**Exhibit10.37**

 

**AGREEMENT OF SALE AND PURCHASE**

**AND JOINT ESCROW INSTRUCTIONS**

** **

**ACACIA ONSANTA ROSA CREEK**

 

**THIS AGREEMENT OF SALE AND PURCHASE AND JOINT ESCROWINSTRUCTIONS** (this “**Agreement**”),dated as of October 12, 2009 (the “**AgreementDate**”), is between **ACACIA ON SANTA ROSA CREEK, LLC**, a California limited liability company (“**Seller**”), and **BEHRINGERHARVARD MULTIFAMILY OP I LP,**a Delaware limited partnership****(“**Buyer**”).

 

**ARTICLE 1**

** **

**CERTAIN DEFINITIONS**

 

**1.1****                 ****Definitions**.  The partieshereby agree that the following terms shall have the meanings hereinafter setforth, such definitions to be applicable equally to the singular and pluralforms, and to the masculine and feminine forms, of such terms:

 

**1.1.1****      **“**AAA**”shall have the meaning ascribed in Section 10.22.2.

 

**1.1.2****      ****“Additional Deposit”**shall have themeaning ascribed in Section 2.3.2.

 

**1.1.3****      **“**Affiliate**”, except as set forth in Section 10.4with respect to an “affiliate of Buyer”, shall mean any person or entity thatdirectly, or indirectly through one or more intermediaries, controls, iscontrolled by or is under common control with Buyer or Seller, as the case maybe.  For the purposes of this definition,“control” means the possession, direct or indirect, of the power to direct orcause the direction of the management and policies of a person, whether throughthe ownership of voting securities, by contract, or otherwise, and the terms “controlling”and “controlled” have the meanings correlative to the foregoing.

 

**1.1.4****      ****“AgreementDate”**shall have the meaning ascribed in theintroductory paragraph of this Agreement.

 

**1.1.5****      ****“ApplicationDeadline”**shall have the meaningascribed in Section 2.4.1.

 

**1.1.6****      ****“ApprovedContract”**shall have the meaningascribed in Section 4.6.

 

**1.1.7****      **“**Assignment and Assumption of Contracts**” shall have the meaningascribed in Section 9.5.1(d).

 

**1.1.8****      **“**Assignment and Assumption of Leases**” shall have the meaningascribed in Section 9.5.1(c).

 

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**1.1.9****      ****“Assumption Approval Deadline”**shall have themeaning ascribed in Section 2.4.2.

 

**1.1.10****    ****“Assumption Documents”** shall have themeaning ascribed in Section 9.5.1(g).

 

**1.1.11****    **“**Bill of Sale**” shall have the meaning ascribed in Section 9.5.1(b).

 

**1.1.12****    **“**Broker**” shall mean Arroyo & Coates.

 

**1.1.13****    **“**Broker’s Commission**” shall have the meaning ascribed in Section 9.8.

 

**1.1.14****    ****“Buyer’sConditions Precedent”**shall have the meaning ascribed in Section 9.3.

 

**1.1.15****    ****“Certificate of Insurance”** shall have themeaning ascribed in Section 3.4.

 

**1.1.16****    **“**Closing**” shall have the meaning ascribed in Section 9.4.1.

 

**1.1.17****    **“**Closing Date**” shall mean the date set forth in Section 9.4.1.

 

**1.1.18****    **“**Closing Statement**” shall have the meaning ascribed in Section 9.7.1(a).

 

**1.1.19****    **“**Code**” shall have the meaning ascribed in Section 2.3.4.

 

**1.1.20****    **“**Commissions**” shall mean all commissions, referral or locatorfees, payments and obligations of Seller or the Property Manager to makepayments to third party leasing agents, leasing brokers or other parties (notaffiliated with the Property Manager) with respect to the leasing of all or anyof the Property, whether such agreements are contained in a Lease or in anyseparate Commission Agreement.

 

**1.1.21****    **“**Commission Agreements**” shall mean all written agreements anddocuments entered into by Seller or the Property Manager to pay Commissionsthat are not contained in a Lease, together with all amendments thereto ormodifications thereof.

 

**1.1.22****    ****“Computer Equipment”** means all wordprocessing and computing equipment including, without limitation, all CPUs,monitors, printers, hubs, switches, firewalls, networking equipment and modemsunless specifically listed on attached **Exhibit H**.

 

**1.1.23****    ****“Contracts**” shall meanthe service contracts described in **Exhibit B**and all other service contracts entered into by Seller after theEffective Date with respect to the Property in accordance with Section 8.3.

 

**1.1.24****    **“**Deed**” shall have the meaning ascribed in Section 9.5.1(a).

 

**1.1.25****    **“**Deposit**” shall have the meaning ascribed in Section 2.3.2.

 

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**1.1.26****    ****“Deposit Date**” shall havethe meaning ascribed in Section 2.3.1.

 

**1.1.27****    ****“DisapprovalNotice”****shallhave the meaning ascribed in Section 3.8.

 

**1.1.28****    **“**Disclosure Items**” shall have the meaning ascribed in Section 6.1.

 

**1.1.29****    ****“Dispute”**shall have themeaning ascribed in Section 10.22.

 

**1.1.30****    **“**Due Diligence**” shall have the meaning ascribed in Section 3.1.

 

**1.1.31****    **“**Due Diligence Items**” shall have the meaning ascribed in Section 3.2.

 

**1.1.32****    **“**Due Diligence Period**” shall mean the time period provided forin Section 3.1 of this Agreement.

 

**1.1.33****    **“**Effective Date**” shall mean the first date on which EscrowAgent has in its possession a fully executedoriginal or copy of this Agreement. Escrow Agent shall promptly notify Buyer and Seller in writing of theEffective Date.

 

**1.1.34****    **“**Environmental Laws**” means all Federal, state and localenvironmental laws, rules, statutes, directives, binding writteninterpretations, binding written policies, ordinances and regulations issued byany Governmental Entity and in effect as of the date of this Agreement withrespect to or which otherwise pertain to or affect the Real Property or theImprovements, or any portion thereof, the use, ownership, occupancy oroperation of the Real Property or the Improvements, or any portion thereof, orany owner of the Real Property, and as same have been amended, modified orsupplemented from time to time prior to the date of this Agreement, includingbut not limited to the Comprehensive Environmental Response, Compensation andLiability Act of 1980 (42 U.S.C. § 9601 et seq.), the Hazardous SubstancesTransportation Act (49 U.S.C. § 1802 et seq.), the Resource Conservation andRecovery Act (42 U.S.C. § 6901 et seq.), the Water Pollution Control Act (33U.S.C. § 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. § 300f et seq.),the Clean Air Act (42 U.S.C. § 7401 et seq.), the Solid Waste Disposal Act (42U.S.C. § 6901 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 etseq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42U.S.C. § 11001 et seq.), the Radon and Indoor Air Quality Research Act (42U.S.C. § 7401 note, et seq.), the Superfund Amendment Reauthorization Act of1986 (42 U.S.C. § 9601 et seq.), comparable state and local laws, and any andall rules and regulations which have become effective prior to the date ofthis Agreement under any and all of the aforementioned laws.

 

**1.1.35****    **“**Escrow Agent**” shall mean Partners Title Company, Houston,Texas.

 

**1.1.36****    **“**Excluded Materials**” shall have the meaning ascribed in Section 3.2.3.

 

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**1.1.37****    ****“Extended Assumption ApprovalDeadline”** shall have the meaning ascribed in Section 2.4.2.

 

**1.1.38****    **“**Fixtures**” shall mean the fixtures that are located at andaffixed to any of the Improvements as of the Closing Date, but specificallyexcluding any fixtures owned by any of the Tenants.

 

**1.1.39****    **“**Governmental Entity**” means the various governmental and quasi-governmental bodies or agencies having jurisdiction over Seller, the RealProperty or any portion thereof.

 

**1.1.40****    **“**Hazardous Materials**” means any pollutants, contaminants,hazardous or toxic substances, materials or wastes (including petroleum,petroleum by-products, radon, asbestos and asbestos containing materials,polychlorinated biphenyls (“**PCBs**”),PCB-containing equipment, radioactive elements, infectious agents, and ureaformaldehyde), as such terms are used in any Environmental Laws (excludingsolvents, cleaning fluids and other lawful substances used in the ordinaryoperation and maintenance of the Real Property, to the extent in closedcontainers).

 

**1.1.41****    **“**Improvements**” shall mean all buildings, structures andimprovements located on the Land not owned by a Tenant or any other third partyincluding, without, limitation, two hundred seventy seven (277) apartmentunits.

 

**1.1.42****    ****“Indemnitor”** shall have themeaning ascribed in Section 7.3.4.

 

**1.1.43****    ****“Initial Deposit”**shall have themeaning ascribed in Section 2.3.1.

 

**1.1.44****    **“**Land**” shall mean that certain parcel or parcels of land andappurtenances thereto located at 4656 Quigg Drive, Santa Rosa, California, andmore particularly described on **Exhibit A**,including Seller’s right, title and interest, if any, in and to allrights-of-way, open or proposed streets (public or private), alleys, easements,strips or gores of land adjacent thereto.

 

**1.1.45****    ****“Laws”**shall mean all****applicable federal, state or localstatutes, ordinances, codes, regulations, decrees, orders, laws, rulings,judgment or other governmental or judicial requirements affecting the Property.

 

**1.1.46****    **“**Leases**” shall mean all unexpired leases,subleases, occupancy agreements, and any other agreements, including allmodifications or amendments thereto, for the use, possession, or occupancy ofany portion of the Property as of the Closing Date.

 

**1.1.47****    ****“Lender”** shall have themeaning ascribed in Section 2.2.

 

**1.1.48****    **“**Licensee Parties**” shall mean thoseauthorized agents, contractors, consultants and representatives of Buyer whoshall inspect, investigate, test or evaluate the Property on behalf of Buyer inaccordance with this Agreement.

 

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**1.1.49****    **“**Licenses and Permits**” shall mean,collectively, to the extent assignable, all licenses, permits, approvals,certificates of occupancy, dedications, subdivision maps and entitlements nowor hereafter issued, approved or granted by any Governmental Entity inconnection with the Real Property, together with all renewals and modificationsthereof.

 

**1.1.50****    **“**Liens**” shall have the meaning ascribed in Section 4.2.

 

**1.1.51****    ****“Loan”** shall have themeaning ascribed in Section 2.2.

 

**1.1.52****    ****“Loan Documents”** shall have themeaning ascribed in Section 2.2.

 

**1.1.53****    ****“Losses”** means claims,actions, causes of action, suits, proceedings, costs, expenses (including,without limitation, reasonable attorneys’ fees and costs), liabilities,damages, demands, rights and/or liens of any type, whether known or unknown,direct or indirect, absolute or contingent.

 

**1.1.54****    **“**New Leases**” or “**New Lease**” shall mean, collectively, or singularly, any Leaseentered into after the Effective Date and before the Closing Date.

 

**1.1.55****    ****“Non-Terminable Contract”**shall have themeaning ascribed in Section 4.6.

 

**1.1.56****    **“**Permitted Exceptions**” shall mean andinclude all of the following:  (a) applicablezoning and building ordinances and land use regulations; (b) such state offacts as would be disclosed by a physical inspection of the Property; (c) thelien of taxes and assessments not yet due and payable (it being agreed by Buyerand Seller that if any tax or assessment is levied or assessed with respect tothe Property after the date hereof and the owner of the Property has theelection to pay such tax or assessment either immediately or under a paymentplan with interest, Seller may elect to pay under a payment plan, whichelection shall be binding on Buyer); (d) any exclusions from coverage setforth in the jacket of any Owner’s Policy of Title Insurance, but excluding allspecific title exceptions in Schedules B and C of the Title Commitment on anystandard printed exceptions in the Title Commitment; (e) any exceptionscaused by Buyer, any Licensee Parties and their respective agents,representatives or employees; (f) such other exceptions as the TitleCompany shall commit to insure over, without any additional cost to Buyer,whether such insurance is made available in consideration of payment, bonding,indemnity of Seller or otherwise; (g) the rights of the Tenants under theLeases, as tenants only; and (h) any matters deemed to constitute PermittedExceptions under Section 4.2 hereof.

 

**1.1.57****    **“**Permitted Outside Parties**” shall have themeaning ascribed in Section 3.7.

 

**1.1.58****    **“**Personal Property**” shall mean all of theright, title, and interest of Seller in and to the tangible personal property,which is located at and used exclusively in connection with the Property as ofthe Closing Date a specific list thereof as of the Effective Date beingattached hereto as **Exhibit H**,but specifically excluding (a) any personal property owned, financed or leasedby any Tenant under any Lease, (b) the Computer Equipment, (c) any 

 

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tangible personal property ownedby the Property Manager, and (d) any tangible personal property owned by athird party.  Personal Property shall notinclude the Excluded Materials.

 

**1.1.59****    **“**Pre-Effective Date Leases**” or “**Pre-Effective Date Lease**” shall mean,collectively, or singularly, any Lease in effect as of the Effective Date.

 

**1.1.60****    ****“Private Restrictions”**shall mean (asthey may exist from time to time) any and all covenants, conditions andrestrictions, private agreements, easements, and any other recorded documentsor instruments affecting the use of the Property.

 

**1.1.61****    **“**Property**” shall mean the Land, theImprovements, the Personal Property, the Leases, the Approved Contracts, and tothe extent transferable, all of Seller’s right, title and interest in and toall tangible and intangible assets of any nature relating to the Property,including without limitation, (a) all warranties upon the Improvements orthe Personal Property, (b) rights to any plans, specifications,engineering studies, reports, drawings, and prints relating to theconstruction, reconstruction, modification, and alteration of Improvements, (c) allworks of art, graphic designs, and other intellectual or intangible propertyowned and used by Seller exclusively in connection with the Property, includingany trade name associated with the Improvements, (d) the Internet URLand/or domain name www.acaciaonsantarosa.com, and any website materialbelonging to the Property, including, but not limited to, the Propertydescription and any floor plans, photographs and location maps, (e) all claims and causes of action arising out of or inconnection with the Property after the Closing Date, and (f) the Licensesand Permits.

 

**1.1.62****    **“**Property Manager**” shall mean thoseindividuals or entities which manage the Property.

 

**1.1.63****    **“**Proration Items**” shall have the meaningascribed in Section 9.7.1(a).

 

**1.1.64****    **“**Proration Time**” shall have the meaningascribed in Section 9.7.1(a).

 

**1.1.65****    **“**Purchase Price**” shall have the meaningascribed in Section 2.2.

 

**1.1.66****    **“**Reimbursable Lease Expenses**” shall mean anyCommissions and locator fees payable pursuant to a Commission Agreement or aLease or a New Lease with respect to Tenants who are scheduled to takeoccupancy after Closing.

 

**1.1.67****    **“**Rent Roll**” shall have the meaning ascribedin Section 3.2.1.

 

**1.1.68****    **“**Rent**” or “**Rents**”shall mean and include fixed monthly rentals, additional rentals, escalationrentals, retroactive rentals, all administrative charges, utility charges,vending machine receipts and other sums and charges payable by Tenants underthe Leases.

 

**1.1.69****    ****“Rent Ready Condition”** shall have themeaning ascribed in Section 8.4.

 

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**1.1.70****    ****“Replacement Guarantor”** shall have themeaning ascribed in Section 2.4.1.

 

**1.1.71****    **“**Reporting Person**” shall have the meaningascribed in Section 2.3.4.

 

**1.1.72****    ****“Representative”** shall have themeaning ascribed in Section 10.22.1.

 

**1.1.73****    ****“Seller Guarantors”**shall have themeaning ascribed in Section 2.4.1.

 

**1.1.74****    ****“Servicer”** shall have themeaning ascribed in Section 2.3.

 

**1.1.75****    ****“Survey”** shall have themeaning ascribed in Section 4.4 and means an ALTA/ACSM survey ofthe Land prepared by a surveyor licensed by the State of California.

 

**1.1.76****    ****“Survey Objections”**shall****have the meaning ascribed in Section 4.4.

 

**1.1.77****    ****“Tenant”** or **“Tenants”**means all persons or entities occupying orentitled to possession of any portion of the Real Property pursuant to theLease, including tenants, subtenants, and licensees.

 

**1.1.78****    ****“Tenant Deposit”**means allrefundable deposits (whether cash or non-cash and whether designated assecurity or otherwise) paid or deposited by a Tenant to Seller, as landlord, orany other person on Seller’s behalf pursuant to a Lease (together with anyinterest which has accrued thereon as required by the terms of such Lease, butonly to the extent such interest has accrued for the account of the respectiveTenant or as required by law).

 

**1.1.79****    ****“Tenant Notice”**shall have themeaning ascribed in Section 9.5.1(f).

 

**1.1.80****    **“**Title Commitment**” shall have the meaningascribed in Section 4.1.

 

**1.1.81****    ****“TitleCommitment Update”** shall have the meaning ascribed in Section 4.3.

 

**1.1.82****    ****“TitleCommitment Update Review Period”** shall have the meaningascribed in Section 4.3.

 

**1.1.83****    **“**Title Company**” shall mean Chicago TitleCompany.

 

**1.1.84****    **“**Title Documents**” shall have the meaningascribed in Section 4.1.

 

**1.1.85****    **“**Title Objections**” shall have the meaningascribed in Section 4.2.

 

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**1.1.86****    **“**Title Policy**” shall have the meaningascribed in Section 4.5.

 

**1.2****                 ****Rules of Construction**.  Article and Section captions usedin this Agreement are for convenience only and shall not affect theconstruction of this Agreement.  Allreferences to “Article” or “Sections” without reference to a document otherthan this Agreement, are intended to designate articles and sections of thisAgreement, and the words “herein,” “hereof,” “hereunder,” and other words ofsimilar import refer to this Agreement as a whole and not to any particular Article orSection, unless specifically designated otherwise.  The use of the term “including” shall mean inall cases “including but not limited to,” unless specifically designatedotherwise.  No rules of constructionagainst the drafter of this Agreement shall apply in any interpretation orenforcement of this Agreement, any documents or certificates executed pursuanthereto, or any provisions of any of the foregoing.  Any deletion of language from this Agreementprior to its execution by Buyer and Seller shall not be construed to raise anypresumption, canon of construction or implication, including, withoutlimitation, any implication that the parties intended thereby to state theconverse of the deleted language.

