Document:

Exhibit
10.9

 

OPTION AGREEMENT

by and among

BEHRINGER HARVARD ALEXAN NEVADA, LLC

and

SW 108 WAGON WHEEL JM LLC

September 29, 2006

 

 

TABLE OF
CONTENTS

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I. PURCHASE OF THE WAGON WHEEL MEMBERSHIP
  INTEREST

  	
  2

  
	
  1.1

  	
  Exercise of Purchase Option or Put Option.

  	
  2

  
	
  1.2

  	
  Purchase Price.

  	
  3

  
	
  1.3

  	
  Closing Prorations and Purchase Price
  Adjustments.

  	
  4

  
	
  1.4

  	
  Conditions to the Closing.

  	
  5

  
	
  1.5

  	
  Closing Deliveries of Seller.

  	
  6

  
	
  1.6

  	
  Closing Deliveries of Purchaser.

  	
  7

  
	
  1.7

  	
  Actions of the Parties Pending Closing.

  	
  7

  
	
  1.8

  	
  Termination Prior to Closing.

  	
  10

  
	
  1.9

  	
  Casualty.

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER

  	
  12

  
	
  2.1

  	
  Existence; Good Standing.

  	
  12

  
	
  2.2

  	
  Title to Membership Interest.

  	
  12

  
	
  2.3

  	
  Power and Authority.

  	
  13

  
	
  2.4

  	
  No Violation.

  	
  13

  
	
  2.5

  	
  Capitalization.

  	
  13

  
	
  2.6

  	
  Consents.

  	
  14

  
	
  2.7

  	
  Subsidiaries.

  	
  14

  
	
  2.8

  	
  Legal Proceedings.

  	
  14

  
	
  2.9

  	
  Brokers and Finders Fees.

  	
  15

  
	
  2.10

  	
  Tax Representations.

  	
  15

  
	
  2.11

  	
  Liabilities and Obligations.

  	
  16

  
	
  2.12

  	
  Licenses and Permits.

  	
  16

  
	
  2.13

  	
  Property.

  	
  16

  
	
  2.14

  	
  Employees; Benefit Plans.

  	
  17

  
	
  2.15

  	
  Conduct of Business.

  	
  18

  
	
  2.16

  	
  Books and Records.

  	
  18

  
	
  2.17

  	
  Compliance with Laws.

  	
  18

  
	
  2.18

  	
  Environmental Matters.

  	
  19

  
	
  2.19

  	
  No Bankruptcy.

  	
  20

  
	
  2.20

  	
  Bank Accounts.

  	
  20

  
	
  2.21

  	
  Terrorism.

  	
  20

  
	
  2.22

  	
  Brokers and Finders Fees.

  	
  21

  
	
  2.23

  	
  Full Disclosure.

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
  PURCHASER

  	
  22

  
	
  3.1

  	
  Existence.

  	
  22

  
	
  3.2

  	
  Power and Authority.

  	
  22

  
	
  3.3

  	
  No Violation.

  	
  22

  
	
  3.4

  	
  Brokers and Finders Fees.

  	
  22

  
	
  3.5

  	
  Investment Representations.

  	
  23

  

 

 ii
 

 

 

	
  3.6

  	
  Consents.

  	
  23

  
	
  3.7

  	
  Terrorism.

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV. POST-CLOSING AGREEMENTS

  	
  23

  
	
  4.1

  	
  Further Action.

  	
  23

  
	
  4.2

  	
  Receipt of Payments and Correspondence.

  	
  24

  
	
  4.3

  	
  Inspection of Records.

  	
  24

  
	
  4.4

  	
  Transfer Taxes.

  	
  24

  
	
  4.5

  	
  Tax Covenants.

  	
  24

  
	
  4.6

  	
  Audit.

  	
  26

  
	
   

  	
   

  	
   

  
	
  ARTICLE V. REMEDIES

  	
  27

  
	
  5.1

  	
  Purchaser’s Remedies.

  	
  27

  
	
  5.2

  	
  Seller’s Remedies.

  	
  28

  
	
  5.3

  	
  Indemnity Limits.

  	
  28

  
	
  5.4

  	
  Arbitration.

  	
  29

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI. GENERAL

  	
  29

  
	
  6.1

  	
  Entirety and Modification.

  	
  29

  
	
  6.2

  	
  Assignment; Successors and Assigns.

  	
  29

  
	
  6.3

  	
  Expenses.

  	
  30

  
	
  6.4

  	
  Notices.

  	
  30

  
	
  6.5

  	
  Severability; Reformation.

  	
  31

  
	
  6.6

  	
  No Waiver.

  	
  31

  
	
  6.7

  	
  Headings.

  	
  31

  
	
  6.8

  	
  Counterparts; Facsimiles.

  	
  31

  
	
  6.9

  	
  Governing Law.

  	
  32

  

 

	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  –

  	
  Defined Terms

  
	
  Exhibit B

  	
  –

  	
  Land

  
	
  Exhibit C

  	
  –

  	
  Plans

  
	
  Exhibit D

  	
  –

  	
  Permitted Exceptions

  
	
  Exhibit E

  	
  –

  	
  Project Budget

  
	
  Exhibit F

  	
  –

  	
  List of Service and Maintenance Contracts

  
	
  Exhibit G

  	
  –

  	
  Form of Limited Guaranty

  

 

 iii

OPTION AGREEMENT

This OPTION AGREEMENT
(this “Agreement”)
is entered into as of September 29, 2006, by and among (i) BEHRINGER
HARVARD ALEXAN NEVADA, LLC,  a Delaware limited liability company (“Purchaser”), and (ii)
SW 108 WAGON WHEEL JM LLC, a Delaware limited
liability company (“108 Wagon Wheel” or the “Seller”).

RECITALS:

WHEREAS, SW 109 Wagon
Wheel SM LLC, a Delaware limited liability company (“109
Wagon Wheel”), owns, directly, 100% of the membership interest (the “106 Membership Interest”) of SW 106 Wagon
Wheel Holdings LLC, a Delaware limited liability company (the “Project Owner”),
which 106 Membership Interest constitutes all of the issued and outstanding
equity interests in the Project Owner; and

WHEREAS,  108 Wagon Wheel owns, directly, 100% of the
membership interest  (the “109 Membership Interest”) of 109
Wagon Wheel, which 109 Membership Interest constitutes all of the issued and
outstanding equity interests in 109 Wagon Wheel (the 106 Membership Interest
and the 109 Membership Interest are sometimes collectively referenced as the “Wagon Wheel Membership Interest”);
and

WHEREAS, Purchaser has
made a loan to 109 Wagon Wheel in the amount of Six Million Nine Hundred
Thousand and No/100 Dollars ($ 6,900,000) secured, in part, by the 106
Membership Interest (“Senior Mezzanine Loan”);
and

WHEREAS, Purchaser has
made a loan to 108 Wagon Wheel in the amount of Two Million Seven Hundred
Seventy-Five Thousand Eight Hundred Seventy-Two and No/100 Dollars ($2,775,872) secured, in part, by 100% of the 109 Membership
Interest (“Junior Mezzanine Loan”); and

WHEREAS, the Project
Owner owns that certain parcel of real property located in Clark County, Nevada
more particularly described on Exhibit B attached hereto and made a part
hereof for all purposes (“Land”); and

WHEREAS, prior to the
Closing Date, the Project Owner will construct and own the Project to be
located on the Land; and

WHEREAS, in connection
with the construction of the Project, Project Owner has entered into a
Construction Loan Agreement with Comerica Bank (the “Senior
Lender”), providing for a loan in the amount of Twenty Nine
Million and No/100 Dollars ($29,000,000) secured, in part, by a first lien deed
of trust on the Project ( such loan and the documents evidencing and securing
such loan being collectively referenced as the “Construction
Loan”); and

WHEREAS, Seller wishes to
grant to Purchaser the option to purchase the Wagon Wheel Membership Interest
from Seller (the “Purchase
Option”) and Purchaser wishes to grant to Seller the option to
sell the Wagon Wheel Membership Interest to Purchaser (the “Put Option”) upon the
terms and conditions, and for the consideration, hereinafter set forth; and

 1
 

WHEREAS, on or about the
date of this Agreement, the Limited Guarantors have delivered the Limited Guaranty;
and

WHEREAS, the capitalized
terms used in these Recitals and the other Sections in this Agreement are
defined in Exhibit A.

NOW, THEREFORE, in
consideration of the foregoing and Purchaser’s extension of the Mezzanine
Loans, the parties hereto agree as follows:

ARTICLE I.

PURCHASE OF THE WAGON WHEEL MEMBERSHIP INTEREST

1.1          Exercise of Purchase Option or Put Option.

(a)           Completion Notice. 
Promptly following the Completion Date, Seller shall deliver to
Purchaser a written notice (the “Completion
Notice”) certifying (1) the Completion Date has occurred; and
(2) the amount of the Project Costs as of the Completion Date.

(b)           Project Cost.  From the time of delivery of the Completion
Notice until the Closing, Seller shall make available (and cause the Project
Owner to make available) to Purchaser and its employees, agents and contract
parties (collectively, “Representatives”)
during normal business hours, the invoices, draw requests, books, records and
other information relating to the Project, 109 Wagon Wheel or the Project Owner
in order that Purchaser and its Representatives may audit Seller’s calculation
of Project Cost.

(c)           Exercise of Purchase Option.  Purchaser at its sole option, may elect to
exercise the Purchase Option and to purchase the Wagon Wheel Membership
Interest pursuant to the terms of this Agreement by delivering a written notice
(the “Purchase Notice”)
to Seller within 90 calendar days after the date of delivery of the Completion
Notice.  The Purchase Option will expire
if the Purchase Notice is not timely delivered or if a Waiver Notice is
delivered.  If the Purchaser timely
delivers the Purchase Notice, then the closing of the sale of the Wagon Wheel
Membership Interest (the “Closing”)
shall take place within 60 calendar days after delivery of the Purchase
Notice.  Purchaser at its sole option,
may elect to deliver a written notice (the “Waiver Notice”) to Seller prior to the date which is
90 calendar days following delivery of the Completion Notice indicating
that Purchaser waives its right to exercise the Purchase Option.

(d)           Exercise of Put Option.  If Purchaser does not timely exercise the
Purchase Option as provided above, then Seller at its sole option, may elect to
exercise the Put Option and to cause Purchaser to purchase the Wagon Wheel
Membership Interest pursuant to the terms of this Agreement by delivering a
written notice (the “Put
Notice”) to Purchaser within 120 calendar days after the earlier
of the date of delivery of the Waiver Notice or the expiration of the Purchase
Option.  If the Seller exercises the Put
Option, then the Closing shall take place within 60 calendar days after
delivery of the Put Notice.  The Put
Option will expire if the Put Notice is not timely delivered to Purchaser.

(e)           Business Day.  Notwithstanding the foregoing Sections 1.1(c)
and 1.1(d), if the Closing Date would occur on a day which is not a
Business Day, then the Closing Date shall be delayed until the second Business
Day thereafter.

 2
 

(f)            Closing. 
Based upon the representations, warranties and covenants, and subject to
the terms, provisions and conditions contained in this Agreement, at the
Closing, Seller shall, and shall cause 109 Wagon Wheel to, sell and assign to
Purchaser the Wagon Wheel Membership Interest, and Purchaser shall purchase the
Wagon Wheel Membership Interest from Seller and 109 Wagon Wheel, free and clear
of all Liens for the consideration hereinafter set forth.  At the Closing, the Project Owner and 109
Wagon Wheel shall hold only those assets, and shall be subject to only those
liabilities and obligations, specified in Section 1.7(c) below.  The above-described purchase and sale of the
Wagon Wheel Membership Interest is referred to in this Agreement as the “Membership
Interest Purchase.”

The Closing shall take place
at the offices of Haynes and Boone, LLP, counsel to Purchaser, 2505 N. Plano
Road, Suite 4000, Richardson, Texas 75082, on a date specified by Purchaser in
accordance with Section 1.1(c) or 1.1(d) (as modified by Section
1.1(e)), at 10:00 a.m. local time, or at such other date, time and place as
Seller and Purchaser may agree. 
Purchaser shall give Seller not less than five (5) Business Days written
notice of the Closing Date.  Notwithstanding
the foregoing, if a mechanics lien(s) is filed against the Property, and Project
Owner is actively contesting such mechanics lien(s), the Closing Date may be
extended by either Purchaser or Seller for up to 60 additional calendar days to
permit Project Owner to remove such mechanics lien(s) as a lien against the
Property.

(g)           Fee Title Purchase Option.  At Purchaser’s option, exercisable any time
prior to the Closing, Purchaser may elect to Purchase from the Project Owner
fee simple title to the Property in lieu of the Membership Interest Purchase (“Fee
Title Purchase”). The Fee Title Purchase will be at the same Purchase Price and
on the same economic terms and provisions as the Membership Interest
Purchase.  The Seller and Purchaser agree
to negotiate in good faith a purchase contract (including appropriate
conveyancing documents) to be utilized in the event Purchaser elects to proceed
with the Fee Title Purchase.  Purchaser
shall provide a full release of this Agreement and the Limited Guaranty at the
time of closing of the Fee Title Purchase or execution of a purchase contract therefore
and as a condition to Seller’s obligation to complete either such event.

1.2          Purchase Price.

Subject to the terms and
conditions of this Agreement, the total purchase price Purchaser shall pay to
Seller for the Wagon Wheel Membership Interest (the “Purchase Price”) shall be:

(a)           Purchase Option.  In the case of Purchaser’s exercise of the
Purchase Option, an amount equal to the sum of (1) the lower of (A) the Project
Cost plus Interest Charges or (B) $38,875,872 
plus Interest Charges, plus (2) $13,125 per apartment unit contained in
the Project.

(b)           Put Option. 
In the case of Seller’s exercise of the Put Option, an amount equal to
the lower of (A) Project Cost plus Interest Charges or (B) the $38,875,872 plus
Interest Charges.

Subject to the credits and adjustments provided in
this Agreement, Purchaser shall pay the Purchase Price to Seller at the Closing
by wire transfer of immediately available funds to an account Seller
designates.

 3
 

1.3          Closing Prorations and Purchase Price
Adjustments.

(a)           At the Closing, the Purchaser shall
receive a credit against the Purchase Price in an amount equal to the
outstanding balance of the Mezzanine Loans (including all accrued but unpaid
Interest Charges) and the Mezzanine Loans shall be considered “paid in full” at
the completion of the Closing.

(b)           All rents and other income from the
Property, real estate and personal property ad valorem taxes and other
operating expenses of the Property shall be prorated on the basis of actual
days elapsed as of 11:59 p.m. on the day immediately preceding the Closing
Date.  Income and expenses for which
actual bills are available at Closing shall be prorated based on such actual
bills.  Those items for which actual
bills are not available at Closing shall be prorated based upon good faith
estimates, in the case of ad valorem taxes, using the most recent tax rate and
assessed value.  Preliminary estimated
Closing prorations shall be agreed between Purchaser and Seller for purposes of
making the preliminary proration adjustment at Closing subject to the final
cash settlement provided for above.  No
prorations will be made in relation to insurance premiums, and Project Owner’s
insurance coverage will be canceled and released at Closing.  All utilities shall remain in the name of the
Project Owner and Seller shall at Closing be credited an amount equal to any
cash utility deposit.

(c)           Purchaser shall receive a credit at
Closing in an amount equal to the sum of all unapplied refundable deposits or
fees, paid to Project Owner under the Tenant Leases and all rent paid in
advance (to the extent not prorated as set forth above).

(d)           All leasing commissions, referral
fees and locator fees applicable to any Tenant Leases where the tenant has
taken occupancy prior to Closing shall be paid in full prior to Closing or, to
the extent not paid on or prior to Closing, shall be credited to Purchaser at
Closing.

(e)           To the extent possible, Seller shall
pay and fully discharge any and all state income or franchise taxes which are
due and payable by the Project Owner or 109 Wagon Wheel.  With regard to any and all any and all state
income or franchise taxes attributable to the year of Closing, such taxes shall
be prorated as of the Closing Date once the amount of such taxes is known and
Seller shall pay to Purchaser the amount of such taxes attributable to the
period prior to Closing.

(f)            Except as provided in Section
1.3(g) with regard to application fees, Purchaser shall receive a credit at
Closing in an amount equal to 50% of all non-refundable deposits and fees
(including pet fees) paid to Project Owner under the Tenant Leases.

