AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1998
PRELIMINARY COPY
AMENDMENT NO. 4 TO
PRELIMINARY PROXY STATEMENT
FILED ON SCHEDULE 14A
PRELIMINARY PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, For Use of the Commission
( ) Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
(Name of Registrant as Specified in Its Charter and
Person Filing Preliminary Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required.
(X) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each Class of securities to which transaction applies:
Depositary Units of Limited Partnership Interest.
(2) Aggregate number of securities to which transaction applies:
68,795.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined:
The filing fee is based on the aggregate cash to be received by
the Registrant from the proposed sale of assets, which the
Registrant believes will be $43,520,000 multiplied by 1/50th of 1%.
(4) Proposed maximum aggregate value of transaction:
$43,520,000.
(5) Total fee paid:
$8,704.
( ) Fee paid previously with preliminary materials:
(X) Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: $8,704.
(2) Form, Schedule or Registration Statement No.: Preliminary Proxy
Statement.
(3) Filing party: Prudential-Bache/Equitec Real Estate Partnership.
(4) Date Filed: September 17, 1997.
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
ONE SEAPORT PLAZA
NEW YORK, NY 10292
May , 1998
Dear Unitholders:
As you know, Prudential-Bache/Equitec Real Estate Partnership (the
"Partnership") was formed in June 1984 to acquire, operate and then ultimately
dispose of income-producing real estate or interests therein. It was originally
anticipated that the Partnership would hold the real properties or interests
therein it acquired until such time as disposition appeared advantageous from
the viewpoint of the Partnership's investment objectives. Although no mandatory
time frame was set forth within which such sales were anticipated to occur, it
was anticipated that the Partnership would own such real properties and
interests therein for approximately three to seven years after acquisition.
The Partnership acquired certain real properties, and held direct and
indirect interests in a joint venture which owns another real property, between
May 1986 and June 1989 and is now in its thirteenth year of operations. At the
Partnership's formation, its managing general partner was Equitec Financial
Group, Inc. ("Equitec") and its other general partner was Prudential-Bache
Properties, Inc. ("PB Properties"). PB Properties has since become the managing
general partner of the Partnership; in 1991, Equitec filed for reorganization
under the federal bankruptcy laws, and by a vote of the limited partners of the
Partnership was replaced as co-general partner by Glenborough Corporation and
Robert Batinovich, each a general partner of the Partnership (together,
"Glenborough") (together with PB Properties, the "General Partners").
The General Partners have been considering when and how to effect the
disposition of all of the Partnership's real properties (the "Properties") and
all of the Partnership's direct and indirect interests in a joint venture whose
sole asset is one real property (the "Interests") (the Interests, together with
the Properties, the "Assets") in the best interests of the Partnership and the
holders (the "Unitholders") of the beneficial ownership interest in the limited
partnership interests of the Partnership (the "Units"). The General Partners
believe that, given current market conditions and the existence of certain other
factors identified below, now is the appropriate time to sell all of the Assets.
On October 13, 1997, the Partnership entered into an original
purchase agreement (the "Original Purchase Agreement") with Glenborough Realty
Trust Incorporation and a subsidiary partnership, Glenborough Properties, L.P.,
which are affiliates of Glenborough (together, the "Purchaser"). Pursuant to the
Original Purchase Agreement, the Partnership agreed to sell to the Purchaser
(the "Sale") all of the Assets for $43,520,000 in cash (the "Original Purchase
Price"). This amount equaled the sum of the individual appraised fair market
values of all of the Properties, plus the Partnership's estimate of the fair
market values of the Interests, which estimate was wholly based on and equals
the appraised fair market value of the one real property to which the Interests
relate (the "Related Property") (the sum of all such values, the "Fair Market
Value of the Assets"). Such appraisals (the "Initial Appraisals") were prepared
by Cushman & Wakefield, Inc. Subsidiaries ("C&W") and were dated May 1997
(except for one such appraisal, which was dated October 1996).
The Partnership prepared consent solicitation materials describing the
Sale at the Original Purchase Price which it filed with the Securities and
Exchange Commission (the "SEC") in October 1997. In April 1998, the Partnership
received notice from the SEC that it had no further comments with respect to
such materials. As a result of this longer than anticipated period of time for
the preparation of such materials and in light of improvements in the real
estate markets, the availability of favorable financing and the increased
interest of institutional buyers in the type of properties owned by the
Partnership, PB Properties determined that updated appraisals should be obtained
and so notified the Purchaser. Accordingly, the Partnership retained C&W to
conduct updated appraisals of the Assets which were completed in April 1998 (the
"Updated Appraisals"). The Updated Appraisals indicate that the sum of the
individual appraised Fair Market Values of the Assets, as of the dates of such
appraisals, is $49,145,000, an increase of $5,625,000 over the Initial
Appraisals. Upon receipt of the Updated Appraisals, PB Properties entered into
negotiations with the Purchaser. Following a series of telephone conversations
between such parties, the Purchaser raised its offer to $47,145,000 (the
"Purchase Price"), an increase of $3,625,000 over the Original Purchase Price.
On April 27, 1998, the Original Purchase Agreement was amended to reflect such
increase in the Original Purchase Price (the Original Purchase Agreement, as
amended, the "Purchase Agreement").
While the Purchase Price is $2,000,000 less than the Updated
Appraisals, the General Partners believe that, based upon the written opinion of
C&W, dated April 27, 1998 (the "C&W Opinion"), which states that the Purchase
Price is fair from a financial point of view to the Unitholders of the
Partnership and for the reasons considered therein, the Purchase Price is fair
to and in the best interests of the Partnership and the Unitholders. The General
Partners have recommended the Plan accordingly.
The Purchase Price will be reduced by certain credits to the Purchaser
(which, in addition to any credits for secured obligations which are assumed by
the Purchaser, could approximate $690,000 if certain items of deferred
maintenance at the Properties and at the Related Property are not completed
prior to the closing of the Sale). Thus, after deducting such credits, the net
proceeds will approximate $46,455,000. The Purchase Agreement is subject to few
conditions, with no studies or reports required to be provided by the
Partnership, few representations or warranties required to be made by the
Partnership and the acquisition of the Properties to occur on an "as is/where
is/with all faults" basis. If the Sale is consummated, PB Properties, as the
managing general partner of the Partnership, will make one or more liquidating
distributions to the Unitholders and the General Partners and, after providing
for the payment of the Partnership's obligations and the establishment of a
reserve to cover unexpected claims, dissolve and terminate the Partnership and
liquidate (together with the Sale and
<PAGE>
amendments to the partnership agreement to effectuate the above, the "Plan").
Based upon the terms and conditions of the Sale, after repayment of the
Partnership's existing obligations and after crediting the Purchaser to the
extent the Purchaser assumes such obligations (including borrowings secured by
the Properties and the Related Property, which obligations totalled $26,650,000
as of March 31, 1998), the Partnership estimates that liquidating distributions
would total approximately $267 per Unit.
CERTAIN ELEMENTS OF THE PLAN REQUIRE THE CONSENT OF HOLDERS OF A
MAJORITY OF THE UNITS, AND YOUR APPROVAL IS VERY IMPORTANT. You are being asked
to consider and vote upon the following elements of the Plan: (i) the Sale, (ii)
the amendment of the Amended and Restated Agreement of Limited Partnership,
dated as of February 11, 1985 and as subsequently amended, by and among the
General Partners and the Limited Partners of the Partnership (as defined
therein) to permit (a) the purchase by the Purchaser of all or any of the Assets
and (b) the effectuation of the Plan by the General Partners on behalf of the
Partnership and (iii) one or more liquidating distributions to the Unitholders
and the General Partners and, after providing for the payment of all expenses
and other liabilities of the Partnership, the dissolution and termination of the
Partnership and subsequent liquidation, all as more fully described in the
attached Statement Furnished in Connection with the Solicitation of Consents.
Please return your consent card as soon as possible, because failure to return a
consent card has the same effect as a "NO" vote.
If the Sale is consummated, the Partnership will pay cash distributions
to the Unitholders and the General Partners from the net sales proceeds, after
providing for the payment of all expenses and liabilities of the Partnership and
the establishment of a reserve account to cover unexpected claims. Any amount
remaining in the reserve account will be distributed to the Unitholders and the
General Partners within approximately 60 days from the date of the closing of
the Sale, whereupon the Partnership will be dissolved.
The General Partners believe that the Plan at this time is in the best
interests of the Partnership and the Unitholders and recommend that you complete
and return the consent card with a vote "FOR" the Plan. The General Partners
have based their recommendation on, among other things, the following factors:
o The Partnership's entire mortgage debt of $26,650,000 matured on December
9, 1997. Such debt was refinanced with Wells Fargo Bank, National
Association ("Wells Fargo") in December 1996 to replace mortgage debts of
the Partnership which had matured. The exceptions to the non-recourse
provisions of such debt were guaranteed by Glenborough Corporation and
personally by Robert Batinovich. Neither Glenborough Corporation nor Mr.