 

**ARTICLE 2**

 

**AGREEMENT OFPURCHASE AND SALE; PURCHASE PRICE**

 

**2.1****                 ****Agreement of Purchase and Sale**.  Seller agrees to sell, transfer,assign and convey to Buyer, and Buyer agrees to purchase, accept and assumesubject to the terms and conditions stated herein, all of Seller’s right, titleand interest in and to the Property.

 

**2.2****                 ****Purchase Price**.  Buyer shall pay Seller the purchase price ofTHIRTY EIGHT MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS ($38,650,000.00) (“**Purchase Price**”) at Closing in cash orother immediately available federal funds. Notwithstanding the foregoing, a portion of the Purchase Price shall bepaid by Buyer’s assumption of, and agreement to pay and perform, theobligations of Seller under the loan documents (the “**Loan Documents**”) evidencing that certain loan (the “**Loan**”) from Berkshire Mortgage FinanceLimited Partnership (together with its successors and assigns, “**Lender**”) to Seller in the originalprincipal amount of TWENTY NINE MILLION SIX HUNDRED THOUSAND DOLLARS($29,600,000.00) and having an approximate unpaid balance of TWENTY SEVENMILLION ONE HUNDRED THOUSAND DOLLARS ($27,100,000.00).  The Loan is serviced by a servicer (the “**Servicer**”).  Thebalance of the Purchase Price and such other funds as may be necessary to payBuyer’s expenses hereunder, subject to closing adjustments, shall be depositedwith the Escrow Agent no later than one (1) business day prior to the ClosingDate in accordance with this Agreement and paid to Seller upon satisfaction ofall conditions precedent to the Closing as described herein.

 

**2.3****                 ****Deposits; Designation of Reporting Person &Contract Consideration**.

 

**2.3.1****      ****InitialDeposit.** Within two (2) business daysafter the Effective Date (the “**Deposit Date**”),Buyer shall deposit via wire transfer the sum of THREE HUNDRED THOUSAND DOLLARS($300,000.00) in immediately available U.S. funds as a deposit (the “**Initial Deposit**”)with Escrow Agent whose address is as indicated in Section 10.3,below.  If 

 

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Buyer fails to make the InitialDeposit on or before 5:00 p.m. Pacific Time on the Deposit Date, then thisAgreement shall terminate and shall be of no further force and effect and theparties shall have no further obligations to one another except to the extentexpressly stated otherwise herein. Unless Buyer delivers written notice to Seller and Escrow Agent on or before5:00 p.m. Pacific Time on the fifth (5th) day after the delivery of all ofthe Deliverable Due Diligence Items as set forth in Section 3.2.1hereof (the “**Initial Due Diligence Period**”)that it is terminating this Agreement, the Initial Deposit shall be deemedfully earned and non-refundable except as specifically set forth herein andexcept if Seller fails to obtain Corporate Approval as described in Section 6.1.2hereof on or before 5:00 p.m. Pacific Time on the last date of the DueDiligence Period.  Buyer expressly agreesthat the Initial Deposit shall be released by Escrow Agent to Seller upon thelater of (a) the expiration of the Initial Due Diligence Period, or (b) thedate on which Seller notified Buyer and Escrow Agent that it has obtainedCorporate Approval, unless Buyer has terminated this Agreement as providedabove or Seller has failed to timely obtain Corporate Approval as describedabove.  Notwithstanding that theforegoing is to be self-executing, Seller and Buyer agree to promptly executeand deliver to Escrow Agent any instructions necessary in order to cause therelease of the Initial Deposit to Seller or Buyer, as applicable.

 

**2.3.2****      **UnlessBuyer terminates this Agreement within the Initial Due Diligence Periodreferenced in Section 2.3.1, above, or before the expiration of theDue Diligence Period pursuant to Section 3, below, then by 5:00 p.m.Pacific Time on the last day of the Due Diligence Period, Buyer shall depositwith Escrow Agent via wire transfer an additional NINE HUNDRED THOUSAND DOLLARS($900,000.00) (the “**Additional Deposit**”)in immediately available funds.  Oncemade, the Additional Deposit shall be non-refundable in all instances except (a) ifthe Closing fails to occur solely as a result of a material default by Sellerhereunder that is not cured within all applicable notice and cure periods, (b) ifthe Closing fails to occur solely as a result of the failure of a conditionprecedent in Buyer Conditions Precedent (set forth in Section 9.3hereof) through no fault of Buyer, and (c) as otherwise expressly stated otherwisein this Agreement, including specifically Section 2.4.2hereof.  If Buyer fails to make theAdditional Deposit on or before 5:00 p.m. Pacific Time on the business dayafter the date of the expiration of the Due Diligence Period, then this Agreementshall terminate and shall be of no further force and effect and the partiesshall have no further obligations to one another except to the extent expresslystated otherwise herein.

 

The Initial Deposit and the Additional Deposit shallsometimes be referred to herein collectively as the “**Deposit**”.  If and whenmade, each portion of the Deposit shall be held by Escrow Agent in accordancewith the following.   The Escrow Agentshall invest the amount in escrow, including without limitation the Deposit, inaccounts which are federally insured or which invest solely in governmentsecurities and shall be applied in accordance with the terms of thisAgreement.  Interest earned on theDeposit shall be considered part of the Deposit and shall be deemed to have beenearned by, and constitute income of, Buyer.

 

**2.3.3****      ****Designation of Reporting Person**.  In order to assure compliance with therequirements of Section 6045 of the Internal Revenue Code of 1986, asamended (for purposes of this Section 2.3.3, the “**Code**”), and any related reportingrequirements of the Code, Seller and Buyer hereby designate Escrow Agent as theperson to be responsible for all information reporting under Section 6045(e) ofthe Code (the “**Reporting Person**”).  In 

 

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connection with the foregoingappointment, Seller and Buyer hereby agree: (a) to provide to theReporting Person all information and certifications regarding such party, asreasonably requested by the Reporting Person or otherwise required to beprovided by a party to the transaction described herein under Section 6045of the Code; and (b) to provide to the Reporting Person such party’staxpayer identification number and a statement (on Internal Revenue Service Form W-9or an acceptable substitute form, or on any other form the applicable currentor future Code sections and regulations might require and/or any form requestedby the Reporting Person), signed under penalties of perjury, stating that thetaxpayer identification number supplied by such party to the Reporting Personis correct.  Each party hereto agrees toretain this Agreement for not less than four years from the end of the calendaryear in which the Closing occurred, and to produce it to the Internal RevenueService upon a valid request therefor.

 

**2.3.4****      ****ContractConsideration**. Notwithstanding anything in this Agreement to the contrary, in any eventwhere the Deposit, or any part thereof, is to be returned to Buyer, ONE HUNDREDDOLLARS ($100.00) thereof shall be paid by Escrow Agent to Seller asconsideration for the rights and privileges granted to Buyer herein thus makingthis Agreement the valid and binding obligation of Buyer and Seller even thoughBuyer may have certain unilateral termination rights during certain periodsunder this Agreement.

 

**2.4****                 ****LoanAssumption**.

 

**2.4.1****      ****Applicationfor Loan Assumption**.  Within five(5) business days after the later of (i) Seller has provided Buyerthe request forms and requirements from Lender for the Loan Assumption and (ii) Sellerhas obtained Corporate Approval as described in Section 6.1.2hereof (the “**Application Deadline**”),Buyer shall apply, in good faith, to the Lender for approval of the assignmentby Seller, and assumption by Buyer, of Seller’s interest in the Loan.  Buyer and Seller agree to use commerciallyreasonable efforts to cooperate with each other in connection with saidapplication process and each party shall submit to Lender any informationreasonably requested by Lender to complete and approve said application by theAssumption Approval Deadline (as hereinafter defined).  Seller and Buyer hereby acknowledge thatAffiliates of each recently closed a sale and acquisition of the WaterfordPlace Apartments, located in Dublin, California (the “Waterford Transaction”).  The Waterford Transaction involved a LoanAssumption of loans currently held by the Federal Home Loan MortgageCorporation as assignee from Lender and the loan documents representing suchloans were substantially similar to the Loan Documents evidencing the Loan.  In the Waterford Transaction the SellerAffiliate negotiated and obtained in the Assumption Agreement thereundercertain provisions relating to the release of Seller and Seller Guarantor andthe Buyer Affiliate negotiated and obtained therein certain modifications andamendments to the loan documents being assumed by the Buyer Affiliate.  Seller and Buyer hereby mutually agree topursue the Loan Assumption in good faith on the same basic terms as werenegotiated and obtained in the Waterford Transaction Assumption Agreement.  Buyer agrees that Buyer shall pay anyrequired loan assumption review fee to the Lender as and when required by theLender and/or Servicer in accordance with the Loan Documents.  Seller has informed Buyer that certainAffiliates of Seller (each a “**SellerGuarantor**”) have provided certain standard non-recourse carve-outguaranties and/or environmental indemnities to the Lender with respect to theLoan and that Lender will require Buyer to provide a financially responsibleperson or entity to provide a substantially similar guaranty and indemnity (a “**Replacement Guarantor**”).  Buyer agrees that Buyer will offer a 

 

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Replacement Guarantor who shall, in Lender’s solediscretion, satisfy the financial conditions currently required to bemaintained by the applicable Seller Guarantor(s) pursuant to the LoanDocuments.  Notwithstanding anything tothe contrary contained herein, provided that Seller and Buyer shall havesatisfied its obligations under this Section 2.4, the failure ofLender to approve the assignment and assumption of the Loan by the AssumptionApproval Deadline shall not constitute a default by either Seller or Buyer.

 

**2.4.2****      ****CertainCondition Precedent Regarding Loan Assumption**.  Without limitation to any of the conditionsprecedent set forth in this Agreement, it shall be a condition to Buyer’s andSeller’s obligation to close the purchase and sale of the Property that theLender shall have approved, in writing (or otherwise has indicated incorrespondence that upon its execution at the Closing of the agreement uponLoan Assumption documents that it has approved the assumption of the Loan), theassumption of the Loan by Buyer, such approval to include the closing of suchassumption in 2009 or on January 7, 2010, in accordance with thisAgreement, and the release of Seller and Seller Guarantor and approval of Buyer’sReplacement Guarantor within forty-two (42) days of the Effective Date (the “**Assumption Approval Deadline**”).  If Lender fails to approve the assumption ofthe Loan, the release of Seller and Seller Guarantor and approval of Buyer’sReplacement Guarantor by Buyer on or before 5:00 p.m. Pacific Time on theAssumption Approval Deadline, then either Buyer or Seller, in their sole andabsolute discretion, may extend the Assumption Approval Deadline for ten (10) additionaldays (the “**Extended Assumption Approval Deadline**”)by notice in writing to the other party prior to the expiration of theAssumption Approval Deadline; provided, however, that if Lender fails toapprove the assumption of the Loan by Buyer, the release of Seller and theSeller Guarantor and approval of Buyer’s replacement Guarantor on or before5:00 p.m. Pacific Time on the Extended Assumption Approval Deadline, theneither Buyer or Seller  may thereafterterminate this Agreement by delivering written notice to the other at any timeafter the expiration of the Extended Assumption Approval Deadline; provided,however, that if the Lender approves Buyer’s assumption of the Loan, therelease of Seller and Seller Guarantor and approval of Buyer’s ReplacementGuarantor before the delivery of such termination notice, then such terminationnotice shall be null and void.  In theevent of such termination the Deposit shall be returned to Buyer so long as theBuyer is not otherwise in material default hereunder and the parties shall haveno further liability to each other except as set forth herein.  Notwithstanding the immediately precedingsentence, Seller agrees that Buyer shall also be entitled to a refund of theDeposit if the Lender (a) unconditionally refuses to consent to theassignment and assumption of the Loan or the release of Seller and SellerGuarantor, or (b) conditions such consent on the Buyer agreeing to modificationsto the terms and conditions of the Loan Documents where such modificationswould result in an increase in the costs of assuming and/or servicing the Loan(e.g., a change in interest rate, a change in the assumption fee) of TwentyThousand Dollars ($20,000.00) or more. Buyer acknowledges that the Loan Documents may require the borrowerthereunder to maintain certain repair, replacement and/or other reserves. Tothe extent Lender has agreed to waive these reserve requirements for Seller butis unwilling to waive such requirements for Buyer, then the requirement thatBuyer maintain the reserves and the cost involved in funding the reserves shallnot be considered in calculating the Twenty Thousand Dollar ($20,000.00)threshold referenced above, provided that Lender’s only reserve requirement isa monthly deposit into a Replacement Reserve of an amount not exceeding $225per unit or a monthly amount of $5,193.75.

 

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** **

**2.4.3       Closing ofLoan Assumption**.  Upon Lender’sapproval of Buyer’s assumption of the Loan, Seller and Buyer agree to executesuch documentation as may be reasonably required by Lender as contemplated anddescribed in Section 2.4.1 hereof pursuant to and in accordancewith the terms of the Loan Documents and to take all other steps necessary topromptly close the loan assumption on the Closing Date, the completion of whichshall include Lender’s release of Seller and the Seller Guarantor from futureliability with respect to the Loan. Concurrent with the Closing of the assumption of the Loan and providedthe Lender shall agree, all reserve accounts maintained by such Lender onbehalf of Seller in connection with the Loan, if any, shall be assigned by Sellerto Buyer at the Closing and Seller shall receive a credit at Closing equal tothe amounts so assigned.  If the Lendershall not so agree to the assignment and assumption of existing reserves atClosing as aforesaid, such reserves shall not be assigned to or assumed byBuyer and Seller shall not receive a credit therefor at Closing, and ifrequired by Lender, Buyer shall establish replacement reserves in the amountsreasonably required by Lender but such amounts shall not be in excess of theamounts currently required by the Loan Documents or, if no requirement, thelast sentence of Section 2.4.2 hereof, and if Lender requires suchadditional reserves, Buyer shall have no obligation to agree thereto and suchrequirement shall be deemed to be a “material change” in the Loan Documents ascontemplated in Section 9.4.1 hereof, and Buyer shall upon Seller’srequest and expense, reasonably cooperate with Seller’s efforts to recover suchSeller reserves from Lender.  All costsand fees of assuming the Loan shall be at Buyer’s sole cost and expense andBuyer shall pay all assumption deposit fees, application fees, reviewprocessing fees, legal fees, and loan assumption fees when charged by theLender and/or Servicer in accordance with the terms of the applicable LoanDocuments in connection with the assumption thereof.

 

**2.4.4      ****Materiality.**  The provisions of this Section 2.4are material and included as a material portion of the consideration given byBuyer to Seller in exchange for Seller’s agreement to enter into and performunder this Agreement

 

**2.5                 ****GeneralAssumption**.  Asadditional consideration for the purchase and sale of the Property, at ClosingBuyer will: (a) assume and perform (i) all of the covenants andobligations of Seller, Seller’s predecessors in title and Seller’s Affiliatespursuant to the Leases and Approved Contracts (including, without limitation,those relating to any Tenant Deposits) which arise on or after the ClosingDate, and (ii) all obligations under the Leases and Approved Contractsrelating to the physical and environmental condition of the Property arising onor after the Closing Date; and (b) assume and agree to discharge, performand comply with each and every liability, duty, covenant, debt or obligation ofSeller or any of its Affiliates resulting from, arising out of, or in any wayrelated to any Licenses and Permits and arising on or after the ClosingDate.  By closing under this Agreement,Buyer hereby indemnifies, defends, and holds Seller, Seller’s Affiliates andtheir respective partners, members, shareholders, officers, directors,managers, employees and agents harmless from and against any and all claims,liens, damages, demands, causes of action, liabilities, lawsuits, judgments,losses, costs and expenses (including but not limited to reasonable attorneys’fees and expenses) asserted against or incurred by Seller and arising out ofthe failure of Buyer to perform its obligations pursuant to this Section 2.5.  The provisions of this Section 2.5shall survive the Closing.

 

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**ARTICLE 3**

** **

**BUYER’SDUEDILIGENCE/CONDITION OF THE PROPERTY**

 

**3.1                  Buyer’sInspections and Due Diligence**.  Buyer acknowledges that commencing on theEffective Date and continuing until 5:00 p.m. Pacific Time on the tenth(10th) day thereafter (the period of time from the Effective Date until suchtime shall be referred to herein as the “**DueDiligence Period**”), Buyer shall conduct its examinations,inspections, testing, studies and investigations of the Property, reviewinformation regarding the Property and such documents applicable to theProperty, including, without limitation, the documents that Seller delivers ormakes available, as set forth in Section 3.2 below (collectively,the “**Due Diligence**”).  Except for any limitations as may be imposedby this Article 3 below, Buyer may conduct such due diligenceactivities, inspections, and studies of the Property as it deems necessary orappropriate, and examine and investigate to its full satisfaction all facts, circumstances,and matters relating to the Property (including the physical condition and use,availability and adequacy of utilities, access, zoning, compliance withapplicable laws, environmental conditions, accessibility matters, engineeringand structural matters), title and survey matters, and any other matters itdeems necessary or appropriate for purposes of consummating thistransaction.  The Due Diligence shall beat Buyer’s sole cost and expense.

 

**3.2                  DeliveryPeriod**.

 

**3.2.1       DueDiligence Items**. By executing and delivering this Agreement, Buyer acknowledges andagrees that as of the Effective Date hereof, Seller delivered to Buyer thefollowing: (i) the most recent rent roll statement (the “**Rent Roll**”) with respect to the Propertyprepared by Seller, in the form and containing such information as maintainedby Seller from time to time; (ii) any title commitments or surveysrelating to Property as described in the last sentence of Section 4.1hereof; (iii) copies of all Contracts (including any CommissionAgreements); and (iv) copies of any of the following items pertaining tothe Property to the extent they exist and are in Seller’s or Property Manager’spossession: plans and specifications; “as-built” plans and specifications;structural, seismic or geological investigations and/or reports prepared bythird parties; environmental investigations and/or reports prepared by thirdparties; warranties; income and expense statements for the prior three (3) years;current tax bill, and the Licenses and Permits (collectively, the “**Deliverable DueDiligence Items**”).  Sellershall also make available to Buyer for inspection at Seller’s primary office,the primary office of the Property Manager or the Property Manager’s on-siteoffice the following:  (i) copies ofall Leases referenced on the Rent Roll and copies of any subleases oramendments relating thereto and Tenant correspondence in Seller’s possession; (ii) maintenanceand renovations records; and (iii) subject to Section 3.2.3hereof, all other information relating to the operation of the Property(collectively, the “**Other Due Diligence Items**”).  The Deliverable Due Diligence Items and OtherDue Diligence Items are all collectively referred to herein as the “**Due Diligence Items**”.