(g)           Purchaser shall not be entitled to
any credit at Closing for application fees paid by potential tenants of the
Project when Project Owner has obtained the credit check of such potential
tenant; any application fee for a potential tenant of the Project where Project
Owner has not obtained the credit check for such potential tenant shall be
fully credited to Purchaser at Closing.

(h)           At or prior to the Closing, Seller
shall cause the Construction Loan to be paid in full and obtain a release of
any Liens securing the Construction Loan.

 4
 

(i)            The provisions of this Section 1.3
shall survive Closing.

1.4          Conditions to the Closing.

(a)           Joint Condition. 
The obligations of each party to consummate the transactions provided
for in this Agreement are subject to the condition that on the Closing Date
there shall be no action, suit or proceeding (other than such an action, suit
or proceeding directly or indirectly instituted by a party to this Agreement)
shall be threatened or pending, and no injunction, order, decree or ruling
shall be in effect, seeking to restrain or prohibit, or to obtain damages or
other relief in connection with, the execution and delivery of this Agreement
or the consummation of the transactions contemplated by this Agreement.

(b)           Purchaser’s Conditions to Closing.  The obligations of Purchaser to consummate
the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:

(1)           Seller’s
Representations True.  Seller’s
representations and warranties made in this Agreement shall be true and correct
in all material respects as of the Closing Date, except as affected by the
transactions contemplated hereby, and Seller shall have delivered to Purchaser
a closing certificate to that effect.

(2)           Seller’s
Compliance with Agreement.  Seller,
in all material respects, shall have performed each agreement, and shall have
complied with each covenant, to be performed or complied with by it on or prior
to the Closing Date under this Agreement, and Seller shall have delivered to
Purchaser a closing certificate to that effect.

The closing certificates to be delivered by Seller referred to in Sections 1.4(b)(1)
and (2) are referred to herein collectively as the “Seller Closing Certificate.”  The Seller Closing Certificate may include
limitations on survival set forth in Section 5.1(a).

(c)           Seller’s Conditions to Closing.  The obligations of Seller to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at or prior to
the Closing Date, of the following conditions:

(1)           Purchaser’s
Representations True.  Purchaser’s
representations and warranties made in this Agreement shall be true and correct
in all material respects as of the Closing Date, except as affected by the
transactions contemplated hereby, and Purchaser shall have delivered to Seller
a closing certificate to that effect.

(2)           Purchaser’s
Compliance with Agreement.  Purchaser,
in all material respects, shall have performed each agreement, and complied
with each covenant to be performed or complied with by it on or prior to the
Closing Date under this Agreement, and Purchaser shall have delivered to Seller
a closing certificate to that effect.

The
closing certificates to be delivered by Purchaser referred to in Sections 1.4(c)(1)
and (2) are referred to herein collectively as the “Purchaser Closing Certificate.”  The Purchaser Closing Certificate shall
contain an acknowledgment that the Wagon Wheel Membership Interests 

 5
 

are
being conveyed subject to the provisions and limitations contained in the last
paragraph of Article II.

1.5          Closing Deliveries of Seller.  At the Closing, Seller shall deliver to
Purchaser the following, all of which shall be in a form reasonably
satisfactory to Purchaser:

(a)           The
Seller Closing Certificate.

(b)           A
certificate of the Secretary of Seller certifying true and correct copies of
(i) the required resolutions of the Seller duly authorizing the execution,
delivery and performance of this Agreement and all related documents and
agreements, such resolutions being in full force and effect as of the Closing
Date, (ii) the Certificate of Formation of the Project Owner, as amended and in
effect as of the Closing Date, certified by the Secretary of State of the State
of Delaware within ten (10) days of the Closing Date, (iii) the Operating
Agreement of the Project Owner, as amended and in effect as of the Closing
Date, (iv) the Certificate of Formation of 109 Wagon Wheel, as amended and in
effect as of the Closing Date, certified by the Secretary of State of the State
of Delaware within ten (10) days of the Closing Date, (v) the Operating
Agreement of 109 Wagon Wheel, as amended and in effect as of the Closing Date,
and (vi) any other Organizational Documents of the Project Owner or 109 Wagon
Wheel.

(c)           An
instrument of assignment of the 106 Membership Interest executed by 109 Wagon
Wheel.

(d)           An
instrument of assignment of the 109 Membership Interest executed by 108 Wagon
Wheel.

(e)           A
certificate dated within ten (10) days of the Closing Date, of the Secretary of
the State of the State of Delaware establishing that the Project Owner is in
existence and is in good standing to transact business in such state.

(f)            A
certificate dated within ten (10) days of the Closing Date, of the Secretary of
the State of the State of Nevada establishing that the Project Owner is
authorized to transact business in the State of Nevada.

(g)           A
certificate dated within ten (10) days of the Closing Date, of the Secretary of
the State of the State of Delaware establishing that 109 Wagon Wheel is in
existence and is in good standing to transact business in such state.

(h)           A
certified statement stating: (A) the amount of security deposits under the
Tenant Leases which are held by the Project Owner and not applied in accordance
with the terms of the applicable Tenant Leases; and (B) a delinquency report
with regard to the Tenant Leases.

(i)            A
non-foreign affidavit as required by Section 1445 of the Internal Revenue Code
of 1986, as amended, and the regulations promulgated thereunder from Seller and
109 Wagon Wheel.

 6
 

(j)            Certificates
from the taxing authorities of the State of Delaware, dated within ten (10)
days prior to the Closing Date, evidencing that the Project Owner has paid all
franchise, sales and other state taxes due and owing in such state.

(k)           Certificates
from the taxing authorities of the State of Delaware, dated within ten (10)
days prior to the Closing Date, evidencing that 109 Wagon Wheel has paid all
franchise, sales and other state taxes due and owing in such state.

(l)            If
available under local practice, certificates from the taxing authorities of the
State of Nevada and from Clark County, Nevada, or other evidence dated within
ten (10) days prior to the Closing Date, evidencing that Project Owner has paid
all property and other state and local taxes due and owing.

(m)          Letters
of resignation and a waiver of, and covenant not to sue for, any and all
present or future claims against such company, for indemnity or otherwise,
signed by each officer and manager of the Project Owner, to be effective as of
the Closing Date.

(n)           Letters of resignation and a waiver
of, and covenant not to sue for, any and all present or future claims against
such company, for indemnity or otherwise, signed by each officer and manager of
109 Wagon Wheel, to be effective as of the Closing Date.

(o)           At the request and option of
Purchaser, evidence of the termination of any property management agreements affecting
the Property.

(p)           UCC-3 termination statements with
respect to any recorded Liens with respect to the Wagon Wheel Membership
Interest and any of the assets of the Project Owner or 109 Wagon Wheel.

(q)           A certificate executed by Seller
listing the Contracts.

(r)            Such other instruments and documents
as are reasonably requested by Purchaser to carry out and effect the purpose
and intent of this Agreement.

1.6          Closing Deliveries of Purchaser.

In addition to the
Purchase Price, at the Closing, Purchaser shall deliver to Seller the
following, which shall be in a form reasonably satisfactory to Seller:

(a)           The Purchaser Closing Certificate.

(b)           Such other instruments and documents
as are reasonably requested by Seller to carry out and effect the purpose and
intent of this Agreement.

1.7          Actions of the Parties Pending
Closing.

(a)           Reasonable Best Efforts.  Each of the parties will use their reasonable
best efforts to obtain all necessary consents and approvals and to cause the
conditions to the obligations of the parties hereunder to be satisfied and,
upon exercise of the Purchase Option or the Put Option, 

 7
 

to cause the Closing to be consummated as promptly
as practicable, and will cooperate with one another in connection with the
foregoing.

(b)           Conduct of Business.  The Seller shall, at its expense (taking into
account the use by the Project Owner of the proceeds of the Construction Loan
to fund such construction), cause the Project Owner to construct the Project on
the Land, in substantial accordance with the Plans and in accordance with the
requirements of the Mezzanine Loans. 
From the execution of this Agreement until the Closing, Seller will
cause the Project Owner and 109 Wagon Wheel to operate in the ordinary course
of business consistent with the prudent construction and operation of the
Project and in accordance the requirements of the Mezzanine Loans. Without
limitation, neither the Project Owner nor 109 Wagon Wheel shall take any
action, or fail to take any action, as a result of which any of the changes or
events listed in Section 2.15(a) (Changes) would
occur.  Seller shall maintain and
preserve the Project Owner and 109 Wagon Wheel, and their respective business,
franchises and authorizations, and use commercially reasonable efforts to
maintain and preserve their respective prospects, goodwill and advantageous
business relationships.  Seller will
cause Project Owner to (i) maintain and operate the Property in accordance with
Trammell Crow Residential’s customary manner, reasonable wear and tear and damage
from casualty excepted, (ii) continue all insurance policies relative to the
Property (or if such insurance is canceled or expires, comparable insurance
consistent with similar projects in the Clark County metropolitan area) in full
force and effect, (iii) after the Completion Date not remove any item of
Personal Property from the Land or Improvements unless replaced by a comparable
item of Personal Property, (iv) maintain all permits, licenses and occupancy
certificates, including, without limitation, all development, building and use
permits and certificates of occupancy and (v) perform, when due, all material
obligations under any and all material agreements relating to the Property and
otherwise in accordance with applicable laws, ordinances, rules, and
regulations; and (vi) promptly forward to Purchaser any material notices of
violations Governmental Requirements or Restrictions which Seller receives or
becomes aware.  Seller will not permit
either Project Owner or 109 Wagon Wheel to have any employees.  In addition, Seller will not permit 109 Wagon
Wheel to engage in any trade or business activity other than the ownership of
the 106 Membership Interest and ancillary activities.  In addition, Seller will cause 109 Wagon
Wheel and 108 Wagon Wheel to comply with all terms and provisions of the
Mezzanine Loans.

(c)           Assets and Obligations.

(1)           Seller
covenants that:

(i)          Upon
transfer of the Wagon Wheel Membership Interest to Purchaser at the Closing,
(A) the Project Owner shall hold only the Property; (B) 109 Wagon Wheel shall
hold only the 106 Membership Interest; and (C) the Project Owner and 109 Wagon
Wheel shall hold no other assets of any nature whatsoever.

(ii)         Upon
transfer of the Wagon Wheel Membership Interest to Purchaser at the Closing,
(A) the Project Owner shall have no liabilities, obligations or commitments of
any nature, whether absolute, accrued, unaccrued, express or implied,
unmatured, known or unknown, contingent or otherwise, or any unsatisfied
judgments, except the Permitted Obligations, and (B) 109 Wagon Wheel shall have
no liabilities, obligations or commitments of any nature, whether absolute,
accrued, 

 8
 

unaccrued, express or implied, unmatured, known or unknown, contingent
or otherwise, or any unsatisfied judgments except the Permitted Obligations.

(iii)        Upon
transfer of the Wagon Wheel Membership Interest to Purchaser at the Closing,
Seller shall and hereby does (effective as of the Closing Date) waive, and
covenant not to sue for, any and all present or future claims or liabilities
against the Project Owner or 109 Wagon Wheel whether (i) pursuant to this
Agreement, (ii) for indemnity, or (iii) otherwise.

(2)           Prior
to Closing, Seller may cause the Project Owner and 109 Wagon Wheel to transfer
to Seller or to any other person designated by Seller or, if Seller prefers, to
terminate, release or abandon any property, rights, title, interest, contract
or claim held by the Project Owner or 109 Wagon Wheel that are not part of the
Property, including specifically (a) all right, title and interest, if any, of
the Project Owner or 109 Wagon Wheel in respect of the name “Alexan” or any
other names, trademarks, trade names, trade dress or logos of 109 Wagon Wheel,
the Project Owner or Seller or any of their respective affiliates (even if used
in connection with the Property), as well as all goodwill associated with any
of such names, trademarks, trade names, trade dress or logos, (b) subject to Section
1.3, all cash balances of the Project Owner or 109 Wagon Wheel and (c) any
claim of the Project Owner or 109 Wagon Wheel against Seller or any of its
affiliates, except claims against the General Contractor if it is an affiliate
of Seller.

(d)           Access.  During the term of this Agreement, Purchaser
and its agents, consultants and designees shall have reasonable access to the
Project for purposes of observing, testing and inspecting the work.  No such observation, test or inspection or
failure to do so shall relieve Seller from its obligations under this Agreement.  In exercising its access rights, Purchaser
shall exercise and shall cause its designees to exercise due care to not
materially increase the cost of the General Contractor’s performance or to
delay to any material extent the work on the Construction Contract.  Purchaser shall indemnify, defend and hold
harmless Seller and Project Owner from and against all liability, loss, cost or
expense (including reasonable attorneys’ fees and expenses of litigation)
arising from any wrongful acts committed by Purchaser or its designees, agents
or consultants while on the Land.

(e)           Rent Ready Condition.  If any apartment unit is vacated seven (7)
days or more prior to Closing, then, prior to Closing, Seller shall use
commercially reasonable diligence to cause the Project Owner to return such
unit to rentable condition in accordance with Trammel Crow Residential’s
customary cleaning, painting, and repair standards for vacant units (the
condition of such an apartment unit after cleaning, painting and repairing is
referred to herein as a “Rent
Ready Condition”).  To the
extent any such units are not in a Rent Ready Condition, the Purchase Price
shall be credited in an amount equal to $750 for each unit that is not in a
Rent Ready Condition.

(f)            Ownership of the Project. 
Until such time as the Purchase Option has expired Seller’s shall not
permit Project Owner to sell or dispose of the Project or any portion thereof
except for Permitted Dispositions. 
Following the expiration of the Purchase Option, Project Owner will be
permitted to sell the Project (in whole but not in part) to an arms length
purchaser who is not an Affiliate of Seller or Trammel Crow Residential.  Until such time as the Purchase Option has
expired and the Put Option has expired, Seller will not permit any Liens,
encumbrances or other title 

 9
 

exceptions (other than the Permitted Exceptions and
normal utility easements, solely for benefit of the Project, incident to the
development and operation of the Project) to encumber the Land or the Project.

(g)           Service Contracts.  Seller will not permit Project Owner to enter
into any Service Contracts other than those described on Exhibit F
unless either (i) such Service Contract is terminable on not more than
30 days notice without the payment of any termination fee or penalty or
(ii) such Service Contract has been approved in writing by Purchaser.

(h)           Utility Contracts. 
Seller will not permit Project Owner to enter into any agreement with
any utility company (public or private) to provide utility services to the
Project unless either (i) such utility contract is terminable on
not more than 30 days notice without the payment of any termination fee or
penalty or (ii) such utility contract has been approved in writing by
Purchaser.

1.8          Termination Prior to Closing.

(a)           Reasons for Termination.  This Agreement may be terminated before the
Closing, notwithstanding any exercise of the Purchase Option or the Put Option:

(1)           By
Mutual Consent.  By the mutual
consent of Purchaser and Seller.

(2)           By
Purchaser.  By Purchaser after
compliance with the procedure set forth in this Section, if (i) any of Seller’s
representations or warranties contained in this Agreement is or becomes untrue
in any material respect, (ii) Seller fails to perform any of its covenants or
agreements contained in this Agreement in any material respect, or (iii) any of
Purchaser’s conditions to the consummation of the transactions provided for in
this Agreement shall have become impossible to satisfy.

(3)           By
Seller.  By Seller after compliance
with the procedure set forth in this Section, if (i) any of Purchaser’s
representations or warranties contained in this Agreement is or becomes untrue,
in any material respect, (ii) Purchaser fails to perform its covenants or
agreements contained in this Agreement in any material respect, or (iii) any of
Seller’s conditions to the consummation of the transactions provided for in
this Agreement shall become impossible to satisfy.

(4)           Outside
Date.  By Purchaser if the Completion
Date shall not have occurred on or before May 31, 2008.

(5)           Mezzanine
Loans.  By Purchaser if there is any
default by 109 Wagon Wheel or 108 Wagon Wheel pursuant to the documents
evidencing or securing the Mezzanine Loans; provided Purchaser shall still be
entitled to pursue any rights and remedies pursuant to the Mezzanine Loans.

(b)           Notice of Problems; Termination.  Purchaser or Seller (the “Notifying Party”) will
promptly give written notice to the other (the “Receiving Party”) if it becomes aware of the occurrence
or failure to occur, or the impending or threatened occurrence or failure to
occur, of any fact or event that would cause or constitute, or would be likely
to cause or constitute (i) any of its 

 10
 

representations or warranties contained in this
Agreement being or becoming untrue in any material respect, (ii) its failure to
perform in any material respect any covenants or agreements contained in this
Agreement, or (iii) any condition to the obligations of the Receiving Party to
consummate the transactions provided for in this Agreement being or becoming
impossible to satisfy.  No such notice
shall affect the representations, warranties, covenants, agreements or
conditions of the parties hereunder, or prevent any party from relying on the
representations and warranties contained herein.