Batinovich was compensated for such guarantees. In early December, the
Partnership entered into negotiations with Wells Fargo to extend the
maturity date of such debt. On December 9, 1997, the Partnership entered
into a modification agreement with Wells Fargo pursuant to which Wells
Fargo agreed to extend such maturity date until March 9, 1998, for an
extension fee in the amount of approximately $33,000. Moreover, Glenborough
Corporation and Mr. Batinovich voluntarily renewed their guarantee with
respect to such extension. At the end of February 1998, the Partnership
again entered into negotiations with Wells Fargo to extend the maturity
date of such debt. On March 2, 1998, the parties entered into another
modification agreement pursuant to which Wells Fargo agreed to extend such
maturity date until April 30, 1998, for an extension fee in the amount of
approximately $16,656. In April 1998, Wells Fargo orally agreed to extend
such maturity date until July 31, 1998, for an extension fee in the amount
of approximately $33,000. Glenborough Corporation and Mr. Batinovich again
voluntarily renewed their guarantees with respect to such extensions.
Neither Glenborough Corporation nor Mr. Batinovich was compensated for
renewing such guarantees.
o The Plan permits the Assets to be sold under market conditions which, given
current mortgage interest rates and the availability of investor capital,
the General Partners believe are favorable for such a sale.
o If the Plan is approved, the Partnership will be able to consummate the
Sale of all of the Assets for an amount believed to be close to the Fair
Market Value of the Assets and on terms which the General Partners believe
will entail minimal costs and will permit an expeditious consummation of
the Sale. The Purchase Price was determined pursuant to recent negotiations
between PB Properties and the Purchaser based upon the Updated Appraisals
and the C&W Opinion which states that the Purchase Price is fair to and in
the best interests of the Partnership and the Unitholders for the reasons
considered therein. The Purchase Price represents $3,625,000, or
approximately 8%, more than the Original Purchase Price.
o The Properties and the Related Property generally have shown a trend of
improved occupancies and revenues over the past few years, which the
General Partners believe enhances the salability of the Assets at the
present time.
o By selling the Assets now, the Partnership would eliminate the risks
inherent in the direct and indirect ownership of real property, including,
among other things, the decline in value that can occur as a result of
rising interest rates, increasing real estate investor expectations and
changing competition factors in local rental markets.
<PAGE>
o The Partnership has not made any distributions to Unitholders in the past
several years and does not anticipate being in a position to do so in the
foreseeable future.
o The Plan would provide liquidity to Unitholders. At present, there is no
established public trading market for the Units, and liquidity has been
limited to sporadic sales which have occurred within an informal secondary
market.
The principal disadvantage which would result to Unitholders from the
approval of the Plan is that the Partnership would not benefit from any future
improvements in economic and market conditions, which improvements could produce
increased cash flow and possibly increase the sales price of all or any of the
Assets in the future. Another disadvantage is that, pursuant to the Purchase
Agreement, although the Partnership is permitted to accept superior offers, it
is not permitted to actively market the Assets or solicit superior offers. Thus,
it is possible that the price being received by the Partnership from the
Purchaser via the Sale may be less than the Partnership may be able to obtain
with an active public marketing of all or any of the Assets.
The Sale of the Assets, the termination and dissolution of the
Partnership and the subsequent liquidation each require Unitholder approval.
Furthermore, because the Purchaser is an entity affiliated with Glenborough, the
Plan necessitates amending the Partnership Agreement to permit an entity
affiliated with Glenborough to purchase the Assets from the Partnership, which
amendment also requires Unitholder approval. Accordingly, the Partnership is
soliciting the written consent of each Unitholder to these elements of the Plan,
which are more fully described in the attached Statement.
YOU ARE URGED TO READ CAREFULLY THE ATTACHED STATEMENT IN ITS ENTIRETY
FOR A COMPLETE DESCRIPTION OF THE PLAN. If you have any questions regarding the
Plan or need assistance incompleting and returning your Consent card, please
feel free to contact the Partnership's soliciting agent, Morrow & Co., Inc.,at
(800) 566-9061.
Very truly yours,
BRIAN J. MARTIN
President
Prudential-Bache Properties, Inc.
ANDREW BATINOVICH
Chairman and Chief Executive Officer
Glenborough Corporation
ROBERT BATINOVICH
in his individual capacity as General Partner
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
ONE SEAPORT PLAZA
NEW YORK, NY 10292
----------
NOTICE OF CONSENT SOLICITATION
----------
May , 1998
To the Unitholders of Prudential-Bache/Equitec Real Estate Partnership:
NOTICE IS HEREBY GIVEN to the holders (the "Unitholders") of the
beneficial ownership interest in the limited partnership interests (the "Units")
in Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership (the "Partnership"), that Prudential-Bache Properties, Inc., the
managing general partner of the Partnership ("PB Properties"), is soliciting
written consents (the "Consents") on behalf of the Partnership to approve a plan
of action (the "Plan"), which consists of (i) the sale of all of the real
properties of the Partnership (the "Properties") and all of the Partnership's
direct and indirect interests in a joint venture whose sole asset is one real
property (the "Interests") (the Interests, together with the Properties, the
"Assets") for an amount of $47,145,000, to an affiliate of Glenborough (as
defined below) (the "Sale"); such price will be reduced by certain credits to
such affiliate (which, in addition to any credits for secured obligations which
are assumed by such affiliate, could approximate $690,000 if certain items of
deferred maintenance at the Properties and at the one real property to which the
Interests relate (the "Related Property") are not completed prior to the closing
of the sale of the Assets), (ii) the amendment of the Amended and Restated
Agreement of Limited Partnership, dated as of February 11, 1985 and as
subsequently amended, by and among the General Partners and Limited Partners of
the Partnership (as defined therein) (the "Partnership Agreement") to permit (a)
the purchase by an affiliate of Glenborough Corporation and/or Robert
Batinovich, each a general partner of the Partnership (together, "Glenborough")
(together with PB Properties, the "General Partners"), of all or any of the
Assets and (b) the effectuation of the Plan by the General Partners on behalf of
the Partnership (together, the "Amendments") and (iii) one or more liquidating
distributions to the Unitholders and the General Partners and, after providing
for the payment of all expenses and other liabilities of the Partnership, the
dissolution and termination of the Partnership and subsequent liquidation (the
"Plan of Liquidation"), all as more fully described in the attached Statement
Furnished in Connection with the Solicitation of Consents (the "Statement"). The
Plan is a single proposal which must be approved by Unitholders holding a
majority of the Units.
Subject to the assumptions and qualifications set forth in the attached
Statement, the Partnership estimates that liquidating distributions would total
approximately $267 per Unit.
Only Unitholders who own Units on the close of business on April 1,
1998 are entitled to notice of the solicitation of Consents and to give their
consent to the Plan. In order to be valid, all Consents must be received before
10:00 a.m., New York City time on __________, 1998 (unless such date and/or time
is extended, in the sole discretion of PB Properties acting on behalf of the
Partnership). The approval will be obtained through the solicitation of written
Consents, and no meeting of Unitholders will be held. Morrow & Co., Inc.
("Morrow") has been retained as a soliciting agent to assist in soliciting
Consents. A Consent may be revoked by written notice of revocation or by a later
dated action containing different instructions received by Morrow until 10:00
a.m., New York City time on __________, 1998 (unless such date and/or time is
extended, in the sole discretion of PB Properties acting on behalf of the
Partnership). Unitholders will be notified as soon as practicable as to the
results of this solicitation.
Under the terms of the Partnership Agreement, annual reports are
required to be delivered to Unitholders. Exhibit F to the enclosed Statement
contains the Annual Report on Form 10-K for the year ended December 31, 1997,
which is hereby incorporated by reference. A separate annual report will not be
mailed to Unitholders.
YOUR APPROVAL IS IMPORTANT. PLEASE READ THE STATEMENT CAREFULLY AND
THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN IT IN THE
SELF-ADDRESSED PREPAID ENVELOPE OR BY FACSIMILE OF THE FRONT AND BACK OF THE
CONSENT CARD TO(212) 754-8300. Any Consent card which is signed and does not
specifically disapprove the Plan will be treated as approving the Plan. Your
prompt response is appreciated.
PB PROPERTIES
Managing General Partner
GLENBOROUGH CORPORATION
General Partner
ROBERT BATINOVICH
in his individual capacity as General Partner
----------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
ONE SEAPORT PLAZA
NEW YORK, NY 10292
May __, 1998
----------
STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS
----------
This Statement Furnished in Connection with the Solicitation of
Consents (the "Statement") is furnished to the holders ("Unitholders") of the
beneficial ownership interest in the limited partnership interests (the "Units")
in Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership (the "Partnership"), in connection with the solicitation of written
consents ("Consents") by Prudential-Bache Properties, Inc., in its capacity as
the managing general partner of the Partnership ("PB Properties") and on behalf
of the Partnership, to approve a plan of action (the "Plan"), which consists of
(i) the sale of all of the real properties of the Partnership (the "Properties")
and all of the Partnership's direct and indirect interests in a joint venture
whose sole asset is one real property (the "Interests") (the Interests, together
with the Properties, the "Assets") for an amount of $47,145,000, to an affiliate
of Glenborough (as defined below) (the "Sale"); such price will be reduced by
certain credits to such affiliate (which, in addition to any credits for secured
obligations which are assumed by such affiliate, could approximate $690,000 if
certain items of deferred maintenance at the Properties and at the one real
property to which the Interests relate (the "Related Property") are not
completed prior to the closing of the sale of the Assets), (ii) the amendment of
the Amended and Restated Agreement of Limited Partnership, dated as of February
11, 1985 and as subsequently amended, by and among the General Partners and
Limited Partners of the Partnership (as defined therein) (the "Partnership
Agreement") to permit (a) the purchase by an affiliate of Glenborough
Corporation and/or Robert Batinovich, each a general partner of the Partnership
(together, "Glenborough") (together with PB Properties, the "General Partners"),
of all or any of the Assets and (b) the effectuation of the Plan by the General
Partners on behalf of the Partnership (together, the "Amendments") and (iii) one
or more liquidating distributions to the Unitholders and the General Partners
and, after providing for the payment of all expenses and other liabilities of
the Partnership, the dissolution and termination of the Partnership and
subsequent liquidation (the "Plan of Liquidation").
