Approval Notice, then Option Holder will be deemed to have approvedof the Due Diligence Items and the Assets, Option Holder shall have no further right to terminatethis Agreement and it shall remain in full force and effect, and the Option Payment shall benon-refundable except as otherwise expressly provided in this Agreement.     4. Option Payment.          (a) In consideration of the granting of the Option by Option Grantor to Option Holderhereunder, Option Holder shall deposit with the Title Company the sum of Four Million No/100Dollars ($4,000,000.00) (the “**Option Payment**”).          (b) The Option Payment shall be paid on or before the date which is three (3) business daysafter the Agreement Date, by wire transfer of immediately available funds in U.S. dollars via thefederal bank wire transfer system, to the Phoenix office of First American Title Insurance Company,Attn: Carol Peterson, 2425 E. Camelback Road, Suite 300, Phoenix, AZ 85016 (telephone:602/567-8109; fax: 602/567-8101) (the “**Title Company**”).          (c) The Option Payment shall remain in escrow with the Title Company until first to occur of(i) the Closing, (ii) the termination of this Agreement or the lapse or termination of the Optionor (iii) the termination of the Purchase and Sale Agreement. The Option Payment shall be investedby the Title Company as directed by Option Holder, and all earnings thereon shall become part ofthe Option Payment and disbursed to the party entitled to receive the Option Payment. If thetransaction contemplated by the Purchase Agreement closes, Option Holder shall receive a creditagainst the Purchase Price at Closing in an amount equal to the interest earned on the OptionPayment from the date of deposit with the Title Company through the date of the Closing.          (d) Upon the Approval Date the Option Payment shall be non-refundable to Option Holder, unlessor except if any of the following events shall occur on or before the Closing Date in which eventthe Option Payment shall be immediately refunded to Option Holder:
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                    (1) This Agreement is terminated pursuant to Section 2(a), Section 3(c),Section 3(g), Section 9(a) or Section 10(q);                    (2) On or after the Agreement Date there shall be (A) a violation of Environmental Law(defined below) related to the Assets, except where such violation would not have a materialadverse effect or (B) the presence or release of Hazardous Materials (defined below) on or from theAssets or the migration of Hazardous Materials onto the Assets from adjacent property if suchpresence, release or migration is in violation of any Environmental Law unless such violation isremedied prior to the Option Exercise Date. If Option Grantor discovers that Hazardous Materialshave migrated onto the Assets from adjacent property prior to Closing, Option Grantor shall takesuch actions as it deems reasonably appropriate against the adjoining landowner(s) from whoseproperty the Hazardous Substance originated.                    (3) The termination of this Agreement by Option Holder as the result of a filing by or againstTenant or Option Grantor of a petition for order of relief in bankruptcy for the purpose ofbankruptcy, liquidation or reorganization under any law relating to bankruptcy whether now existingor hereafter enacted (including, without limitation, any petition filed by or against Tenant underany one or more of the following Chapters of the Bankruptcy Reform Act of 1978, 11 U.S.C. §§ 1011330 as amended: Chapter 7, Chapter 11 or Chapter 13) except that, in the case of a filing againstTenant or Option Grantor of such a petition, Option Holder may not terminate this Agreement if thepetition is dismissed or discharged on or before sixty (60) days after the filing thereof;                    (4) Any condemnation of any portion of the Assets; or                    (5) An Exception to Warranty Notice has been given by Option Grantor and Option Holder electsto terminate this Agreement in accordance with the provisions of Section 8(c) hereof;     If any of the conditions set forth in items (1) through (5) above occur, the Option Depositshall be immediately returned to Option Holder; otherwise the Option Payment shall be released toOption Grantor upon the earlier to occur of (i) the Closing under the Purchase and Sale Agreementor (ii) the expiration, termination or lapse of the Option pursuant to this Agreement. Followingthe exercise of the Option and the execution of the Purchase and Sale Agreement, the partiesrespective rights to the Purchase and Sale Agreement shall be governed by the terms of the Purchaseand Sale Agreement.     5. Purchase Price. Subject to the adjustment below, the purchase price at whichOption Grantor, as seller shall sell and the Option Holder, as purchaser, shall purchase theMembership Interests, pursuant to the contract created by the exercise of the Option (the“**Purchase Price**”) shall be $70,800,000.00 (Seventy Million Eight Hundred Thousand andNo/100 US Dollars). The Option Payment also shall be paid to Option Grantor at Closing, and theOption Holder shall receive a credit against the Purchase Price in an amount equal to the interestearned on the Option Payment from the date of deposit with the Title Company through the date ofthe Closing. The Purchase Price was determined based on the lease revenue to be derived assumingthe office tower constructed as part of the Improvements will contain a net rentable area of267,949 square feet. Within thirty (30) days following the Estimated