 

**3.2.2       NoWarranty**. Buyer acknowledges that many of the Due Diligence Items were prepared bythird parties other than Seller.  Buyerfurther acknowledges and agrees that (a) except as specifically set forthin this Agreement, neither Seller nor any of Seller’s respective agents, employees,contractors or any other party has made any warranty or 

 

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representationregarding the truth, accuracy or completeness of the Due Diligence Items or thesource(s), and (b) Seller has not undertaken any independent investigationas to the truth, accuracy or completeness of the Due Diligence Items, andSeller is providing the Due Diligence Items or making the Due Diligence Itemsavailable to Buyer solely as an accommodation to Buyer.  Buyer acknowledges that the Due DiligenceItems are subject to the confidentiality provisions of Section 3.5below.

 

**3.2.3      ****Excluded Materials**.  Notwithstanding any terms to the contrary inthis Agreement, (a) Seller shall not be obligated or otherwise required tofurnish or make available to Buyer any of the following (collectively, “**Excluded Materials**”):  (i) any appraisals or other economicevaluations of, or projections with respect to, all or any portion of theProperty, including, without limitation, budgets, prepared by or on behalf ofSeller or any Affiliate of Seller or any other party, (ii) any documents,materials or information which are subject to attorney/client, work product orsimilar privilege, which constitute attorney communications with respect to thepurchase of the Property by Seller, (iii) any information which Seller, ingood faith, considers proprietary and not related to the operation of theProperty, and (iv) any information which is subject to any otherconfidentiality obligations; (b) Due Diligence Items shall not include anyExcluded Materials; and (c) Seller shall have no obligation or liabilityof any kind to Buyer as a result of Seller not furnishing or making availableto Buyer the Excluded Materials.

 

**3.3                  SiteVisits**.  During thependency of this Agreement, Buyer and its Licensee Parties shall havereasonable access to the Property at agreed upon times for agreed upon purposeson at least one (1) business day prior notice to Seller.  Such notice shall describe the scope of theDue Diligence Buyer intends to conduct during Buyer’s access to theProperty.  Seller shall have the right tohave a representative present during any visits to or inspections of theProperty or any meetings or discussions with any Tenant by Buyer or anyLicensee Parties or any Governmental Entity. Buyer will conduct its Due Diligence in a manner so as to minimize, tothe extent reasonably possible to do so, any interference with the operationsand occupancy of the Property and to minimize, to the extent reasonably possibleto do so, any disturbance to Tenants. Buyer will not enter the Property or contact any leasing agents or theProperty Manager of the Property or any Governmental Entity without Seller’sprior written consent, which consent shall not be unreasonably withheld ordelayed.  Neither Buyer nor any LicenseeParties may contact any Tenants or make any inquiries of such Tenantsincluding, without limitation, those which in any way relate to the Property,without Seller’s prior written consent which consent may be withheld in Seller’ssole and absolute discretion.  In theevent Buyer desires to conduct any physically intrusive Due Diligence, such assampling of soils, other media, building materials, or the like, Buyer willidentify in writing exactly what procedures Buyer desires to perform andrequest Seller’s express written consent. Seller may withhold or condition consent to any physically intrusive DueDiligence in Seller’s sole and absolute discretion.  Upon receipt of Seller’s written consent,Buyer and all Licensee Parties shall, in performing such Due Diligence, complywith any agreed upon procedures and with any and all Laws including, withoutlimitation, any Environmental Laws.

 

**3.4                  InsuranceRequirements**. As a condition precedent to any entry onto the Property by Buyer or anyLicensee Parties prior to the Closing, Buyer or any such Licensee Parties shallcarry worker’s compensation insurance in compliance with applicable law,liability 

 

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insurancecovering bodily injury, property damage, with a combined single limit of$2,000,000, and automobile liability insurance in an amount not less than$1,000,000.00 covering all automobile and equipment owners and/or operated byBuyer and any Licensee Parties in connection with the license grantedherein.  The liability policies describedherein shall name Seller and those reasonably designated by Seller asadditional insured.  All such insuranceshall: (a) be primary and no insurance of Seller or any of the additionalinsured shall be called upon to contribute to a loss and (b) not becancelled or materially modified without first giving Seller thirty (30) days’advance written notice of cancellation or material modification.  Before entering the Property pursuant to thisSection 3.4, Buyer shall deliver copies of the policies orcertificates of insurance issued by the insurance carrier(s) to Sellerdemonstrating compliance with the terms of this Section.  In the event that, during the Due DiligencePeriod or at any other time during the pendency of this Agreement that Buyer orany Licensee Parties are entering the Property, Buyer or any Licensee Partiesfail to procure or maintain the insurance requirements as set forth in this Section orsuch insurance is modified such that it does not provide coverage to Seller andits additional insured as required herein neither Buyer nor any LicenseeParties shall be permitted to enter the Property and if Buyer does not curesuch failure within three (3) days of notice thereof from Seller, thenSeller shall thereafter have the right upon to terminate this Agreement upontwenty-four (24) hours written notice to Buyer whereupon Buyer shallimmediately cease all operations on the Property and promptly remove allLicensee Parties from the Property (unless the subject insurance requirementsare satisfied and evidence thereof delivered to Seller before the expiration ofsaid twenty-four (24) hour notice) and the Additional Deposit (but not theInitial Deposit) shall be promptly returned to Buyer.

 

**3.5                  Restoration;No Liens**. Buyer shall promptly pay when due the costs of all entry and inspectionsand examinations done with regard to the Property and repair and/or restore theProperty to the condition in which the same were found before any such entryupon the Property and inspection or examination was undertaken.  Buyer shall not permit any mechanics’ orother liens to be filed against the Property as a result of labor or materialsfurnished in connection with its Due Diligence. If any such lien is filed against the Property as a result of theactivities of Buyer or any Licensee Parties, then within ten (10) daysafter receipt of written demand from Seller or any other notice of such lien,Buyer shall either cause the same to be discharged of record by payment of theclaim or posting of a bond, or will take such other action as may be reasonablyacceptable to protect Seller, Seller’s Affiliates and the Property from anyloss or damage arising from such lien. In the event Buyer fails to release any lien by payment, bond orotherwise as set forth herein, Seller may pay such amounts necessary to causethe release of the lien and Buyer shall promptly reimburse Seller one hundredpercent (100%) of the amount so paid, in addition to Seller’s other costs(including, but not limited to attorneys’ fees) necessary to discharge thelien(s)).  Buyer’s obligations under thisSection 3.5 shall expressly survive the Closing or, if the purchaseand sale is not consummated, any termination of this Agreement.  The provisions of this Section 3.5shall survive the Closing or, if the purchase and sale is not consummated, anytermination of this Agreement.

 

**3.6                  DueDiligence Indemnity**. Buyer shall defend, protect, indemnify, and hold harmless Seller, Seller’sAffiliates and their respective partners, shareholders, members, officers,directors, employees and agents, as applicable, and the Property Manager fromand against all Losses (whether arising out of injury or death to persons ordamage to the Property or otherwise) including, but not limited to, costs ofremediation, restoration and other similar 

 

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activities,mechanic’s and materialmen’s liens and attorneys’ fees, arising out of or inconnection with Buyer’s Due Diligence, Buyer’s breach of its obligations under Section 3.7or Buyer’s or any Licensee Parties’ entry upon the Property; provided, however,that Buyer shall have no obligations under this Section 3.6 to theextent the Losses are caused solely by the negligence or willful misconduct ofSeller, Seller’s Affiliates, Seller’s partners, shareholders, members,officers, directors, employees and agents, as applicable, and/or the PropertyManager or result from the mere discovery by Buyer of pre-existing conditionsat the Property and the Buyer promptly notifies Seller in writing of suchdiscovery.  The provisions of this Section 3.6shall survive the Closing or, if the purchase and sale is not consummated, anytermination of this Agreement.

 

**3.7                  Confidentiality**.  Buyer agrees that any informationobtained by Buyer or its Affiliates or their respective attorneys, partners,accountants, brokers, property management companies, third party consultants,lenders or investors (collectively, for purposes of this Section 3.7,the “**Permitted Outside Parties**”)in the conduct of its Due Diligence shall be treated as confidential pursuantto Section 10.11 of this Agreement and shall be used only toevaluate the acquisition of the Property from Seller.  Buyer further agrees that within itsorganization, or as to the Permitted Outside Parties, the Due Diligence Itemsand all other information obtained by Buyer pursuant to its Due Diligence willbe disclosed and exhibited only to those persons within Buyer’s organization orto those Permitted Outside Parties who are involved in determining thefeasibility of Buyer’s acquisition of the Property.  Buyer further acknowledges that the DueDiligence Items, all information relating to the leasing arrangements betweenSeller and any Tenant or prospective tenants, and all other informationobtained by Buyer pursuant to its Due Diligence are proprietary andconfidential in nature.  Buyer agrees notto divulge the contents of such Due Diligence Items or any other informationexcept in strict accordance with this Section 3.7 and Section 10.11of this Agreement.  In permitting Buyerand the Permitted Outside Parties to review the Due Diligence Items and otherinformation to assist Buyer, Seller has not waived any privilege or claim of confidentialitywith respect thereto, and no third party benefits or relationships of any kind,either express or implied, have been offered, intended or created by Seller andany such claims are expressly rejected by Seller and waived by Buyer and the PermittedOutside Parties, for whom, by its execution of this Agreement, Buyer is actingas an agent with regard to such waiver. The provisions of this Section 3.7 shall survive the Closingor, if the purchase and sale is not consummated, any termination of thisAgreement.

 

**3.8                  DueDiligence Period**. Except as set forth in Section 2.3.1 hereof, unless Buyerdelivers to Seller and Escrow Agent written notice terminating this Agreementon or before the end of the Due Diligence Period which notice may be for anyreason, or no reason, (the “**Disapproval Notice**”),this Agreement shall continue in full force and effect.  If Buyer fails to give Seller the DisapprovalNotice, then Buyer shall be deemed to have approved all of the mattersdescribed in Sections 3.1 and 3.2.  If the Agreement is terminated under Section 2.3.1hereof, then Buyer shall be entitled to the immediate return of the InitialDeposit and Buyer shall return all Due Diligence Items in its possession toSeller and provide to Seller, promptly after receipt of a request from Seller,originals of any third party reports, studies and appraisals relating to theProperty in its possession, without representation or warranty and at no costto Seller.  If, however, the Agreement isnot terminated under Section 2.3.1 hereof, but Buyer does elect todeliver the Disapproval Notice on or before the expiration of the Due DiligencePeriod, then Buyer shall be entitled to the immediate return of the AdditionalDeposit (but not the Initial 

 

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Deposit)and Buyer shall return all Due Diligence Items to Seller and provide to Seller,promptly after receipt of a request from Seller, originals of all third partyreports, studies and appraisals relating to the Property in its possession,without representation or warranty and at no cost to Seller.  The foregoing obligation shall survive anytermination of this Agreement.  Subjectto the terms of this Agreement, provided that Buyer has not delivered theDisapproval Notice, Buyer, after the expiration of the Due Diligence Period,may continue to conduct further physical Due Diligence or other examinations,inspections, tests, studies and investigations regarding the Property;provided, however, that except as otherwise expressly provided in Sections5.1 and 10.2.2, in no event shall Buyer have any right to terminateor otherwise modify its obligations hereunder after the end of the DueDiligence Period as a result of any such further Due Diligence or otherexaminations, inspections, tests, studies or investigations regarding theProperty, and the provisions of this Article 3, including, withoutlimitation, the indemnification provisions, shall continue to apply.

 

**3.9                 ****Delivery of Buyer’s Due Diligence Materials**.  Buyer agrees that if Buyerterminates this Agreement for any reason permitted hereunder, including Buyer’sdisapproval of its Due Diligence within the Due Diligence Period, then Buyershall, at Seller’s request and at no cost to Seller, assign to Seller all ofits rights, interest and title to copies of all third party drafts and finalsurveys, environmental site assessments, appraisals, examinations, inspections,tests, studies and investigations of the Property or any other similardocuments or materials applicable to the Property, obtained by Buyer during theDue Diligence Period (collectively, “**Buyer’s Due DiligenceMaterials**”).  Buyer’sobligations under this Section shall expressly survive the terminationand/or expiration of this Agreement.

 

**ARTICLE 4**

** **

**TITLE,SURVEY & CONTRACTS**

 

**4.1                  Titleto Real Property**. Buyer shall obtain (a) a preliminary report or commitment to issuean owner’s policy of title insurance with respect to the Property issued by theTitle Company (the “**Title Commitment**”),and (b) copies of all recorded documents referred to on Schedule B of theTitle Commitment as exceptions to coverage (the “**Title Documents**”). Buyer shall instruct Escrow Agent to deliver a copy of the TitleCommitment and the Title Documents to Seller concurrent with its delivery of thesame to Buyer.  Seller agrees to deliverany preliminary reports, title commitments and Surveys in its possession to theextent the same exist; provided, however, that the delivery of such materialsshall be subject to the terms and conditions of Section 3.2.2,above.

 

**4.2                  CertainExceptions to Title**. Buyer shall have the right to object in writing to any title mattersthat are not Permitted Exceptions and that are disclosed in the TitleCommitment (herein collectively called “**Liens**”)on or before the fifth (5th) day prior to theexpiration of the Due Diligence Period. Buyer’s failure to disapprove the Liens in writing within such periodshall constitute Buyer’s approval of all such Liens.  All such Liens which are timely objected toby Buyer shall be herein collectively called the “**Title Objections**”. Seller, in its sole and absolute discretion, may elect (but shall not beobligated) to remove or cause to be removed, or insured over, at its expense,any Title Objections, and shall be entitled to a reasonable adjournment of theClosing for the purpose of such removal, which removal will be deemed 

 

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effectedby, among other things, the issuance of title insurance reasonably acceptableto Buyer eliminating or insuring against the effect of the TitleObjections.  Seller shall notify Buyer inwriting no later than the day prior to the expiration of the Due DiligencePeriod (the “**Title Cure Period**”), whetherSeller elects to remove the same. Notwithstanding the above, as an additional Buyer Conditions Precedent(See 9.3.6 hereof) but not as a covenant of Seller, Seller shall have obtainedthe termination of, the deletion from the Title Commitment and Buyer’s Owner’sPolicy, or have made arrangements to otherwise insure over that certaindrainage easement granted to the State of California on February 7, 1967,pursuant to Grant Deed recorded in Book 2252, Page 604 of the OfficialRecords of Sonoma County, California (the “Drainage Easement”).  Except as set forth in the precedingsentence, if Seller is unable to remove or endorse over any Title Objectionsprior to the expiration of the Title Cure Period, or if Seller elects not toremove one or more Title Objections by the expiration of the Title Cure Period,Buyer may elect, as its sole and exclusive remedy therefore, to either (a) terminatethis Agreement on or before the end of the Due Diligence Period and,thereafter, the parties shall have no further rights or obligations hereunderexcept for those obligations which expressly survive the termination of thisAgreement, or (b) waive, in writing, such Title Objections, in which eventsuch Title Objections shall be deemed additional “Permitted Exceptions” and theClosing shall occur as herein provided without any reduction of or creditagainst the Purchase Price.  If beforethe end of the Due Diligence Period, Buyer elects to proceed with thetransaction contemplated herein, then Buyer shall be deemed to have elected towaive those Title Objections Seller elected not to remove or endorse over andits right to terminate this Agreement pursuant to this Section 4.2.  Notwithstanding the foregoing, Seller shallbe obligated at Closing to cause the release of the Liens of any financingobtained by Seller which is secured by the Property other than the Loan.  Buyer expressly acknowledges and agrees thatSeller shall not be deemed in default of this Agreement if Seller is unable toremove, endorse over or otherwise insure over the Drainage Easement and Buyer’soleremedy in the event Seller is unable to remove, endorse over or otherwiseinsure over the Drainage Easement shall be terminate this Agreement and receivea full refund of the Deposit less that amount Seller is entitled to retainpursuant to Section 2.3.4, above.

 

**4.3                  AdditionalExceptions**. In the event the Title Commitment is amended or updated after theexpiration of the Due Diligence Period (each, a “**Title****Commitment Update**”),Buyer shall furnish Seller with a written statement of approval or objectionsto any matter first raised in a Title Commitment Update that affects title tothe Real Property and that was not caused by Buyer or any Licensee Partieswithin five (5) business days after its receipt of such Title CommitmentUpdate together with a legible copy of each new exception raised therein (each,a “**Title****Commitment Update Review Period**”).  Should Buyer fail to notify Seller in writingof any objections to any matter first disclosed in a Title Commitment Updateprior to the expiration of the applicable Title Commitment Update ReviewPeriod, as applicable, Buyer shall be deemed to have approved such matterswhereupon they shall become Permitted Exceptions. If, however, Buyer objects tosuch new exception, then Seller shall have until 5:00 p.m. Pacific Time onthe fifth (5th) business day after Seller’s receipt of Buyer’s written objection in whichto notify Buyer, in Seller’s sole discretion, either (a) that Seller willremove the new disapproved exception(s) prior to the Close of Escrow and,thereafter, Seller shall be entitled to a reasonable adjournment of the Closingfor the purpose of such removal, which removal will be deemed effected by,among other things, the issuance of title insurance reasonably acceptable toBuyer eliminating or insuring against the effect of the Title 

 

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Objections,or (b) that Seller will not remove the new disapproved exception(s).  If Seller does not elect to do either (a) or(b), such silence shall be conclusively deemed to constitute Seller’s electionnot to remove any new exception(s) disapproved by Buyer.  If Seller elects not to remove any newdisapproved exception(s), whether by giving notice thereof or by failing togive notice, then Buyer shall have until 5:00 p.m. Pacific Time on thefifth (5th) business day after Seller’s election (or deemed election) not to cure thedisapproved exception in which to elect (y) to terminate this Agreement bywritten notice to Seller and Escrow Holder or (z) to waive in writingBuyer’s previous disapproval of (and thereby accept) any items that Seller doesnot elect to remove.  Buyer’s failure toterminate this Agreement by delivering written notice of such election on orbefore 5:00 p.m. Pacific Time on the fifth (5th) businessday after Seller’s election or deemed election not to remove the newdisapproved exception shall be deemed to constitute Buyer’s irrevocableelection to waive Buyer’s previous disapproval whereupon the disapprovedexception shall become a Permitted Exception. If, however, Buyer does elect to terminate this Agreement, then thisAgreement shall so terminate, the Deposit shall be returned to Buyer andneither party shall have any further obligations to the other hereunder exceptto the extent any such obligation expressly survives the termination of thisAgreement.