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Plan is a single proposal, and consent to the Plan will
constitute consent to each of the Sale, the Amendments and the Plan of
Liquidation. If approved and consummated, the Plan will result in the sale of
all of the Assets to an entity affiliated with Glenborough, one or more
liquidating distributions to the Unitholders and the General Partners of the
Partnership and, after providing for the payment of all liabilities and expenses
of the Partnership, the dissolution and termination of the Partnership and
subsequent liquidation.
AFTER CONSUMMATION OF THE PLAN, THE PARTNERSHIP WILL NO LONGER BE
SUBJECT TO REGISTRATION UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND THEREFORE
WILL NOT BE A REPORTING COMPANY WITH RESPECT TO ITS UNITHOLDERS.
Subject to the assumptions and qualifications set forth in the attached
Statement, the Partnership estimates that liquidating distributions would total
approximately $267 per Unit. See "SPECIAL FACTORS--Use of Proceeds and Cash
Distributions".
Neither PB Properties nor Glenborough intends to call a meeting of the
Unitholders in connection with this solicitation of Consents. Approval or
disapproval by a Unitholder of the Plan is to be indicated by marking and
signing the enclosed form of Unitholder Consent and returning it to Morrow &
Co., Inc., which has been engaged on behalf of the Partnership to act as
soliciting agent (the "Soliciting Agent"), in the enclosed self-addressed
envelope, which requires no postage if mailed in the United States. The Plan as
described herein can be effected only after Unitholders owning a majority in
interest of the outstanding Units have consented to the Plan. The enclosed form
of Unitholder Consent permits a Unitholder to indicate approval, disapproval or
abstention with respect to the Plan.
Consents of the Unitholders to the Plan will be solicited until 10:00
a.m., New York City time on June ___, 1998 or until such date as a majority of
Unitholders consent, whichever occurs first(unless such date and/or time is
extended, in the sole discretion of
1
<PAGE>
PB Properties acting on behalf of the Partnership). The close of business on
April 1, 1998 (the "Record Date") has been fixed for determining the Unitholders
entitled to notice of the solicitation of Consents and to consent to the Plan.
On the Record Date, there were 68,795 outstanding Units entitled to vote on the
Plan, which Units were held by 4,958 Unitholders. Unitholders will be notified
as soon as practicable as to the results of this solicitation.
Pursuant to the Partnership Agreement, the consent of Unitholders
holding a majority of the outstanding Units is required to approve the Sale.
Under California law and the Partnership Agreement, any matter upon which the
Unitholders are entitled to act may be submitted for a vote by written consent
without a meeting. Any Consent given pursuant to this solicitation may be
revoked by the person giving it until 10:00 a.m., New York City time on _____,
1998 (unless such date and/or time is extended, in the sole discretion of PB
Properties acting on behalf of the Partnership) by sending a written notice of
revocation or a later dated Consent containing different instructions to the
Soliciting Agent before such date. Any written notice of revocation or
subsequent Consent should be sent to the Soliciting Agent, Morrow & Co., Inc.,
at 909 Third Avenue, New York, NY 10022-4799.
In addition to solicitation by use of the mails, directors, officers
and employees of PB Properties may solicit Consents in person or by telephone,
facsimile or other means of communication. Such directors, officers and
employees will not receive additional compensation for such services but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. In addition, the Soliciting Agent has been retained to assist PB
Properties in the solicitation of Consents for a base fee of $5,000, plus
reimbursement of expenses and additional fees based on the number of telephone
calls placed and the number of tabulations made, estimated at approximately
$10,000 in the aggregate.
If Unitholders owning a majority of the Units on the Record Date vote
in favor of the Plan, such approval will bind all Unitholders. Neither the
Partnership Agreement nor the California Revised Uniform Limited Partnership
Act, under which the Partnership is governed, provides rights of appraisal or
other similar rights to Unitholders who dissent from the vote of the majority in
approving or disapproving the Plan. See "SPECIAL FACTORS--No Appraisal Rights".
The General Partners recommend that Unitholders consent to the Plan.
See "SPECIAL FACTORS--Recommendation of the General Partners; Fairness of the
Plan".
This Statement and the accompanying form of Consent card are first
being mailed to Unitholders on or about May ___, 1998.
THE DATE OF THIS STATEMENT IS MAY __, 1998.
2
<PAGE>
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SUMMARY
The following is a summary (the "Summary") of certain information
contained elsewhere in this Statement, including the Exhibits hereto, which are
a part of this Statement. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Statement. Terms used in this Summary but not otherwise defined herein or in the
Partnership Agreement have the meanings set forth in the Glossary of Defined
Terms, which begins on page 26 of this Statement. Unitholders are urged to read
this Statement, including the Exhibits hereto, in its entirety.
<TABLE>
<CAPTION>
<S> <C>
THE PARTNERSHIP
Prudential-Bache/Equitec
Real Estate Partnership ......... The Partnership is a California limited partnership which owns and operates
four commercial real properties (the "Properties") consisting of three office
buildings and one industrial park. Two of the three office buildings are located in
California, with the third located in Tennessee. The industrial park is located in
Washington.
The Partnership also directly and indirectly holds all ownership interests (the
"Interests") relating to an office building complex located in Maryland (the
"Related Property") (the Interests, together with the Properties, the "Assets").
The Interests consist of a general partnership interest in Montrose Office Park Joint
Venture, a Maryland single purpose general partnership (the "Joint Venture") and the
entity whose sole asset is the Related Property; a general partnership interest in
Montrose Office Park Limited Partnership, a Maryland limited partnership (the
"Montrose Partnership"); and ownership of all of the issued and outstanding shares
of common stock of Equitec Venture Corp. III, Inc., a California corporation ("EVC").
The Joint Venture, which owns the Related Property, is wholly owned and controlled by
the Partnership both directly and through its interests in the Montrose Partnership
and EVC.
At the Partnership's formation, its managing general partner was Equitec Financial
Group, Inc. ("Equitec") and its general partner was PB Properties. PB Properties
has since become the managing general partner of the Partnership; in 1991, Equitec
filed for reorganization under the federal bankruptcy laws, and by a vote of the
limited partners of the Partnership, Equitec was replaced as co-general partner by
Glenborough Corporation and Robert Batinovich, each a general partner of the
Partnership (together, "Glenborough") (together with PB Properties, the "General
Partners").
The principal offices of the Partnership are located at One Seaport Plaza, New York,
NY 10292, and its telephone number is (212) 214-1016.
ACTION BY WRITTEN CONSENT
Purpose of the
Solicitation .................... Consents are being solicited by PB Properties to approve a plan of action (the
"Plan"), which consists of (i) the sale of all of the Assets (the "Sale") for an
amount of $47,145,000, which amount is based upon recent negotiations with Glenborough
Realty Trust Incorporation and a subsidiary partnership, Glenborough Properties,
L.P., which are affiliates of Glenborough (together, the "Purchaser"), whereby the
Purchaser increased its purchase price by $3,625,000, representing an increase of
approximately 8% over an originally agreed upon purchase price, and upon the C&W
Opinion (as such term is defined below); this price will then be reduced by certain
credits (the "Credits") to the Purchaser (which, in addition to any credits for
secured obligations assumed by the Purchaser, could approximate $690,000 if certain
items of deferred maintenance at the Properties and at the Related Property are not
completed prior to the closing of the sale of the Assets), (ii) the amendment of the
Partnership Agreement to permit (a) the purchase by the Purchaser of all of the
Assets and (b) the effectuation of the Plan by the General Partners on behalf of
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the Partnership (together, the "Amendments") and (iii) one or more liquidating
distributions to the Unitholders and the General Partners and, after providing for
the payment of all expenses and other liabilities of the Partnership, the dissolution
and termination of the Partnership and subsequent liquidation (the "Plan of
Liquidation").
Record Date; Units Entitled
to Consent ...................... Unitholders who own Units at the close of business on April 1, 1998 (the "Record Date")
are entitled to vote by written consent. At the Record Date, there were outstanding
68,795 Units held by 4,958 Unitholders, each Unit of which will entitle the record
owner thereof to one vote.
Vote Required .................... The Plan, which consists of the Sale, the Amendments and the Plan of Liquidation, is
presented as a single proposal and requires the written consents (the "Consents") of
Unitholders of record holding a majority of all outstanding Units. Such approval
shall constitute the approval of the Partnership.
Termination of Consent
Solicitation .................... Consents may be solicited until, and must be received by, no later than
June 1998 at 10:00 a.m., New York City time or until such date as a majority of
Unitholders consent, whichever occurs first (unless such date and/or time is
extended, in the sole discretion of PB Properties).
THE PURCHASER
Glenborough Realty Trust
Incorporated and
Glenborough Properties, L.P.
(together, the "Purchaser") .... Glenborough Realty Trust Incorporated ("GLB") is a Maryland corporation whose
shares trade on the New York Stock Exchange under the symbol "GLB."
GLB is the general partner of Glenborough Properties, L.P., a Delaware limited partnership.