The Notifying Party shall
have 20 days from the date of said notice to cure any matter referred to in Sections
1.8(b)(i) or (ii); provided, however, if such a matter is not
susceptible to cure within such 20 day period and the Notifying Party has
promptly commenced, and is diligently and continuously pursuing, such cure then
the 20 day period specified above shall be extended on a day-by-day basis as
needed to effect such cure, but not beyond 120 days from the original date of
said notice.  Upon receipt of a notice
referred to in Section 1.8(b)(iii), or the failure of the Notifying
Party so to cure a matter referred to in Sections 1.8(b) (i) or (ii),
the Receiving Party may terminate this Agreement by written notice to the
Notifying Party.

(c)           Effect of Termination.  Upon termination of this Agreement pursuant
to this Article, no party shall have any continuing obligation to the other
party arising out of this Agreement, or out of actions taken in connection with
this Agreement; provided, however, that (i) no such termination shall relieve a
party of liability for breach of, or misrepresentation under, or nonperformance
of this Agreement prior to such termination (ii) no such termination shall
affect the rights and obligations under the Mezzanine Loans, and (iii) Article
V and Article VI of this Agreement and the indemnification
obligations under this Agreement shall survive termination of this Agreement.

1.9          Casualty.

(a)           Seller shall give Purchaser prompt
notice of any fire or other casualty affecting the Property.  Purchaser or its designated agents may enter
upon the Property from time to time during normal business hours and upon
advance notice to Seller in accordance with this Agreement for the purpose of
inspecting any such casualty.

(b)           If prior to the applicable Closing
there occurs damage to the Property caused by fire or other insured casualty,
then in any such event, Purchaser will have no right to terminate this
Agreement, but Seller shall work with Purchaser to assist in the realization by
Project Owner of any casualty insurance proceeds which may be payable to
Project Owner, as the owner of the Property, on account of any such occurrence
(excluding amounts attributable to any damage that has been repaired prior to
Closing), specifically including the proceeds of any business interruption or loss
of rental insurance attributable to the period after Closing.  In addition, Seller shall credit the Purchase
Price with the amount of any deductible under any of Project Owner’s insurance
policy(ies).

(c)           If prior to the Closing there occurs
damage to the Property caused by fire or other casualty and such damage is
either uninsured or under insured, as reasonably determined by Purchaser, and
Seller elects not to pay to repair such damage, then in any such event,
Purchaser may, at its option elect to terminate this Agreement, by written
notice to Seller within 30 days after the date of Seller’s notice to Purchaser
of the uninsured or under insured casualty. 
If Purchaser fails to 

 11
 

terminate this Agreement, then the Closing
will take place as provided herein without reduction of the Purchase Price,
and, in the case of an under insured casualty, Seller shall work with Purchaser
to assist in the realization by Project Owner of any casualty insurance
proceeds which may be payable to Project Owner, as the owner of the Property,
on account of any such occurrence (excluding amounts attributable to any damage
that has been repaired prior to Closing), specifically including the proceeds
of any business interruption or loss of rental insurance attributable to the period
after Closing.  In addition, Seller shall
credit the Purchase Price with the amount of any deductible under any of
Project Owner’s insurance policy(ies) (excluding amounts attributable to any
damage that has been repaired prior to Closing).  Damage shall be deemed to be under insured if
the insurance proceeds are not sufficient to fully repair or restore the damage
to substantially the same condition that existed immediately prior to such fire
or other casualty or if the insurance proceeds (after taking into account any
deductible provided for in such insurance policy(ies)) are not made available
to the Seller or the Project Owner (for example, if the Senior Lender requires
such proceeds to be applied against the outstanding balance of the Construction
Loan).

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents
and warrants to Purchaser, except as set forth on the schedules Seller has
delivered herewith referencing a particular section of this Article II
(collectively, the “Disclosure Schedules”), as
set forth below.

2.1          Existence; Good Standing.

(a)           109 Wagon Wheel is a Delaware limited
liability company duly organized, validly existing and in good standing under
the laws of its state of organization, and has the requisite power and
authority to carry on its business as conducted since the date of its
formation.

(b)           108 Wagon Wheel is a Delaware limited
liability company duly organized, validly existing and in good standing under
the laws of its state of organization, and has the requisite power and
authority to carry on its business as conducted since the date of its
formation.

(c)           Project Owner is a Delaware limited
liability company duly organized, validly existing and in good standing under
the laws of its state of organization, and has the requisite power and
authority to carry on its business as conducted since the date of its
formation.  The Project Owner is duly
qualified to do business as a foreign entity and is in good standing in the
State of Nevada, the only jurisdiction in which it is required to be so
qualified or otherwise conducts operations.

2.2          Title to Membership Interest.

(a)           109 Wagon Wheel (i) is the record and
beneficial owner and (ii) has good and valid title to the 106 Membership
Interest, free and clear of any and all Liens. 
The Project Owner has complied with all applicable laws in connection
with the issuance of the 106 Membership Interest.  The 106 Membership Interest was not issued in
violation of any contract or agreement binding upon Seller, 109 Wagon Wheel or
the Project Owner.

 12
 

(b)           108 Wagon Wheel (i) is the record and
beneficial owner and (ii) has good and valid title to the 109 Membership
Interest, free and clear of any and all Liens. 
109 Wagon Wheel has complied with all applicable laws in connection with
the issuance of the 109 Membership Interest. 
The 109 Membership Interest was not issued in violation of any contract
or agreement binding upon Seller or 109 Wagon Wheel.

(c)           The consummation of the transactions
contemplated hereby will transfer to Purchaser good and valid title to the
Wagon Wheel Membership Interest, free and clear of any and all Liens.

2.3          Power and Authority.

(a)           Seller
has the full legal right, power and authority to enter into this Agreement and
all agreements and other documents executed and delivered by it pursuant to
this Agreement and to consummate the Membership Interest Purchase and the other
transactions contemplated hereby or thereby.

(b)           Seller
has duly and properly taken all action required by law and by its Certificate
of Formation and Operating Agreement or comparable organizational documents (“Organizational Documents”) to
authorize the execution, delivery and performance of this Agreement and any
related documents and the consummation of the Membership Interest Purchase and
the other transactions contemplated hereby and thereby.

(c)           This
Agreement and all agreements and documents executed by Seller and delivered to
Purchaser in connection herewith have been duly executed and delivered by
Seller and constitute the legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms.

2.4          No Violation.

The execution and
delivery of this Agreement, and the agreements executed and delivered by Seller
in connection herewith, do not, and the consummation of the actions
contemplated hereby or thereby will not, (a) violate, contravene or conflict
with any provision of the Organizational Documents of the Project Owner, 109
Wagon Wheel or Seller, (b) violate, contravene or conflict with any provisions
of, result in the acceleration of any obligation under, constitute a default or
breach under, or give any right of termination or cancellation under, any
mortgage, Lien, lease, agreement, note, instrument, debenture, license, order, arbitration
award, judgment or decree to which any of the Project Owner, 109 Wagon Wheel or
Seller is a party or by which any of the Project Owner, 109 Wagon Wheel or
Seller is bound, (c) violate, contravene or conflict with any law, rule or
regulation applicable to any of the Project Owner, 109 Wagon Wheel or Seller,
or (d) result in any Lien, other than pursuant to the Construction Loan or
Mezzanine Loans, on any of the Project Owner’s, 109 Wagon Wheel’s or Seller’s
assets.

2.5          Capitalization.

(a)           Project Owner’s authorized equity
securities consist of the 106 Membership Interest, which is issued and
outstanding.  The 106 Membership Interest
has been duly authorized and validly issued, is fully paid and nonassessable
and is owned beneficially and of record by 109 

 13
 

Wagon Wheel. 
The 106 Membership Interest constitutes all of the issued and
outstanding equity securities of the Project Owner.  There are no authorized or outstanding
preemptive, conversion or exchange rights, subscriptions, options, warrants,
rights, contracts, calls, puts or other arrangements, agreements or commitments
obligating the Project Owner or Seller to issue, transfer, dispose of or
acquire all or any portion of the 106 Membership Interest or any other
securities or equity interest in the Project Owner, and there are no member
agreements, voting agreements or other agreements, written or oral, relating to
the 106 Membership Interest, except as detailed in its Organizational
Documents.

(b)           109 Wagon Wheel’s authorized equity
securities consist of the 109 Membership Interest, which is issued and
outstanding.  The 109 Membership Interest
has been duly authorized and validly issued, is fully paid and nonassessable
and is owned beneficially and of record by 108 Wagon Wheel.  The 109 Membership Interest constitutes all
of the issued and outstanding equity securities of 109 Wagon Wheel.  There are no authorized or outstanding
preemptive, conversion or exchange rights, subscriptions, options, warrants,
rights, contracts, calls, puts or other arrangements, agreements or commitments
obligating the 109 Wagon Wheel or Seller to issue, transfer, dispose of or
acquire all or any portion of the 109 Membership Interest or any other
securities or equity interest in the Project Owner, and there are no member agreements,
voting agreements or other agreements, written or oral, relating to the 109
Membership Interest.

2.6          Consents.

No consent,
authorization, permit, license or filing with any governmental authority,
lender, lessor, landlord, manufacturer, supplier or other person or entity is
required to authorize, or is required in connection with, the execution and
delivery by Seller of this Agreement and the agreements and documents
contemplated hereunder to be entered into by the Seller or the transfer of the Wagon
Wheel Membership Interest.

2.7          Subsidiaries.

(a)           The Project Owner has no subsidiaries
and owns no equity interest in any entity.

(b)           109 Wagon Wheel has no subsidiaries
and owns no equity interest in any entity other than the Project Owner.

2.8          Legal Proceedings.

None of the Project
Owner, nor any of its assets, 109 Wagon Wheel nor any of its assets, or the
Wagon Wheel Membership Interest are subject to any pending, nor do Seller, 109
Wagon Wheel or the Project Owner have knowledge of any threatened, action,
suit, litigation, governmental investigation, condemnation or other proceeding
against or relating to or affecting the Project Owner or 109 Wagon Wheel or any
of their respective assets, or the Wagon Wheel Membership Interest or the
transactions contemplated by this Agreement (excluding immaterial tort
litigation which is fully insured by Project Owner’s liability insurance and
routine litigation regarding enforcement of Tenant Leases).  No basis for any such action, suit,
litigation, governmental investigation, condemnation or other proceeding
exists.

 14

 

2.9          Brokers and Finders Fees.

No person is entitled to
any fee from either the Project Owner or Seller as a broker or finder in
connection with the sale and purchase of the Wagon Wheel Membership Interest.

2.10        Tax Representations.

(a)           As used herein, the term “Taxes” means all
federal, state, local, foreign and other governmental net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, unemployment,
excise, severance, stamp, escheat,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges in the nature of taxes, together with any
interest and any penalties, additions to tax or additional amounts with respect
thereto, and the term “Tax”
means any one of the foregoing Taxes; the term “Tax Returns” means all returns, information
returns, declarations, reports, statements and other documents required to be
filed in respect of Taxes; the term “Code”
means the Internal Revenue Code of 1986, as amended (all citations to the Code,
or to the Treasury Regulations promulgated thereunder, shall include any
amendments or any substitute or successor provisions thereto); the term “Governmental Entities” means any court, tribunal, governmental or regulatory
authority, agency, department, commission, instrumentality, body or other
governmental entity of the United States of America or any state or political
subdivision thereof or any court or arbitrator, and the term “Governmental Entity” means any one of
the foregoing Governmental Entities.

(b)           All Tax Returns required to be filed
prior to the Closing Date by or on behalf of the Project Owner or 109 Wagon
Wheel, including, but not limited to all Tax Returns filed by Seller or any
Affiliate of Seller on behalf of the Project Owner or 109 Wagon Wheel, have
been duly and timely filed in accordance with applicable laws, and are true,
correct and complete in all material respects. 
Both the Project Owner and 109 Wagon Wheel have timely paid in full all
Taxes reflected on their respective Tax Returns or otherwise required to have
been paid, as applicable, by Project Owner or 109 Wagon Wheel, or all such
Taxes have been paid on Project Owner’s or 109 Wagon Wheel’s behalf.  Neither the Project Owner nor 109 Wagon Wheel
is the beneficiary of any extension of time within which to file any Tax
Returns that remain outstanding.  Neither
the Project Owner nor 109 Wagon Wheel has ever had any Tax deficiency proposed
or assessed against it nor has the Project Owner or 109 Wagon Wheel ever
executed any waiver of any statute of limitations on the assessment or
collection of any Tax.  In the case of
Taxes for the current period not yet due, both Project Owner and 109 Wagon
Wheel have made adequate provision under Section 1.3 for the payment of
all Taxes for which the Project Owner or 109 Wagon Wheel, as applicable, is or
may become liable for payment.  Both the Project Owner
and 109 Wagon Wheel have withheld and paid over to appropriate governmental
entities any Taxes due with respect to amounts paid or owing to employees
(which neither Project Owner nor 109 Wagon Wheel is permitted to have pursuant
to the terms of this Agreement), independent contractors, creditors, members or
other third parties in accordance with applicable law.

(c)           (i) No federal, state, local or
foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of the Project Owner
or 109 Wagon Wheel, and none of the Project Owner, 109 Wagon Wheel or Seller
with respect to the Project Owner, 109 Wagon Wheel or the Project has received
any written notice of any 

 15
 

 

pending or proposed claims, audits or
proceedings with respect to Taxes, (ii) none of the Project Owner, 109 Wagon
Wheel or Seller with respect to the Project Owner, 109 Wagon Wheel or the
Project has received any notice of deficiency or assessment from any
Governmental Entity for any amount of Tax that has not been fully settled or
satisfied, and no such deficiency or assessment is proposed, (iii) the Project
Owner and 109 Wagon Wheel have disclosed on their Tax Returns all positions
taken therein that could give rise to a substantial understatement of Taxes
within the meaning of Code Section 6662 or any similar statute or regulation
under state, local and foreign law, and (iv) none of the Project Owner, 109
Wagon Wheel or Seller with respect to the Project Owner, 109 Wagon Wheel or the
Project has executed any waiver of any statute of limitations on the assessment
or collection of any Tax.

(d)           There are no Tax Liens upon any
assets or property of the Project Owner or 109 Wagon Wheel except for statutory
liens for current Taxes not yet due and payable.

(e)           The Project Owner and 109 Wagon Wheel
are and always have been treated as disregarded entities for federal income tax
purposes.

(f)            Neither the Project Owner nor 109
Wagon Wheel is, nor has either one ever been, a party to any tax-sharing
agreement with any person.

2.11        Liabilities
and Obligations.

Except for Permitted
Obligations, neither the Project Owner nor 109 Wagon Wheel has any liabilities,
obligations or commitments of any nature, whether absolute, accrued, unaccrued,
express or implied, unmatured, known or unknown, contingent or otherwise, or
any unsatisfied judgments.

2.12        Licenses and Permits.

The Project Owner
possesses all discretionary approvals from Governmental Entities to permit
development of the Project and will, as part of the development of the Project,
obtain all additional Governmental Authorizations necessary or appropriate for
the development and construction of the Project.  The Project Owner is not in default, nor has
it received any written notice of, nor is there, to the knowledge of Seller or
the Project Owner, any threat to revoke or challenge any such Governmental
Authorizations.  None of the Project
Owner, 109 Wagon Wheel, or the Seller with respect to the Project Owner, 109
Wagon Wheel or the Project has been notified by any person or authority that
such person or authority has rescinded, restricted, or not renewed, or intends
to rescind, restrict or not renew, any Governmental Authorizations or that
penalties or other disciplinary action has been, is threatened to, or will be
assessed or taken against the Project Owner, 109 Wagon Wheel or the Property.

2.13        Property.

(a)           Parties
in Possession.  There are no parties
in possession of any portion of the Property except Project Owner and tenants
under the Tenant Leases.

(b)           Service Contracts.  The Service Contracts delivered to Purchaser
are true, correct and complete copies of all material contracts and agreements
relating to the ownership, operation or leasing of the Property entered into by
Project Owner (except Tenant Leases, the 

 16
 

 

documents evidencing the Construction Loan,
the documents or agreements described or listed on the Permitted Exceptions).