 

**4.4                 ****Survey Objections**.  Buyer shall have the right to obtain a newsurvey or an update of any survey provided by Seller (the “**Survey**”)at its sole cost and expense.  Promptlyupon receipt of the Survey, Buyer, at its sole cost and expense, shall delivera copy to Seller and to Escrow Agent.  Nolater than the fifth (5th) day prior to the expiration ofthe Due Diligence Period, Buyer shall have the right to notify Seller, inwriting, of any matters disclosed on the Survey that are not PermittedExceptions and that affect Buyer’s title to the Property.  Buyer’s failure to obtain the Survey ordisapprove any matters disclosed by the Survey on or before such time shallconstitute Buyer’s approval of the matters disclosed by the Survey or mattersthat would have been disclosed had Buyer obtained a Survey.  All such matters which are timely objected toby Buyer shall be herein collectively called the “**SurveyObjections**”.  Seller, in itssole and absolute discretion, may no later than the day prior to the expirationof the Due Diligence Period (the “**Survey Cure Period**”),elect to remove or cause to be removed, or insured over, at its expense, anySurvey Objections, and shall be entitled to a reasonable adjournment of the Closingfor the purpose of such removal, which removal will be deemed effected by,among other things, the issuance of title insurance reasonably acceptable toBuyer eliminating or insuring against the effect of the Survey Objections.  Seller shall notify Buyer in writing of suchelection within the Survey Cure Period. If Seller is unable to cure or endorse over any Survey Objections priorto the expiration of the Survey Cure Period, or if Seller elects not to removeone or more Survey Objections, Buyer may elect, as its sole and exclusiveremedy therefore, to either (a) terminate this Agreement by giving writtennotice to Seller and Escrow Agent on or before the end of the Due DiligencePeriod and, thereafter, the parties shall have no further rights or obligationshereunder except for those obligations which expressly survive the terminationof this Agreement, or (b) waive, in writing, such Survey Objections, inwhich event the Closing shall occur as herein provided without any reduction ofor credit against the Purchase Price.  Ifbefore the end of the Due Diligence Period, Buyer elects to proceed with thetransaction contemplated herein, then Buyer shall be deemed to have elected towaive those Survey Objections Seller elected not to cure and its right to terminatethis Agreement pursuant to this Section 4.4.

 

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**4.5                  TitleInsurance**. At Closing, the Title Company shall issue to Buyer or be irrevocablycommitted to issue to Buyer a CLTA standard coverage form title policy (the “**Title Policy**”) in the amount of thePurchase Price, insuring that fee simple title to the Land is vested in Buyersubject only to the Permitted Exceptions. Buyer shall be entitled to request that the Title Company provide ALTA extendedcoverage and/or such endorsements (or amendments) to the Title Policy as Buyermay reasonably require and/or increased liability as Buyer may reasonablyrequire, provided that the same shall (a) be at no cost to Seller, (b) imposeno additional liability on Seller, (c) not be a condition to the Closingand, accordingly, if Buyer is unable to obtain any of the foregoing, Buyershall nevertheless be obligated to proceed to close the transactioncontemplated by this Agreement without reduction of or set off against thePurchase Price, and (d) the Closing shall not be delayed as a result ofBuyer’s request.

 

**4.6                 ****Contracts**. On or before the fifth (5th) dayprior to the expiration of the Due Diligence Period, Buyer shall have the rightto disapprove, by written notice to Seller, any of the Contracts that are notterminable upon thirty (30) days or less prior notice.  If Buyer desires to have any Contractterminated that is not expressly terminable upon thirty (30) days’ or lessnotice (any, a “**Non-Terminable Contract**”), thenBuyer shall notify Seller in writing of any such Non-Terminable Contract thatit desires to have terminated.  Withinthree (3) days following receipt of any such Buyer notice, Seller shallnotify Buyer in writing whether Seller, in its sole and absolute discretion, iswilling to terminate such Non-Terminable Contract.  If Seller notifies Buyer that it is unwillingto terminate any such Non-Terminable Contracts, then Buyer shall have theright, until the expiration of the Due Diligence Period, either to waive inwriting its prior disapproval of the corresponding Non-Terminable Contract(s) orto terminate this Agreement by giving written notice to Seller and EscrowHolder as Buyer’s sole and exclusive remedy, in which event the AdditionalDeposit (but not the Initial Deposit) shall be returned to Buyer.  If Buyer fails to waive any such priordisapproval and does not terminate this Agreement before the expiration of theDue Diligence Period, then Buyer shall be deemed to have waived its priordisapproval of the corresponding Non-Terminable Contract(s).  All of the Contracts which are eitherterminable on thirty (30) days or less notice or which are not disapproved byBuyer, or with respect to which Buyer’s initial disapproval is waived or deemedto be waived hereunder, are referred to herein as the “**ApprovedContracts**.”

 

**ARTICLE 5**

 

**REMEDIES**

 

**5.1                  PermittedTermination; Seller Default**.  If the sale of the Property is notconsummated due to the permitted termination of this Agreement by Buyer asherein expressly provided, then the Deposit shall be returned to Buyer;provided, however, the Initial Deposit shall not be returned to Buyer unlessthe permitted termination of this Agreement specifically states that theDeposit is to be returned to Buyer or the Agreement states that only theAdditional Deposit is to be returned to Buyer. Upon such termination, Buyer will have no liability hereunder except asotherwise expressly stated in this Agreement. If the sale of the Property is not consummated due solely to Seller’smaterial default hereunder that is not cured within all applicable notice andcure periods, then Buyer shall have the right, to elect, as its sole andexclusive remedy, to (a) terminate this Agreement by written notice toSeller, promptly after which the Deposit shall be returned to Buyer, (b) waivethe default and proceed to close the 

 

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transactioncontemplated herein, or (c) provided that all of the conditions to Seller’sobligations to close have been satisfied and so long as Buyer is not then indefault of any of its material obligations under this Agreement, seek specificperformance of Seller’s obligations under this Agreement and record andmaintain against the Property a notice of lis pendens in accordance withapplicable law if Buyer further satisfies and continues to satisfy each of thefollowing obligations: (i) Buyer shall have reasonably demonstrated thatit is prepared to deliver into escrow all funds required by this Agreement in orderfor the Closing to occur, Buyer shall have deposited all funds required by thisAgreement in order for the Closing to occur, and Buyer shall be ready andwilling in all other respects to close escrow in accordance with the terms andconditions of this Agreement; and (ii) Buyer shall have filed an actionfor specific performance (a “**Specific PerformanceAction**”) within sixty (60) days of the date the Closing was to haveoccurred.  Notwithstanding anything tothe contrary contained herein, Seller shall not be deemed in default unless anduntil Buyer provides Seller with written notice of such default and Sellerfails to cure such default within five (5) business days of its receipt ofsuch written notice.

 

**5.2                  BuyerDefault; Liquidated Damages**.  **IF THE SALEIS NOT CONSUMMATED DUE TO ANY DEFAULT BY BUYER HEREUNDER****ANDBUYER FAILS TO CURE SUCH BREACH WITHIN FIVE (5) BUSINESS DAYS AFTER BUYER’SRECEIPT OF WRITTEN NOTICE FROM SELLER SPECIFYING SUCH BREACH****(PROVIDED, HOWEVER, THAT THE FOREGOING NOTICE AND CURE RIGHTSSHALL NOT APPLY TO BUYER’S FAILURE TO CLOSE ON THE CLOSING DATE), THEN SELLERSHALL RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES, WHICH RETENTION SHALL OPERATETO TERMINATE THIS AGREEMENT AND RELEASE BUYER FROM ANY AND ALL LIABILITYHEREUNDER, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.  THE PARTIES HAVE AGREED THAT SELLER’S ACTUALDAMAGES, IN THE EVENT OF A FAILURE TO CONSUMMATE THIS SALE DUE TO BUYER’SDEFAULT, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE.  AFTER NEGOTIATION, THE PARTIES HAVE AGREEDTHAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT,THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLERWOULD INCUR IN SUCH EVENT.  BY PLACINGTHEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THESTATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSELWHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THISLIQUIDATED DAMAGES PROVISION.  THEPARTIES ACKNOWLEDGE THAT SUCH PAYMENT OF THE DEPOSIT IS NOT INTENDED AS AFORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER UNDERCALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.  THE FOREGOING IS NOT INTENDED TO LIMIT BUYER’SSURVIVING OBLIGATIONS UNDER THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, ALLOF BUYER’S INDEMNITIES IN THIS AGREEMENT.**

 
| Initials: | Seller |   /s/ KR |   | Buyer |   /s/  MA |   |
|-----------|--------|--------------------|--------|-------|---------------------|--------|

 

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** **

**ARTICLE 6****REPRESENTATIONS AND WARRANTIES OF SELLER**

 

**6.1                  Representationsand Warranties of Seller**.  Subject to the provisions of this Agreementincluding, without limitation, Sections 6.2, 6.3, and Article 7,Seller makes the following representations and warranties with respect to theProperty:

 

**6.1.1       Status**.  Seller is a limited liabilitycompany organized or formed, validly existing and in good standing under thelaws of the State of California.

 

**6.1.2       Authority**.  Subject to the receipt ofCorporate Approval (as defined below), the execution and delivery of thisAgreement and the performance of Seller’s obligations hereunder have been orwill be duly authorized by all necessary action on the part of Seller and thisAgreement constitutes the legal, valid and binding obligation of Seller,subject to equitable principles and principles governing creditors’ rightsgenerally.  For purposes of thisAgreement, “Corporate Approval” shall mean that Seller shall have obtainedapproval of this Agreement by the management and/or Board of Directors of SheaProperties LLC and J.F. Shea Co., Inc., its parent companies, in theirsole and absolute discretion as required by Seller’s corporate policies andprocedures on or before the expiration of the Due Diligence Period.  If Seller fails to provide Buyer with writtennotice that it has received Corporate Approval on or before 5:00 p.m.Pacific Time on the last day of the Due Diligence Period, then this Agreementshall automatically terminate, the Deposit, to the extent made, shall bereturned to Buyer and neither party shall have any further obligation to theother hereunder.

 

**6.1.3       Non-Contravention**.  The execution and delivery of thisAgreement by Seller and the consummation by Seller of the transactionscontemplated hereby will not, to Seller’s knowledge (i) violate any Lawsor (ii) conflict with, result in a breach of, or constitute a defaultunder the organizational documents of Seller, any note or other evidence ofindebtedness, any mortgage, deed of trust or indenture, or any lease or othermaterial agreement or instrument to which Seller is a party or by which Sellermay be bound and, in either case, that would have a material and adverse affecton Seller’s ability to consummate the transactions contemplated by this Agreement.

 

**6.1.4       Non-Foreign Entity**.  Seller is not a “foreign person”or “foreign corporation” as those terms are defined in the Internal RevenueCode of 1986, as amended, and the regulations promulgated thereunder.

 

**6.1.5       Consents**.  Except for the consent of theLender with respect to the Loan Assumption and the Corporate Approval, noconsent, waiver, approval or authorization is required from any person orentity (that has not already been obtained or will be obtained) in connectionwith the execution and delivery of this Agreement by Seller or the performanceby Seller of the transactions contemplated hereby.

 

**6.1.6      ****Leases.** To Seller’s knowledge, true, correct and complete copies of the Leasesin Property Manager’s files have been or will be delivered or made available toBuyer in accordance with Section 3.2.1 above.  Except as set forth in the Rent Roll orotherwise 

 

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disclosed to Buyer by Seller inwriting prior to the expiration of the Due Diligence Period, to Seller’sknowledge, the Leases listed on the Rent Roll are in full force and effect asof the date set forth on the Rent Roll. To Seller’s knowledge, Seller has not received written notice of anyuncured default of Seller, as landlord, under any Lease.  Except as may be set forth in the Rent Rollor otherwise disclosed to Buyer by Seller in writing prior to the expiration ofthe Due Diligence Period, to Seller’s knowledge, no Tenant has paid any rent,fees, or other charges for more than one month in advance.  Seller is the landlord under each of theLeases and, except for the security interests granted in connection with theLoan encumbering the Property, has not assigned, mortgaged, pledged or otherwiseencumbered any of its rights or interests under the Leases.

 

**6.1.7      ****Contracts**. To Seller’s knowledge, there are no Contracts except for the Contractsspecifically designated in **Exhibit B**attached hereto.  To Seller’s knowledge,true, correct and complete copies of the Contracts in Property Manager’s fileshave been or will be delivered to Buyer in accordance with Section 3.2.1,above.  To Seller’s knowledge, Seller hasnot received written notice of any uncured default of Seller under anyContracts.

 

**6.1.8      ****Notice of Violation**.  Except as may be disclosed in the DueDiligence Items, to Seller’s knowledge, Seller has not received written noticefrom any Governmental Entity having jurisdiction over the Property that theProperty is in violation of any Law regulating the operation or use thereof.

 

**6.1.9      ****Litigation**.  To Seller’s knowledge, there is no legalaction, suit, proceeding or claim affecting Seller or the Land, Improvements orPersonal Property or any portion thereof relating to or arising out of theownership, operation, use or occupancy of the Property being prosecuted in anycourt or by or before any federal, state, county or municipal department,commission, board, bureau or agency or other Governmental Entity.

 

**6.1.10    ****SpecialAssessments**.  To Seller’sknowledge and except as may otherwise be disclosed by the Due Diligence Itemsor the Title Documents, Seller has received no written notice of any pendingimprovement liens or special assessments to be made against the Property by anygovernmental authority.

 

**6.1.11    ****NoContracts.**  Except for thisAgreement, there are no options, contracts or other obligations outstanding forthe sale, exchange or transfer of the Property or any portion thereof or thebusiness operated thereon.

 

**6.1.12    ****Environmental Issues**.  To Seller’s knowledge, Seller has notreceived any written notice from any Governmental Entity that there is apresence, release, threat of release, placement on or in the Property, of anyHazardous Materials in violation of any Laws.

 

**6.1.13     ProhibitedPersons and Transactions**.  Neither Seller, Shea Properties Management, Inc.,Shea Properties LLC nor J.F. Shea Co, Inc. are, nor will they become, aperson or entity with whom U.S. persons or entities are restricted from doingbusiness under regulations of the Office of Foreign Asset Control (“**OFAC**”) of the Department of the Treasury(including those named on OFAC’s Specially Designated and Blocked Persons List)or under any statute, executive order (including the September 24, 2001,Executive Order Blocking 

 

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Property and ProhibitingTransactions with Persons Who Commit, Threaten to Commit, or SupportTerrorism), or other governmental action and is not and will not engage in anydealings or transactions or be otherwise associated with such persons orentities.

 

**6.2                  Seller’sKnowledge**. For purposes of this Agreement and any document delivered at Closing,whenever the phrase “to Seller’s knowledge,” or the “knowledge” of Seller orwords of similar import are used, they shall be deemed to refer to facts withinthe actual knowledge only of Steve Gilmore and Gina Costantino, therepresentatives or employees of the Seller who are most knowledgeable as to thestatus of the Property of Seller and no others, as of the Effective Date,without duty of inquiry whatsoever. Buyer acknowledges that the individual named above is named solely forthe purpose of defining and narrowing the scope of Seller’s knowledge and notfor the purpose of imposing any liability on or creating any duties runningfrom such individuals to Buyer.  Buyercovenants that it will bring no action of any kind against such individual, anyshareholder, partner or member of Seller related to or arising out of theserepresentations and warranties.

 

**6.3                 ****Seller’s Maximum Aggregate Liability**.  Notwithstanding any provision to the contrarycontained in this Agreement or any documents executed by Seller pursuant heretoor in connection herewith, the representations and warranties of Seller setforth in Section 6.1, together with Seller’s liability for anybreach of any of Seller’s interim operating covenants under Article 8,shall survive the Closing and not be merged into the deed for a period of nine (9) months.  Buyer shall have no right to bring any actionagainst Seller as a result of any untruth or inaccuracy of such representationsand warranties, or any such breach, unless (a) Buyer serves a writtenclaim on Seller within such nine (9) month period, (b) Buyercommences and serves an action against Seller within thirty (30) days afterBuyer gives such notice, and (c) the aggregate amount of all liability andlosses arising out of any such untruth or inaccuracy, or any such breach,exceeds $25,000.  In addition, in noevent shall Seller’s liability for all such breaches exceed, in the aggregate,$500,000.  Seller shall have no liabilitywith respect to any of Seller’s representations, warranties and covenantsherein if, prior to the Closing, Buyer has actual knowledge of any breach of arepresentation, warranty or covenant of Seller herein, or Buyer obtains actualknowledge (from whatever source, including, without limitation, any of the DueDiligence Items, as a result of Buyer’s Due Diligence, the inclusion of anyinformation in or written disclosure by Seller or Seller’s agents and employees)that contradicts any of Seller’s representations and warranties herein, andBuyer nevertheless consummates the transaction contemplated by thisAgreement.  The provisions of this Section 6.3shall expressly survive the Close of Escrow and shall not merge into the Deedor any of the other closing documents hereunder.

 

**ARTICLE 7**

** **

**REPRESENTATIONSAND WARRANTIES OF BUYER**

 

**7.1                  Buyer’sRepresentations and Warranties**.  Buyer represents and warrants to Seller thefollowing:

 

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**7.1.1       Status**.  Buyer is a limited partnershiporganized or formed, validly existing and in good standing under the laws ofthe State of Delaware and has, or will have at Closing, the authority totransact business in the State of California.

 

**7.1.2       Authority**.  The execution and delivery of thisAgreement and the performance of Buyer’s obligations hereunder have been orwill be duly authorized by all necessary action on the part of Buyer and thisAgreement constitutes the legal, valid and binding obligation of Buyer, subjectto equitable principles and principles governing creditors’ rights generally.