The principal offices of GLB are located at 400 South El Camino Real, San Mateo,
California 94402. GLB's telephone number is (650) 343-9300.
THE PLAN
General .......................... The Plan is a single proposal consisting of the Sale, the Amendments and the
Plan of Liquidation.
In connection with the Plan, the Partnership entered into an original purchase
agreement (the "Original Purchase Agreement") with the Purchaser on October 13, 1997.
Pursuant to the Original Purchase Agreement, the Partnership agreed to sell to the
Purchaser all of the Assets for $43,520,000 in cash (the "Original Purchase Price"),
which equaled the sum of the appraised fair market value of the Assets (the "Fair
Market Value of the Assets") as reflected by the initial individual appraisals of
each of the Properties and the Related Property (the "Initial Appraisals") prepared
by Cushman & Wakefield, Inc. Subsidiaries ("C&W").
The Partnership prepared consent solicitation materials describing the Sale at the
Original Purchase Price which it filed with the Securities and Exchange Commission
(the "SEC") in October 1997. In February 1998, the Partnership received notice from
the SEC that it had no further comments with respect to such materials. As a result
of this longer than anticipated period of time for the preparation of such materials
and in light of improvements in the real estate markets, the availability of
favorable financing and the increased interest of institutional buyers in the type of
properties owned by the Partnership, PB Properties determined that updated appraisals
should be obtained and so notified the Purchaser. Accordingly, the Partnership
retained C&W to conduct updated appraisals of the Assets which were completed in
April 1998 (the "Updated Appraisals"). The Updated Appraisals indicate that the sum
of the individual Fair Market Values of the Assets, as of the dates of such
appraisals, is $49,145,000, an increase of $5,625,000 over the Initial Appraisals.
Upon receipt
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of the Updated Appraisals, PB Properties entered into negotiations with the
Purchaser. Following a series of telephone conversations between such parties, the
Purchaser raised its offer to $47,145,000 (the "Purchase Price"), an increase of
$3,625,000, or 8%, over the Original Purchase Price. Upon receipt of such offer, the
General Partners requested and received from C&W a written opinion, dated April 27,
1998 (the "C&W Opinion"). While the Purchase Price is $2,000,000 less than the
Updated Appraisals, the General Partners believe that the Purchase Price is fair
to the Unitholders of the Partnership and for the reasons considered in
the C&W Opinion, including the favorable terms of the Purchase Agreement to the
Partnership and the "as is/where is/with all faults" nature of the Sale. The Original
Purchase Agreement was amended to reflect such increase in the Original Purchase Price
(the Original Purchase Agreement, as amended, the "Purchase Agreement"). The Purchase
Price, reduced by the Credits, will approximate $46,455,000. See "SPECIAL FACTORS--The
Purchase Agreement," "--C&W Reports" and "--C&W Opinion."
Background of the Plan ........... For the past 18 to 24 months, the General Partners have, in the ordinary course of
administration of the Partnership's affairs, been considering when and how to effect
the disposition of the Assets in the best interests of the Partnership and the
Unitholders. Due to, among other things, improvements in the real estate capital
markets, the General Partners have determined that now is an appropriate time to sell
the Assets. Prior to the execution of the Purchase Agreement, the General Partners
considered the advisability of several other offers made for one or more of the
Assets. See "SPECIAL FACTORS--Background of Proposed Sale of the Assets."
Recommendation of the General
Partners; Fairness of the Plan .. The General Partners have concluded that the Plan is at this time in the best
interests of the Partnership and the Unitholders and recommend the approval of the
Plan. The General Partners considered a number of factors in reaching their
conclusion to recommend that the Unitholders approve the Plan. See "SPECIAL
FACTORS--Recommendation of the General Partners; Fairness of the Plan" and "--C&W
Opinion."
Security Ownership and Voting
of the General Partners ......... As of the Record Date, neither any General Partner nor the Purchaser nor any
executive officer or director of a General Partner or the Purchaser owned directly or
beneficially any Units. Prudential Securities Incorporated ("PSI"), an affiliate of
PB Properties, beneficially owned 180 of the outstanding Units as of April 1, 1998.
PSI has advised PB Properties that it intends to vote in favor of the Plan. PSI has
made no recommendation with respect to the Plan.
Certain Conflicts of Interest .... Under the terms of the Partnership Agreement, the Partnership reimburses PB
Properties for expenses incurred by PB Properties in connection with the business of
the Partnership. Because the Partnership has not generated sufficient cash flow from
operations to make necessary building and tenant improvements to the Properties and
the Related Property, PB Properties has allowed the Partnership to defer the
reimbursement of certain expenses, other than printing costs. As of December 31,
1997, a total of $710,000 in reimbursements had been deferred. If the Partnership
continues to operate, it is uncertain when such deferred reimbursements will be
repaid and PB Properties may defer additional amounts for which it is owed
reimbursement. However, once the Partnership is terminated, PB Properties will incur
no additional expenses on the Partnership's behalf and intends to be reimbursed for
all of its deferred expenses from the proceeds of the Sale.
In connection with the Plan, the Purchaser, which is affiliated with Glenborough, has
entered into the Purchase Agreement with the Partnership with respect to the Sale.
See "SPECIAL FACTORS--Certain Conflicts of Interest," "--The Purchase Agreement."
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The Purchase Agreement ........... Pursuant to the Purchase Agreement, the Purchaser will purchase all of the Assets
for $47,145,000 in cash (based upon recent negotiations with the Purchaser, whereby
the Purchaser increased its purchase price by $3,625,000, representing an increase
of approximately 8% over the Original Purchase Price), which price, reduced by the
Credits, will approximate $46,455,000. While the Purchase Price is $2,000,000 less
than the Updated Appraisals, the General Partners believe that, based upon the C&W
Opinion which states that the Purchase Price is fair and reasonable from a financial
point of view to the Unitholders of the Partnership for the reasons considered
therein, the Purchase Price is fair to and in the best interests of the Partnership
and the Unitholders.
See "SPECIAL FACTORS--Background of Proposed Sale of the Assets," "The Purchase
Agreement" and "--C&W Reports."
Appraisals ....................... C&W prepared the Initial Appraisals based in part on the future prospects of the
Properties and the Related Property in their respective markets. The Initial
Appraisals indicated that the sum of the individual appraised Fair Market Values of
the Properties and the Related Property, as of the dates set forth therein (i.e., May
1997 (except for the Poplar Tower appraisal, which was dated October 1996)) was
$43,520,000. Based upon the Updated Appraisals, dated April 1998, the sum of the
individual appraised Fair Market Values of the Properties and the Related Property
was $49,145,000. See "SPECIAL FACTORS--Background of Proposed Sale of the Assets,"
"--C&W Reports" and "--C&W Opinion.)."
C&W Opinion ...................... On April 27, 1998, C&W delivered to the General Partners the C&W Opinion with respect
to the fairness of the Purchase Price to the Unitholders of the Partnership. See
"SPECIAL FACTORS--C&W Opinion."
Consummation of the
Plan of Sale .................... The Partnership currently anticipates that the Sale will be consummated as soon
as practicable after obtaining the requisite approval of the Unitholders to the Plan.
Regardless of whether or not the Plan is approved, it is not anticipated that
Unitholders will receive aggregate distributions, including distributions from sales
of the Assets and any remaining contingency reserve, which are less than amounts
originally invested in the Partnership.
No Appraisal Rights .............. Unitholders have no appraisal rights in connection with the Plan. See "SPECIAL
FACTORS--No Appraisal Rights."
Federal Income
Tax Consequences ................ Consummation of the Plan will cause the Partnership to recognize income for federal
income tax purposes which income will be allocable to the Unitholders. See "SPECIAL
FACTORS--Federal Income Tax Consequences of the Plan."
Final Distributions and
Liquidation ..................... As promptly as practicable following the Sale, after payment or reserving for
payment of all costs of the Sale and this Consent solicitation, the General Partners
will determine the amount of funds which they believe will be sufficient to provide
for the Partnership's remaining expenses and liabilities, including the costs of
liquidation of the Partnership and any contingent liabilities. The balance of the
Partnership's funds remaining after establishment of the contingency reserve will be
distributed to Unitholders and the General Partners in accordance with the
Partnership Agreement. Once all liabilities have been satisfied, the Partnership will
distribute its remaining net assets and terminate.
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SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data of the Partnership for each of the
last five fiscal years of the Partnership have been derived from the
Partnership's financial statements audited by the Partnership's independent
public accountants. The selected financial data set forth below should be read
in conjunction with the audited financial statements and related notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997, a copy of which is attached hereto as Exhibit F.
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NOVEMBER 1
YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
--------------------------- ----------- ------- -------
1997 1996 1995 1994 1994 1993
------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue .......................................... $ 7,171 $ 6,414 $ 6,541 $ 1,125 $ 6,544 $ 6,841
Provision for loss on impairment of assets ............. $ -- $ -- $ -- $ -- $ -- $ (250)
Gain on disposition of investments ..................... $ 82 $ 33 $ -- $ -- $ -- $ 338
Net loss ............................................... $(1,144) $(1,138) $(1,032) $ (122) $ (794) $(1,898)
Net loss per Unit ...................................... $(16.47) $(16.38) $(14.86) $ (1.76) $(11.43) $(27.31)
Total assets ........................................... $32,621 $33,346 $34,388 $35,737 $36,110 $37,402
Notes payable .......................................... $26,650 $26,650 $26,621 $26,862 $26,917 $27,328
Unitholders' capital ................................... $ 4,454 $ 5,587 $ 6,714 $ 7,736 $ 7,857 $ 8,643
Unitholders' capital per Unit .......................... $ 64.74 $ 81.21 $ 97.59 $112.45 $114.21 $125.63
Total cash distributions ............................... $ -- $ -- $ -- $ -- $ -- $ --
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SPECIAL FACTORS
The Partnership was formed in June 1984 to acquire, operate and then
ultimately dispose of income-producing real estate or interests therein. It was
originally anticipated that the Partnership would hold the real properties or
interests therein it acquired until such time as disposition appeared
advantageous from the viewpoint of the Partnership's investment objectives.