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Completion Notice, Option Grantor shall provide Option Holder with a certification of therentable area of the office tower measured by Carpenter Sellers Associates in accordance with“American National Standard ASNI/BOMA Z65.1-1996: Standard Method for Measuring Floor Area inOffice Buildings” issued by the Building Owners and Managers Association International (the“**BOMA Standard**”). The rent under the UOP Lease shall be determined based on the netrentable area of the Building calculated in accordance with the BOMA Standard, and therefore, thePurchase Price shall be adjusted at closing to equal the rentable area of the office tower as setforth in such certification multiplied by $264.23 US dollars.     6. Assignment of Membership Interests. Upon the exercise of the Option as provided inSection 3 and the Closing under the Purchase and Sale Agreement, the Membership Interestsshall be assigned and conveyed to Option Holder in accordance with the Purchase and Sale Agreement.     7. The Closing. Upon the exercise of the Option as provided in Section 3, theclosing of the transaction (the “**Closing**”) shall be held and delivery of all items shall bemade under the terms and conditions of the Purchase and Sale Agreement through an escrow with theTitle Company, on the date which is five (5) business days after the Option Holder’s exercise ofthe Option, or such earlier date prior thereto as Option Grantor, as seller and Option Holder, asbuyer, may mutually agree in writing (the “**Closing Date**”). The Closing Date may not beextended without the prior written approval of both Option Grantor, as seller and Option Holder, asbuyer.     8. Representations and Warranties.          (a) On the date hereof and again on the Closing Date, Option Grantor hereby represents andwarrants to Option Holder as follows:               (i) Option Grantor is a corporation duly organized, validly existing and in good standingunder the laws of the State of Arizona.               (ii) Each of the Companies is a limited liability company duly organized, validly existing andin good standing under the laws of the State of Arizona.               (iii) The Companies collectively own and hold 100% of all right, title and interest in and tothe Assets.               (iv) Option Grantor is the sole member of each of the Companies and owns 100% of theMembership Interests. Option Grantor holds all right, title and interest to the MembershipInterests, free of all liens, encumbrances or any other defects of title whatsoever, and theMembership Interests were not issued in violation of the preemptive rights of any person or anyagreement or laws by which the Option Grantor at the time of issuance was bound. There are nooutstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange,rights of redemption, subscriptions, claims, agreements, obligations, convertible or exchangeablesecurities or other plans or commitments, contingent or otherwise, relating to the MembershipInterests, except as may be provided in the Operating Agreements of the Companies. Option Grantorhas delivered to Option Holder true, complete and correct copies of the Articles of Organizationand the Operating Agreements of the Companies and the same have
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not been amended or modified, except as provided, and remain in full force and effect. All ofthe rights with respect to the operation or management of the Companies are set forth in suchdocuments. There are no officers in the Companies.               (v) The execution, delivery and performance by the Option Grantor of this Agreement and thePurchase and Sale Agreement have been duly and validly approved by all necessary company action andno other actions or proceedings on the part of the entities constituting Option Grantor arenecessary to authorize this Agreement or the Purchase and Sale Agreement or the transactionscontemplated hereby and thereby. No consent, waiver, approval, or authorization of, or filing,registration, or qualification with, or notice to, any governmental instrumentality or any otherperson or entity is required to be made, obtained, or given by the entities constituting OptionGrantor in connection with the execution, delivery, and performance of this Agreement or thePurchase and Sale Agreement or, if required, such consent or action has been obtained or taken.The entities constituting Option Grantor have full power and authority to own and grant the option,to own and sell the Membership Interests, and to enter into this Agreement and the Purchase andSale Agreement and to consummate the transactions contemplated in such documents. This Agreement,the Purchase and Sale Agreement, and all closing documents executed by Option Grantor which are tobe delivered to Option Holder at the Closing Date are, or at the Closing Date will be, dulyauthorized, executed, and delivered by Option Grantor, are, or at the Closing Date will be, legal,valid, and binding obligations of Option Grantor, enforceable in accordance with its terms, exceptto the extent that the enforceability thereof may be limited, or otherwise affected by theapplication of rules of law or general principles of equity governing specific performance,injunctive relief or other equitable remedies (regardless of whether enforceability is consideredin a proceeding in equity or at law) and by bankruptcy, reorganization, insolvency, moratorium andother similar laws enacted for the relief of debtors generally, from time to time in effect, andother similar laws or decisions of courts affecting creditors’ rights or remedies generally, aresufficient to convey title, and do not violate any provisions of any agreement to which OptionGrantor is a party or to which it is subject.               (vi) The execution and delivery of this Agreement and the Purchase and Sale Agreement, and theperformance by Option Grantor under this Agreement and the Purchase and Sale Agreement, do not andwill not conflict with or result in a breach of (with or without the passage of time or notice orboth) the terms of Option Grantor’s organizational documents, any judgment, order or decree of anygovernmental authority binding on Option Grantor, and, to Option Grantor’s knowledge, do not breachor violate any applicable law, rule or regulation of any governmental authority. The execution,delivery and performance by Option Grantor under this Agreement and the Purchase and Sale Agreementwill not result in a breach or violation of (with or without the passage of time or notice or both)the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust,loan agreement or other material agreement or instrument to which Option Grantor is a party or bywhich Option Grantor is bound or to which the Assets are subject. Neither Option Grantor nor theCompanies have granted any rights, options, rights of first refusal, or any other agreements of anykind, which are currently in effect, to purchase or to otherwise acquire the Assets or any partthereof or any interest therein, except for rights under this Agreement and the Purchase and SaleAgreement or any rights disclosed by the Permitted Exceptions (defined in the Purchase and SaleAgreement).
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               (vii) To Option Grantor’s knowledge, Option Grantor has not breached any material provisionof, nor is it in default under the terms of, any material contract to which it is a party or underwhich it has any rights or by which it is bound. Neither Option Grantor nor the Companies havereceived any written notice of any violation of or default under or with respect to any law,governmental regulation or rule or order of any governmental authority that is applicable in anyway to the business or operation of Option Grantor.               (viii) To Option Grantor’s knowledge, (A) the Assets are free and clear of all liens orencumbrances other than the Permitted Exceptions (defined in the Purchase Agreement), (B) there areno public plans or proposals for changes in road grade, access or improvements which would affectthe Assets or result in any general or specific assessment against it other than any expansion ofthe I-10 right of way, which is currently in the study phase pursuant to the I-10 CorridorImprovement Study (the “**I-10 Expansion**”), and (C) no condemnation proceedings, eminentdomain proceedings or similar actions or proceedings are now pending or threatened against theAssets. Notwithstanding the foregoing, Option Holder acknowledges that Option Grantor and itsaffiliates own other lots in the Riverpoint development that are not part of the Assets (the“**Riverpoint Lots**”), and nothing in this Agreement shall limit the right of the owner ofsuch lots to make any improvements or changes to the Riverpoint Lots. The preceding sentence shallin no way limit Option Holder’s right, as the possible owner of the Assets, to appear andparticipate in any public proceedings related to the Riverpoint Lots.               (ix) To Option Grantor’s knowledge, there is no action, suit or proceeding pending or toOption Grantor’s knowledge, threatened against the Companies or the Assets.               (x) The Companies are classified as disregarded entities for Federal income tax purposes. TheCompanies have not made a “check the box” election to be treated as a corporation for Federalincome tax purposes. All Federal income taxes and state and other tax returns and reports of theCompanies required by law to be filed as of the Closing Date will have been duly filed as of suchdate, and all taxes imposed upon the Companies or any of its properties, assets or income which aredue and payable or claimed by any taxing authority to be due and payable have been paid or reservedfor as of the Closing Date, other than taxes, assessments, fees and charges being contested by theCompanies in good faith using appropriate procedures. There are no claims for taxes pendingagainst the Companies, and there are not now in force any waivers or agreements by the Companiesfor the extension of time for the assessment of any tax, nor has any such waiver or agreement beenrequested by the Internal Revenue Service (the “**Service**”) or any other taxing authority.The federal income tax returns of the Companies have not been examined by the Service. TheCompanies have paid or are withholding and will pay when due to the proper taxing authorities allwithholding amounts required to be withheld with respect to all taxes on income, unemployment,social security or other similar programs or benefits with respect to salary and other compensationof directors, officers and employees of the Companies, if any.               (xi) Except for the UOP Lease, there will not be any other leases affecting the Assets at theClosing (other than licenses or subleases permitted under the terms of the UOP Lease).