 

**7.1.3       Non-Contravention**.  The execution and delivery of thisAgreement by Buyer and the consummation by Buyer of the transactionscontemplated hereby will not, to Buyer’s knowledge, violate any Law or conflictwith, result in a breach of, or constitute a default under the organizationaldocuments of Buyer, any note or other evidence of indebtedness, any mortgage,deed of trust or indenture, or any lease or other material agreement orinstrument to which Buyer is a party or by which it is bound and, in eithercase, that would have a material and adverse affect on Buyer’s ability toconsummate the transaction contemplated by this Agreement.

 

**7.1.4       Consents**.  No consent, waiver, approval orauthorization is required from any person or entity (that has not already beenobtained or will be obtained) in connection with the execution and delivery ofthis Agreement by Buyer or the performance by Buyer of the transactionscontemplated hereby.

 

**7.1.5       Solvency**.  Buyer will not be renderedinsolvent in connection with, or as a result of, the performance by Buyer ofits obligations hereunder or the consummation of the transactions contemplatedhereby.

 

**7.1.6       Prohibited Persons andTransactions**. Neither Buyer, BHMF, Inc., nor any assignee of Buyer’s interest inthis Agreement is, nor will they become, a person or entity with whom U.S.persons or entities are restricted from doing business under regulations of OFAC (including those named on OFAC’sSpecially Designated and Blocked Persons List) or under any statute, executiveorder (including the September 24, 2001, Executive Order Blocking Propertyand Prohibiting Transactions with Persons Who Commit, Threaten to Commit, orSupport Terrorism), or other governmental action and is not and will not engagein any dealings or transactions or be otherwise associated with such persons orentities.

 

**7.1.7      ****Sophisticated Buyer**.  Buyer is an experienced purchaser, owner andoperator of multi-family housing communities and is familiar with the kinds oflegal, economic and other issues that typically impact one’s ability to own andoperate such communities.

 

Seller covenants that it willbring no action of any kind against any individual, shareholder, partner ormember of Buyer related to, or arising out of, these representations andwarranties.

 

**7.2                 ****Buyer’s Independent Investigation**.

 

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**7.2.1      ****Investigations**.  By its election not to deliver theDisapproval Notice, Buyer represents and warrants that it has been given a fullopportunity to inspect and investigate each and every aspect of the Property,either independently or through agents of Buyer’s choosing, including, withoutlimitation:

 

(a)           All matters relating to title,together with all governmental and other legal requirements such as taxes,assessments, zoning, accessibility, rent control, use permit requirements, andbuilding codes;

 

(b)           The physical condition and aspects ofthe Property, including, without limitation, the interior, the exterior, thesquare footage within the Improvements, the structure, the paving, theutilities, and all other physical and functional aspects of the Property,including, without limitation, any seismic or retrofitting requirements and anexamination for the presence or absence of Hazardous Materials, which shall beperformed or arranged by Buyer at Buyer’s sole expense;

 

(c)           Any easements and/or access rightsaffecting the Property;

 

(d)           The Leases and all matters inconnection therewith;

 

(e)           The Contracts, the Licenses andPermits, the Commission Agreements and any other documents or agreements ofsignificance affecting the Property; and

 

(f)            All other matters of materialsignificance affecting the Property or delivered to Buyer by Seller inaccordance with Article 3 of this Agreement.

 

**7.2.2      ****AS-IS SALE**. **EXCEPT FOR THE EXPRESS REPRESENTATIONS ANDWARRANTIES OF SELLER UNDER SECTION 6.1, ABOVE, BUYER ACKNOWLEDGESAND AGREES THAT NEITHER SELLER, NOR ANYONE ACTING FOR OR ON BEHALF OF SELLERINCLUDING, WITHOUT LIMITATION, BROKER, HAS MADE ANY REPRESENTATIONS,WARRANTIES, OR PROMISES TO BUYER, OR TO ANYONE ACTING FOR OR ON BEHALF OFBUYER, CONCERNING ANY ASPECT OF THE PROPERTY INCLUDING, WITHOUT LIMITATION, (A) THEMANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTOTHE PROPERTY; (B) COMPLIANCE WITH TITLE III OF THE AMERICANS WITHDISABILITIES ACT OF 1990 AND ALL SIMILAR STATE AND LOCAL ACCESSIBILITY LAWS; (C) COMPLIANCEWITH THE FAIR HOUSING ACT AND ALL SIMILAR STATE AND LOCAL LAWS; (D) COMPLIANCEWITH ANY “SOFT STORY” RETROFIT STANDARDS; (E) COMPLIANCE WITH ANYENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATION, ORDERSOR REQUIREMENTS, INCLUDING, WITHOUT LIMITATION, CALIFORNIA HEALTH &SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL RESOURCECONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL PROTECTION AGENCYREGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE ENVIRONMENTALRESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE RESOURCECONSERVATION AND**

 

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**RECOVERY ACT OF1976, THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS MATERIALSTRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND REGULATIONSPROMULGATED UNDER ANY OF THE FOREGOING; (F) THE PRESENCE OR ABSENCE OFHAZARDOUS MATERIALS OR MOLD AT, ON, UNDER, OR ADJACENT TO THE PROPERTY; (G) THECONTENT, COMPLETENESS OR ACCURACY OF THE DUE DILIGENCE ITEMS, TITLE COMMITMENT,SURVEY OR UPDATED SURVEY; (H) THE SIZE AND/OR DIMENSIONS OF ANY OF THEIMPROVEMENTS, AND (I) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS ORSPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVEBEEN OR MAY BE PROVIDED TO BUYER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT THE PROPERTY WILL BEINDEPENDENTLY INVESTIGATED BY BUYER TO ITS FULL SATISFACTION PRIOR TOEXPIRATION OF THE DUE DILIGENCE PERIOD, OR THAT BUYER WILL TERMINATE THISAGREEMENT AS PROVIDED ABOVE, THAT BUYER WILL BE ACQUIRING THE PROPERTY BASEDSOLELY UPON AND IN RELIANCE ON ITS OWN INSPECTIONS, EVALUATIONS, ANALYSES ANDCONCLUSIONS, AND THAT SUBJECT TO SELLER’S EXPRESS OBLIGATIONS HEREUNDER, BUYERWILL BE ACQUIRING THE PROPERTY IN ITS “AS-IS” CONDITION AND STATE OF REPAIRINCLUSIVE OF ALL FAULTS AND DEFECTS, WHETHER KNOWN OR UNKNOWN, AS MAY EXISTAS OF THE CLOSING, AND BUYER EXPRESSLY ASSUMES THE RISK THAT ADVERSE PHYSICAL,ENVIRONMENTAL, FINANCIAL, LEGAL AND OTHER CONDITIONS MAY NOT BE REVEALEDBY BUYER’S INSPECTION OF THE PROPERTY.**

 

**BY INITIALING BELOW, THE BUYERACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND SIGNIFICANCE OFTHIS SECTION 7.2.2 AND AGREES TO THE TERMS SET FORTH HEREIN.**

 
|   | Buyer: |   /s/ MA |   |   |
|--------|--------|--------------------|--------|--------|

** **

**7.3                 ****Buyer’s Release of Seller; Indemnity**.

 

**7.3.1       Seller Released FromLiability**. Seller is hereby released from all responsibility and liability to Buyerregarding the condition (including, without limitation, its physical conditionand its compliance with applicable laws, and the presence in the soil, air,structures and surface and subsurface waters, of Hazardous Materials orsubstances that have been or may in the future be determined to be toxic,hazardous, undesirable or subject to regulation and that may need to be speciallytreated, handled and/or removed from the Property under current or futurefederal, state and local laws, regulations or guidelines), valuation,salability or utility of the Property, or its suitability for any purposewhatsoever except to the extent that such responsibility or liability is theresult of the material inaccuracy (if any) of Seller’s representations under Section 6.1hereof.

 

**7.3.2       Buyer’s Waiver ofObjections**. Buyer acknowledges that its failure to deliver the Disapproval Noticeshall constitute Buyer’s representation and warranty to Seller that, prior tothe expiration of the Due Diligence Period, it will have inspected the 

 

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Property, observed its physicalcharacteristics and existing conditions and had, or will have, the opportunityto conduct such investigation and study on and of said Property and adjacentareas as it deemed necessary, and subject to Seller’s responsibility for anybreach of the warranties and representations contained in Section 6.1of this Agreement, hereby waives any and all objections to, claims, causes ofaction or complaints (including but not limited to actions based on federal,state or common law and any private right of action under CERCLA, RCRA or any otherstate and federal law to which the Property is or may be subject) regardingphysical characteristics and existing conditions, including without limitationstructural and geologic conditions, subsurface soil and water conditions andsolid and hazardous waste and Hazardous Materials on, under, adjacent to orotherwise affecting the Property.  Buyerfurther hereby assumes the risk of changes in applicable laws and regulationsincluding, without limitation, those relating to past, present and futureenvironmental conditions on the Property, and subject to Seller’s specificrepresentations and warranties contained in Section 6.1 of thisAgreement, the risk that adverse physical characteristics and conditions,including without limitation the presence of Hazardous Materials or othercontaminants, may not be revealed by its investigation.

 

**7.3.3       Civil Code Section 1542Waiver**.  Inconnection with the releases and waivers set forth in this Section 7.3,Buyer, on behalf of itself, its successors, assigns and successors-in-interestand such other persons and entities, waives the benefit of California CivilCode Section 1542, which provides as follows:

 

“A generalrelease does not extend to claims which the creditor does not know or suspectto exist in his or her favor at the time of executing the release, which ifknown by him or her must have materially affected his settlement with thedebtor.”

 
|   | Buyer’s  Initials: |   /s/ MA |   |   |
|--------|-------------------------|--------------------|--------|--------|

 

**7.3.4       Indemnity**.  Subject to Section 6.1hereof, Buyer and its successors and assigns (the “**Indemnitor**”) agree to indemnify, protect, defend and holdSeller, Seller’s Affiliates and each of their respective members, partners,shareholders, officers, directors, managers, employees and agents harmless fromany and all Losses, including without limitation suits and claims brought bythird parties related to, or in any way connected to the condition of theProperty arising from events occurring subsequent to Closing, including,without limitation, (a) the presence of Hazardous Materials thereon, (b) thematters released by Buyer above, (c) Buyer’s use, ownership, development,and sale of the Property, and (d) any claims or demands asserted oralleged by any purchasers or tenants from Buyer of any portion of the Propertyor any successors or assigns of any such persons.  In addition, Indemnitor agrees to indemnify,protect, defend and hold Seller, Seller’s Affiliates and each of theirrespective members, partners, shareholders, officers, directors, managers,employees and agents harmless from any and all Losses, including suits andclaims brought by third parties, related to, arising from or in any wayconnected to any inaccuracy in or breach of any representations or warrantiesof Buyer under this Agreement, or any breach or default by Buyer under theprovisions of this Agreement that state that they are to survive the Closing orthe earlier termination of this Agreement. Indemnitor’s obligations under this Section shall survive theClosing and the delivery of the Deed.

 

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**7.3.5       Survival**.  The foregoing waivers, releasesand indemnities by Buyer shall survive either (a) the Closing and therecordation of the Deed, and shall not be deemed merged into the Deed upon itsrecordation, or (b) any termination of this Agreement.

 

**ARTICLE 8**

** **

**LEASES;MAINTENANCE OF PROPERTY**

 

From the date hereof until the Closing, and except asotherwise consented to or approved by Buyer, Seller covenants and agrees withBuyer as follows:

 

**8.1                  New Leases;Lease Modifications**. After the Effective Date and prior to the end of the Due DiligencePeriod, Seller, in its sole discretion, and without Buyer’s consent shall havethe right to enter into any New Lease or amend, modify and/or extend any NewLease or any Pre-Effective Date Lease it deems advisable.  Seller shall provide Buyer with noticethereof and an executed copy of any such New Lease or amendment, modificationor extension promptly after the execution and delivery thereof, but in no eventlater than the next to last day of the Due Diligence Period.  Buyer’s sole remedy in the event any NewLease is executed or if any New Lease or Pre-Effective Date Lease is amended,modified or extended by Seller after the Effective Date and prior to the end ofthe Due Diligence Period shall be to terminate this Agreement on or before theend of the Due Diligence Period in accordance with Section 3.8.  No later than three (3) days after theEffective Date, Seller shall provide Buyer with its then-current rent andconcession schedule (the “**Lease Guidelines**”).  The Lease Guidelines shall be in the form of **Exhibit I** attached hereto andincorporated herein.  Provided that Buyerdoes not elect to terminate this Agreement on or before the expiration of theDue Diligence Period, after the end of the Due Diligence Period Seller shallnot enter into a New Lease unless such New Lease is on Seller’s standardresidential lease form and in compliance with the Lease Guidelines unlessSeller has obtained Buyer consent in accordance with Section 8.4below; modify or amend any Pre-Effective Date Lease or any New Lease enteredinto prior to the end of the Due Diligence Period except pursuant to theexercise by a Tenant of a renewal, extension or other right contained in suchTenant’s Lease; consent to any assignment or sublease in connection with anyPre-Effective Date Lease or New Lease; or remove a Tenant under anyPre-Effective Date Lease or New Lease, whether by summary proceedings orotherwise, except by reason of a default of the Tenant under the subject Pre-EffectiveLease or New Lease.

 

**8.2                  Lease Expenses**.  At Closing, Buyer shall reimburseSeller for any and all Reimbursable Lease Expenses to the extent that the samehave been paid by Seller prior to Closing. In addition, at Closing, Buyer shall assume Seller’s obligations to pay,when due (whether on a stated due date or by acceleration) any ReimbursableLease Expenses unpaid as of the Closing, and Buyer hereby agrees to indemnify,defend and hold Seller harmless from and against any and all claims for suchReimbursable Lease Expenses which remain unpaid for any reason at the time ofClosing, which obligations of Buyer shall survive the Closing and shall not bemerged therein.  Each party shall makeavailable to the other all Commission Agreements, records, bills, vouchers andother data in such party’s control verifying Reimbursable Lease Expenses andthe payment thereof.

 

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**8.3                  LeaseEnforcement**. Subject to the provisions of Section 8.1 above, prior to theClosing Date, Seller shall have the right, but not the obligation, to enforcethe rights and remedies of the landlord under any Pre-Effective Date Lease orNew Lease, by summary proceedings or otherwise (including, without limitation,the right to remove any Tenant), and to apply all or any portion of any TenantDeposits then held by Seller toward any loss or damage incurred by Seller byreason of any defaults by Tenants, and the exercise of any such rights orremedies shall not affect the obligations of Buyer under this Agreement in anymanner or entitle Buyer to a reduction in, or credit or allowance against, thePurchase Price or give rise to any other claim on the part of Buyer.

 

**8.4                  Certain InterimOperating Covenants**. Seller covenants to Buyer that  Sellerwill operate the Property, from the Effective Date until Closing or earliertermination of this Agreement as follows: (i) continue to operate, manage and maintain the Property in a goodand workmanlike manner in the ordinary course of Seller’s business andsubstantially in accordance with Seller’s present practice, and will keep theImprovements and Personal Property in good order and operating condition,subject to ordinary wear and tear and further subject to Section 10.2and cause all necessary repairs, renewals and replacements to be promptlymade  which are required by the terms ofthe Leases; (ii) maintain property insurance on the Property which is atleast equivalent in all material respects to the insurance policies coveringthe Property as of the Effective Date; (iii) not enter into any newcontract for the provision of goods or services to or with respect to theProperty other than in the ordinary course of business or that is to terminateupon the Closing, or renew, extend, modify or replace any of the Contractsunless such contract is an Approved Contract, is a contract terminable as ofthe Closing Date or Buyer consents thereto in writing, which approval shall notbe unreasonably withheld, delayed or conditioned; (iv) advise Buyerpromptly of any change in any applicable laws, regulations, restrictions,rulings, or orders that might have a material adverse change on the value oruse of the Property by Buyer of which Seller obtains written notice after theEffective Date and also advise Buyer promptly of any litigation, arbitration oradministrative hearing concerning or affecting the Property which would have amaterial adverse effect on the value or use of the Property of which Sellerobtains written notice after the Effective Date; (v) subject to the prorations prescribed herein, cause to bepaid all trade accounts, costs and expenses of operation and maintenance of theProperty incurred and accruing or due prior to Closing; (vi) not knowingly take any action, which action would havethe effect of materially violating any of the representations and warranties ofSeller set forth in Section 6.1 of the Agreement unless such actionis required by any applicable Laws; (vii) withoutthe prior written consent of Buyer, not remove any equipment forming a part ofthe Property except such as is replaced by Seller by an article ofsubstantially equal suitability and value, free and clear of any lien orsecurity interest; (viii) if any apartment unit is vacated more than fivebusiness (5) days prior to Closing, then prior to Closing return such unitto rentable condition in accordance with Seller’s customary cleaning, painting,and repair standards for vacant units (the condition of such an apartment unitafter cleaning is referred to herein as a “**Rent Ready Condition**”);provided if Seller fails to return any such vacated unit to a Rent ReadyCondition prior to Closing, or a unit is vacated within five (5) businessdays of Closing and Seller fails to return such unit to Rent Ready Condition byClosing, then at Closing Seller shall credit Buyer an amount equal to thereasonably estimated cost to return each such unit to a Rent Ready Condition,up to, but not to exceed, $1,000; and (ix) Sellershall maintain its website and related material through the Closing except thatas soon after Closing as reasonably possible, Seller shall remove all 

 

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references to the Seller as Ownerand its property management company, as well as any internet leaseconcessions.  In addition, Seller shallterminate any leasing and/or management agreement with the Property Manager orany affiliate of Seller with respect to the Property effective as of theClosing Date and pay any and all costs and expenses of termination thereof.