(c)           Rollback Taxes.  No part or portion of the Property has been
assessed as having an agricultural use under NRS Chapter 361A; and therefore
the Property will not be subject to agricultural tax liens, regardless of
future uses of the Property.

(d)           Utilities.  All utilities required for the construction
and operation Project, including, without limitation, storm sewer, sanitary sewer,
natural gas, water, electricity and telephone are available in adequate
capacity to the Land.

(e)           Equipment.  Except as set forth on Schedule 2.13(d),
all machinery, equipment, computer hardware and software, vehicles or other
Personal Property owned by the Project Owner for the conduct of the businesses
of the Project Owner (i) have been maintained by Seller or the Project Owner in
accordance with maintenance practices that are standard for Trammell Crow
Residential and (ii) are in good condition and repair.

(f)            Contracts.  On the Closing Date, the only written
agreements, contracts, notes, bonds, debentures, indentures, mortgages,
promises and understandings to which the Project Owner or 109 Wagon Wheel is a
party or assignee (the “Contracts”)
will be only of the type that are Permitted Obligations.  The Project Owner is not in breach or default
of any material provision of any Contract, nor has Seller, the Project Owner or
109 Wagon Wheel received any notice or other communication alleging such a breach
or default.  None of the Seller, the
Project Owner nor 109 Wagon Wheel has received any notice of termination or
other indication that any party to any Contract will terminate, fail to renew,
fail to recognize the validity of, any material Contract.   All rights of the Project Owner under the
Contracts will be enforceable by the Project Owner after the Closing without
the consent or agreement of any other party.

2.14        Employees; Benefit
Plans.

Neither the Project Owner
nor 109 Wagon Wheel has any employees, and neither entity has ever had any
employees.  Neither the Project Owner nor
109 Wagon Wheel has ever maintained, sponsored, participated in or contributed
to, or been required to contribute to, nor will the Project Owner or 109 Wagon
Wheel be subject to any obligation, responsibility or liability with respect
to, any Employee Benefit Plan or Seller/ERISA Affiliate Benefit Plan (as
defined below). “Employee Benefit Plans” means
collectively any “employee benefit plan” as defined by Section 3(3) of ERISA, “multiemployer
plan,” as defined in Section 4001 of ERISA, “employee pension benefit plan” (as
defined in Section 3(2) of ERISA) that is subject to Title IV of ERISA or
Section 412 of the Code, specified fringe benefit plan as defined in Section
6039D of the Code, or other bonus, incentive compensation, deferred
compensation, profit sharing, stock option, stock appreciation right, stock
bonus, stock purchase, employee stock ownership, savings, severance,
supplemental unemployment, layoff, salary continuation, retirement, pension,
health, life insurance, dental, disability, accident, group insurance,
vacation, holiday, sick leave, fringe benefit or welfare plan, and any other
employee compensation or benefit plan (whether qualified or nonqualified,
currently effective or terminated, written or unwritten), or any trust, escrow
or other agreement related thereto. “Seller/ERISA Affiliate Benefit Plan” means any
Employee Benefit Plan which any trade or business (whether or not incorporated)
which is or at any time within the six (6) year period preceding the date of
this Agreement would have been treated as a “single employer” with the Project
Owner under Section 414(b), (c), (m), or (o) of the Code (“ERISA Affiliate”)
maintains, 

 17
 

 

sponsors, participates
in, contributes to, or is required to contribute to, or with respect to which
the Project Owner, 109 Wagon Wheel or any ERISA Affiliate has any obligation or
liability (contingent or otherwise).

2.15        Conduct of Business.

(a)           Changes.  Since their date of formation neither of the
Project Owner nor 109 Wagon Wheel has (i) authorized or issued any equity
securities; granted any option or right to purchase any equity securities;
issued any security convertible into equity securities; granted any
registration rights; or purchased, redeemed, retired, or otherwise acquired any
equity securities; (ii) amended its organizational documents other than to
change its name; (iii) sold or transferred any assets except in the
ordinary course of business consistent with the construction and operation of
the Project; (iv) mortgaged or pledged any assets or been subjected to any
Lien or other encumbrance other than pursuant to the Construction Loan, the
Mezzanine Loans and the Permitted Exceptions; (v) incurred or become subject
to any debt, liability or lease obligation, other than pursuant to the
Construction Loan or the Mezzanine Loans, or, with respect to the Project
Owner, the Permitted Obligations; (vi) incurred obligations or entered
into contracts other than the Construction Loan, the Mezzanine Loans or the
Permitted Obligations or construction contracts for the Project;
(vii) suffered any damage, destruction or loss of any assets;
(viii) waived or relinquished any material rights or canceled or
compromised any material debt or claim owing to it, in either case, without
adequate consideration or not in the ordinary course of business consistent
with the construction and operation of the Project; or (ix) agreed to do
any of the foregoing.

(b)           No
Adverse Change.  Since the date of formation
of the Project Owner, the Project Owner has conducted its business only in the
ordinary course for the acquisition of the Land and the construction and
operation of the Project consistent with prevailing industry practices.  Since the date of formation of 109 Wagon
Wheel, 109 Wagon Wheel has conducted its business only in the ordinary course.

2.16        Books and Records.

The Project Owner’s and
109 Wagon Wheel’s books and records, including without limitation all financial
records, business records, minute books and equity transfer records,
(a) are complete and correct in all material respects and all transactions
to which the Project Owner is or has been a party are accurately reflected
therein, (b) have been maintained in accordance with customary and sound
business practices in the Project Owner’s industry, and (c) accurately
reflect the assets, liabilities, financial position and results of operations
of the Project Owner in all material respects. 
All computer-generated reports and other computer data included in
such books and records are complete and correct in all material respects and
were prepared in accordance with sound business practices based upon authentic
data.

2.17        Compliance with Laws.

None of the Project
Owner, 109 Wagon Wheel, or the Seller with respect to the Project Owner, 109
Wagon Wheel or the Project has violated any judgment, writ, decree, order, law,
statute, rule or regulation to which it is subject or a party, or by which the
businesses or assets of the Project Owner are bound or affected (collectively, “Legal Requirements”),
other than any Legal Requirement the 

 18
 

 

violation of which would
not have a materially adverse effect on the Project Owner.  None of the Project Owner, 109 Wagon Wheel,
or the Seller with respect to the Project Owner, 109 Wagon Wheel or the Project
has received notice of any actual, alleged or potential violation of a Legal
Requirement by the Project Owner, 109 Wagon Wheel or the Seller with respect to
the Project Owner, 109 Wagon Wheel or the Project other than violations that
have been corrected and for which no legal action is pending or
threatened.  None of the Project Owner,
109 Wagon Wheel, or the Seller with respect to the Project Owner, 109 Wagon
Wheel or the Project, nor any of their former or current officers, directors,
employees (which neither Project Owner nor 109 Wagon Wheel is permitted to have
pursuant to the terms of this Agreement), agents or representatives (acting on
behalf of the Project, the Project Owner or 109 Wagon Wheel) has made or agreed
to make, directly or indirectly, any (i) bribes or kickbacks, illegal
political contributions, payments from funds not recorded on books and records,
or funds to governmental officials (or any such official’s family members or
affiliates) for the purpose of affecting their action or the action of the
government they represent, to obtain favorable treatment in securing business
or licenses or to obtain special concessions, (ii) illegal payments from
corporate funds to obtain or retain business or (iii) payments from
corporate funds to governmental officials for the purpose of affecting their
action or the action of the government they represent, to obtain favorable
treatment in securing business or licenses or to obtain special concessions.

2.18        Environmental Matters.

(a)           109
Wagon Wheel, the Project Owner and the Project are, and since their formation
or commencement, as applicable, have been in compliance with all applicable
Environmental Laws (defined below).  None
of 109 Wagon Wheel, the Project Owner, nor the Seller with respect to the 109
Wagon Wheel, the Project or the Project Owner, has received notice of any
obligation, liability, order, settlement, judgment, injunction or decree
relating to or arising under Environmental Laws which has not been resolved to
the satisfaction of the appropriate Governmental Entities.  No facts, circumstances or conditions exist
with respect to the Project Owner or the Project that could give rise to
Environmental Liabilities applicable to the Project or the Wagon Wheel
Membership Interest.

(b)           The
109 Wagon Wheel’s and the Project Owner’s use, handling, manufacture,
treatment, processing, storage, generation, Release, discharge and disposal of
Hazardous Materials in connection with past and current operations complied and
complies with applicable Environmental Laws then in effect.

(c)           For
purposes of this Agreement:

(1)           “Environmental
Laws” collectively
shall mean all present and future laws (whether common law, statute, rule,
order, regulation or otherwise), permits, and other requirements or guidelines
of governmental authorities applicable to the Property and relating to the
environment and environmental conditions or to any Hazardous Materials or
Hazardous Materials Activity (including the Comprehensive Environmental
Response Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et
seq., the Federal Resource Conservation and Recovery Act of 1976, 42 U.S.C.
§§ 6901 et seq., the Hazardous Materials Transportation Act, 49
U.S.C. §§ 6901 et seq., the Federal Water Pollution Control Act, 33
U.S.C. §§ 1251 et seq., the Clean Air Act, 33 U.S.C. §§ 7401 et seq.,
the Clean Air Act, 42 

 19
 

 

U.S.C. §§ 7401 et seq., the Toxic
Substances Control Act, 15 U.S.C. §§ 2601-2629, the Safe Drinking
Water Act, 42 U.S.C. §§ 300f-300j, the Emergency Planning and
Community Right-To-Know Act, 42 U.S.C. §§ 1101 et seq.,
the Clean Water Act, 33 U.S.C. § 1251 et seq. and any so-called “Super
Fund” or “Super Lien” law, environmental laws administered by the Environmental
Protection Agency, or any similar state and local laws and regulations, as well
as all amendments thereto and all regulations, orders, decisions, and decrees
now or hereafter promulgated thereunder).

(2)           “Environmental
Liabilities” means, all
liabilities, obligations, responsibilities, remedial actions, losses, damages,
costs and expenses (including all reasonable fees, disbursements and expenses
of counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim or demand by any other person arising under any Environmental Law.

(3)           “Release” means
any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, disposing or migrating into or through
the environment or any natural or man-made structure.

2.19        No
Bankruptcy.

No bankruptcy,
insolvency, rearrangement or similar action involving the Project Owner or 109
Wagon Wheel, whether voluntary or involuntary, is pending or threatened, and neither
the Project Owner nor 109 Wagon Wheel has ever: (i) filed a voluntary petition
in bankruptcy; (ii) been adjudicated a bankrupt or insolvent or filed a
petition or action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any federal
bankruptcy act or any other laws; (iii) sought or acquiesced in the appointment
of any trustee, receiver or liquidator of all or any substantial part of its
properties, the Property or any portion thereof; or (iv) made an assignment for
the benefit of creditors or admitted in writing its or his inability to pay its
or his debts generally as the same become due.

2.20        Bank
Accounts.  Except as disclosed
in writing to Purchaser, neither Project Owner nor 109 Wagon Wheel has any
account or safe deposit box at any bank or financial institution.

2.21        Terrorism.

None of Seller, Project
Owner or 109 Wagon Wheel, nor any of their respective partners, members,
shareholders or other equity owners, and none of their respective employees,
officers, directors, representatives or agents, (i) is a person or entity with
whom U.S. persons or entities are restricted from doing business 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 Property and Prohibiting Transactions with Persons Who Commit, Threaten
to Commit, or Support Terrorism), or other governmental action relating to
terrorist activities or money laundering and (ii) is engaged in any dealings or
transactions or be otherwise associated with such persons or entities.

 20
 

 

2.22        Brokers and Finders Fees.

No person is entitled to
any fee from Seller or Project Owner as a broker or finder as a result of the
sale of the Wagon Wheel Membership Interest.

2.23        Full Disclosure.

The representations and
warranties of the Seller contained in this Agreement and the instruments,
documents, certificates and schedules delivered herewith contain no untrue
statement of a material fact and, when taken together as a whole, do not omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading.

Conditions
Disclaimers.  EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES IN THIS ARTICLE II, SELLER
SPECIFICALLY DISCLAIMS ALL WARRANTIES OR REPRESENTATIONS OF ANY KIND OR
CHARACTER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE (INCLUDING WARRANTIES OF
HABITABILITY, MERCHANTABILITY, WORKMANLIKE CONSTRUCTION AND FITNESS FOR USE OR
ACCEPTABILITY FOR THE PURPOSE INTENDED BY PURCHASER) WITH RESPECT TO THE
PROPERTY OR ITS CONDITION.  THE
DISCLAIMERS IN THIS PARAGRAPH SPECIFICALLY EXTEND TO (1) MATTERS RELATING TO
HAZARDOUS MATERIALS AND COMPLIANCE WITH ENVIRONMENTAL LAWS, (2) GEOLOGICAL
CONDITIONS, INCLUDING SUBSIDENCE, SUBSURFACE CONDITIONS, WATER TABLE,
UNDERGROUND STREAMS AND RESERVOIRS AND OTHER UNDERGROUND WATER CONDITIONS,
LIMITATIONS REGARDING THE WITHDRAWAL OF WATER, EARTHQUAKE FAULTS, AND MATTERS
RELATING TO FLOOD PRONE AREAS, FLOOD PLAIN, FLOODWAY OR SPECIAL FLOOD HAZARDS,
(3) DRAINAGE, (4) SOIL CONDITIONS, INCLUDING THE EXISTENCE OF UNSTABLE SOILS,
CONDITIONS OF SOIL FILL, SUSCEPTIBILITY TO LANDSLIDES, AND THE SUFFICIENCY OF
ANY UNDERSHORING, (5) THE VALUE AND PROFIT POTENTIAL OF THE PROPERTY, (6)
DESIGN, QUALITY, SUITABILITY, STRUCTURAL INTEGRITY AND PHYSICAL CONDITION OF
THE PROPERTY AND (7) COMPLIANCE OF THE PROPERTY WITH ANY LAWS (INCLUDING
BUILDING CODES AND SIMILAR LAWS, THE AMERICANS WITH DISABILITIES ACT OF 1990
AND THE FAIR HOUSING AMENDMENTS ACT OF 1988). 
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE II
OF THIS AGREEMENT, PURCHASER IS ACQUIRING THE WAGON WHEEL MEMBERSHIP INTERESTS
WITH THE UNDERSTANDING THAT THE PROPERTY IS “AS IS” AND “WHERE IS” AND SUBJECT
TO ALL FAULTS, DEFECTS OR OTHER ADVERSE MATTERS.  EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT, UPON CLOSING PURCHASER WILL ASSUME ALL RISKS OF THE PROPERTY,
INCLUDING ADVERSE STRUCTURAL, PHYSICAL, ECONOMIC OR ENVIRONMENTAL CONDITIONS OF
THE PROPERTY THAT MAY THEN EXIST, WHETHER OR NOT REVEALED BY THE INSPECTIONS
AND INVESTIGATIONS CONDUCTED BY PURCHASER. 
THIS PARAGRAPH SHALL NOT BE CONSTRUED TO LIMIT ANY RIGHTS OR CLAIMS THE
PROJECT OWNER MAY HAVE AGAINST THE GENERAL CONTRACTOR PURSUANT TO THE
CONSTRUCTION CONTRACT OR ANY CLAIMS AGAINST ANY SUBCONTRACTOR OR SUPPLIER
RELATIVE TO THE DEVELOPMENT AND CONSTRUCTION OF THE PROJECT.  Purchaser acknowledges and agrees that the
disclaimers, waivers, releases and other provisions set forth in this paragraph
are an integral part of this Agreement and that Seller would not have agreed to
complete the transaction on 

 21
 

 

the terms provided in
this Agreement without the disclaimers, waivers, releases and other provisions
set forth in this paragraph.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby
represents and warrants to Seller as follows:

3.1          Existence.

Purchaser is a Delaware
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has the requisite power and
authority to own its assets and to carry on its business as it is now being
conducted.

3.2          Power and Authority.

(a)           Purchaser
has the full legal right, power and authority to enter into this Agreement and
all agreements and other documents executed and delivered by it pursuant to
this Agreement and to consummate the purchase of the Wagon Wheel Membership
Interest and the other transactions contemplated hereby or thereby;

(b)           Purchaser
has duly and properly taken all action required by law and its Organizational
Documents to authorize the execution, delivery and performance of this
Agreement and any related documents and the consummation of the Membership
Interest Purchase; and

(c)           This
Agreement and all agreements and documents executed by Purchaser and delivered
to Seller in connection herewith have been duly executed and delivered by
Purchaser and constitute the legal, valid and binding obligations of Purchaser
enforceable against Purchaser in accordance with their respective terms.