Although no mandatory time frame was set forth within which such sales were
anticipated to occur, it was originally anticipated that the Partnership would
own such real properties and interests therein for approximately three to seven
years after acquisition.
In February 1986, the Partnership completed the offering of Units
representing assignments of all the economic rights and substantially all of the
ownership rights attributable to the limited partnership interests in the
Partnership. A total of 68,795 Units were sold, representing gross proceeds to
the Partnership of $34,397,500. Twelve years later, the Partnership now owns
three office buildings and one industrial park (the "Properties"). The
Partnership also holds ownership interests (the "Interests") relating to an
office building complex located in Maryland (the "Related Property") (the
Interests, together with the Properties, the "Assets"). The Interests consist of
the following: a 93.9% general partnership interest in Montrose Office Park
Joint Venture, a Maryland single purpose general partnership (the "Joint
Venture") and the entity whose sole asset is the Related Property; a 99.992%
general partnership interest in Montrose Office Park Limited Partnership, a
Maryland limited partnership (the "Montrose Partnership") which owns a 6.1%
limited partnership interest in the Joint Venture; and ownership of all of the
issued and outstanding shares of common stock of Equitec Venture Corp. III,
Inc., a California corporation ("EVC") which owns a 0.008% limited partnership
interest in the Montrose Partnership. Thus, the Joint Venture, which owns the
Related Property, is wholly owned and controlled by the Partnership both
directly and through its interests in the Montrose Partnership and EVC.
Under the terms of the Partnership Agreement, the Partnership will
terminate on December 31, 2009 unless terminated sooner under the provisions
thereof. For the past 18 to 24 months, the General Partners have been
considering when and how to effect the disposition of the Assets in the best
interests of the Partnership and the Unitholders. The General Partners believe
that, given current market conditions and the other factors identified in
"SPECIAL FACTORS--Recommendation of the General Partners; Fairness of the Plan"
below, now is the appropriate time to sell the Assets.
BACKGROUND OF PROPOSED SALE OF THE ASSETS
As noted above, for the past 18 to 24 months, the General Partners
have, in the ordinary course of administration of the Partnership's affairs,
been considering when and how to effect the disposition of the Assets in the
best interests of the Partnership and the Unitholders. In the opinion of the
General Partners, the ability to sell direct and indirect interests in real
properties generally has been enhanced by improvements in the national real
estate investment market. Pension funds, real estate investment trusts ("REITs")
and other institutional buyers are now actively seeking new investment
properties, as compared to the early 1990s, when there were fewer institutional
buyers. The emergence of securitized mortgage financing and lower mortgage
interest rates have also contributed to an improved market for direct and
indirect interests such as the Properties and the Related Property, as
entrepreneurial buyers who require debt financing to purchase real properties
are able to borrow funds at attractive rates.
More specifically, the General Partners believe that, with respect to
the Properties and the Related Property, improvements in the real estate capital
markets have enhanced the prospects for selling the Assets at attractive prices.
During the early 1990s, the Properties and the Related Property experienced
devaluation due to a nationwide slump in real estate values. As a result of
general improvement in the real estate capital markets, the General Partners
believe that now is an appropriate time to sell the Assets. See "SPECIAL
FACTORS--Description of Assets" for additional information regarding the
Properties and the Related Property.
Although future economic conditions are difficult to predict, the
Partnership believes that it is unlikely that continuing to hold the Assets
would significantly enhance the Partnership's ultimate realization on a sale of
the Assets, or that the relative economic benefits of continued ownership by the
Partnership would justify the risks of such continued ownership.
The Partnership's entire mortgage debt of $26,650,000 matured on
December 9, 1997. Such debt was refinanced with Wells Fargo Bank, National
Association ("Wells Fargo") in December 1996 to replace mortgage debts of the
Partnership which had matured. The exceptions to the non-recourse provisions of
such debt were guaranteed by Glenborough Corporation and personally by Robert
Batinovich. In early December, the Partnership entered into negotiations with
Wells Fargo to extend the maturity date of such debt.
On December 9, 1997, the Partnership entered into a modification
agreement with Wells Fargo pursuant to which Wells Fargo agreed to extend such
maturity date until March 9, 1998, for an extension fee in the amount of
approximately $33,000. Moreover, Glenborough Corporation and Mr. Batinovich
renewed their guarantee with respect to such extension. At the end of February
1998, the Partnership again entered into negotiations with Wells Fargo to extend
the maturity date of such debt. On March 2, 1998, the parties entered into
another modification agreement pursuant to which Wells Fargo agreed to extend
such maturity date until April 30, 1998, for an extension fee in the amount of
approximately $16,656. In April 1998, Wells Fargo orally
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agreed to extend such maturity date until July 31, 1998, for an extension fee in
the amount of approximately $33,000. Glenborough Corporation and Mr. Batinovich
again renewed their guarantees with respect to such extensions.
Moreover, in terms of expenditures, during the year ended December 31,
1997, the Partnership disbursed approximately $1,057,000, for building and
tenant improvements on the Properties and the Related Property. In order to keep
such real properties competitive in their respective markets, additional
building and tenant improvements will be required on such real properties.
Building and tenant improvements are currently budgeted at approximately
$900,000 for the calendar year 1998. For the years 1999 through 2001, it is
anticipated that an additional $800,000 in total would be required to be
expended on building improvements if the Sale is not consummated.
Under the terms of the Partnership Agreement, the Partnership
reimburses PB Properties for expenses incurred by PB Properties in connection
with the business of the Partnership. Because the Partnership in the past has
not generated sufficient cash flow from operations to make necessary building
and tenant improvements to the Properties and the Related Property, PB
Properties has deferred reimbursement by the Partnership of certain general and
administrative expenses (other than printing expenses) incurred by PB Properties
on the Partnership's behalf. As of December 31, 1997, PB Properties has deferred
approximately $710,000 of expense reimbursements. The Partnership did not incur
any fees or expenses as a result of the deferral of such expense reimbursements.
As of December 31, 1997, the Partnership had cash of approximately $1,106,000.
PB Properties does not expect that the Partnership's cash on hand and cash
generated by its operations will be sufficient to allow the Partnership to pay
for necessary building and tenant improvements and pay deferred general and
administrative expenses. Accordingly, if the Assets are not sold, PB Properties
presently intends to continue deferring reimbursement of additional general and
administrative expenses in order to provide the Partnership with enough cash to
make such building and tenant improvements. There can be no assurances, however,
that PB Properties will continue to defer reimbursement of such expenses.
In addition, the Partnership has paid no cash distributions to
Unitholders during its nine most recent fiscal years and, due to the matters
described above, it is unlikely that the Partnership will make any cash
distributions to Unitholders in the foreseeable future if the Partnership
continues to hold the Assets because any cash flow generated by the Assets will
be needed to make building and tenant improvements and to reimburse PB
Properties for deferred and ongoing general and administrative expenses.
The General Partners have from time to time considered the advisability
of offers made for one or more of the Assets, and of offers made directly to the
Unitholders for the purchase of Units. In November 1995, Hallwood Realty
Partners L.P. ("Hallwood") submitted to the Partnership an unsolicited offer to
purchase the Properties for $29,000,000. After engaging in preliminary
discussions with Hallwood and its broker, Unger Equities, the Partnership
rejected such offer because, in the opinion of the General Partners, such offer
was inadequate from a financial point of view. Hallwood submitted no other
offers and ceased further discussions and negotiations with the Partnership.
In August 1996, Equity Resource Fund XIX commenced an offer to purchase
directly from Unitholders up to 3,000 Units of the Partnership at a price of $25
per Unit. After examining such offer, the General Partners recommended that
Unitholders reject the offer because of, among other things, its financial
inadequacy. 2,930 Units were tendered pursuant to such offer by Unitholders
unaffiliated with the General Partners.
In September 1996, Perrin I, LLC and R. Molitor Ford, Sr.
("Perrin/Molitor"), through its representative, Trammell Crow Company, submitted
an unsolicited offer to purchase Poplar Tower from the Partnership for
$3,900,000. The Partnership and Perrin/Molitor engaged in preliminary
discussions, and in March 1997, Perrin/Molitor reoffered to purchase Poplar
Tower, again for $3,900,000. After engaging in further discussions with
Perrin/Molitor, the Partnership rejected such offer because, in the opinion of
the General Partners, such offer was inadequate from a financial point of view.
Perrin/Molitor submitted no other offers and ceased further discussions and
negotiations with the Partnership.
In December 1996, Peachtree Partners commenced an offer to purchase
directly from Unitholders up to four percent of the then outstanding Units of
the Partnership at a price of $52 per Unit. After examining such offer, the
General Partners recommended that Unitholders reject the offer because of its
financial inadequacy. 1,529 Units were tendered pursuant to such offer by
Unitholders unaffiliated with the General Partners.