 

**8.5                 ****ActionsProhibited**.  Providedthat Buyer elects not to terminate this Agreement on or before the expirationof the Due Diligence Period, then from and after the expiration of the DueDiligence Period Seller shall not, without the prior written approval of Buyer:

 

**8.5.1      **make anymaterial structural alterations or additions to the Property except as (a) inthe ordinary course of operating the Property, (b) required formaintenance and repair which are required by the terms of the Leases, (c) requiredby any of the Leases or the Contracts or (d) required by this Agreement;

 

**8.5.2      **sell, transferadversely encumber or adversely change the status of title of all or anyportion of the Property;

 

**8.5.3      **change orattempt to change, directly or indirectly, the current zoning of the Land in amanner materially adverse to it; or

 

**8.5.4      **cancel, amendor modify, in a manner materially adverse to the Property, any License orPermit held by Seller with respect to the Property or any part thereof whichwould be binding upon Buyer after the Closing.

 

**ARTICLE 9**

 

**CLOSING ANDCONDITIONS**

 

**9.1                  EscrowInstructions**. Upon execution of this Agreement, the parties hereto shall deposit twoexecuted counterparts of this Agreement with the Escrow Agent, and thisAgreement shall serve as escrow instructions to the Escrow Agent as the escrowholder for consummation of the purchase and sale contemplated hereby.  Seller and Buyer agree to execute suchreasonable additional and supplementary escrow instructions as may beappropriate to enable the Escrow Agent to comply with the terms of thisAgreement; provided, however, that in the event of any conflict between theprovisions of this Agreement and any supplementary escrow instructions, theterms of this Agreement shall control.

 

**9.2                  Seller’s Conditionsto Closing**. The Closing and Seller’s obligations with respect to the transactioncontemplated by this Agreement are subject to the timely satisfaction orwritten waiver by the respective dates designated below of the followingconditions precedent for Seller’s benefit (the “**Seller Conditions Precedent**”).

 

**9.2.1       Buyer’s Deliveries**.  On or before the Closing Date,Buyer shall have delivered to Escrow Holder all of the funds and documents asprovided in Section 9.6 hereof.

 

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** **

**9.2.2       Representationsand Warranties**. All representations and warranties of Buyer contained in this Agreementshall be true and correct in all material respects as of the date made and asof the Closing Date with the same effect as if those representations andwarranties were made at and as of the Closing Date.

 

**9.2.3       Performance**.  As of the Closing Date, Buyershall not be in material default in the performance of any material covenant oragreement to be performed by Buyer under this Agreement.

 

**9.2.4      ****Corporate Approval.  CorporateApproval**. Seller shall have obtained the Corporate Approval on or before theexpiration of the Due Diligence Period.

 

**9.2.5      ****Loan Assumption**.  On or before the Assumption ApprovalDeadline, Lender shall have agreed to consent to the assignment of Seller’sinterest in the Loan to Buyer and to release the Seller and Seller Guarantorsfrom future liability with respect to the Loan as contemplated under Section 2.4.2hereof.

 

Neither Buyer nor Seller shallwillfully or in bad faith act or fail to act for the purpose of permitting anyof Seller’s Conditions Precedent to fail. Except as otherwise provided herein, if any of the foregoing SellerConditions Precedent are not satisfied by the respective dates designatedhereunder for any reason other than a default by Seller or Buyer hereunder,this Agreement shall terminate, the Additional Deposit (but not the InitialDeposit) shall be returned to Buyer and, neither party shall have any furtherrights or obligations under this Agreement except for those which thisAgreement expressly provides shall survive any termination.  Notwithstanding the foregoing, if the Sellerhas terminated the Agreement under Section 2.4.2 as a result ofLender having failed to consent to the Loan Assumption as described in theabove Section 9.2.4, then the entire Deposit shall be returned toBuyer.  Seller shall have the right towaive any of the Seller Conditions Precedent, and the election by Seller toproceed with the Closing shall be deemed Seller’s waiver of any unsatisfiedSeller Conditions Precedent to the extent any such Seller Condition(s) Precedenthas(have) not been previously satisfied or waived.

 

**9.3                  Buyer’sConditions to Closing**.  The Closing and Buyer’s obligation toconsummate the transaction contemplated by this Agreement are subject to thetimely satisfaction or written waiver by the respective dates designated belowof the following conditions precedent for Buyer’s benefit (the “**Buyer Conditions Precedent**”):

 

**9.3.1       Seller’sDeliveries**. On or before the Closing Date, Seller shall have delivered to EscrowAgent the documents described in Section 9.5.1 below.

 

**9.3.2       Representationsand Warranties**. All representations and warranties of Seller contained in Article 6of this Agreement shall be true and correct in all material respects as of thedate made and, subject to the provisions of this Agreement, shall remain trueand correct in all material respects as of the Closing Date and remade as ofthe Closing Date.

 

**9.3.3       Performance**.  As of the Closing Date, Sellershall not be in material default in the performance of any material covenant oragreement to be performed by Seller under this Agreement beyond all applicablenotice and cure periods.

 

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**9.3.4       TitlePolicy**.  As of theClosing Date, the Title Company shall have issued or irrevocably committed toissue the Title Policy to Buyer as provided in Section 4.5 above.

 

**9.3.5      ****Loan Assumption**.  On or before the Assumption ApprovalDeadline, Lender shall have agreed to consent to the assignment of Seller’sinterest in the Loan to Buyer.

 

**9****.3.6       Deletion of Drainage Easement.**  On or before the Closing Date, Seller shallhave taken the necessary action as described in Section 4.2 toremove, endorse over or otherwise insure the Drainage Easement.

 

Neither Buyer nor Seller shallwillfully or in bad faith act or fail to act for the purpose of permitting anyof the Buyer Conditions Precedent to fail. If any of the Buyer Conditions Precedent set forth in this Agreement arenot timely satisfied for any reason other than a default by Seller or Buyerhereunder, this Agreement shall terminate, the Deposit shall be returned toBuyer so long as Buyer is not otherwise in material default hereunder andneither party shall have any further rights or obligations under this Agreementwith respect to the Property except for those which this Agreement expresslyprovides shall survive any termination. Notwithstanding the foregoing, Buyer shall have the right to waive, inits sole and absolute discretion, any of the Buyer Conditions Precedent, andthe election by Buyer to proceed with the Closing with the actual knowledgethat a Buyer Condition Precedent has not been satisfied, shall be deemed Buyer’swaiver of such Buyer Condition Precedent to the extent any such Buyer ConditionPrecedent has not been previously satisfied or waived.

 

**9.4                  Closing**.

 

**9.4.1      **The closing hereunder (“**Closing**”)shall be held and delivery of all items to be made at the Closing under theterms of this Agreement shall be made through escrow at Escrow Agent’s officeon the tenth (10th) day after (a) the receiptby Buyer and Seller of Lender’s approval of the assumption of the Loan by Buyerand the release of the Seller and Seller Guarantors and (b) Lender, Buyerand Seller have agreed on the terms and conditions of the documents andinstruments necessary to cause Buyer to assume the Loan and Lender to releasethe Seller and Seller Guarantors (the “**ClosingDate**”); provided, however, that Buyer and Seller agree to use goodfaith efforts to agree on the terms and conditions of such documents andinstruments in accordance with Section 2.4.1 hereof as soon asreasonably practicable but Buyer shall not be required to agree to any materialchange in Buyer’s reasonable discretion in the terms and conditions in the LoanDocuments.  If the Closing has notoccurred by tenth (10th) business days after the Assumption Approval Deadline(as may be extended pursuant to the terms and conditions hereof), then eitherparty, so long as such party is not then in material default of this Agreementbeyond all applicable notice and cure periods, if any, shall have the right toterminate this Agreement by delivering written notice to the other party.  If this Agreement is so terminated, then theDeposit shall be returned to Buyer in accordance with Section 2.4.2,above, if Buyer is not then in default hereof and neither party shall have anyliability to the other hereunder except to extent otherwise expressly statedherein.  Notwithstanding anything to thecontrary contained in the Agreement, (y) Seller shall have the unilateralright to extend the Closing to Thursday, January 7, 2010 upon priorwritten notice (the “**Extension Notice**”)to Buyer and Escrow Agent delivered no later than 5:00 p.m. Pacific Time 

 

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on November 17,2009, and (z) if Seller delivers the Extension Notice and, as a result,the Closing is extended until January 7, 2010, then Seller shall have theunilateral right to accelerate the Closing by delivering written notice toBuyer no later than ten (10) days prior to the earlier date on whichSeller desires the Closing to occur; provided, however, that Lender is in aposition to complete the assumption and assignment of the Loan on such tenth(10th) day; provided, further, however, that if Lender is not prepared tocomplete the assignment and assumption of the Loan on such tenth (10th) daythrough no fault of either Buyer or Seller, then the Closing shall occur on thefirst day after such ten (10) day period on which Lender is able toclose.  Buyer shall inform the Lenderduring the application process that Lender’s approval of the proposedassignment and assumption of the Loan will need to remain in effect through January 7,2010.

 

**9.4.2      **No later than the time required by Escrow Agent in order to disburse thesales proceeds to Seller on the Closing Date without the requirement for anyso-called “gap” or other form of indemnity from Seller, Buyer shall deposit inescrow with the Escrow Agent the Purchase Price (subject to adjustmentsdescribed in Section 9.7), together with all other costs andamounts to be paid by Buyer at the Closing pursuant to the terms of thisAgreement, by Federal Reserve wire transfer of immediately available funds toan account to be designated by the Escrow Agent.  On the Closing Date,  Buyer will cause the Escrow Agent to (i) payto Seller by Federal Reserve wire transfer of immediately available funds to anaccount designated by Seller, the Purchase Price (subject to adjustmentsdescribed in Section 9.7 or otherwise hereunder), less any costs orother amounts to be paid by Seller at Closing pursuant to the terms of thisAgreement, and (ii) pay all appropriate payees the other costs and amountsto be paid by Buyer at Closing pursuant to the terms of this Agreement and  Seller will direct the Escrow Agent to pay tothe appropriate payees out of the proceeds of Closing payable to Seller, allcosts and amounts to be paid by Seller at Closing pursuant to the terms of thisAgreement as set forth on the Closing Statement.

 

**9.5                  Seller’sClosing Documents and Other Items**.

 

**9.5.1      **Not later than 3:00  p.m. Pacific Time, on the business day prior tothe Closing Date, Seller shall deposit into escrow the following items:

 

(a)           A duly executed and acknowledgedGrant Deed in the form attached hereto as **Exhibit C** (the “**Deed**”);

 

(b)           Two duly executed counterparts of aBill of Sale in the form attached hereto as **Exhibit D** (the “**Billof Sale**”);

 

(c)           Two (2) duly executed counterpartsof an Assignment and Assumption of Leases in the form attached hereto as **Exhibit E** (the “**Assignment and Assumption of Leases**”);

 

(d)           Two (2) duly executedcounterparts of an Assignment and Assumption of Contracts, Warranties andGuaranties, Licenses and Permits and Other Intangible Property in the formattached hereto as **Exhibit F**(the “**Assignment and Assumption of Contracts**”);

 

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(e)           An affidavit pursuant to Section l445(b)(2) ofthe Code, and on which Buyer is entitled to rely, stating that Seller is not a “foreignperson” within the meaning of Section l445(f)(3) of the Code and aCalifornia 597-W Certificate;

 

(f)            A generic notice addressed to theTenants and signed by Seller in the form attached hereto as **Exhibit G** (the “**Tenant Notice**”) that shall disclose that the Property hasbeen sold to Buyer and that, after the Closing, all rents should be paid toBuyer;

 

(g)           With respect to the assumption byBuyer of the Loan, such documents, instruments and certificates required byLender pursuant to the Loan Documents (the “**AssumptionDocuments**”) to be delivered by Seller, any Seller Guarantor or anyAffiliate of the foregoing;

 

(h)           If applicable, duly completed andsigned real estate transfer tax declarations;

 

(i)            Such other documents as may bereasonably required by the Title Company or as may be agreed upon by Seller andBuyer to consummate the purchase of the Property as contemplated by thisAgreement; and

 

(j)            Two (2) duly executedcounterparts of the Closing Statement.

 

**9.5.2      ****Seller’s Post Closing Deliveries**.  As soon after the Closing as is reasonablypossible, Seller shall deliver to the offices of Buyer’s property manager: alloriginals of the Leases and Approved Contacts (or copies if no originals areavailable) and receipts for Tenant Deposits; all keys, if any, used in theoperation of the Property; and, if in Seller’s possession, a copy of any “as-built”plans and specifications of the Improvements. Seller shall remove from the Property prior to the Closing all ComputerEquipment, all active delinquency files (excluding only those for currentresidents), all incident reports and all employment files.

 

**9.6                  Buyer’sClosing Documents and Other Items**.  At or before Closing, Buyer shall depositinto escrow the following items:

 

**9.6.1      **The balance of the Purchase Price and such additional funds as arenecessary to close this transaction;

 

**9.6.2      **Two (2) duly executed counterparts of the Bill of Sale;

 

**9.6.3      **Two (2) duly executed counterparts of the Assignment and Assumption ofLeases;

 

**9.6.4      **Two (2) duly executed counterparts of the Assignment and Assumption ofContract;

 

**9.6.5      **With respect to the assumption by Buyer of the Loan, such AssumptionDocuments to be delivered by Buyer and/or any Replacement Guarantor.

 

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**9.6.6      **Documentation to establish to Seller’s and Escrow Holder’s reasonablesatisfaction the due authority of Buyer’s acquisition of the Property and Buyer’sdelivery of the documents required to be delivered by Buyer pursuant to thisAgreement including, but not limited to, the organizational documents of Buyer,as they may have been amended from time to time, resolutions of Buyer andincumbency certificates of Buyer;

 

**9.6.7      **If applicable, duly completed and signed real estate transfer taxdeclarations;

 

**9.6.8      **Such other documents as may be reasonably required by the Title Company oras may be agreed upon by Seller and Buyer to consummate the purchase of theProperty as contemplated by this Agreement; and

 

**9.6.9      **Two (2) duly executed counterparts of the Closing Statement.

 

**9.7                 ****Prorations and Closing Costs.**

 

**9.7.1       Prorations**.

 

(a)           Seller and Buyer agree to adjust, asof 11:59 p.m. on the day immediately preceding the Closing Date (the “**Proration Time**”) on the then applicable six(6) month real property tax billing period, the following (collectively,the “**Proration Items**”):  real estate and personal property taxes andassessments (subject to the terms of Section 9.7.1(b) below),utility bills (except as hereinafter provided), and collected Rents (subject tothe terms of Section 9.7.1(b) below) payable by the owner ofthe Property.  Seller will be charged andcredited for the amounts of all of the Proration Items relating to the periodup to and including the Proration Time, and Buyer will be charged and creditedfor all of the Proration Items relating to the period after the Proration Time.Such preliminary estimated Closing prorations shall be set forth on apreliminary closing statement to be prepared by Seller and submitted to Buyerfor Buyer’s approval prior to the Closing Date (the “**Closing Statement**”). Seller agrees that twenty-four (24) hoursprior to the Closing, Seller will discontinue data entry operations in theon-site computer system, including making deposits of rental income and willforward final reports as soon as practicable to Buyer’s representative so as toenable Buyer and Seller to work together to transition the management of theProperty and complete work on prorations as set forth herein.   The Closing Statement, once agreed upon,shall be signed by Buyer and Seller and delivered to the Escrow Agent forpurposes of making the preliminary proration adjustment at Closing subject tothe final cash settlement provided for below. The preliminary proration shall be paid at Closing by Buyer to Seller(if the preliminary prorations result in a net credit to Seller) or by Sellerto Buyer (if the preliminary prorations result in a net credit to Buyer) byincreasing or reducing the cash to be delivered by Buyer in payment of thePurchase Price at the Closing.  If theactual amounts of the Proration Items are not known as of the Proration Time,the prorations will be made at Closing on the basis of the best evidence thenavailable; thereafter, when actual figures are received (not to exceed 120 daysafter closing), re-prorations will be made on the basis of the actual figures,and a final cash settlement will be made between Seller and Buyer.  No prorations will be made in relation toinsurance premiums, and Seller’s insurance policies will not be assigned toBuyer.  The provisions of this Section 9.7.1(a) willsurvive the Closing for a period of twelve (12) months.

 

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(b)           Buyer will receive a credit on theClosing Statement for the prorated amount (as of the Proration Time) of allRent previously paid to or collected by Seller and attributable to any periodfollowing the Proration Time.  Rents are “**Delinquent**” when they were due prior to theClosing Date, and payment thereof has not been made on or before the ClosingDate.  Delinquent Rents will not beprorated.  All sums collected by Buyerfrom and after Closing from each Tenant will be applied first to currentamounts owed by such Tenant and then to Delinquent Rent owed by such Tenant tothe extent not previously collected by Seller. Buyer shall deliver to Seller all Delinquent Rent collected hereunder ona monthly basis within five (5) days of the end of each calendar month.Buyer shall not have an exclusive right to collect any sums due Seller fromTenant under the Leases and Seller hereby retains the right to collect any sumsdue Seller from Tenants under the Leases for any sums due Seller for periodattributable to Seller’s ownership of the Property; provided, however, Sellershall not be permitted to commence or pursue any legal proceedings includingeviction against any current Tenant.  Theprovisions of this Section 9.7.1(b) will survive the Closing.

 

(c)           All ad valorem real estate and personalproperty taxes with respect to the Property shall be prorated as of theProration Time on a cash basis for the calendar year in which the Closingoccurs, regardless of the year for which such taxes are assessed.

 

(d)           Water, gas, steam, electricity andother public utility charges will be paid by the Seller to the utility companyto the Closing Date.  The Seller shallarrange for a final reading of all utility meters (covering gas, water, steamand electricity) as of the Closing.  Tothe extent required by the applicable utility company to maintain continuity ofservice to the Property, Seller and Buyer shall jointly execute a letter toeach of such utility companies advising such utility companies of thetermination of the Seller’s responsibility for such charges for utilitiesfurnished to the Property as of the date of the Closing and commencement of theBuyer’s responsibilities therefor from and after such date.  If a bill is obtained from any such utilitycompany as of the Closing, then Seller shall pay such bill on or before theClosing.  If such bill shall not havebeen obtained on or before the Closing, then Seller shall, upon receipt of suchbill, pay all such utility charges as evidenced by such bill or billspertaining to the period prior to the Closing, and the Buyer shall pay all suchutility charges pertaining to the period thereafter.  Any bill which shall be rendered which shallcover a period both before and after the date of Closing shall be apportionedbetween the Buyer and the Seller as of the Closing.  Seller will be entitled to all depositspresently in effect with the utility providers, and Buyer will be obligated tomake its own arrangements for deposits with the utility providers.