3.3          No Violation.

The execution and
delivery of this Agreement and the agreements executed and delivered by
Purchaser pursuant to this Agreement, do not, and the consummation of the
actions contemplated hereby or thereby will not, (i) violate, contravene or
conflict with any provision of the Organizational Documents of Purchaser, (ii)
violate, contravene or conflict with any provisions of, result in the
acceleration of any obligation under, constitute a default or breach under, or
give any right of termination or cancellation under, any material mortgage,
Lien, lease, agreement, rent, contract, note, instrument, debenture, license,
order, arbitration award, judgment or decree to which Purchaser is a party or
by which Purchaser is bound, or (iii) violate, contravene or conflict with any
law, rule or regulation to which Purchaser is subject.

3.4          Brokers and Finders Fees.

No person is entitled to
any fee from Purchaser as a broker or finder as a result of the purchase of the
Wagon Wheel Membership Interest.

 22
 

 

 

3.5          Investment Representations.

(a)           Suitability
as a Purchaser of the Wagon Wheel Membership Interest.  Purchaser (i) is an “accredited investor,” as
that term is defined in Regulation D under the Securities Act and has such
knowledge, skill and experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Wagon Wheel
Membership Interest and the suitability thereof as an investment for it,
(ii) understands that an investment in the Wagon Wheel Membership Interest
involves a risk of financial loss, and (iii) understands that the Wagon Wheel
Membership Interest has not been registered under the Securities Act or any
state securities laws and that the Wagon Wheel Membership Interest may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act and comparable state securities laws or an exemption therefrom.

(b)           Investment.  Purchaser has not entered into any agreement
to exchange the Wagon Wheel Membership Interest with any other party.  Purchaser is acquiring the Wagon Wheel
Membership Interest for investment for its own account and not with a view to,
or for resale in connection with, any distribution thereof in violation of
federal and state securities laws.

3.6          Consents.

No consent,
authorization, permit, license or filing with any governmental authority,
lender, lessor, landlord, manufacturer, supplier or other person or entity is
required to authorize, or is required in connection with, the execution,
delivery and performance by Purchaser of this Agreement and the agreements and
documents contemplated hereunder to be entered into by the Purchaser or the
transfer of the Wagon Wheel Membership Interest.

3.7          Terrorism.

None of Purchaser, nor
any of its respective members or other equity owners, and none of its
respective employees, officers, directors, representatives or agents, (i) is a
person or entity with whom U.S. persons or entities are restricted from doing
business under regulations of the OFAC (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 Property and
Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or
Support Terrorism), or other governmental action relating to terrorist
activities or money laundering and (ii) is engaged in any dealings or transactions
or be otherwise associated with such persons or entities.

ARTICLE IV.

POST-CLOSING AGREEMENTS

4.1          Further Action.

From and after the
Closing, each party hereto shall perform such further acts and execute such
documents, and otherwise cooperate with the other parties hereto, as may be
reasonably required to effectuate the Membership Interest Purchase and the
other transactions contemplated hereby.

 23
 

 

4.2          Receipt of Payments and
Correspondence.

From and after the
Closing:

(a)           If
either party at any time comes into possession of any assets that are the
property of the other party, the receiving party shall deliver such assets over
to the other party within three (3) business days.

(b)           If
after Closing Seller shall receive any communications or correspondence
pertaining to 109 Wagon Wheel, the Project Owner or their businesses, Seller
shall promptly forward such communication or correspondence to Purchaser.  Without limiting the generality of the
foregoing, in the event that, after the Closing, Seller receives any telephonic
or electronic communications (including without limitation electronic mail) of
109 Wagon Wheel or the Project Owner, Seller shall immediately (and, with
regard to written communications, within three days) direct such communications
or inquiries to a telephone number, address or electronic mail address, as
applicable, provided by Purchaser.

4.3          Inspection of Records.

From and after the
Closing, each party shall retain and make its books and records (including work
papers in the possession of its accountants) available for inspection and
copying by the other party and its Representatives, for reasonable business
purposes related to 109 Wagon Wheel, the Project Owner and the Membership
Interest Purchase upon reasonable notice and at all reasonable times during
normal business hours, for a three year period after the date hereof.  Each party also shall make such books and
records available for inspection and copying by the other party and its
Representatives, in the manner described above, for a seven year period, to the
extent required in connection with any litigation or Tax audit or inquiry
relating thereto.  In the event of any
litigation or threatened litigation between the parties relating to this Agreement
or the transactions contemplated hereby, the covenants contained in this Section
4.3 shall not be considered a waiver by any party of any right to assert
the attorney-client or other privilege.

4.4          Transfer
Taxes.

  Seller shall be responsible for, and pay and
discharge in full, any sales, transfer or similar Taxes resulting from the
consummation of the transactions contemplated by this Agreement.

4.5          Tax Covenants.

(a)           Seller
shall be responsible for all Taxes (including without limitation, for this
purpose, Taxes that are due with respect to Tax Returns that are required to be
filed by 109 Wagon Wheel or the Project Owner for the taxable period ended on
or before the Closing Date) of 109 Wagon Wheel or the Project Owner with
respect to any and all periods, or portions thereof, ending on or before the Closing Date (the “Pre-Closing Date Period”)
and for all claims, losses, liabilities, obligations, damages, impositions,
assessments, demands, judgments, settlements, costs and expenses with respect
to such Taxes.  Without limiting the generality
of the foregoing, Seller shall be responsible for and shall promptly pay and
reimburse the Purchaser for any and all Taxes arising or resulting from 109
Wagon Wheel’s or the Project Owner’s qualification or failure thereof to
transact business as a foreign entity in any state for all Pre-Closing Date
Periods.  Purchaser
shall be liable 

 24
 

 

for Taxes of 109 Wagon Wheel or the Project Owner with respect to any
and all periods, or portions thereof, beginning after the Closing Date (the “Post-Closing Date Periods”)
and for any and all claims, losses, liabilities, obligations, damages,
impositions, assessments, demands, judgments, settlements, costs and expenses
with respect to such Taxes.  Any and all
transactions and the events contemplated by this Agreement that occur at or
prior to the Closing Date shall be deemed to have occurred in the Pre-Closing
Date Periods.  Any and all transactions
or events that occur on the Closing Date but after the Closing shall be deemed
to have occurred in the Post-Closing Date Period.

(b)           In
the case of any Taxes that are attributable to a taxable period that begins
before the Closing Date and ends after the Closing Date, the amount of Taxes
attributable to the Pre-Closing Date Period shall be determined as follows:

(1)           In
the case of property (ad valorem), franchise or similar Taxes imposed on 109
Wagon Wheel or the Project Owner based on capital (including net worth or
long-term debt) or number of shares of stock authorized, issued or outstanding,
the portion attributable to the Pre-Closing Date Period shall be the amount of
such Taxes for the entire taxable period multiplied by a fraction, the
numerator of which is the number of days in the Pre-Closing Date Period and the
denominator of which is the number of days in the entire taxable period;
provided, however, the amount of tax attributable to the Pre-Closing Date
Period shall not exceed the amount of tax 109 Wagon Wheel or the Project Owner,
as applicable, would have paid if its taxable period ended on the Closing Date.

(2)           In
the case of all other Taxes, the portion attributable to the Pre-Closing Date
Period shall be determined on the basis of an interim closing of the books of
109 Wagon Wheel or the Project Owner as of the Closing Date, and the
determination of the hypothetical Tax for such Pre-Closing Date Period shall be
determined on the basis of such interim closing of the books, without
annualization.  The hypothetical Tax for
any period shall in no case be less than zero ($0).  Taxes attributable to the Pre-Closing Date
Period shall be determined under the same method of accounting used by 109
Wagon Wheel or the Project Owner during that period.

(c)           Seller
shall prepare and timely file, or cause to be timely filed, for the Project
Owner and 109 Wagon Wheel, with reasonable assistance of Project Owner and 109
Wagon Wheel, Tax Returns that are required by law to be filed for the taxable
period ended on or before the Closing Date. 
Seller shall, at least twenty (20) days prior to filing such Tax
Returns, provide a copy of such Tax Returns to Purchaser.  Purchaser shall, within ten (10) days of
receiving such Tax Returns, advise Seller regarding any matters in such Tax
Returns that it considers detrimental to Purchaser, 109 Wagon Wheel or the
Project Owner, and with which it disagrees. 
In such case, Seller and Purchaser shall use reasonable best efforts to
reach a timely and mutually satisfactory solution to the disputed matters.  Seller shall provide to Purchaser a copy of
all such Tax Returns together with the work papers and schedules utilized in
their preparation.  Purchaser, 109 Wagon
Wheel, the Project Owner and Seller shall cooperate fully, as and to the extent
reasonably requested, in connection with the filing of Tax Returns and any
audit, litigation or other proceeding with respect to Taxes and Tax Returns
(which Seller shall control and remain responsible for with respect to the
Pre-Closing Date Periods).  Such
cooperation shall include the retention, and (upon the other party’s request)
the provision, of records and information that are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide 

 25
 

 

additional information and explanation of any material provided
hereunder; provided that the party requesting assistance shall pay the
reasonable out-of-pocket expenses incurred by the party providing such
assistance; and provided further that no party shall be required to provide
assistance at times or in amounts that would interfere unreasonably with the
business and operations of such party. 
Purchaser agrees to retain all books and records, with respect to tax
matters pertinent to Project Owner and 109 Wagon Wheel relating to any
Pre-Closing Date Periods, and to any tax periods beginning before the Closing
Date and ending after the Closing Date, until the expiration of any applicable
statute of limitations or extensions thereof.

(d)           At
least ten (10) days prior to the Closing Date, Purchaser shall submit a written
schedule that sets forth Purchaser’s proposed allocation of the Purchase Price,
in relative percentages for each type of asset being acquired, which schedule
shall be delivered to Seller for Seller’s consent thereto, which consent shall
not be unreasonably withheld.  If Seller
objects to Purchaser’s written schedule, Purchaser and Seller shall use
reasonable efforts to create a written schedule in a form mutually agreeable to
both parties.  Prior to the Closing Date,
Purchaser shall prepare Internal Revenue Service
Form 8594, Asset Acquisition Statement Under Section 1060 (“Form 8594”),
in conformity with the written schedule as determined in accordance with this
Section.  Purchaser and Seller shall
attach such Form 8594 to their respective tax returns for the applicable tax
year, and to the extent that the Purchase Price is adjusted, consistently
revise and amend the allocation schedule and Form 8594 as necessary.  The allocation derived pursuant to this
Section shall be binding on Purchaser and Seller for all tax reporting purposes
and neither Purchaser nor Seller (or any
of their respective affiliates) shall take any position (whether in tax
returns, tax audits, or other administrative or court proceedings with
respect to taxes) that is inconsistent with such allocation unless required to
do so by applicable law.

4.6          Audit.

Purchaser has advised
Seller that Purchaser must cause to be prepared up to three (3) years of
audited financial statements in respect of the Property in compliance with the
policies of Purchaser and certain laws and regulations, including, without
limitation, Securities and Exchange Commission Regulation S-X. Seller agrees to
use reasonable efforts to cooperate with Purchaser’s auditors in the
preparation of such audited financial statements (it being understood and
agreed that the foregoing covenant shall survive the Closing). Without limiting
the generality of the preceding sentence (i) Seller shall, during normal
business hours, allow Purchaser’s auditors reasonable access to such books and
records maintained by Seller (and Seller’s manager of the Property) in respect
of the Property as necessary to prepare such audited financial statements; (ii)
Seller shall use reasonable efforts to provide to Purchaser such financial
information and supporting documentation in the possession of Seller or as are
necessary for Purchaser’s auditors to prepare audited financial statements;
(iii) if Purchaser or its auditors require any information that is in the
possession of the party from which Seller purchased the Property, Seller shall
contact such prior owner of the Property and use commercially reasonable
efforts to obtain from such party the information requested by Purchaser; (iv)
Seller will make available for interview by Purchaser and Purchaser’s auditors
the agents or representatives of Seller responsible for the day-to-day
operation of the Property and the keeping of the books and records in respect
of the operation of the Property; and (v) if Seller has audited financial
statements with respect to the Property, Seller shall promptly provide
Purchaser’s auditors with a copy of such audited financial statements. If after
the Closing Date Seller obtains an audited financial statement in respect of
the Property for a fiscal period prior to the Closing Date that 

 26
 

 

was not completed as of
the Closing Date, then Seller shall promptly provide Purchaser with a copy of
such audited financial statement, and the foregoing covenant shall survive
Closing.  It shall be a condition
precedent to the obligations of Purchaser under this Agreement that Seller
shall have materially complied with the covenants set forth in this Section 4.6
as of the Closing Date.

ARTICLE V.

REMEDIES

5.1          Purchaser’s Remedies.

(a)           Survival of Representations and Warranties.   All representations and warranties
of Seller (i) under Article II of this Agreement and (ii) set forth in
the Seller Closing Certificate shall survive the Closing for twelve months
following the Closing, at which date such representations and warranties shall
terminate, except that liability arising from or related to the representations
and warranties in Section 2.1, Section 2.2, Section 2.3, Section
2.4(a), Section 2.5, Section 2.9, Section 2.10, Section
2.11, and Section 2.14 (and the corresponding provisions of the
Seller Closing Certificate) shall survive indefinitely.  Notwithstanding the preceding sentence, any
representation or warranty in respect of which indemnity may be sought under
this Section 5.1 shall survive the time at which it would otherwise
terminate pursuant to the foregoing provisions of this Section 5.1, if
notice of the inaccuracy or breach thereof giving rise to such right to
indemnity shall have been given to the Seller by Purchaser prior to such
time.  The consummation of the Closing
shall not affect the other covenants and obligations of the parties hereto.

(b)           Indemnification of Purchaser.  Seller shall indemnify,
defend and hold harmless Purchaser, 109 Wagon Wheel and the Project Owner from
and against and in respect of, and promptly reimburse such entities for the
amount of, any and all losses, costs, fines, liabilities, deficiencies,
obligations, claims, penalties, damages, settlements, awards and expenses
(including without limitation reasonable expenses of investigation and defense,
and reasonable legal fees and expenses) (collectively “Losses”) resulting
from, in connection with or arising out of, directly or indirectly:

(1)           subject
to Section 5.1(a), any breach of any representation or warranty of
Seller in this Agreement, including any certificate or document delivered by
Seller in connection with the transactions contemplated hereby;

(2)           any
breach of any covenant or obligation made by Seller in this Agreement,
including any certificate or document delivered by Seller in connection with
the transactions contemplated hereby;

(3)           subject
to Section 5.3, if the Closing occurs, (i) any activity or event involving the
Property and occurring before Closing, other than as a consequence of acts, or
when under a duty to act, omissions of Purchaser or any of its affiliates or
any of their respective representatives, consultants or contractors, (ii)
failure of the Project Owner to perform any obligation under any Contract prior
to Closing, (iii) misapplication of deposits prior to Closing, or (iv) any
liability or obligation of the Project Owner or 109 Wagon Wheel existing as of
Closing other than Permitted Obligations; and

(4)           any
action, suit or proceeding relating to any of the foregoing.

 27
 

 

 

(c)           Specific Performance.  It
is understood that Seller’s breach of this Agreement may materially and
irreparably harm Purchaser, and that money damages may accordingly not be an
adequate remedy for any breach of this Agreement, and that Purchaser, in its
sole discretion and in addition to any other remedies it may have at law or in equity
may apply to any court of law or equity of competent jurisdiction (without
posting any bond or deposit) for specific performance or other injunctive
relief in order to enforce or prevent any violations of this Agreement.

5.2          Seller’s Remedies.

(a)           Indemnification of Seller.  Purchaser shall indemnify, defend and hold
harmless Seller from and against and in respect of, and promptly reimburse
Seller for the amount of, any and all Losses resulting from, in connection with
or arising out of, directly or indirectly:

(1)           subject
to Section 5.3, if the Closing occurs (i) any activity or event involving the
Property and occurring after Closing, (ii) failure of the Project Owner to
perform any obligation under any Contract following Closing, (iii) failure to
properly apply deposits for which Purchaser receives a credit hereunder, or
(iv) performance or nonperformance of the Permitted Obligations after the
Closing; and

(2)           any
action, suit or proceeding relating to any of the foregoing.