On April 1, 1997, the Crow Family Trust, through its representative,
the Trammell Crow Company, expressed an interest in purchasing Poplar Tower for
approximately $5,000,000. The Crow Family Trust, however, did not express an
interest in purchasing any of the other Properties of the Partnership. Based on
their business experience, the General Partners believe that in a sale of all
the Assets in one transaction, unlike that proposed by the Crow Family Trust,
negotiations (including those relating to price) generally yield greater net
proceeds available for distribution than negotiations conducted on a
property-by-property or asset-by-asset basis, as the case may be. Additionally,
selling all of the Assets at one time would result in lower aggregate sales
costs, unlike selling the Assets piecemeal, such as contemplated by the Crow
Family Trust.
The foregoing offers or expressions of interest which were submitted to
the Partnership were so submitted without any prior solicitation or active
marketing by the Partnership or any broker or advisor thereof.
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Immediately thereafter, on April 4, 1997, the Purchaser, an affiliate
of Glenborough, made an all-cash offer of $38 million (subject to certain
credits of up to $987,000 if certain items of deferred maintenance at the
Properties and the Related Property were not completed prior to the closing of
such sale) to purchase all of the Properties and the Interests. PB Properties,
as managing general partner of the Partnership, decided to pursue this offer
rather than the Crow Family Trust offer both because of the positive attributes
of the Purchaser's initial offer and the benefits of a bulk sale to the
Purchaser versus isolated sales to the Crow Family Trust or other entities. See
"SPECIAL FACTORS--Advantages of Plan." PB Properties advised the Purchaser that
the Partnership could not respond to such an offer without first obtaining fair
market value appraisals of the Properties and the Related Property.
Subsequently, the Partnership retained C&W for the purpose of conducting an
appraisal of each of such properties. All of such initial appraisals (the
"Initial Appraisals") of the Properties and the Related Property were dated May
1997 (except the Poplar Tower property appraisal, which was dated October 1996).
As discussed below, the Initial Appraisals rendered by C&W indicated that the
sum of the individual Fair Market Values of the Properties and the Related
Property, as of the dates of such Initial Appraisals, was $43,520,000. The
General Partners relied solely on the Initial Appraisals of C&W in determining
the fair market values of the Properties and the Related Property. Following
completion of such Initial Appraisals, the Purchaser increased its offer price
to the Original Purchase Price, or 100% of such Fair Market Values, which price,
reduced by certain credits to the Purchaser approximated $42,783,000. As a
result of this increased offer and such other factors as the General Partners
deemed appropriate and which are described elsewhere in this Statement, the
Partnership and the Purchaser entered into the Original Purchase Agreement,
which agreement permitted the Partnership to entertain other offers as described
under "SPECIAL FACTORS--Advantages of Plan" and "--The Purchase Agreement." See
"SPECIAL FACTORS--C&W Reports."
In April 1998, following a longer than anticipated period of time for
the preparation of this Statement and in light of improvements in the real
estate markets, the availability of favorable financing and the increased
interest of institutional buyers in the type of properties owned by the
Partnership, PB Properties determined that the Initial Appraisals may no longer
be current. PB Properties so notified the Purchaser, and the Partnership again
retained C&W for the purpose of conducting updated appraisals (the "Updated
Appraisals") which were completed in April 1998. The Updated Appraisals indicate
that the sum of the individual Fair Market Values of the Assets, as of the dates
of such appraisals, was $49,145,000, an increase of $5,625,000 over the Initial
Appraisals. In determining the fair market values of the Assets, the General
Partners relied upon the Updated Appraisals, the C&W Opinion and the other
factors as set forth in "SPECIAL FACTORS--Recommendation of the General
Partners; Fairness of the Plan," "--Disadvantages of the Plan" and "--Advantages
of the Plan." Upon receipt of the Updated Appraisals, PB Properties entered into
negotiations with the Purchaser. Following a series of telephone conversations
between such parties, the Purchaser raised its offer to $47,145,000 (the
"Purchase Price"), an increase of $3,625,000, or 8% over the Original Purchase
Price. Such price, reduced by the Credits, will approximate $46,455,000. Upon
receipt of such offer, the General Partners requested and received from C&W the
C&W Opinion. While the Purchase Price is $2,000,000 less than the Updated
Appraisals, the General Partners believe that, based upon the C&W Opinion which
states that the Purchase Price is fair from a financial point of view to
the Unitholders of the Partnership and for the reasons considered therein,
the Purchase Price is fair to and in the best interests of the Partnership and
the Unitholders. On April 27, 1998, the Original Purchase Agreement was amended
to reflect such increase in the Original Purchase Price (the Original Purchase
Agreement, as amended, the "Purchase Agreement"). See "SPECIAL FACTORS--The
Purchase Agreement," "--C&W Reports" and "--C&W Opinion."
Prior to entering into the Original Purchase Agreement on behalf of the
Partnership, the General Partners additionally considered conducting a public
auction to sell all of the Assets. The General Partners rejected this
alternative, however, because they believed that conducting a public auction
would require the incurrence of certain auction-related expenses (including, but
not limited to, payment of a fee to an auction agent, expenditures to gather and
reproduce due diligence materials, costs of commissioning environmental and
engineering reports and certain refinancing costs and legal fees) that the
Partnership will be able to avoid by proceeding with the Plan. Moreover, the
General Partners believe that, because the Sale likely will be consummated more
rapidly than sales pursuant to a public auction could have been consummated,
certain Partnership overhead costs will be avoided as well.
On October 10, 1997, Smithtown Bay, LLC ("Smithtown") contacted the
Partnership to communicate its intention to offer to purchase from Unitholders
up to 3,330 Units for a cash price of $70 per Unit. On October 20, 1997, after
discussions between Smithtown and the Partnership, Smithtown increased its
previous offer to $125 per Unit. The expiration date of such offer was extended
to no later than December 30, 1997. As of November 20, 1997, 1,440 Units were
tendered pursuant to such offer. On April 30, 1998, Smithtown again contacted
the Partnership to communicate its intention to offer to purchase from
Unitholders up to 1,550 Units for a cash price of $150 per Unit. Such Offer will
expire no later than June 3, 1998.
On April 6, 1998, Madison Partnership Liquidity Investors 54, LLC
("Madison"), through its affiliate, Madison Avenue Capital Group, LLC,
contacted the Partnership to communicate its intention to offer to purchase from
Unitholders their Units for a cash price of $130 per Unit. On April 20, 1998,
Madison extended the expiration date of such offer to May 22, 1998. As of April
30, 1998, _____ Units were tendered pursuant to such offer.
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A sale of all or substantially all of the assets of the Partnership
requires the consent of the Unitholders. Neither the Partnership Agreement nor
California law requires that Unitholders vote on the sale of any one of the
Assets or on the actual terms of specific sales. If the Plan is approved, the
Sale will take place as promptly as is practicable, as described below under
"SPECIAL FACTORS--Closing of the Sale."
CERTAIN CONFLICTS OF INTEREST
Certain interests of both PB Properites and Glenborough in the Plan may
be viewed as conflicting with the interests of unaffiliated Unitholders.
Under the terms of the Partnership Agreement, the Partnership
reimburses PB Properties for expenses incurred by PB Properties in connection
with the business of the Partnership. Because the Partnership has not generated
sufficient cash flow from operations to make necessary building and tenant
improvements to the Properties and the Related Property, PB Properties has
allowed the Partnership to defer the reimbursement of certain expenses, other
than printing costs. As of December 31, 1997, a total of $710,000 in
reimbursements had been deferred. If the Partnership continues to operate, it is
uncertain if or when such deferred reimbursements will be repaid, or if PB
Properties will continue to defer any amounts, including additional amounts, for
which it is owed reimbursement. However, once the Partnership is terminated, PB
Properties will incur no additional expenses on the Partnership's behalf and
intends to receive all of the deferred expense reimbursement from the proceeds
of the Sale. In order to repay PB Properties, the proceeds from the Sale will be
reduced by the amount of such deferred expense reimbursement. Such reduction
will consequently result in a reduction in the total liquidating distributions
per Unit. Accordingly, PB Properties' interest in being repaid in full pursuant
to the Plan may be deemed to conflict with the Unitholders' interest in
maximizing the value of their investment.
As noted elsewhere in this Statement, each of the General Partners
recommends approval of the Plan. In connection with the Plan, the Purchaser, an
affiliate of Glenborough, has entered into the Purchase Agreement with the
Partnership to purchase all of the Assets. If, in the opinion of PB Properties
as managing general partner of the Partnership and acting on behalf of the
Partnership, no alternative offer for any of the Assets is rendered which is
superior to the terms of the Purchase Agreement, or unless certain fiduciary
duties so require, then the Partnership will sell all of the Assets to the
Purchaser if the Plan receives the requisite Unitholder approval. Accordingly,
in light of its affiliation with the Purchaser, Glenborough may be deemed to
have a conflict of interest in approving the Plan. See "SPECIAL FACTORS--The
Purchase Agreement."
THE PURCHASE AGREEMENT
Pursuant to the Purchase Agreement, the Purchaser agreed to purchase
all of the Assets for $47,145,000 in cash (which is close to the Fair Market
Value of the Assets and is based upon recent negotiations with the Purchaser
whereby the Purchaser increased its purchase price by $3,625,000, representing
an increase of approximately 8% over the Original Purchase Price, and upon the
C&W Opinion), which price, reduced by the Credits, will approximate $46,455,000.