 

(e)           Revenues (but not up-front payments),if any, arising out of telephone booths, vending machines, washing machines orother income-producing agreements shall be adjusted and prorated on an if, asand when collected basis.

 

(f)            Buyer shall receive a credit againstthe Purchase Price at Closing for all Tenant Deposits then outstanding underthe Leases and for all Rent paid in advance (to the extent not prorated as setforth in (b) above).  As of theClosing, Buyer shall assume Seller’s obligations related to the TenantDeposits.  Buyer shall indemnify, defend,and hold Seller harmless from and against all demands and claims made byTenants arising out of the 

 

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transferor disposition of such Tenant Deposits transferred to Buyer.  The provisions of this Section 9.7.1(f) shallexpressly survive the Closing.

 

(g)           Buyer shall receive a credit againstthe Purchase Price at Closing for all payments due or owing under any ApprovedContracts for periods prior to the Closing Date, which amounts shall beprorated as of the Proration Time.  IfSeller has paid any amounts under any Approved Contracts for periods after theProration Time, Buyer shall pay such amounts to Seller at Closing in additionto the Purchase Price.

 

(h)           Seller shall receive a credit for anyand all Reimbursable Lease Expenses as set forth in Section 8.2 ofthis Agreement, to the extent that the same have been paid by Seller prior toClosing.  Each party shall make availableto the other all Commission Agreements, records, bills, vouchers and other datain such party’s control verifying Reimbursable Lease Expenses and the paymentthereof.

 

**9.7.2       ClosingCosts**.  Seller shallpay (a) the county and city transfer taxes, and (b) costs and chargescustomarily charged to sellers in accordance with common escrow practices inthe county in which the Property is located, other than those costs and chargesspecifically required to be paid by Buyer hereunder.  Buyer shall pay (a) the premiumassociated with the issuance of the Title Policy including, without limitation,the premium of any extended coverage, any coverage in excess of the PurchasePrice and all endorsements Buyer may require in accordance with Section 4.4,(b) Escrow Agent’s costs and fees, (c) the recording fees required inconnection with the transfer of the Property to Buyer, and (d) anyadditional costs and charges customarily charged to buyers in accordance withcommon escrow practices in the county in which the Property is located, otherthan those costs and charges specifically required to be paid by Sellerhereunder.

 

**9.8                  Broker**.  Buyer hereby represents andwarrants to Seller that (a) Broker is only representing Seller in thistransaction, (b) it did not employ or use any broker or finder to arrangeor bring about this transaction, and (c) there are no claims or rights forbrokerage commissions or finder’s fees in connection with the transactionscontemplated by this Agreement, other than the commission (“**Broker’s Commission**”) required to be paidby Seller to Broker pursuant to a separate agreement between Seller andBroker.  Seller hereby represents andwarrants to Buyer that Seller has not employed any broker with respect to thistransaction, other than Broker, and Seller shall only pay the Broker’sCommission.  If any person brings a claimfor a commission or finder’s fee based upon any contact, dealings, orcommunication with Buyer in connection with the transactions contemplated bythis Agreement, other than Broker, then Buyer shall defend Seller from suchclaim, and shall indemnify Seller and hold Seller harmless from any and allcosts, damages, claims, liabilities, or expenses (including, withoutlimitation, reasonable attorneys’ fees and disbursements) incurred by Sellerwith respect to the claim. If any person brings a claim for a commission orfinder’s fee against Buyer based upon any contact, dealings, or communicationwith Seller in connection with the transactions contemplated by this Agreement,other than Broker, then Seller shall defend Buyer from such claim, and shallindemnify Buyer and hold Buyer harmless from any and all costs, damages,claims, liabilities, or expenses (including, without limitation, reasonableattorneys’ fees and disbursements) incurred by Buyer with respect to theclaim.  The provisions of this Section 9.8

 

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shallsurvive the Closing or, if the purchase and sale is not consummated, anytermination of this Agreement.

 

**ARTICLE 10**

 

**MISCELLANEOUS**

 

**10.1                Amendmentand Modification**. This Agreement may be amended, modified, or supplemented only by awritten agreement signed by Buyer and Seller.

 

**10.2               ****Risk of Loss and Insurance Proceeds**.

 

**10.2.1     MinorLoss**.  Buyer shallbe bound to purchase the Property for the full Purchase Price as required bythe terms hereof, without regard to the occurrence or effect of any damage tothe Property or destruction of any improvements thereon or condemnation of anyportion of the Property, provided that: (a) the cost to repair any suchdamage or destruction, or the diminution in the value of the remaining Propertyas a result of a partial condemnation, equals $500,000 or less, and (b) uponthe Closing, there shall be a credit against the Purchase Price due hereunderequal to the amount of any insurance proceeds (other than business interruptionor rental loss insurance applicable to the period prior to Closing) orcondemnation awards collected by Seller as a result of any such damage ordestruction or condemnation, plus the amount of any insurance deductible, lessany sums expended by Seller directly toward the restoration or repair of theProperty.  If the proceeds or awards havenot been collected as of the Closing, then such proceeds (including businessinterruption or rental loss insurance of Seller which would be applicable toany period subsequent to Closing) or awards shall be assigned to Buyer, exceptto the extent needed to reimburse Seller for sums expended prior to the Closingto repair or restore the Property, without a reduction of the Purchase Price.

 

**10.2.2     MajorLoss**.  If theamount of the damage or destruction or condemnation as specified above exceeds$500,000, then Buyer may at its option, to be exercised by written notice toSeller within ten (10) business days of Seller’s notice of the occurrenceof the damage or destruction or the commencement of condemnation proceedings,terminate this Agreement.  Buyer’sfailure to elect to terminate this Agreement within said ten (10) businessday period shall be deemed an election by Buyer to consummate this purchase andsale transaction.  If Buyer elects toterminate this Agreement within such ten (10) business day period, thenthe Deposit shall be returned to Buyer and neither party shall have any furtherrights or obligations hereunder except as expressly provided elsewhere in thisAgreement.  If Buyer elects or is deemedto have elected to proceed with the purchase, then upon the Closing, thereshall be a credit against the Purchase Price due hereunder equal to the amountof any insurance proceeds (other than business interruption or rental lossinsurance applicable to the period prior to Closing) or condemnation awardscollected by Seller as a result of any such damage or destruction orcondemnation, plus the amount of any insurance deductible, less any sumsexpended by Seller directly toward the restoration or repair of theProperty.  If the proceeds or awards havenot been collected as of the Closing, then such proceeds (including businessinterruption or rental loss insurance of Seller which would be applicable toany period subsequent to Closing) or awards shall be assigned to Buyer, exceptto the extent needed to 

 

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reimburseSeller for sums expended prior to the Closing to repair or restore theProperty, without a reduction to the Purchase Price.

 

**10.2.3    ****Insurance Proceeds Assignment**.  With respect to therequirement of Seller under Sections 10.2.1 and 10.2.2 above, toassign to Buyer the right to receive insurance awards and payments to be dueSeller, Seller agrees that in the event that Seller’s insurance carrier(s) donot permit assignment thereof to Buyer, Seller agrees to request and obtainfrom the insurance carrier(s) a “policy endorsement” whereby Buyer shallbe added as a “loss payee” under the Seller’s policies effective as of theClosing Date.  Thereafter, Seller shalluse its good faith efforts to promptly pursue on behalf of Buyer and for Buyer’sbenefit such unpaid awards and payments including any payments under businessinterruption or rental loss insurance applicable to any period subsequent toClosing.

 

**10.3                Notices**.  All notices required or permittedhereunder shall be in writing and shall be served on the parties at thefollowing address:

 
| If  to Seller:   |   | Acacia  on Santa Rosa Creek, LLC              |
|------------------|--------|-----------------------------------------------|
|             |   | c/o  Shea Properties                          |
|             |   | 130  Vantis, Ste. 200                         |
|             |   | Aliso  Viejo, CA 92656                        |
|             |   | Attn:  Kirk Roloff                            |
|             |   | Facsimile:  (949) 389-7434                    |
|             |   | E-mail:  kirk.roloff@sheaproperties.com       |
|             |   |                                          |
| With  copies to: |   | Acacia  on Santa Rosa Creek, LLC              |
|             |   | c/o  Shea Properties                          |
|             |   | 130  Vantis, Ste. 200                         |
|             |   | Aliso  Viejo, CA 92656                        |
|             |   | Attn:  Julia Guizan, Esq.                     |
|             |   | Facsimile:  (949) 389-7466                    |
|             |   | E-mail:  julie.guizan@jfshea.com              |
|             |   |                                          |
| and  to:         |   | Miller  Starr Regalia                         |
|             |   | 1331  N. California Blvd., Fifth Flr.         |
|             |   | Walnut  Creek, CA 94596                       |
|             |   | Attn:  Hans Lapping, Esq.                     |
|             |   | Facsimile:  (925) 933-4126                    |
|             |   | E-mail:  hl@msrlegal.com                      |
|             |   |                                          |
| If  to Buyer:    |   | Behringer  Harvard Multifamily OP I LP        |
|             |   | 15601  Dallas Parkway, #600                   |
|             |   | Addison,  Texas 75001                         |
|             |   | Attn:  Mark T. Alfieri, Senior Vice President |
|             |   | Facsimile:  (214) 655-1610                    |
|             |   | E-mail:  malfieri@behringerharvard.com        |

 

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| with  Copies to:     |   | Robert  L. Abbott PC                                                   |
|----------------------|--------|------------------------------------------------------------------------|
|                 |   | 2828  Routh Street, Suite 500                                          |
|                 |   | Dallas,  Texas 75201                                                   |
|                 |   | Attn:  Robert L. Abbott, Esq.                                          |
|                 |   | Facsimile:  (214) 849-9823                                             |
|                 |   | E-mail:  abbott@rabbottpc.com                                          |
|                 |   |                                                                   |
| If  to Escrow Agent: |   | Partners  Title Company                                                |
|                 |   | 712  Main Street, Suite 2000E                                          |
|                 |   | Houston,  Texas 77002-3218                                             |
|                 |   | Attn:  Reno Hartfiel, Executive VP/                                    |
|                 |   |          General  Counsel |
|                 |   | Facsimile:  (713) 238-9199                                             |
|                 |   | E-mail:  rhartfiel@partnerstitle.com                                   |

 

Any such notices may be sentby (a) certified mail, return receipt requested, in which case noticeshall be deemed delivered five (5) business days after deposit, postageprepaid in the U.S. mail, (b) a nationally recognized overnight courier,in which case notice shall be deemed delivered one (1) business day afterdeposit for next business day delivery with such courier, (c) facsimiletransmission, in which case notice shall be deemed delivered upon electronicverification that transmission to recipient was completed, (d) electronicmail transmission, in which case notice shall be deemed delivered upontransmission so long as the sender does not receive a notification of adelivery error and, provided, further, that a copy of such transmission isconcurrently sent to the recipients by another of the methods for notice setforth above.  The above addresses,facsimile numbers and e-mail addresses may be changed by written notice to theother party; provided that no notice of a change of address or facsimile numbershall be effective until actual receipt of such notice.

 

**10.4                Assignment**.  Buyer shall not have the right toassign this Agreement, without the prior written consent of Seller whichconsent Seller may withhold in its sole and absolute discretion.  Notwithstanding the foregoing or any otherprovision hereof, Buyer may assign, upon written notice to Seller (a) itsinterests herein to an affiliate of Buyer or direct or indirect subsidiary ofBuyer, or (b) any entity in which Buyer, or the principals thereof, havecontrol as defined herein, or (c) its rights (but not obligations) hereinto any party which is not an Affiliate for the purposes of effectuating anexchange of properties under Section 1031 of the Code, provided that anysuch assignment does not relieve Buyer of its obligations hereunder.  For purposes of this Section 10.4,an “affiliate of Buyer” means (i) any entity that controls, is controlledby, or is under common control, with the entity in question, or (ii) anyinvestment program or any of its affiliates or direct or indirect subsidiaries,sponsored by Behringer Harvard Holdings, LLC.  The term “control” meansthe possession, directly or indirectly, of the power to direct or cause thedirection of the management and policies of an entity, whether through theownership of voting securities or otherwise. This Agreement will be binding upon andinure to the benefit of Seller and Buyer and their respective successors andpermitted assigns, and no other party will be conferred any rights by virtue ofthis Agreement or be entitled to enforce any of the provisions hereof.  Whenever a reference is made in thisAgreement to Seller or Buyer, 

 

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suchreference will include the successors and permitted assigns of such party underthis Agreement.

 

**10.5                GoverningLaw and Consent to Jurisdiction**.  THIS AGREEMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS ORCHOICE OF LAWS.  ANY ACTION ARISING OUTOF THIS AGREEMENT MUST BE COMMENCED BY BUYER OR SELLER IN THE STATE COURTS OFTHE STATE OF CALIFORNIA OR IN U.S. FEDERAL COURT FOR THE NORTHERN DISTRICT OFCALIFORNIA AND EACH PARTY HEREBY CONSENTS TO THE JURISDICTION OF THE ABOVECOURTS IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OFCALIFORNIA.  ANY PROCESS IN ANY SUCHACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TOTHE PARTIES AT THEIR RESPECTIVE ADDRESS DESCRIBED IN SECTION 10.3HEREOF.

 

**10.6                Counterparts**.  This Agreement may be executed intwo or more fully or partially executed counterparts, each of which will bedeemed an original binding the signer thereof against the other signingparties, but all counterparts together will constitute one and the sameinstrument.

 

**10.7                Exhibits;Entire Agreement**. The parties agree that all exhibits and schedules attached hereto areincorporated herein. The parties further agree that this Agreement and allother documents furnished or to be furnished pursuant to the provisions hereofembody the entire agreement and understanding of the parties hereto as to thesubject matter contained herein.  Thereare no restrictions, promises, representations, warranties, covenants, or undertakingsother than those expressly set forth or referred to in such documents.  This Agreement and such documents supersedeall prior agreements and understandings among the parties with respect to thesubject matter hereof.

 

**10.8                Severability**.  Any term or provision of thisAgreement that is invalid or unenforceable in any jurisdiction will, as to suchjurisdiction, be ineffective to the extent of such invalidity orunenforceability without rendering invalid or unenforceable the remaining termsand provisions of this Agreement, or affecting the validity or enforceabilityof any of the terms or provisions of this Agreement.

 

**10.9                AttorneyFees**.  If anyaction is brought by any party to this Agreement to enforce or interpret itsterms or provisions, the prevailing Party will be entitled to reasonableattorneys’ fees and costs incurred in connection with such action prior to andat trial and on any appeal therefrom. Except as expressly provided in this Agreement, each party to thisAgreement will be responsible for, and will pay, all of its own fees andexpenses, including those of its counsel and accountants, incurred in thenegotiation, preparation, and consummation of this Agreement and thetransaction contemplated hereunder including, without limitation, in the caseof Buyer, all third-party engineering and environmental review costs and allother Due Diligence costs.

 

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**10.10              Waiverof Consequential and Punitive Damages**.  NOTWITHSTANDING ANYTHING TO THE CONTRARYCONTAINED HEREIN, IN NO EVENT SHALL EITHER SELLER OR BUYER OR ANY AFFILIATE OFSELLER OR BUYER OR THEIR RESPECTIVE MEMBERS, PARTNERS, SHAREHOLDERS, DIRECTORS,OFFICERS, MANAGERS, EMPLOYEES OR AGENTS BE LIABLE FOR ANY INDIRECT,CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES (INCLUDING BUT NOT LIMITED TODAMAGES FOR LOST PROFITS AND LOSS OF BUSINESS INFORMATION) ARISING OUT OF THETRANSACTION CONTEMPLATED HEREIN, EVEN IF SELLER OR BUYER OR ANY SUCH PARTY HASBEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

**10.11              ConfidentialInformation; Confidentiality. **The parties acknowledge that the transactiondescribed herein is of a confidential nature and, prior to Closing, shall notbe disclosed except (a) with the prior written consent of Seller (whichconsent may be withheld in Seller’s sole and absolute discretion), (2) tothe extent that such document or information is or becomes publicly availableother than the result of Buyer’s breach of this Agreement, (b) to thePermitted Outside Parties; (c) as may be necessary for Buyer or Buyer’srepresentatives to comply with applicable laws, including, without limitation,governmental regulatory, disclosure (including SEC rules), tax and reportingrequirements, to comply with other requirements of regulatory and supervisoryauthorities and self-regulatory organizations having jurisdiction over Buyer orBuyer’s representatives; or to comply with regulatory or judicial processes; or(d) as may be necessary in order to assume the Loan.  Except as set forth above, no party shallmake any public disclosure of the specific terms of this Agreement.  In connection with the negotiation of thisAgreement and the preparation for the consummation of the transactionscontemplated hereby, each party acknowledges that it will have access toconfidential information relating to the other party.  Each party shall treat such information asconfidential, preserve the confidentiality thereof, and not duplicate or usesuch information, except to Permitted Outside Parties in connection with thetransactions contemplated hereby.  In theevent of the termination of this Agreement for any reason whatsoever, Buyershall return to Seller, all documents relating to Seller, the Property or thetransactions contemplated by this Agreement including, without limitation, theDue Diligence Items, work papers, engineering and environmental studies andreports and all other materials (including all copies thereof obtained fromSeller in connection with the transactions contemplated hereby), and each partyshall use its best efforts, including instructing its employees and others whohave had access to such information, to keep confidential and not to use anysuch information.  Except as required byapplicable law, neither party shall issue any press release or make anystatement to the media in violation of the above restrictions without the otherparty’s consent, which consent shall not be unreasonably withheld.  The provisions of this Section shallsurvive the Closing or, if the purchase and sale is not consummated, anytermination of this Agreement.

 

**10.12              NoJoint Venture**. Nothing set forth in this Agreement shall be construed to create a jointventure between Buyer and Seller.

 

**10.13              LimitedLiability**. Neither the members, managers, employees nor agents of Seller, nor theshareholders, officers, directors, employees or agents of any of them shall beliable under this Agreement and all parties hereto shall look solely to theassets of Seller for the payment of any claim or the performance of any obligationby Seller.