(b)           Nonperformance by Purchaser.  Except with regard to Purchaser’s indemnity
obligations detailed in this Agreement, Seller’s sole and exclusive remedy for
any Purchaser breach of, misrepresentation under, or nonperformance of this
Agreement, or any other act or omission of Purchaser or its affiliates related
to this Agreement or the transactions contemplated hereby including, without
limitation, the failure of Purchaser to consummate the transactions
contemplated hereby, shall be to terminate the Purchase Option and the Put
Option, and Seller shall have no other remedy at law or equity pursuant to this
Agreement or otherwise against any person or entity, any such other remedy
being expressly waived. Purchaser’s breach of, misrepresentation under, or
nonperformance of this Agreement, or any other act or omission of Purchaser or
its affiliates related to this Agreement or the transactions contemplated
hereby, shall not affect the rights and obligations under the Mezzanine
Loans.  Notwithstanding the foregoing, if
upon application to the outstanding balance of the Mezzanine Loans of the
proceeds from the sale of the Property as permitted by Section 1.7(f),
the Mezzanine Loans are not paid in full, Purchaser shall cause to be
discharged the remaining balance of the Mezzanine Loans.

5.3          Indemnity Limits.

Neither Purchaser nor
Sellers will be liable under Section 5.1(b)(3) or 5.2(a)(1) in respect of
(i) Hazardous Materials existing on the Property (including in ground water,
soil or soil vapor or in the ambient air over the Property) as of the Closing,
or (ii) defects in the Improvements that exist as of Closing or non-compliance
of the Improvements with applicable laws that exist as of the Closing (but
without limiting any rights that the Project Owner may have under the
Construction Contract).  The limitations
of this Section 5.3 do not extend to personal injury, loss of property
(other than the Property) or death that results from Hazardous Materials,
defects in the Improvements or noncompliance of the Improvements with
applicable laws, responsibility for which will be 

 28
 

 

apportioned between
Seller and Purchaser in accordance with Section 5.1(b)(3) or 5.2(a)(1)
based on the time that the injury, loss or death occurs.

5.4          Arbitration.

  Except with respect to any action
by Purchaser for specific performance of this Agreement or any other
action for injunctive relief, which actions shall be commenced and resolved in
a court of competent jurisdiction, and except as otherwise expressly provided
herein, any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by binding arbitration in Dallas,
Texas, by a single arbitrator reasonably satisfactory to Purchaser and
Seller (provided, however, that if Purchaser and Seller are unable to agree
upon a mutually satisfactory arbitrator, then the arbitrator shall be selected
in accordance with the applicable rules of the American Arbitration
Association), in accordance with the rules of the American Arbitration
Association governing large, complex commercial disputes then in effect. 
Purchaser and Seller will share equally the total expense charged by the
American Arbitration Association and the arbitrator related to such arbitration
as those expenses become due; but each party shall bear its own legal, accounting
and all of its other fees and expenses related to the arbitration.  Such arbitration and determination shall be
final and binding on Purchaser and Seller, judgment may be entered upon such
determination and award in any court having jurisdiction thereof, and Purchaser
and Seller agree that no appeals shall be taken therefrom except as set forth
in 9 U.S.C. §10.  Notice of a demand for
arbitration of any dispute subject to arbitration by one party shall be made in
writing and simultaneously served on the other parties and filed with the
American Arbitration Association.  The
parties agree that after any such notice has been filed, they shall, before the
hearing thereof, make discovery and disclosure of all matters relevant to such
dispute, to the extent and in the manner provided by the applicable rules of
the American Arbitration Association. 
The arbitrator’s determination with respect to discovery shall be final
and conclusive.  Discovery and disclosure
shall be completed no later than ninety (90) days after filing of such notice
of arbitration unless extended by the arbitrator upon a showing of good cause
by a party to the arbitration.  The
arbitrator may consider any evidence which is relevant to the subject matter of
such dispute even if such evidence might also be relevant to issue or issues
not subject to arbitration hereunder.

ARTICLE VI.

GENERAL

6.1          Entirety and Modification.

This Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes any and all prior agreements and
understandings, whether oral or written, between the parties hereto relating to
such subject matter.  No modification,
alteration, amendment, waiver or supplement to this Agreement shall be valid or
effective unless the same is in writing and signed by all parties hereto.

6.2          Assignment; Successors and Assigns.

Except as specifically
provided otherwise in this Agreement, neither this Agreement nor any interest
herein shall be assignable (voluntarily, involuntarily, by judicial process,
operation of law or otherwise), in whole or in part, by any party without the
prior written consent of the other parties 

 29
 

 

hereto, and any such
attempted assignment shall be null and void. 
Notwithstanding the foregoing, Purchaser may, without the consent of any
other party assign its rights and obligations under this Agreement to an
Affiliate of Purchaser; provided, however, no such assignment shall affect the
rights and obligations of Purchaser to Seller under this Agreement.  This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto and their successors and
permitted assigns.

6.3          Expenses.  Except as otherwise provided herein,
Purchaser and Seller shall each pay their own respective fees and expenses
incurred in connection with the negotiation, execution, delivery and
performance of this Agreement.

6.4          Notices.

Any
and all notices and other communications hereunder shall be in writing
addressed to the parties at the addresses specified below or such other
addresses as a party may direct by notice given in accordance with this
Section, and shall be delivered in one of the following manners (a) by personal
delivery, in which case notice shall be deemed to have been duly given when
delivered; or (b) by reputable delivery service (including, by way of example
and not limitation, Federal Express, UPS and DHL) which makes a record of the
date and time of delivery, in which case notice shall be deemed to have been
duly given on the date indicated on the delivery service’s record of delivery:

If to Seller, to:

SW 108
Wagon Wheel JM LLC

2001
Bryan Street, Suite 3700

Dallas,
Texas 75201

Attention:
Timothy J. Hogan

with a copy to:

Jones
Day

325
John H. McConnell Blvd., Suite 600,

Columbus,
Ohio 43215

Attention:  Michael K. Ording

If
to Purchaser, to:

BEHRINGER HARVARD ALEXAN NEVADA, LLC

c/o Behringer Harvard Funds

15601 Dallas Parkway, Suite
600

Addison, Texas 72001

Attention:  Mark T. Alfieri

 30
 

 

 

with a copy to:

Behringer Harvard Funds

15601 Dallas Parkway, Suite 600

Addison, Texas 72001

Attention:  Chief Legal Officer

with an additional copy to:

Haynes and Boone, LLP

2505 North Plano Road, Suite 4000

Richardson, Texas 75082

Attention: Richard K.
Martin

6.5          Severability; Reformation.

In case any provision of
this Agreement shall be invalid, illegal or unenforceable, such provision shall
be reformed to best effectuate the intent of the parties and permit enforcement
thereof, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.  If such provision is not capable of
reformation, it shall be severed from this Agreement and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

6.6          No Waiver.

A party’s failure to
enforce any provision or provisions of this Agreement shall not in any way be
construed as a waiver of any such provision or provisions, nor prevent that
party thereafter from enforcing each and every other provision of this
Agreement.  The rights granted all
parties herein are cumulative and shall not constitute a waiver of a party’s
right to assert all other legal remedies available to it under the
circumstances.

6.7          Headings.

The headings of this
Agreement are inserted for convenience and identification only, and are in no
way intended to describe, interpret, define or limit the scope, extent or
intent hereof.

6.8          Counterparts; Facsimiles.

This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.  This Agreement and any other
document or agreement executed in connection herewith (other than any document
for which an originally-executed signature page is required by law) may be
executed by delivery of a facsimile copy of an executed signature page with the
same force and effect as the delivery of an originally-executed signature page.

 31
 

 

6.9          Governing Law.

This Agreement shall be
governed in all respects by, construed, interpreted and applied in accordance
with the internal laws of the State of Nevada, without regard to principles of
conflicts of laws that would refer the matter to the laws of another
jurisdiction.

[Remainder
of Page Intentionally Blank]

 32

 

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date and year first above
written.

	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  BEHRINGER HARVARD ALEXAN NEVADA, LLC, a Delaware

  
	
   

  	
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  SW 108 WAGON WHEEL JM LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SW 105 Wagon Wheel Limited
  Partnership, a Delaware 

  
	
   

  	
   

  	
  limited partnership, its
  sole member

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  SW 104 Development GP LLC, a
  Delaware limited 

  
	
   

  	
   

  	
  liability company, its
  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
								

 

SIGNATURE PAGE TO

OPTION AGREEMENT

 1

 

EXHIBIT A

DEFINITIONS

For purposes of the
Agreement to which this is an exhibit, the terms underlined in the paragraphs
of this exhibit shall have the meaning set forth next to the underlined term.

106 Membership Interest.  Defined in the Recitals.

109 Membership Interest.  Defined in the Recitals.

109 Wagon Wheel.  Defined in the Recitals of this
Agreement.

108 Wagon Wheel.  Defined in the preamble of this
Agreement.

Affiliate.  As to any person or entity, any corporation,
limited liability company or other business organization or person who or which
directly or indirectly through one or more intermediaries (a) is owned or
controlled by such person or entity, (b) owns or controls such person or entity
or (c) is under substantially common control with such person or entity.

Agreement.  This Option Agreement, its Exhibits and any
written amendments to this Option Agreement (including an amendment changing
Exhibits) that may be executed from time to time by Seller and Purchaser.

Architect.  Perlman Design Group.

Business Days.  Monday through Friday of each calendar week,
exclusive of federal holidays.

Closing.  Defined in Section 1.1(c).

Closing Date.  The date of the Closing.

Code.  Defined in Section 2.10.

Completion Date.   The date of satisfaction of the following:
(a)  the issuance of the final
certificate of occupancy for the Project, (b) the issuance of a certificate of
substantial completion from the Architect for the Project, (c) receipt of a
contractor’s release and the receipt of lien waivers or similar evidence of
payment from the General Contractor and all major subcontractors (i.e.,
subcontractors whose contract amount exceeds $100,000) for the Property to
Purchaser’s reasonable satisfaction.  If
Senior Lender shall deem the Project substantially complete, then the date of
such determination by the Senior Lender shall be the Completion Date.

Completion Notice.  Defined in Section 1.1(a).

Construction Contract.  The Owner-Contractor Agreement for
Construction Project of Limited Scope dated on or about the date hereof by and
between the Project Owner, as owner, and the General Contractor, as contractor
(including exhibits), regarding construction of the Project.

Option Agreement-Alexan at Nevada State Drive, Clark
County, Nevada

 A-1
 

 

Construction Loan.  Defined in the Recitals.

Disclosure Schedules.
Defined in Article II.

Employee Benefit Plans.  Defined in Section 2.14.

Environmental Laws.  Defined in Section 2.18(c).

Environmental Liability.  Defined in Section 2.18(c).

ERISA.  Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated from time to time under that
statute.

ERISA Affiliate.  Defined in Section 2.14.

Fee Title Purchase.
Defined in Section 1.1(g).

Form 8594.  Defined in Section 4.5(d).

General Contractor.  Vanguard, Inc.

Governmental Authorities.  Any and all federal, state, county, city,
town, other municipal corporation, governmental or quasi-governmental board,
agency, authority, department or body having jurisdiction over the Land or the
Project.

Governmental
Authorizations.  The
permits, variances, approvals and other actions which under Governmental
Requirements applicable to the Project have been or must be issued, granted, or
taken by Governmental Authorities in connection with the Project.

Governmental Entities.  Defined in Section 2.10.

Governmental Entity.  Defined in Section 2.10.

Governmental
Requirement(s). 
Building, zoning, subdivision, traffic, parking, land use, Environmental
Laws, occupancy, health, accessibility for disabled and other applicable laws,
statutes, codes, ordinances, rules, regulations, requirements, and decrees, of
any Governmental Authorizations pertaining (a) to the Improvements,
Project or Land or (b) to the use and operation of the Property for its
intended purpose.  This term shall
include the conditions or requirements of Governmental Authorizations.

Guaranteed Obligations.  The obligations of Seller to Purchaser
pursuant to Section 1.7(c) and Section 5.1(b).

Hazardous Materials.  At any time, (i) asbestos and asbestos containing
material, (ii) any substance that is then defined or listed in, or otherwise
classified pursuant to, any Environmental Laws as a “hazardous substance”, “hazardous
material”, “hazardous waste”, “infectious waste”, “toxic substance”, “toxic
pollutant” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, 

 A-2
 

 

carcinogenicity, toxicity, reproductive toxicity, or “EP
toxicity”, or (iii) any petroleum and drilling fluids, produced waters, and
other wastes associated with the exploration, development or production of
crude oil, natural gas, or geothermal resources or (iv) petroleum products,
polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter and
medical waste.

Hazardous Materials
Activity.  Any actual
use, packaging, labeling, treatment, leaching, spill, cleanup, storage,
holding, existence, release, threatened release, emission, discharge,
generation, processing, treatment, abatement, removal, disposition, handling or
transportation of any Hazardous Materials from, under, into or on the Property.

Improvements.  The following as described in the Plans:  (a) buildings constituting the apartment
project, including club house and amenities; (b) surface parking lots and
any structured parking; (c) associated driveways and loading areas;
(d) landscaping; and (e) associated water, storm drainage, sewage,
electrical, communications and other utilities facilities all as depicted in
and defined by the Plans.

Interest Charges.  Interest
paid or accrued on the Mezzanine Loans through the Closing Date.

Junior Mezzanine Loan.  Defined in the Recitals.

Land.  Defined in the Recitals.

Legal Requirements.  As defined in Section 2.17.

Liens.  Any claims, liens, mortgages, pledges,
security interests, charges, covenants, options, claims, voting arrangements,
restrictions on transfer, or other restrictions or encumbrances of any nature
whatsoever.

Limited Guarantors.  CFP Residential LP, a Texas limited partnership,
Kenneth Valach, an individual, J. Ronald Terwilliger, an individual and Bruce
Hart, an individual.

Limited Guaranty.  The Limited Guaranty of even date herewith
executed by the Limited Guarantors in substantially the form attached hereto as
Exhibit G attached hereto.

Losses.  Defined in Section 5.1(b).

Membership Interest
Purchase.  Defined in Section 1.1(f).

Mezzanine Loan Documents.  The documents evidencing or securing the
Mezzanine Loans.

Mezzanine Loans.  The Senior Mezzanine Loan and the Junior
Mezzanine Loan.

Money Liens.  Mortgages, statutory liens and any and all
other liens or charges on the Property.

Notifying Party.  Defined in Section 1.8(b).

 A-3
 

 

Off-Site Improvements.  Any and all off-site improvements required in
connection with Governmental Authorizations or otherwise required or agreed to
in connection with the development of the Improvements.

Organizational Documents.  Defined in Section 2.3(b).

Permitted Dispositions:  Any of the following:  (i) a Tenant Lease of an individual dwelling
unit for a term of two years or less not containing an option to purchase; (ii)
the sale of obsolete, worn out or damaged property or fixtures that is
contemporaneously replaced by items of equal or better function and quality,
which are free of liens, encumbrances and security interests other than
Permitted Exceptions; (iii) any sale that results from theft, condemnation or
other involuntary conversion; (iv) the sale (including through consumption) of
personal property in the ordinary course of business that is contemporaneously
replaced by items of equal or better function and quality; (v) the grant of an
easement if, before the grant, Purchaser determines (which determination must
be made reasonably) that the easement will not materially affect the operation
or value of the Project; and (vi) the creation of (1) a lien for taxes,
assessments or other governmental charges or levies that are not then due or
that are being contested in good faith and in accordance with applicable
statutory procedures or (2) a mechanic’s, lien against the Project which is
bonded off, released of record or otherwise remedied to Purchaser’s reasonable
satisfaction within 30 days of the date of creation.

Permitted Exceptions.  All of (a) those matters of title and survey
which affect the Property and are described on Exhibit D, (b) liens for
taxes, assessments or other governmental charges, impositions or levies that
are not then due, (c) liens for taxes, assessments or other governmental
impositions or levies that are being contested in good faith and, at Closing,
Seller has provided security reasonably acceptable to Purchaser necessary to
discharge such liens, (d) mechanics’, materialmen’s, or judgment liens against
the Property which are being contested in good faith and, at Closing, Seller
has provided security reasonably acceptable to Purchaser necessary to discharge
such liens, (e) Leases entered into on the terms allowed by this Agreement, (f)
other matters approved by Purchaser, and (g) matters created by Purchaser or
any of its affiliates or any of their respective representatives, consultants
or contractors.