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               (xii) The Option Grantor will prior to the Closing deliver to Option Holder copies of thefinancial statements for each of the Companies as of June 30, 2006 (collectively, the“**Financial Statements**”). Each of the Financial Statements has been or will be prepared ona modified cash basis with depreciable assets being recorded on an income tax basis, and eachpresents fairly the financial position of the applicable Company, as of its date and the results oftheir operations, as the case may be. Since March 31, 2006, there has been no circumstance, event,occurrence, change or effect that has had a materially adverse effect on the financial condition ofthe Companies, other than, in each case, as a result of (a) changes in general economic conditionsnationally, regionally or within the market in which the Assets are located; and (b) changes in thereal estate industry generally and the office building leasing market specifically. Except as setforth in the Financial Statements, the Companies have no material liabilities, debts, claims orobligations, whether accrued, absolute, contingent or otherwise, whether due or to become due,other than (A) real estate taxes and assessments not yet due and payable, (B) obligations, dutiesand responsibilities under items disclosed by the Permitted Exceptions, (C) trade payables in theordinary course, (D) obligations, duties and responsibilities under applicable laws and (E) costsincurred in connection with the construction of the Improvements.               (xiii) Option Grantor has received no notice that the current or intended use of the Assetsviolates, or that following completion of the Improvements the Assets will violate, in any materialrespect any governmental law, rules, regulations or codes, or any covenants or restrictionsencumbering the Companies or the Assets.               (xiv) Except as disclosed in writing to Option Holder or as disclosed in the environmentalreports, if any, pertaining to the Assets provided by Option Grantor, or received by Option Holderas a result of Option Holder’s tests, Option Grantor has no knowledge of (1) any violation ofEnvironmental Laws related to the Assets, except where such violation would not have a materialadverse effect or (2) the presence or release of Hazardous Materials on or from the Assets inviolation of any Environmental Law. The term “**Environmental Laws**” includes withoutlimitation the Resource Conservation and Recovery Act and the Comprehensive Environmental ResponseCompensation and Liability Act and other federal laws governing the environment as in effect on thedate of this Agreement or such later date as of which this representation is effective pursuant tothe terms hereof, together with their implementing regulations and guidelines as of the date ofthis Agreement or such later date as of which this representation is effective pursuant to theterms hereof, and all state, regional, county, municipal and other local laws, regulations andordinances that are equivalent or similar to the federal laws recited above or that purport toregulate Hazardous Materials. The term “**Hazardous Materials**” includes petroleum, includingcrude oil or any fraction thereof, natural gas, natural gas liquids, liquified natural gas, orsynthetic gas usable for fuel (or mixtures of natural gas or such synthetic gas), and anysubstance, material waste, pollutant or contaminant listed or defined as hazardous or toxic underany Environmental Laws.               (xv) Other than this Agreement, the documents delivered pursuant hereto, matters disclosed inthe title policy and title commitment, the UOP Lease and such other contracts and agreementsdisclosed to Option Holder (including, but not limited to the construction contracts related toconstruction of the Improvements), to Option Grantor’s
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knowledge, there are no material contracts or agreements of any kind relating to the Companiesor the Assets to which Option Holder or the Companies will be bound after the Closing Date.               (xvi) As of the date of this Agreement, Option Holder is not aware of any circumstances thatwould require the treatment of the transaction contemplated by this Agreement as a “reportabletransaction” (within the meaning of Treasury Regulation Section 1.6011-4) and therefore does notpresently intend to treat the transaction as such. If in the future, the IRS publishes anyguidance that describes this transaction, or any substantially similar transaction, as being a“listed transaction” (within the meaning of Treasury Regulation Section 1.6011-4), or if there isany change in law that requires Option Holder to treat this transaction as a “reportabletransaction,” Option Holder reserves the right to treat this transaction as such.               (xvii) Neither the Tenant, nor the Companies, nor the Option Grantor has (i) made a generalassignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy orsuffered the filing of any involuntary petition by its respective creditors which is not dismissedwithin sixty (60) days, (iii) suffered the appointment of a receiver to take possession of all orsubstantially all of its respective assets, (iv) suffered the attachment or other judicial seizureof all, or substantially all, of its respective assets, (v) admitted in writing its inability topay their respective debts as they become due, or (vi) made an offer of settlement, extension orcomposition to its creditors generally.               (xviii) The Operating Agreements of the Companies are in full force and effect, a true andcorrect copy thereof was delivered to Option Holder with the Due Diligence Items and there are nodissolution, termination or liquidation proceedings pending or contemplated with respect to theCompanies or, prior to the Closing, Option Grantor.               (xix) Other than Lot 5 (defined in Section 11 below), the Companies have no businessand have engaged in no activity other than the direct ownership and operation of the Real Propertyand construction of the Improvements and have never leased or owned, directly or indirectly, anyother real property other than the Real Property, and the Companies have not conveyed any interestin the Real Property to any third party since the date the Title Policy (defined on **Exhibit“E”**) was issued.               (xx) Neither Option Grantor nor the Companies have received any written notice of any casualtywith respect to the Assets.               (xxi) To Option Grantor’s knowledge, the Companies have not been cited, fined or otherwisenoticed of any asserted past or present failure to comply with any laws, regulations or ordersrelating to the Assets which have not been cured and to Option Grantor’s knowledge, no proceedingwith respect to any such violation is pending or threatened.               (xxii) For federal and state income tax purposes, the Assets has been treated as owned byOption Grantor.               (xxiii) Neither Option Grantor nor the Companies are (a) currently identified on the SpeciallyDesignated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control,Department of the Treasury (“**OFAC**”) and/or on any other similar list maintained by OFACpursuant to any authorizing statute, executive order or
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regulation (collectively, the “**List**”), and (b) a person or entity with whom a citizenof the United States is prohibited to engage in transactions by any trade embargo, economicsanction, or other prohibition of United States law, regulation, or Executive Order of thePresident of the United States. None of the funds or other assets of the Companies constituteproperty of, or are beneficially owned, directly or indirectly, by any Embargoed Person (ashereinafter defined), and (c) the members and managers of the Companies are not Embargoed Persons.               (xxiv) Neither of the Companies is required to file reports pursuant to Sections 12(g) or15(d) of the Securities Exchange Act of 1934, as amended.               (xxv) There are no claims pending, or to the Option Grantor’s knowledge, threatened, againstany manager, officer, employee or agent of either Company or any person which could give rise toany claim for indemnification against either of the Companies.               (xxvi) Neither of the Companies has ever had any, nor currently has, any employees. Neitherof the Companies is a party to, nor maintains, any employee benefit plan or employee welfare plan(within the meaning of the Employee Retirement Income Security Act of 1974, as amended(“**ERISA**”)), and none of the Subsidiaries has any obligation to contribute to anymulti-employer plan (within the meaning of ERISA).               (xxvii) Neither of the Companies own, control or hold with the power to vote, directly orindirectly, any shares of capital stock or beneficial interest in any corporation, partnership,limited liability company, association, joint venture or other entity.     The term “**Embargoed Person**” means any person, entity or government subject to traderestrictions under the International Emergency Economic Powers Act, 50 U.S.C. §1701 et seq., TheTrading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulationspromulgated thereunder with the result that the investment in Option Grantor is prohibited by lawor Option Grantor is in violation of law.     This Section shall not apply to any person to the extent that such person’s interest in OptionGrantor is through a U.S. Publicly-Traded Entity. As used in this Agreement, “**U.S.Publicly-Traded Entity**” means a Person (other than an individual) whose securities are listedon a national securities exchange, or quoted on an automated quotation system, in the UnitedStates, or a wholly-owned subsidiary of such a person.     To the extent that any of the representations and warranties made by Option Grantor pursuantto this Section 8 or elsewhere in this Agreement are made to Option Grantor’s knowledge,Option Holder acknowledges and agrees that such representations and warranties are based on theactual (as distinguished from implied, imputed or constructive) knowledge of William J. Swirtz andRick Mason as of the date of the Agreement and that such individuals have made such representationsand warranties without making, or being under any duty to make, any investigation or inquirywhatsoever with respect thereto. Option Holder acknowledges that Mr. Swirtz and Mr. Mason arenamed solely for the purpose of defining and narrowing the scope of Option Grantor’s knowledge andnot for the purpose of imposing any liability on or creating any duties running from suchindividual to Option Holder. Option Holder covenants that it will bring
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no action of any kind against such individual, and in no event shall Mr. Swirtz or Mr. Masonbe personally liable for any representation or warranty contained herein.          (b) Option Holder hereby represents and warrants to Option Grantor as of the Agreement Dateand again as of the Closing Date as follows:               (i) Option Holder is a limited liability company, duly organized and validly existing underthe laws of the State of Delaware and will at Closing be qualified to do business in the State ofArizona.               (ii) The execution, delivery and performance by Option Holder of this Agreement and thePurchase and Sale Agreement have been duly and validly approved by all necessary corporate or otherapplicable action. No consent, waiver, approval, or authorization of, or filing, registration, orqualification with, or notice to, any governmental instrumentality or any person or entity isrequired to be made, obtained, or given by Option Holder in connection with the execution,delivery, and performance of this Agreement or the Purchase and Sale Agreement or, if required,such consent or action has been obtained or taken. Option Holder has full power and authority toenter into this Agreement and the Purchase and Sale Agreement and to consummate the transactionscontemplated in such documents. This Agreement, the Purchase and Sale Agreement and all documentsexecuted by Option Holder which are to be delivered to Option Grantor at the Closing Date are, orat the Closing Date will be, duly authorized, executed, and delivered by Option Holder, and are, orat the Closing Date will be, legal, valid, and binding obligations of Option Holder enforceableagainst Option Holder in accordance with their respective terms, except to the extent that theenforceability thereof may be limited, or otherwise affected by the application of rules of law orgeneral principles of equity governing specific performance, injunctive relief or other equitableremedies (regardless of whether enforceability is considered in a proceeding in equity or at law)and by bankruptcy, reorganization, insolvency, moratorium and other similar laws enacted for therelief of debtors generally, from time to time in effect, and other similar laws or decisions ofcourts affecting creditors’ rights or remedies generally, and do not and at the Closing Date willnot violate any provisions of any agreement to which Option Holder is a party or to which it issubject.               (iii) Option Holder shall furnish all of the funds for the purchase of the Option (other thanfunds, if any, supplied by institutional lenders which will hold valid mortgage liens against theProperty) and such funds will not be from sources of funds or properties derived from any unlawfulactivity.               (iv) Option Holder does not intend to treat the transaction contemplated by the Purchase andSale Agreement as being a “reportable transaction” (within the meaning of Treasury RegulationSection 1.6011-4).               (v) Option Holder is a sophisticated investor with substantial experience in investing inassets of the same type as the Membership Interests and the Assets and has such knowledge andexperience in financial and business matters that Option Holder is capable of evaluating the meritsand risks of an investment in the Membership Interests.               (vi) The execution and delivery of this Agreement and the Purchase and Sale Agreement, and theperformance by Option Holder under this Agreement and the
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Purchase Agreement, do not and will not conflict with or result in a breach of (with orwithout the passage of time or notice or both) the terms of any of Option Holder’s organizationaldocuments, any judgment, order or decree of any governmental authority binding on Option Holder,and, to Option Holder’s knowledge, do not breach or violate any applicable law, rule or regulationof any governmental authority. The execution, delivery and performance by Option Holder under thisAgreement and the Purchase and Sale Agreement will not result in a breach or violation of (with orwithout the passage of time or notice or both) the terms or provisions of, or constitute a defaultunder, any indenture, mortgage, deed of trust, loan agreement or other material agreement orinstrument to which Option Holder is a party or by which Option Holder is bound.               (vii) Option Holder has not (i) made a general assignment for the benefit of creditors, (ii)filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition byits creditors, (iii) suffered the appointment of a receiver to take possession of all orsubstantially all of its assets, (iv) suffered the attachment or other judicial seizure of all, orsubstantially all, of its assets, (v) admitted in writing its inability to pay its debts as theybecome due, or (vi) made an offer of settlement, extension or composition to its creditorsgenerally.               (viii) Option Holder and each member of Option Holder (a) is not currently identified on theList, and (b) is not a person or entity with whom a citizen of the United States is prohibited toengage in transactions by any trade embargo, economic sanction, or other prohibition of UnitedStates law, regulation, or Executive Order of the President of the United States. None of thefunds or other assets of Option Holder constitute property of, or are beneficially owned, directlyor indirectly, by any Embargoed Person, and (c) the members and managers of Option Holder are notEmbargoed Persons.     This Section shall not apply to any person to the extent that such person’s interest in OptionHolder is through a U.S. Publicly-Traded Entity.          (c) If at any time after the date of this Agreement, either party learns of any facts orcircumstances which would render any of the foregoing representations and warranties untrue, thensuch party shall promptly notify the other party of all such facts and circumstances (an“**Exception to Warranty Notice**”) and the party receiving such notice shall, within five (5)business days following receipt of an Exception to Warranty Notice have the right, as its sole andexclusive remedy, to elect to (i) terminate this Agreement, and if Option Holder is the partyreceiving the Exception to Warranty Notice, it shall be entitled to receive an immediate refund ofthe Option Payment (otherwise the Option Payment shall be released to Option Grantor at Closing inaccordance with the Purchase and Sale Agreement); or (ii) waive any claim against the partyproviding such notice arising out of or related to the information disclosed in the Exception toWarranty Notice and proceed with the transaction, in which case the representation or warrantyshall be deemed modified as necessary to conform with the additional information disclosed in theException to Warranty Notice. If any party receiving an Exception to Warranty Notice fails totimely elect in writing to terminate this Agreement within the five (5) business day period as setforth above in this Section 8(c), it shall be deemed an election to proceed in accordancewith clause (i) above.