The Purchase Agreement may be terminated by the Partnership if, prior to the
closing date of the Sale (the "Closing Date"), it receives a superior offer for
the purchase of the Assets from a bona fide third party. The Purchase Agreement
prohibits the Partnership from actively seeking a superior offer unless the
Partnership determines, in its sole discretion, that its fiduciary duties or
applicable law require it to do so.
The Purchaser's obligations under the Purchase Agreement with respect
to the Properties and the Related Property to which the Interests relate are not
contingent on physical inspection, environmental review, engineering and
structural analysis, seismic evaluation, lease review, survey, lender estoppels,
beneficiary statements or receipt of financing. Furthermore, the Purchase
Agreement does not require the Partnership to provide due diligence materials
such as copies of leases, rent rolls, delinquency reports (if any), loan
documents, permits, surveys, operating budgets, historical operating statements,
tax and other invoices, service contracts, environmental reports, engineering
reports, construction plans and other materials. Because an affiliate of
Glenborough manages the Properties and the Related Property, the Purchaser,
which is affiliated with Glenborough, already has access to all of this
information. The Purchase Agreement additionally does not require either the
Partnership or PB Properties to make many of the representations, warranties or
covenants that are routinely made in sales to third parties, such as with
respect to title matters including adverse claimants, physical defects,
compliance with laws, absence of regulatory proceedings, adequacy of utilities,
environmental matters, accuracy of rent roll, enforceability of leases, tenant
delinquencies, landlord defaults, contracts for improvements, and absence of
litigation. The Purchase Agreement does require the Partnership to represent and
warrant, in summary, that (i) the Partnership entity was property formed under
California law and is qualified to transact business in California; (ii) the
Partnership and the individuals signing the Purchase Agreement on behalf of the
Partnership are authorized to execute and deliver the Purchase Agreement, and
the Partnership is authorized to perform its obligations under the Purchase
Agreement; (iii) the Purchase Agreement is an enforceable document; (iv) the
Partnership is not subject to any bankruptcy, insolvency, reorganization,
moratorium, or similar proceeding; (v) the Purchase Agreement does not conflict
with or violate the organizational documents of the Partnership, the Joint
Venture, the Montrose Partnership or EVC, applicable law, or any agreement or
other instrument or obligation to which the Partnership is a party; (vi) the
Partnership is not a "foreign person" under
11
<PAGE>
applicable tax law so as to require a withholding of a portion of the purchase
price by the Purchaser; and (vii) the Interests are not subject to any liens,
encumbrances or claims of creditors other than restrictions on transfer, if any,
arising out of federal and state securities laws. The Purchaser's obligations
under the Purchase Agreement are conditioned upon the truth and accuracy of the
Partnership's representations and warranties as of the date of the Purchase
Agreement and the continued truth and accuracy thereof as of the Closing Date.
If the Purchaser terminates the Purchase Agreement as a result of the
Partnership's representations or warranties being materially false or
inaccurate, then the Partnership will be liable to the Purchaser for any actual
title, escrow and legal fees incurred by Purchaser up to a maximum of $15,000.
Moreover, no disclosure is required to be made either by the Partnership or the
General Partner with respect to, if any, physical defects, lease defaults,
litigation or contracts for work in progress, among others. Finally, the
Purchase Agreement does not contemplate requiring the Partnership to obtain
tenant estoppel certificates, or necessitating the Partnership to pay any
brokerage commission with respect to the Sale.
Under the Purchase Agreement, the conditions precedent to the
Purchaser's obligation to acquire the Assets are that (i) a title policy shall
have been issued at closing for each Property showing title to such insured
Property vested in the Purchaser, subject to certain exceptions; (ii) either the
Partnership shall have completed certain items of deferred maintenance at the
Properties and the Related Property, or the purchase price to be paid by the
Purchaser for the Assets shall be reduced by the Credits; (iii) no stay, order,
judgment or decree shall enjoin, materially restrain or prohibit consummation of
the Sale of the Assets; (iv) all material authorizations, consents, permits and
approvals of governmental entities required for the consummation of the Sale of
the Assets shall have been obtained; and (v) the Partnership shall have
delivered into escrow certain evidences of ownership of the Assets and certain
other related documents as set forth in the Purchase Agreement. The Purchase
Agreement also contemplates typical closing adjustments and prorations with
respect to the Properties and the Related Property which will result in an
adjustment to the purchase price for the Assets in favor of either the Purchaser
or the Partnership based upon the difference between (i) rents collected by the
Partnership prior to the closing which relate to the period after the Closing
Date, if any, and certain nondelinquent unpaid taxes and expenses incurred by
the Partnership with respect to the Properties and the Related Property relating
to the period prior to the Closing Date, if any, and (ii) any such expenses and
taxes which have been prepaid by the Partnership and relate to the period after
the Closing Date, if any. These closing adjustments and prorations cannot be
quantified until the Closing Date.
The Purchase Agreement requires the Partnership to make certain
representations and warranties with respect to, among other things, its due
organization and authorization to sell the Assets, and with respect to its tax
status. The Purchase Agreement expressly states that each Property is being sold
and conveyed to the Purchaser "AS IS, WHERE IS, WITH ALL FAULTS." With respect
to indemnification, the Purchaser has agreed to indemnify the Unitholders, the
Partnership and certain of its affiliates with respect to certain claims,
demands, liabilities, costs, expenses, penalties, damages and losses resulting
from or arising out of, among other things, (i) the Purchaser's inspection of
the Properties and the Related Property prior to or on the Closing Date; (ii)
the Partnership's operation of the Properties and the Related Property prior to
or on the Closing Date; and (iii) certain other acts or omissions of the
Partnership.
With respect to the Interests, the Purchase Agreement requires the
Purchaser to purchase all of the Partnership's interest in each of the Joint
Venture, the Montrose Partnership and EVC. The Purchase Agreement contains few
representations and warranties by the Partnership with respect to the Interests,
requiring general representations and warranties with respect to due
organization and authorization, the absence of transfer restrictions or claims
of creditors with respect to the Interests.
The Purchaser has agreed to keep its offer open until no later than May
31, 1998. The Partnership cannot sell any of the Assets to the Purchaser unless
the Plan receives the requisite Unitholder approval.
At the present time, the Purchaser intends to fulfill its obligation
under the Purchase Agreement through the use of cash on hand and/or proceeds
from GLB's $50 million secured line of credit with Wells Fargo. The line of
credit bears interest at an annual rate equal to LIBOR plus 1.75%, and is
payable in monthly installments of interest only. If Wells Fargo terminates the
line of credit (other than by reason of GLB's default thereunder), at GLB's
option, any remaining balance thereunder will be converted to a 10-year term
loan, bearing interest at a fixed rate equal to 275 basis points over the then
10-year treasury rate, with a 10-year amortization schedule. GLB intends to
repay any such borrowing through the proceeds of future unsecured borrowings,
either from a commercial bank or the issuance of public debt, or the proceeds of
a public offering of capital stock.
CLOSING OF THE SALE
It is anticipated that the Sale will be consummated as soon as
practicable following receipt of Unitholder approval of the Plan.
For a general discussion of the tax consequences from the Sale, see
"SPECIAL FACTORS--Federal Income Tax Consequences of the Plan."
12
<PAGE>
DESCRIPTION OF ASSETS
As of December 31, 1997, the Partnership owned the following
properties, except for the Related Property (i.e., Montrose Office Park, with
respect to which the Partnership holds the Interests):
<TABLE>
<CAPTION>
EFFECTIVE
AVERAGE
NET ANNUAL RENTAL
PERCENTAGE RENTABLE RATE PER
LEASED AT LAND SQUARE SQUARE FOOT
LOCATION AND TYPE DECEMBER 31, 1997 (IN ACRES) FOOTAGE AT DECEMBER 31, 1997
- ----------------- ----------------- ---------- -------- --------------------
<S> <C> <C> <C> <C>
Poplar Tower ......................... 88 3.95 100,901 $11.52
Memphis, TN
Office building
Montrose Office Park ................. 100 18.42 186,680 15.91
Rockville, MD
Office building complex
Totem Valley Business Center ......... 99 10.40 121,645 6.46
Kirkland, WA
Industrial park
Gateway Plaza ........................ 92 .87 50,558 17.42
Sacramento, CA
Office building
Park Plaza ........................... 91 1.37 70,113 12.62
Sacramento, CA ----- -------
Office building
35.01 529,897
===== =======
</TABLE>
In May 1993, the Partnership and the first mortgage holder of the 399 Market
Street property entered into an agreement related to a deed-in-lieu of
foreclosure with regard to the property, and the Partnership delivered title to
the property to the mortgage holder. Ashby Industrial Center was sold on August
8, 1992 and one of the buildings comprising Totem Valley Business Center was
sold on September 16, 1991.
C&W REPORTS
C&W is a national commercial real estate company which provides a broad
array of services to its domestic and international clients. C&W and its
affiliates have offices nationwide covering most of the major real estate
markets, including the markets in which the Properties and the Related Property
are located. For these reasons, and because C&W has performed appraisal services
for PB Properties in the past (including with respect to other partnerships in
which PB Properties is a general partner), C&W was selected by PB Properties on
behalf of the Partnership to appraise the Properties and the Related Property.
The Partnership neither provided instructions to C&W regarding C&W's
investigation in connection with the Initial Appraisals and the Updated
Appraisals nor limited the scope thereof in any manner.