Permitted Obligations.  Liabilities or obligations of the Project
Owner in connection with (a) Service Contracts, (b) Permitted Exceptions, (c)
Tenant Leases, (d) liabilities allocable to Purchaser based on proration credit
to Purchaser, and (e) Governmental Authorizations; provided, however,
liabilities or obligations arising from any breach of, or default under, the
foregoing prior to the Closing shall not be Permitted Obligations.

Personal Property.  All of Project Owner’s right, title and
interest in and to (a) Plans; (b) Governmental Authorizations issued,
granted or pending with respect to the Project; (c) studies, reports, surveys
and other informational materials relating to the Land or the Project,
including any “as-built” plans and CAD drawings; (d) all equipment, fixtures,
appliances, inventory, computers, computer hardware, computer software, and
other personal property of whatever kind or character owned by Project Owner
and attached to or installed or located on or in the Land or the Improvements,
including, without limitation, furniture, furnishings, drapes and floor
coverings, office equipment and supplies, heating, lighting, refrigeration,
plumbing, ventilating, incinerating, cooking, laundry, communication,
electrical, dishwashing, and air conditioning equipment, disposals, window
screens, storm windows, recreational equipment, pool equipment, patio
furniture, 

 A-4
 

 

sprinklers, hoses, tools and lawn equipment; and (e)
all of Project Owner’s right, title, and interest in and to (i) all permits,
licenses (excluding software licenses), approvals, utility rights, development
rights and similar rights related to the Property, or any portion thereof,
whether granted by Governmental Entities or private persons, (ii) all telephone
numbers and exchanges serving the Property, or any portion thereof, (iii) all
business and goodwill of Seller related to the Property, or any portion
thereof, (iv) all site plans, surveys, soil and substrata studies,
architectural drawings, plans and specifications, engineering plans and
studies, floor plans, landscape plans and other plans or studies of any kind
that relate to the Property, or any portion thereof, (v) all leasing materials
and brochures (excluding any such materials that bear proprietary trademarks,
trade names, logos or symbols including the name “Alexan” or variants thereof),
ledger cards, leasing records, leasing applications, tenant credit reports and
maintenance and operating records related to the operation of Property, or any
portion thereof, (vi) all warranties and guaranties (express or implied) issued
in connection with, or arising out of (A) the purchase and repair of all
furniture, fixtures, equipment, inventory, and other tangible personal property
owned by Project Owner and attached to and located in or used in connection
with the Property; or (B) the construction of any of the improvements located
on the Property, or any portion thereof, and expressly including any warranty
or guaranty from the General Contractor.

Plans.  The plans and specifications described in Exhibit
C.

Post-Closing Date Periods.  Defined in Section 4.5(a).

Pre-Closing Date Periods.  Defined in Section 4.5(a).

Project.  A collective reference to (a) the
Improvements and (b) the Off-Site Improvements.

Project Budget.  The budget for development of the Property
attached to this Agreement as Exhibit E.

Project Costs.  Costs incurred by Project Owner for the
acquisition of the Land and the development and construction of Project and for
lease-up and operation of the Project to and through the Completion Date,
including the costs within the categories listed in the Budget or the
illustrative categories set forth in the subparts of this definition.  If a Project Cost may fall within one or more
categories listed in this definition, the intent of this definition is that it
be considered only once in the computation of Project Costs.  Illustrative categories of Project Costs are
in the following subparts:

(a)           Sums paid or incurred to acquire the
Land, including the Project Owner’s share of third party closing costs and
prorations.

(b)           Sums paid or incurred under the
Construction Contract or any other contract for work, equipment, labor,
materials or supplies in connection with the Project.

(c)           Amounts paid or incurred for fees and
reimbursable expenses under contracts with the Architect and all other
professionals for development of the Plans or for survey, engineering,
inspection, environmental, geotechnical and other design, construction and
engineering studies and services.

 A-5
 

 

(d)           Costs paid or incurred in applying
for, pursuing, obtaining and satisfying Governmental Authorizations.

(e)           Premiums paid or incurred for title
insurance and title insurance endorsements to the Title Policy.

(f)            Premiums paid or incurred by the
Project Owner for casualty, liability and builders risk insurance with regard
to the Property.

(g)           Interest payments on the Construction
Loan, other payments (excluding repayment of principal) under the Construction
Loan, and any payments on the Mezzanine Loan (excluding any payments of
principal or interest).

(h)           Pursuant to the terms of the
Mezzanine Loans, Project Owner, Wagon Wheel 109 or Seller is obligated to
reimburse to Purchaser legal fees incurred by counsel to Purchaser or any of
its Affiliates, in connection with the Mezzanine Loans, the development of the
Project, the negotiation of this Agreement, and the Construction Loan.  All reimbursements described in the
immediately preceding sentence shall be considered a Project Cost.

(i)            Legal fees for services rendered by
counsel to the Project Owner, Seller or any of their Affiliates in connection
with the acquisition of the Land, the development of the Project, the
negotiation and closing of the Construction Loan and the Mezzanine Loans and
the negotiation of this Agreement.

(j)            The Deferred Developer Allowance set
forth in the Budget.

Project Owner.  Defined in the preamble of this Agreement.

Property.  The Land, the Improvements, the Personal
Property, the Tenant Leases and the Service Contracts.

Purchase Notice.  Defined in Section 1.1(c).

Purchase Option.  Defined in the Recitals.

Purchase Price.  Defined in Section 1.2.

Purchaser.  Defined in the preamble of this Agreement.

Purchaser Closing
Certificate.  Defined
in Section 1.4(c).

Put Notice.  Defined in Section 1.1(d).

Put Option.  Defined in the Recitals.

Receiving Party.  Defined in Section 1.8(b).

 A-6
 

 

Release.  Defined in Section 2.18(c).

Rent Ready Condition.  Defined in Section 1.7(e).

Representatives.  Defined in Section 1.1(b).

Restrictions.  Any and all restrictions, easements,
conditions, covenants and other agreements recorded against the Land or
Improvements.

Seller.  Defined in the preamble of this Agreement.

Seller Closing Certificate.  Defined in Section 1.4(b).

Seller/ERISA Affiliate
Benefit Plans.  Defined
in Section 2.14.

Senior Lender.  Defined in the Recitals.

Senior Mezzanine Loan.  Defined in the Recitals.

Service Contracts.  All service and maintenance contracts which
relate to or affect the Project or the operation thereof.  A list of the existing Service Contracts is
attached as Exhibit F.

Tax.  Defined in Section 2.10.

Tax Returns.  Defined in Section 2.10.

Taxes.  Defined in Section 2.10.

Tenant Leases.  All tenant leases which relate to or affect
the Project or the operation thereof.

Title Company.    First American Title Insurance Company.

Title Policy.  The owner title policy issued by the Title
Company with regard to the Project, concurrently with the Construction Loan.

Wagon Wheel Membership
Interest.  Defined in
the Recitals.

 A-7

 

 

EXHIBIT B

LAND

PARCEL
1:

A PORTION OF
THE NORTHWEST QUARTER (NW 1/4)
OF SECTION 34, AND THE NORTHEAST QUARTER (NE 1/4) OF SECTION 33, TOWNSHIP 22
SOUTH, RANGE 63 EAST, M.D.M., CLARK COUNTY, NEVADA, AND BEING MORE PARTICULARLY
DESCRIBED AS FOLLOWS:

PARCEL 3, AS
SHOWN BY MAP THEREOF ON FILE IN FILE 65, OF PARCEL MAPS, PAGE 89, IN THE OFFICE
OF THE COUNTY RECORDER OF CLARK COUNTY, NEVADA.

PARCEL
2:

A PORTION OF
THE EAST HALF (E 1/2) OF THE NORTHWEST QUARTER (NW 1/4)
OF SECTION 34, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M., AND MORE PARTICULARLY
DESCRIBED AS FOLLOWS, TO WIT:

BEGINNING
AT A POINT ON THE LEFT OR SOUTHWESTERLY RTGHT-OF-WAY LINE OF US-95 FREEWAY,
452.14 FEET LEFT OF AND AT RIGHT ANGLES TO HIGHWAY ENGINEER’S STATION “ESI”
311+53.29 P.O.T.; SAID POINT OF BEGINNING FURTHER DESCRIBED AS BEARING SOUTH
33°05’47” WEST A DISTANCE OF 1,665.04 FEET FROM THE NORTH QUARTER CORNER OF
SECTION 34, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M.; THENCE ALONG THE FORMER
LEFT OR SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY THE FOLLOWING SIX (6)
COURSES AND DISTANCES:

1)
NORTH 59°12’25” WEST 179.53 FEET;

2) FROM A
TANGENT WHICH BEARS SOUTH 25°02’05” WEST, CURVING TO THE LEFT WITH A RADIUS OF
50 FEET, THROUGH AN ANGLE OF 82°00’10”, AN ARC DISTANCE OF 71.56 FEET;

3)
NORTH 56°58’05” WEST 285.01 FEET;

4)
FROM A TANGENT WHICH BEARS SOUTH 56°58’05” EAST, CURVING TO THE LEFT WITH A
RADIUS OF 50 FEET, THROUGH AN ANGLE OF 75°47’09”, AN ARC DISTANCE OF 66.14
FEET;

5)
NORTH 47°14’46” EAST 75.10 FEET;

6) FROM A
TANGENT WHICH BEARS THE LAST DESCRIBED COURSE, CURVING TO THE LEFT WITH A
RADIUS OF 50 FEET, THROUGH AN ANGLE OF 85°40’37”, AN ARC DISTANCE OF 74.77 FEET
TO A POINT ON THE SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY;

THENCE SOUTH
39°26’45” EAST, ALONG SAID LEFT OR SOUTHWESTERLY RIGHT- OF-WAY LINE, A DISTANCE
OF 399.07 FEET TO THE POINT OF BEGINNING.

NOTE: THE ABOVE METES AND BOUNDS LEGAL
DESCRIPTION APPEARED PREVIOUSLY 

 B-1
 

 

IN THAT CERTAIN DOCUMENT RECORDED OCTOBER 8,
2004 IN BOOK 20041008 OF OFFICIAL RECORDS AS INSTRUMENT NO. 03637, CLARK
COUNTY, NEVADA.

 B-2

 

 

EXHIBIT C

PLANS

[insert
description of Plans]

 C-1

 

 

EXHIBIT D

PERMITTED EXCEPTIONS

 D-1

 

 

EXHIBIT E

PROJECT BUDGET

 E-1

 

 

EXHIBIT F

SERVICE AND MAINTENANCE CONTRACTS

None

 F-1

 

 

EXHIBIT G

FORM OF LIMITED GUARANTY

 G-1Exhibit
10.1

SEPARATION AGREEMENT AND
GENERAL RELEASE

This Separation Agreement and General Release (“Separation Agreement”)
is entered into by and between Garry K. McGuire (“Executive” or “you”) and
Avaya Inc. (the “Company”), and confirms the agreement that has been reached
with you in connection with your termination of
employment with the Company.

1.             Transition and Termination of
Employment.  You agree that, except
as provided below, you shall cease to be employed by the Company as a senior
officer as of December 31, 2006, and until such date you will in good faith and
under the direction of the Board of Directors (including any committees
thereof) and the Chief Executive Officer and any of their respective designees
perform all the duties of the position of Chief Financial Officer.  During the period from January 1, 2007
through March 30, 2007 (the “Transition Period”), you shall continue as a
non-executive employee and shall perform the duties set forth in paragraph 2a
below.  Your employment shall terminate
as of the close of business on March 30, 2007 (the “Separation Date”).  You further agree to execute any additional
documents necessary to effectuate the foregoing.

2.             In consideration of your execution
of this Separation Agreement and your compliance with its terms and conditions,
and provided that you execute the General Release attached hereto as Exhibit A
and do not revoke such General Release within the time frame provided therein
for such revocation, the Company agrees to pay or provide you with the
following benefits, all of which exceed any payment and benefits to which you
are otherwise entitled and are the exclusive benefits and payments to which you
are entitled:

a.             In
consideration of your continued services from January 1, 2007 through March 30,
2007, the Company shall continue to pay you at your current rate of base
salary, in accordance with the Company’s payroll practices, and will continue
your current car allowance.  In addition,
during the Transition Period, you shall continue to be entitled to participate
in employee benefit plans to which you are currently participating, in
accordance with the terms of such plans, as in effect from time to time.  During the Transition Period you agree to be
available to provide consultation and to respond promptly to the best of your
abilities to all inquiries relating to the Company, its finances or any of its
businesses.  Further, the Company will
continue to provide home security services during the Transition Period.

b.             The
Company shall pay you a Severance Amount of $1,304,250.00.  The Severance Amount shall be paid on July 3,
2007, unless you revoke this Separation Agreement and General Release or the
General Release attached hereto as Exhibit A in accordance with the revocation
terms set forth.  There shall be deducted
from the payment of the 

 

 

Severance
Amount all applicable federal, state and local withholding taxes and other
appropriate deductions.

c.             You will
be eligible to receive a 2006 bonus, in an amount determined by the
Compensation Committee of the Board (the “Committee”) in accordance with the
terms of the Company’s short term incentive plan, based on an individual
performance factor for you of 100% and the Company performance factor as
determined by the Committee.  You will
not be eligible to receive any bonus in respect of the Company’s 2007 fiscal
year.

d.             The
Company shall provide you with continued coverage under the Company’s group
health, vision and dental plans, on a basis that is substantially similar to
the coverage provided to the Company’s senior executives (including, without
limitation, with respect to the allocation of premium costs), for a period of
six months following the Separation Date. 
You may thereafter elect to continue your group health coverage pursuant
to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).  In addition, the Company shall provide you
with (i) financial counseling services for three months following the
Separation Date and (ii) outplacement services suitable to your position for a
period of one year following the Separation Date, at the Company’s sole cost.

e.             In
consideration for your agreement to remain in the position of CFO and to assist
in assuring a successful transition the Company agrees to pay you a one-time
lump sum payment of $350,000.00, payable on July 3, 2007.  There shall be deducted from the payment of
the amount in this paragraph 2e all applicable federal, state and local
withholding taxes and other appropriate deductions.

f.              You
acknowledge and agree that you are party to certain Stock Option agreements in
which you have been granted stock options to purchase shares of common stock of
the Company (the “Options”).  The Company
agrees that, subject to the terms and conditions of the Option Agreements, you
shall be entitled to exercise all vested Options held by you as of the
Separation Date until the earlier to occur of the ninetieth day following the
Separation Date or the original expiration date of the Options as set forth in
the Option Agreements.  You acknowledge
and agree that all Options that have not vested as of the Separation Date shall
terminate on the Separation Date.

g.             The
Company’s obligation to make the payments and to provide the benefits set forth
in paragraphs 2b through 2e above shall cease as of the date of any breach of
your obligations under the restrictive covenants set forth in paragraph 7
hereof.

3.             Whether or not you execute this
Separation Agreement, you will be paid for any accrued but unused vacation
days, and for previously submitted un-reimbursed business expenses (in
accordance with usual Company 

 2
 

 

 

guidelines and practices), to the extent not
theretofore paid.  In addition, following
the Separation Date, you will be entitled to receive vested amounts payable to
you under the Company’s 401(k) plan and other retirement and deferred
compensation plans in accordance with the terms of such plans and applicable
law.  Except as specifically set forth
herein, your participation in all Company plans shall remain subject to the
terms and conditions of such plans as in effect from time to time and you agree
that such terms and conditions are binding on you and the Company.

4.             You agree that, as a condition to
your receipt of the payments and benefits set forth in paragraphs 2b through
2e, you will execute the General Release attached hereto as Exhibit A on the
Separation Date.  None of the payments or
benefits described in paragraphs 2b through 2e above shall commence prior to
the Effective Date, as defined in the General Release.

5.             a.             You
agree that you will not disparage or encourage or induce others to disparage
any of the Company, its subsidiaries and affiliates, together with all of their
respective past and present directors, managers, officers, shareholders,
partners, employees, agents, attorneys, servants and clients and each of their
predecessors, successors and assigns (collectively, the “Company Entities and
Persons”).

b.             The
Company agrees that its Senior Officers will not disparage you or encourage
others to disparage you to third parties. 
For purposes of this section 5b, “Senior Officer” shall mean the CEO and
the officers reporting directly to the CEO.

c.             For the
purposes of this Separation Agreement, the term “disparage” as used in section
5a includes, without limitation, comments or statements adversely affecting in
any manner (i) the conduct of the business of the Company Entities and Persons
or (ii) the business reputation of the Company Entities and Persons.  The term “disparage” as used in 5b refers to
comments or statements to third parties concerning the Executive’s performance,
reputation and conduct as CFO.  Nothing
in this Separation Agreement is intended to or shall prevent either party from
providing testimony in response to a valid subpoena, court order, regulatory
request or other judicial, administrative or legal process or otherwise as
required by law.