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     9. Remedies.          (a) If Option Grantor shall be in default hereunder, Option Holder shall deliver a writtennotice to Option Grantor on or before the Closing stating with particularity the alleged default ofOption Grantor and the action required by Option Grantor to cure such default, whereupon OptionGrantor shall have ten (10) days after receipt of such written notice in which to cure the allegeddefault (and the Closing Date shall be delayed, if necessary, until the end of such ten (10) dayperiod), and in the event such default is not cured within such ten (10) day period, Option Holdermay elect to either: (i) waive such default by Option Grantor or (ii) terminate this Agreement bywritten notice to Option Grantor, in which case the Option Payment shall be returned to OptionHolder, Option Grantor shall reimburse Option Holder for Option Holder’s out-of-pocket duediligence costs to third parties upon presentation to Option Grantor of actual third partyinvoices, not to exceed $500,000; or (iii) enforce specific performance of this Agreement;provided, however, that any such action must be filed and served not later than ninety (90) daysafter the Closing Date, or the remedy of specific performance shall be deemed waived; and furtherprovided that if specific performance is not a legally available remedy because Option Grantor hasconveyed the Membership Interests to a third party other than Option Holder or the Companies haveconveyed title to the Property to a third party other than Option Holder, then Option Holder shallbe entitled to exercise any and all other remedies available at law or in equity. In no event(other than under the provision to clauses (ii) and (iii) above) shall Option Grantor be liable toOption Holder for any actual, punitive, speculative, consequential or other damages. Nothing inthis Section shall limit Option Holder’s rights to indemnification specifically set forth in thisAgreement or Option Holder’s right to recover from Option Grantor costs and fees set forth inSection 10(g).          (b) If Option Holder breaches this Agreement, Option Grantor’s sole and exclusive remedy willbe to terminate this Agreement, such termination to be effective immediately upon Option Grantorgiving written notice of termination to Option Holder. Upon such termination, Option Grantor willbe entitled to receive the Option Payment, as liquidated damages and not as a penalty, the partiesagreeing and stipulating that the exact amount of damages would be extremely difficult to ascertainand that the Option Payment constitutes a reasonable and fair approximation of such damages.Nothing in this Section shall limit Option Grantor’s rights to indemnification specifically setforth in this Agreement or Option Grantor’s right to recover from Option Holder costs and fees setforth in Section 10(g).     10. Miscellaneous.               (a) Notices. Any notice required or permitted to be given under this Agreement shallbe in writing and shall be deemed to be an adequate and sufficient notice if given in writing andservice is made either by (i) personal delivery, in which case the service shall be deemed receivedthe date of such personal delivery, (ii) nationally recognized overnight air courier service, nextday delivery, prepaid, in which case the notice shall be deemed to have been received one (1)business day following delivery to such nationally recognized overnight air courier service, or(iii) at the time of being sent by facsimile if delivery thereof is confirmed by sender’s receiptof a transmission report, generated by sender’s facsimile machine, which confirms that thefacsimile was successfully transmitted in its entirety and provided the facsimile
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was forwarded prior to 5:00 pm at the location of the recipient, and to the followingaddresses or facsimile numbers:If to Option Grantor or the Companies:c/o Apollo Development Company