 

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** **

**10.14              GovernmentalApprovals**. Nothing contained in thisAgreement shall be construed as authorizing Buyer to apply for a zone change,variance, subdivision maps, lot line adjustment, condominium conversions orother discretionary governmental act, approval or permit with respect to theProperty prior to the Close of Escrow, and Buyer agrees not to do so withoutSeller’s prior written approval, which approval may be withheld in Seller’ssole and absolute discretion.  Buyeragrees not to submit any reports, studies or other documents, including,without limitation, plans and specifications, impact statements for water,sewage, drainage or traffic, environmental review forms, or energy conservationchecklists to any governmental agency, or any amendment or modification to anysuch instruments or documents prior to the Close of Escrow unless firstapproved by Seller, which approval Seller may withhold in Seller’s solediscretion.  Buyer’s obligation topurchase the Property shall not be subject to or conditioned upon Buyer’sobtaining any variances, zoning amendments, subdivision maps, lot lineadjustment, or other discretionary governmental act, approval or permit.

 

**10.15              Time of Essence**.  Time is of the essence of thisAgreement.

 

**10.16              No Waiver**.  No waiver of any of the provisionsof this Agreement shall be deemed, or shall constitute, a waiver of any otherprovision, whether or not similar, nor shall any waiver constitute a continuingwaiver, nor shall a waiver in any instance constitute a waiver in any subsequentinstance.  No waiver shall be bindingunless executed in writing by the party making the waiver.

 

**10.17              Counting of Days.**  Unless otherwise expresslyspecified in this Agreement, in computing any period of time described in thisAgreement, the day of the act or event after which the designated period oftime begins to run is not to be included and the last day of the period socomputed is to be included, unless such last day is a Saturday, Sunday or legalholiday under the laws of the State in which the Property is located, in whichevent the period shall run until the end of the next day which is neither aSaturday, Sunday or legal holiday.  Thefinal day of any such period shall be deemed to end at 5:00 p.m. PacificTime.

 

**10.18              ElectronicSignatures**. Signatures to this Agreement, any amendment hereof and any notice givenhereunder, transmitted by telecopy or electronic mail shall be valid andeffective to bind the party so signing. Each party agrees to promptly deliver an execution original of thisAgreement (and any amendment hereto) with its actual signature to the otherparty, but a failure to do so shall not affect the enforceability of thisAgreement (or any amendment hereto), it being expressly agreed that each partyto this Agreement shall be bound by its own telecopied or e-mailed signatureand shall accept the telecopied or e-mailed signature of the other party tothis Agreement.

 

**10.19              No Reservation ofProperty.** The preparation and/or delivery of unsigned drafts of this Agreementshall not create any legally binding rights in the Property and/or obligationsof the parties, and Buyer and Seller acknowledge that this Agreement shall beof no effect until it is duly executed by both Buyer and Seller.

 

**10.20              Natural HazardDisclosure**. Buyer and Seller acknowledge that Seller may be required to disclose ifthe property lies within the following natural hazard areas or zones:  (i) a special flood hazard areadesignated by the Federal Emergency Management 

 

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Agency (California Civil Code Section 1103(c)(1));(ii) an area of potential flooding (California Government Code Section 8589.4);(iii) a very high fire hazard severity zone (California Government Code Section 51178et seq.); (iv) a wild land area that may contain substantial forest firerisks and hazards (Public Resources Code Section 4135; (v) earthquakefault zone (Public Resources Code Section 2622); or (vi) a seismichazard zone (Public Resources Code Section 2696) (sometimes all of thepreceding are herein collectively called the “**NaturalHazard Matters**”). Accordingly, Seller shall provide Buyer with a natural hazard disclosurereport (the “**Natural Hazard Disclosure Statement**”)prepared by a professional consulting firm (the “**NaturalHazard Expert**”) relating to the Property no later than three (3) daysafter the Effective Date.  Buyerexpressly acknowledges and agrees that (a) the Natural Hazard DisclosureStatement prepared by the Natural Hazard Expert will fully and completely dischargeSeller from its disclosure obligations referred to herein, if and to the extentany such obligations exist, (b) for the purpose of this Agreement, theprovisions of Civil Code section 1103.4 regarding non-liability of Seller forerrors or omissions not within its personal knowledge shall be deemed to apply,and (c) the Natural Hazard Expert shall be deemed to be an expert, dealingwith matters within the scope of its expertise with respect to the examinationand written report regarding the natural hazards referred to above.  Buyer agrees to provide Seller with a writtenacknowledgment of its receipt of the Natural Hazard Disclosure Statement.

 

**10.21             ****Third Party Beneficiaries**.  This Agreement is not intended to give orconfer any benefits, rights, privileges, claims, actions, or remedies to anyperson or entity as a third party beneficiary or otherwise.

 

**10.22             ****Resolution of Disputes**.  With the exception of a Specific PerformanceAction, any dispute, controversy or claim arising out of or relating to thisAgreement, including any dispute relating to interpretation of or performanceunder this Agreement (“**Dispute**”),shall be resolved in the manner set forth in this Section, which shall be inlieu of any form of litigation in any court, and the parties specificallywaive, to the fullest extent permitted under Applicable Law, any right to ajury trial of any Dispute between them.

 

**10.22.1 ****Negotiation**.  The partieswill attempt in good faith to resolve the Dispute promptly by negotiationsbetween senior representatives of the parties who have authority to settle theDispute (each a “**Representative**”).

 

**10.22.2 ****Mediation**.  If theRepresentatives are unable to resolve the Dispute through negotiation, theparties agree first to try in good faith to resolve the dispute by mediationadministered by the American Arbitration Association (“**AAA**”) under its Commercial MediationProcedures then in effect before resorting to arbitration pursuant to Section 10.22.3,below.

 

**10.22.3  Judicial Reference. **In the event the Representativesare not able to resolve the Dispute within 30 days following the date one partyfirst notifies the other party of the Dispute in writing, then the Disputeshall be resolved by general judicial reference pursuant to Code of CivilProcedure Sections 638 and 641 through 645.1, or any successor statutesthereto, and as modified or as otherwise provided in this Section.  Subject to the limitations set forth in thisSection, the general referee shall have the authority to try all issues,whether of fact or law, and to report a statement of decision to thecourt.  The referee shall be the onlytrier of 

 

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fact or law in the reference proceeding, and shallhave no authority to further refer any issues of fact or law to any otherparty, without the mutual consent of all parties to the judicial referenceproceeding.

 

(a)           **Place**.  The proceedings shall be heard in OrangeCounty, California.

 

(b)           **Referee**.  The referee shall be a retired judge withexperience in relevant real estate matters. The referee shall not have any relationship to the parties to theDispute or interest in the Property.  Theparties to the Dispute participating in the judicial reference shall meet toselect the referee within ten (10) days after service of the Notice ofDispute or initial complaint on all defendants named therein.  Any dispute regarding the selection of thereferee shall be promptly resolved by the judge to whom the matter is assigned,or if there is none, to the presiding judge of the Superior Court of OrangeCounty who shall select the referee.

 

(c)           **Commencement and Timing ofProceeding**.  The referee shallpromptly commence the proceeding at the earliest convenient date in light ofall of the facts and circumstances and shall conduct the proceeding withoutundue delay.

 

(d)           **Pre-hearing Conferences**.  The referee may require one or morepre-hearing conferences.

 

(e)           **Discovery**.  The parties to the judicial referenceproceeding shall be entitled only to limited discovery, consisting of theexchange between such parties of only the following matters:  (i) witness lists; (ii) expertwitness designations; (iii) expert witness reports; (iv) exhibits; (v) reportsof testing or inspections of the property subject to the Dispute, including butnot limited to, destructive or invasive testing; and (vi) trialbriefs.  Any other discovery provided forin the California Code of Civil Procedure shall be permitted by the refereeupon a showing of good cause or based on the mutual agreement of the parties tothe judicial reference proceeding.  Thereferee shall oversee discovery and may enforce all discovery orders in thesame manner as any trial court judge

 

(f)            **Motions**.  The referee shall have the power to hear anddispose of motions, including motions relating to provisional remedies,demurrers, motions to dismiss, motions for judgment on the pleadings andsummary adjudication motions, in the same manner as a trial court judge, exceptthe referee shall also have the power to adjudicate summarily issues of fact orlaw including the availability of remedies, whether or not the issueadjudicated could dispose of an entire cause of action or defense.  Notwithstanding the foregoing, if prior tothe selection of the referee as provided herein, any provisional remedies aresought by the parties to the Dispute, such relief may be sought in the SuperiorCourt of Orange County, California.

 

(g)           **Rules of Law**.  The referee shall apply the laws of the Stateof California except as expressly provided herein including the rules ofevidence, unless expressly waived by all parties to the judicial referenceproceeding.

 

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(h)           **Record**.  A stenographic record of the hearing shall bemade, provided that the record shall remain confidential except as may benecessary for post-hearing motions and any appeals.

 

(i)            **Statement of Decision**.  The referee’s statement of decision shallcontain findings of fact and conclusions of law to the extent required by lawif the case were tried to a judge.  Thedecision of the referee shall stand as the decision of the court, and uponfiling of the statement of decision with the clerk of the court, judgment maybe entered thereon in the same manner as if the Dispute had been tried by thecourt.

 

(j)            **Post-hearing Motions**.  The referee shall have the authority to rule onall post-hearing motions in the same manner as a trial judge.

 

(k)           **Appeals**.  The decision of the referee shall be subjectto appeal in the same manner as if the Dispute had been tried by the court.

 

(l)            **Expenses**.  The fees and costs of the referee in anyjudicial reference proceeding hereunder shall be shared equally by the partiesto the judicial reference proceeding, subject to Section 10.9.

 

**WAIVER OF LEGAL RIGHTS.  BY INITIALING IN THE SPACE BELOW, THE PARTIESACKNOWLEDGE AND AGREE TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDEDOR DESCRIBED IN THIS ARTICLE DECIDED BY JUDICIAL REFERENCE AS PROVIDED UNDERCALIFORNIA LAW AND THAT THEY ARE WAIVING ANY RIGHTS THEY MAY POSSESS TOHAVE THE DISPUTE LITIGATED IN A COURT OR BY JURY TRIAL.  THE PARTIES FURTHER ACKNOWLEDGE AND AGREETHAT THEY ARE WAIVING THEIR JUDICIAL RIGHTS TO DISCOVERY EXCEPT TO THE EXTENTSUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THIS ARTICLE.  IF EITHER PARTY REFUSES TO SUBMIT TO JUDICIALREFERENCE AFTER EXECUTION OF THIS AGREEMENT AND INITIALING BELOW, SUCH PARTY MAY BECOMPELLED TO PROCEED WITH JUDICIAL REFERENCE UNDER THE AUTHORITY OF THECALIFORNIA CODE OF CIVIL PROCEDURE.  EACHPARTY’S AGREEMENT TO THIS ARTICLE IS VOLUNTARY. THE PARTIES HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMITDISPUTES ARISING OUT OF THE MATTERS INCLUDED OR DESCRIBED IN THIS ARTICLE TOJUDICIAL REFERENCE.**

 
|   | /s/  KR |  Seller’s Initials | /s/  MA |  Buyer’s Initials |
|--------|---------|------------------------------|---------|-----------------------------|

 

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**10.23             ****Prohibitionof Condominium Conversion**. Buyer represents, warrants and covenants to Seller that, to the fullestextent permitted by law, Buyer shall not, for a period of ten (10) yearsfrom April 24, 2003, the date of completion of construction of theImprovements (the “**Completion Date**”),convert the Property into condominiums or similar forms of subdividedownership.  In connection with theforegoing, Buyer further agrees that (a) the prohibition against condominiumconversions is reasonable under the circumstances existing as of the EffectiveDate, (b) if Buyer sells or otherwise transfers the Property within ten (10) yearsof the Completion Date, then Buyer shall notify its buyer in writing of thisrestriction and include a similar prohibition against condominium conversionsin any purchase and sale or similar agreement to so transfer the Property, (c) Buyershall indemnify, defend, protect and hold Seller and its Affiliates harmless,from any and all Losses resulting from Buyer’s breach of the representation,warranty and covenant contained in this Section 10.23, (d) withoutin any way limiting the materiality of the other provisions of this Agreement,the provisions of this Section 10.23 are material and included as amaterial portion of the consideration given by Buyer to Seller in exchange forSeller’s performance under this Agreement, (e) Buyer acknowledges thatSeller has given Buyer material concessions regarding this transaction inexchange for Buyer agreeing to the provisions of this Section 10.23,and (f) Buyer’s obligations under this Section 10.23 shallexpressly survive the Closing and the deliver of the Deed.  In addition, Buyer acknowledges and agreesthat its breach of the terms and conditions of this Section 10.24will constitute immediate and irreparable damage to the Seller, which cannot befully and adequately compensated in money damages and which will warrantpreliminary and other injunctive relief, an order for specific performance, andother equitable relief.  In connectionwith the foregoing, Buyer further agrees that no bond or other security shallbe required in obtaining such equitable relief and Buyer hereby consent to theremedy of an injunction or specific performance to the extent Seller isentitled thereto.  Buyer acknowledgesthat Seller’s remedies hereunder are cumulative and other action may be takenand remedies enforced against it in the event of a breach of this Section.  At the Closing, Buyer and Seller shall recorda memorandum of agreement (the “Memorandum”) evidencing Buyer’sagreements set forth herein.

 

**10.24             ****Rule 3-14Audit**.  Seller acknowledges that underRule 3-14 of Regulation S-X, Buyer is required to obtain certaininformation in connection with reports Buyer is required to file with theSecurities and Exchange Commission. Accordingly, subject to the terms and conditions of this Section 10.24,Seller agrees to use commercially reasonable efforts to cooperate with Buyer’sauditors in the preparation of such audited financial statements.  In furtherance of the foregoing, (a) Sellershall, during normal business hours and upon not less than three (3) businessdays’ prior written notice, allow Buyer’s auditors reasonable access to suchbooks and records maintained by Seller and Property Manager exclusively inrespect of the Property solely to the extent necessary to prepare and file suchaudited financial statements in compliance with Rule 3-14 of RegulationS-X; and (b) if Seller has audited financial statements with respect tothe Property, Seller shall provide Buyer’s auditors with a copy of such auditedfinancial statements; provided, however, that Buyer expressly acknowledges andagrees that if Seller does not have audited financial statements with respectto the Property, Seller shall be under no obligation to cause such auditedfinancial statements to be prepared. Seller’s obligation to cooperate shall survive the Closing for a periodof three (3) years.  Inconsideration of the foregoing, Buyer agrees that Buyer shall indemnify,defend, protect and hold harmless Seller, Property Manager and their respectiveAffiliates, partners, shareholders, members, officers, directors, managers,agents, and employees from and against any and all Losses of any kind or 

 

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nature, arising out of or in any way connected withSeller’s provision of the materials required by this Section 10.24,including without limitation lawsuits by shareholders or regulators or anyother persons whatsoever. Notwithstanding anything to the contrary contained herein, Seller shallonly be obligated to provide to Buyer Seller’s accounting information at theProperty level, and shall not be obligated to provide any informationconcerning Seller’s capital structure or non-property related debt or any ofthe following: (i) information contained in Seller’s credit reports,credit authorizations, credit or financial analyses or projections, investmentanalyses, account summaries or other documents prepared solely for Seller’sinternal purposes and not directly related to the operation of the Property,including any valuation documents and information regarding the value of theProperty and the price paid by Seller therefor; (ii) material which issubject to attorney-client privilege or which is attorney work product; (iii) salescontracts, appraisal reports, letters or loan matters; (iv) financialstatements or information relating to Seller or any Affiliate of Seller otherthan those at the Property level; (v) Seller’s tax returns; or (vi) materialwhich Seller is legally or contractually required to maintain asconfidential.  Notwithstanding anythingto the contrary set forth herein, Buyer expressly agrees that Seller’s deliveryof any information under this Section 10.24 (X) shall besubject to the terms and conditions of Section 10.11, above; (Y) doesnot in any manner increase any liability of Seller under this Agreement, or (Z) obviateor waive the “AS IS” provisions of Section 7.2.2, above.  Subject to the terms of this Section 10.24,Seller’s and Buyer’s respective obligation under this Section 10.24shall expressly survive the Closing and the delivery of the Deed.

 

[Signature Page ToFollow]

 

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**IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to be duly executed as ofthe Agreement Date.

 
| **SELLER:** | **ACACIA ON SANTA ROSA CREEK,  LLC,**  a California limited liability company |
|-------------|-------------------------------------------------------------------------------|
| ** **  | ** **                                                                    |
|        | By:                                                                           | Shea Properties Management  Co., Inc., |
|        |                                                                          | a Delaware corporation |
|        | Its:                                                                          | Manager |
|        |                                                                          |   |
|        |                                                                          | By: | /s/ Kirk Roloff |
|        |                                                                          | Name: | Kirk Roloff |
|        |                                                                          | Its: | Assistant Secretary |
|        |                                                                          |   |   |
|        |                                                                          | By: | /s/ Colm Macken |
|        |                                                                          | Name: | Colm Macken |
|        |                                                                          | Its: | Vice President |

 

[SignaturePage Continued On Following Page]

 

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| **BUYER:** | **BEHRINGER HARVARD MULTIFAMILY  OP I LP,**a Delaware limited partnership |
|------------|---------------------------------------------------------------------------|
|       |                                                                      |   |
|       | By:                                                                       | BHMF, Inc., a Delaware  corporation, |
|       |                                                                      | its general partner |
|       |                                                                      |   |
|       |                                                                      | By: | /s/ Mark T. Alfieri |
|       |                                                                      | Name: | Mark T. Alfieri |
|       |                                                                      | Its: | Chief Operating Officer |

 

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**ESCROWAGENT:**

** **

The Escrow Agent is executing this Agreement toevidence its agreement to hold the Deposit and act as escrow agent inaccordance with the terms and conditions of this Agreement.  Escrow Agent certifies that it is inpossession of a fully executed counterpart original or copy of the Agreementthis 12 day of October, 2009 and that this date shall be deemed the “EffectiveDate” for purposes of this Agreement.

 
|   |   | **PARTNERS TITLE COMPANY** |
|--------|--------|----------------------------|
|   |   |                       |   |
|   |   |                       |   |
|   |   | By:                        | /s/ Carol Gonzales |
|   |   | Name:                      | Carol Gonzales |
|   |   | Title:                     | Escrow Officer |

 

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