6.             a.             You
agree that you will cooperate with the Company Entities and Persons and its or
their respective counsel, in connection with any investigation, inquiry,
administrative proceeding or litigation relating to any matter in which you
were involved or of which you have knowledge by providing truthful information,
provided that such cooperation does not unreasonably interfere with your then
current professional and personal commitments. 
The Company agrees to reimburse you promptly for reasonable expenses
necessarily incurred by you, in connection with your cooperation pursuant to
this paragraph.

 3
 

 

 

b.             You agree
that, in the event you are subpoenaed by any person or entity (including, but
not limited to, any government agency) to give testimony (in a deposition,
court proceeding or otherwise) which in any way relates to your employment by
the Company, you will give prompt notice of such request within two (2)
business days of such request to the General Counsel of the Company, Avaya Inc.
211 Mount Airy Road 3W365, Basking Ridge, NJ 07920, and will provide the
Company with a reasonable opportunity to contest the right of the requesting
person or entity to such disclosure before making such disclosure.  Nothing in this provision shall require you
violate your obligation to comply with valid legal process.

7.             a.             You
recognize and acknowledge and agree that during your employment with the
Company you have had access to highly confidential and proprietary information
relating to the Company and/or Company Entities and Person and trade secrets (“Proprietary
Information,” as described herein) and the use, misappropriation or disclosure
of  Proprietary Information would cause
irreparable injury to the Company; and it is essential to the protection of the
Company’s good will and to the maintenance of the Company’s competitive
position that Proprietary Information be kept secret and that you not disclose
Proprietary Information to others, or use any Proprietary Information to your
own advantage or the advantage of any third parties.  For purposes of this Separation Agreement,
the term “Proprietary Information” shall include any and all information, in
any form whatsoever, including but not limited to, hard copy, computer floppy
diskette, CD, CD-ROM drive, information retained in electronic storage, or
other information storage means, relating to the Company’s technology;
techniques; processes; tools; research and development; market research, data
and strategy; and, information relating to sales, pricing and customers,
including customer-specific sales information, pricing policies and
strategies.  You acknowledge and agree
that your obligations under this paragraph shall survive the Separation Date.

b.             You agree
that during the period that you perform services for the Company and thereafter
until April 1, 2008, you will not, directly or indirectly:

i)              Own,
control, manage, loan money to, represent, render any service or advice to or
act as an officer, director, employee, agent, representative, partner or
independent contractor of any business whose business materially competes with
the business of the Company as conducted as of the Separation Date (“Competitive
Activities”); provided, however, that the Executive may serve as a director of
such corporation or other entity with the prior written consent of the lead
director of the Board or the General Counsel of the Company, which consent
shall not be unreasonably withheld; and provided further, however, that the
foregoing shall not prohibit you from passive ownership of securities in any
publicly traded company that is engaged in any such business as long as you do
not own more than five percent (5%) or more of any class of the equity
securities of such company; or

 4
 

 

 

ii)             Solicit,
induce, or attempt to induce employees of the Company or any affiliate of the
Company to terminate their employment with, or otherwise cease their
relationship with the Company or any affiliated company, or

iii)            Solicit,
induce, hire or attempt to solicit, induce or hire any employee of the Company
to work or provide services to any third party; or

iv)           Solicit to
divert or take away or attempt to divert or to take away, the business or
patronage of any of the Company’s clients, customers or accounts, or
prospective clients, customers or accounts.

8.             You represent that as of the
Separation Date, you will have returned to the Company all property belonging
to the Company and/or the Company Entities and Persons (“Company Property”) including
but not limited to computers, cell phones, personal communication devices,
keys, card access to the building and office floors, credit card(s) and phone
card(s).

9.             You shall be indemnified as
provided under the Company’s certificate of incorporation, bylaws and plans and
any applicable laws in each case to the extent 
permitted by applicable laws, if you are made a party, or are threatened
to be made a party, to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, in connection with acts or omissions occurring
during his tenure with the Company, against all cost, expense, liability and
loss (including, without limitation, attorney’s fees, judgments, fines, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by you in connection therewith.

10.           You agree that in consideration of the benefits to be
provided to you pursuant paragraphs 2b through 2e above, that you hereby
waive, release and forever discharge any and all claims and rights which you
ever had, now have or may have against Avaya Inc. and any of its subsidiaries
or affiliated companies, and their respective successors and assigns, current
and former officers, agents, board of directors members, representatives and
employees, various benefits committees, and their respective successors and
assigns, heirs, executors and personal and legal representatives (collectively
referred to as “Avaya Inc.”), based on any act, event or omission occurring
before you execute this Separation Agreement arising out of, during or relating
to your employment or services with the Company or the termination of such
employment or services.  This waiver and
release includes, but is not limited to, any claims which could be asserted now
or in the future, under:  common law,
including, but not limited to, breach of express or implied duties, wrongful
termination, defamation, or violation of public policy; any policies,
practices, or procedures of the Company; any federal or state statutes or
regulations including, but not limited to, Title VII of the Civil Rights Act of
1964, as amended, the Age Discrimination in Employment Act, 29 U.S.C. §621 et seq., 42 U.S.C. §2000e et seq.,
the Civil Rights Act of §§1866 and 1871, the 

 5
 

 

 

Americans With Disabilities Act, 42 U.S.C. §12101 et seq., the Employee Retirement Income Security Act (“ERISA”),
29 U.S.C. §1001 et seq. (excluding those rights
relating exclusively to employee pension benefits as governed by ERISA), the
Family and Medical Leave Act, §2601 et. seq., the
New Jersey Law Against Discrimination, N.J.S.A. 10:5-1 et seq.;
the Conscientious Employee Protection Act, N.J.S.A. 34:19-1 et. seq.; any contract of employment, express or implied;
any provision of the United States or New Jersey Constitutions; any provision
of any other law, common or statutory, of the United States, the State of New
Jersey or any other state.

11.           By signing this Separation Agreement,
you represent that you have not and will not in the future commence any action
or proceeding arising out of the matters released hereby, and that you will not
seek or be entitled to any award of legal or equitable relief in any action or
proceeding that may be commenced on your behalf.

12.           The Company has advised the Executive
to consult with an attorney of his choosing prior to signing this
Agreement.  The Executive represents that
he understands and agrees that the Executive has the right and has been given
the opportunity to review this Agreement and, specifically, the Release, with
an attorney.  The Executive further
represents that he understands and agrees that the Company is under no
obligation to offer the Executive this Agreement, and that the Executive is
under no obligation to consent to the Release. 
You acknowledge that you:  (a)
have carefully read this Separation Agreement in its entirety; (b) have been
provided at least twenty-one (21) days to consider the terms of this agreement,
although you may choose to sign this Separation Agreement and return it to the
Company sooner; (e) have seven (7) additional days from the date you sign it to
revoke your consent, in which case this Separation Agreement shall become null
and void; and (f) are signing this Separation Agreement voluntarily and of your
own free will and agree to abide by all the terms and conditions contained
herein.

13.           If any provision of this Separation
Agreement is held by an arbitrator or court of competent jurisdiction to be
illegal, void or unenforceable, such provision shall have no effect; however,
the remaining provisions shall be enforced to the maximum extent possible.  Further, if a court or arbitrator should
determine that any portion of this Separation Agreement is overbroad or
unreasonable, such provision shall be given effect to the maximum extent
possible by narrowing or enforcing in part that aspect of the provision found
overbroad or unreasonable.  Additionally,
you agree that any breach of the terms of paragraphs 5 or 7 shall constitute a
material breach of this Separation Agreement as to which the Company may seek all
relief available under the law in addition to the relief provided for in
paragraph 2g.  In addition, you agree
that your willful and knowing failure to return Company Property that relates
to the maintenance of security of the Company Entities and Persons or the
maintenance of Proprietary Information constitutes a material breach of this
Separation Agreement as to which the Company may seek all available relief
under the law.

 6
 

 

 

14.           a.             This
Separation Agreement is not intended, and shall not be construed, as an
admission that either the Executive or the Company Entities and Persons have
violated any federal, state or local law (statutory or decisional), ordinance
or regulation, breached any contract or committed any wrong whatsoever.

b.             Should
any provision of this Separation Agreement require interpretation or
construction, it is agreed by the parties that the entity interpreting or
construing this Separation Agreement shall not apply a presumption against one
party by reason of the rule of construction that a document is to be construed
more strictly against the party who prepared the document.

15.           This Separation Agreement is binding
upon, and shall inure to the benefit of, the parties and their respective
heirs, executors, administrators, successors and assigns.

16.           a.             This
Separation Agreement shall be construed and enforced in accordance with the
laws of the State of New Jersey without regard to the principles of conflicts
of law.

b.             With the
exception of a claim for injunctive relief, for which jurisdiction shall be
reserved in the United States District Court, District of New Jersey and/or
state courts in Somerset County and with respect to which the parties consent
to personal jurisdiction, any controversy or claim arising out of or relating
to this Separation Agreement or the breach thereof shall be settled in an
arbitration to be held in Morristown, New Jersey by a single arbitrator, in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association then in effect.  The decision of the arbitrator shall be final
and binding on the parties hereto and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.  Each party shall pay his or its own costs and
attorneys’ fees, and arbitration fees shall be equally divided.

17.           Notwithstanding anything in this
Separation Agreement to the contrary, the parties hereby agree that it is the
intention that any payments or benefits provided under this Separation Agreement
comply in all respects with Section 409A of the Internal Revenue Code of 1986,
as amended (“Code”) and any guidance issued thereunder, and this Separation
Agreement be interpreted accordingly.  In
addition, in the event that additional guidance with respect to Section 409A of
the Code becomes available prior to the Separation Date, upon the Executive’s
reasonable request, the parties will cooperate in good faith with a view
towards amending this Separation Agreement solely to the extent necessary and
appropriate to avoid adverse tax consequences pursuant to Section 409A of the
Code, while retaining the economic benefits and burdens of the Separation
Agreement to the fullest extent possible.

 7
 

 

 

18.           You acknowledge that this Separation
Agreement constitutes the complete understanding between the Company and you,
and, supersedes any and all agreements, understandings, and discussions,
whether written or oral, between you and any of the Company Entities and
Persons, including the Severance Agreement between you and the Company, which
shall terminate on the Separation Date. 
No other promises or agreements shall be binding on the Company unless
in writing and signed by both the Company and you after the date of this Separation
Agreement.

19.           You may accept this Separation
Agreement by signing it and returning it to Pamela F. Craven, Senior Vice
President, General Counsel and Secretary, Avaya Inc., 211 Mount Airy Road
3W365, Basking Ridge, NJ 07920.  The
effective date of this Separation Agreement shall be the date it is signed by
both parties, provided that the provisions of paragraphs 2b through 2e shall
not become effective until the Effective Date, as defined in the General
Release attached hereto as Exhibit A.  In
the event you do not accept this Separation Agreement as set forth above, this
Separation Agreement, including but not limited to the obligation of the
Company to provide the payments and other benefits referred to in paragraph 2
above, shall be deemed automatically null and void.

 

	
  Signature:

  	
  /s/ Garry K.
  McGuire

  	
   

  	
  Date:

  	
  10/3/06

  	
   

  	
   

  
	
   

  	
  Garry K. McGuire

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AVAYA INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Roger C.
  Gaston

  	
   

  	
  Date:

  	
  10/3/06

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Senior Vice
  President, Human Resources

  	
   

  	
   

  	
   

  
									

 

 8
 

 

 

EXHIBIT A

GENERAL RELEASE

THIS GENERAL RELEASE, entered into this [30th] day of [March, 2007] by
Garry K. McGuire, residing at [                      ] (hereinafter referred
to as the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive and Avaya Inc. having its principal offices in
Basking Ridge, New Jersey, entered into a Separation Agreement and General
Release, dated as of October __, 2006, (as such agreement may be amended from
time to time, the “Separation Agreement”), pursuant to paragraph 4 of which the
Executive agreed and covenanted, to execute this General Release in favor of
Avaya Inc., its affiliates and/or their respective officers, directors,
employees, agents and representatives; and

WHEREAS, the employment of the Executive terminated as of March 31,
2007;

NOW, THEREFORE, in exchange for the benefits to be provided to the
Executive pursuant paragraphs 2b through 2e of the Separation Agreement, it is
agreed as follows:

1.             Executive agrees to waive, release and forever
discharge any and all claims and rights which Executive ever had, now has or
may have against Avaya Inc. and any of its subsidiaries or affiliated
companies, and their respective successors and assigns, current and former
officers, agents, board of directors members, representatives and employees,
various benefits committees, and their respective successors and assigns,
heirs, executors and personal and legal representatives (collectively referred
to as “Avaya Inc.”), based on any act, event or omission arising out of, during
or relating to his employment or service with the Company or termination of
such employment or service occurring before Executive executes this General
Release and subsequent to the date on which the Executive executed the
Separation Agreement.  This waiver and
release includes, but is not limited to, any claims which could be asserted now
or in the future, under:  common law,
including, but not limited to, breach of express or implied duties, wrongful
termination, defamation, or violation of public policy; any policies,
practices, or procedures of Avaya Inc.; any federal or state statutes or
regulations including, but not limited to, Title VII of the Civil Rights Act of
1964, as amended, 42 U.S.C. §2000e et seq., the
Age Discrimination in Employment Act, 29 U.S.C. §621 et seq., the
Civil Rights Act of §§1866 and 1871, the Americans With Disabilities Act, 42
U.S.C. §12101 et seq., the Employee Retirement
Income Security Act (“ERISA”), 29 U.S.C. §1001 et seq. (excluding
those rights relating exclusively to employee pension benefits as governed by
ERISA), the Family and Medical Leave Act, §2601 et. seq., the
New Jersey Law Against Discrimination, N.J.S.A. 10:5-1 et seq.;
the Conscientious Employee Protection Act, N.J.S.A. 34:19-1 et. Seq.; any contract of employment, express or implied;
any provision of the United States

 9
 

 

or New Jersey Constitutions; any provision of any
other law, common or statutory, of the United States, the State of New Jersey
or any other state.

2.             Anything herein to the contrary not withstanding, the
Executive is not releasing:  (i) any
rights to indemnification under the Articles of Incorporation or By-Laws of the
Company, or under any applicable insurance policy, or any right to obtain
contributions as permitted by law; (ii) his right to enforce the terms and
conditions of the Separation Agreement and General Release; (iii) any
rights or claims that arise after the Effective Date; or (iv) any vested
rights under the Company’s benefit plans.

3.             By
signing this General Release, the Executive represents that he has not and will
not in the future commence any action or proceeding arising out of the matters
released hereby, and that he will not seek or be entitled to any award of legal
or equitable relief in any action or proceeding that may be commenced on his
behalf.

4.             The
Executive acknowledges that Avaya Inc. has hereby advised him to consult with
an attorney of his choosing prior to signing this General Release.  The Executive represents that he has had the
opportunity to review this General Release and, specifically, the release in paragraph
1, with an attorney of his choice.  The
Executive also agrees that he has entered into this General Release freely and
voluntarily.

5.             The
Executive acknowledges that he has been given at least twenty-one days to
consider the terms of the General Release. 
Furthermore, once he has signed this General Release, the Executive
shall have seven additional days from the date of signing this General Release
to revoke his consent hereto.  The
General Release shall not be effective, and no payments shall be due under
paragraphs 2b through 2e of the Separation Agreement, until the eighth day
after the Executive shall have executed this General Release and returned it to
the Company, assuming that the Executive has not revoked the Executive’s
consent to this General Release prior to such date (the “Effective Date”).

6.             In
the event that any one or more of the provisions of this General Release shall
be held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remainder of this General Release shall not in any way be
affected or impaired thereby.

7.             This
General Release shall be governed by the law of the State of New Jersey without
reference to its choice of law rules.

 10
 

 

 

 

IN WITNESS WHEREOF, the Executive has executed this General
Release as of the date first set forth above.

 

	
  

  	
   

  
	
   

  	
  Garry K. McGuire

  

 

 11

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