In appraising such properties, C&W and/or its affiliates estimated the
market value of a leased fee interest in each of such real properties,
disregarding existing financing, which market value was set forth in the
individual Initial Appraisals and Updated Appraisals provided to the Partnership
by C&W and completed in April 1998 (the "Valuation Dates") for each of such real
properties. The date of valuation for each Property and the Related Property was
the date of inspection. The Initial Appraisals and the Updated Appraisals were
prepared in accordance with the Uniform Standards of Professional Appraisal
Practice of the Appraisal Foundation and the Code of Ethics of the Appraisal
Institute. The appraisal fee for the Initial Appraisals was approximately
$33,000 and the appraisal fee for the Updated Appraisals was approximately
$25,000, which fee payments were not conditioned on the successful sale of all
or any of the Assets.
As set forth in the Initial Appraisals as of the respective Valuation
Dates, the individual appraised values of the Properties and the Related
Property were as follows: Poplar Towers Office Building, $5,000,000; Montrose
Office Park, $20,400,000; Totem Valley Business Center, $7,200,000; Gateway
Plaza, $4,250,000; and Park Plaza, $6,670,000. Accordingly, the sum of the
individual appraised values of the Properties and the Related Property as set
forth in the Initial Appraisals as of the Valuation Dates was $43,520,000. C&W
made no other recommendations or conclusions in connection with the Initial
Appraisals.
As set forth in the Updated Appraisals as of the respective Valuation
Dates, the individual Appraised Values of the Properties and the Related
Property are as follows: Poplar Towers Office Building, $5,900,000; Montrose
Office Park, $24,000,000; Totem Valley Business Center, $7,500,000; Gateway
Plaza, $4,800,000; and Park Plaza, $6,945,000. Accordingly, the sum of the
individual Appraised Values of the Properties and the related Property as set
forth in the Updated Appraisals as of the Valuation Dates was $49,145,000. C&W
made no other recommendations or conclusions in connection with the Updated
Appraisals.
13
<PAGE>
In each of the Initial Appraisals except for the Poplar Towers Office
Building, C&W used the Sales Comparison Approach and the Income Approach (as
such terms are used in the applicable Initial Appraisals) to develop a market
value estimate for each Property and the Related Property. Unlike with respect
to the other Initial Appraisals, the Poplar Towers Office Building was appraised
in November 1995, at which time C&W utilized the Sales Comparison Approach and
the Income Approach, and delivered its results in a summary appraisal report. In
October 1996, C&W was provided with updated rent roll and operating expense
data, prepared a limited appraisal (Income Approach only) and delivered same in
a restricted appraisal report (as such term is set forth in the Uniform
Standards of Professional Appraisal Practice). Such property was not reinspected
during the October 1996 appraisal. In reaching their fairness determinations,
each of the General Partners utilized the fair market value set forth in the
October 1996 Initial Appraisal (i.e., the more recent appraisal). In the Updated
Appraisals, C&W relied on the Income Approach and the Sales Comparison Approach
in the instance of the Poplar Tower Office Building, the Totem Valley Business
Center and the Montrose Office Park; the Income Approach was used solely in the
instance of Gateway Plaza and Park Plaza.
C&W estimated value by means of the Sales Comparison Approach by
comparing the Property or Related Property being appraised with similar,
recently sold properties in the surrounding or competing area. Inherent in this
approach is the principle of substitution, which holds that when a property is
replaceable in the market, its value tends to be set at the cost of acquiring an
equally desirable substitute property, assuming that no costly delay is
encountered in making the substitution. In using the Sales Comparison Approach,
C&W took the following steps: (i) researched recent, relevant property sales and
current offerings through the competitive area; (ii) selected and analyzed
properties that were similar to the Property or Related Property being
appraised, considering changes in economic conditions that may have occurred
between the sale date and the date of value, and other physical, functional or
locational factors; (iii) identified sales that included favorable financing and
calculated the cash equivalent price; (iv) reduced the sale process to a common
unit of comparison such as price per square foot of net rentable area, effective
gross income multiplier, and overall capitalization rate; (v) made appropriate
comparative adjustments to the prices of the comparable properties to relate
them to the Property or Related Property being appraised; and (vi) interpreted
the adjusted sales data and drew a value conclusion.
The Income Approach is a method of converting the anticipated economic
benefits of owning property into a value estimate through capitalization. The
principle of "anticipation" underlies this approach in that investors recognize
the relationship between an asset's income and its value. In order to value the
anticipated economic benefits of a particular property, potential income and
expenses must be estimated, and the most appropriate capitalization method must
be selected. In developing the Income Approach, C&W: (i) studied rents in effect
at the Property or Related Property being appraised and at competing property to
estimate potential rental income at market levels; (ii) estimated income from
sources other than office rentals; (iii) studied the recent history of operating
expenses at the Property or Related Property being appraised and at competing
properties to estimate an appropriate level of stabilized expenses and reserves
for replacement; (iv) estimated net operating income by subtracting stabilized
expenses from potential gross income; and (v) capitalized stabilized net
operating income into an indication of value.
The Initial Appraisals and the Updated Appraisals were made subject to
certain assumptions affecting valuation, including assumptions (i) that the
operating statements and rent rolls provided by the various property managers
were accurate; (ii) of the responsible ownership and competent management of the
Property and the Related Property; (iii) that title to the Property and Related
Property is good and marketable and that the Property and the Related Property
is free and clear of all liens unless otherwise stated in the Initial Appraisals
and the Updated Appraisals; (iv) of the absence of hidden or unapparent
conditions of the Property or Related Property, subsoil or structures that
render the Property and Related Property more or less valuable; (v) that all
applicable federal, state and local zoning and environmental regulations and
laws have been fully complied with, unless noncompliance is stated, defined and
considered in the Initial Appraisals and the Updated Appraisals; and (vi) that
all required licenses, certificates of occupancy and other governmental consents
have been or can be obtained and renewed for any use on which the value estimate
contained in the Initial Appraisals and the Updated Appraisals are based.
Each of the Initial Appraisals and the Updated Appraisals is only an
estimate of value, as of the specific date stated in such appraisal, and is
subject to the assumptions and limiting conditions stated in such appraisal. As
an opinion, it is not a measure of realizable value and may not reflect the
amount which would be received if the real property that is the subject of such
appraisal was sold. Reference should be made to the entire appraisal for each
such real property. Copies of the Initial Appraisals and the Updated Appraisals
shall be made available for inspection and copying at the principal office
address of the Partnership set forth in "SUMMARY--The Partnership" during
regular business hours by any Unitholder (or a representative designated for
such purpose). Such copies may also be obtained at the reasonable cost of
document reproduction upon written request by any Unitholder (or a
representative designated for such purpose) to the Partnership at such principal
office address.
C&W OPINION
The Partnership retained C&W on April 15, 1998 to examine the proposed
sale of the Property and the Interests and to render an opinion to the General
Partners, as to the fairness, from a financial point of view, of the
consideration to be received by the Unitholders of the Partnership in connection
with the Sale.
14
<PAGE>
C&W is an international real estate services company that provides a
wide range of brokerage, property management, valuation and advisory services.
C&W was selected by the General Partners to provide its services based upon
C&W's qualifications, expertise and reputation, as well as its previous
performance in providing valuation and advisory services with respect to other
partnerships sponsored by the General Partners or its affiliates, and upon the
fact that C&W's subsidiaries had provided appraisal services involving the
Properties and the Related Property. The Partnership imposed no conditions or
limitations on the scope of C&W's investigation or the methods and procedures to
be followed in rendering the C&W Opinion, nor did it give C&W any instructions
regarding how to render the C&W Opinion.
On April 27, 1998, C&W delivered to the General Partners the C&W
Opinion which states that as of such date, the Transactions and the
consideration to be received by the Unitholders of the Partnership in connection
with the Sale are fair to the Unitholders of the Partnership from a financial
point of view. The decision to enter into the Sale, however, was made by the
General Partners.
The C&W Opinion, a copy of which is attached as Exhibit E hereto, sets
forth assumptions made, matters considered, and limits on a review undertaken by
C&W. Unitholders are urged to read the C&W Opinion in its entirety. The C&W
Opinion, which is directed only to the Sale, was for the information of the
General Partners and does not constitute a recommendation to any Unitholder.
This summary of the C&W Opinion is qualified in its entirety by reference to the
full text of such C&W Opinion.
For purposes of the C&W Opinion, C&W: (i) interviewed management of the
Partnership regarding the negotiation process leading to the Purchase Agreement;
(ii) reviewed the Purchase Agreement; (iii) reviewed the original private
placement memorandum for the Partnership and amendments thereto; (iv) reviewed
the Partnership's Annual Reports on Form 10-K for the fiscal years 1988 through
1997; (v) reviewed the solicitation materials submitted to the SEC by the
Partnership, SEC comment letters addressed to the Partnership, and the
Partnership's responses to such letters; (vi) reviewed limited and dated
environmental, engineering and ADA compliance reports to the extent available;
(vii) reviewed the 5-year capital budget; (viii) reviewed appraisal reports
prepared by various C&W subsidiaries on the Assets that are the subject of the
Purchase Agreement; (ix) reviewed the recommendation and statement of fairness
of the General Partners which included an enumeration of the factors considered
in arriving at the recommendation and a detailing of the advantages and
disadvantages of the Sale; (x) considered the $2,000,000 purchase price
reduction from the Fair Market Value of the Property and Related Property in
light of alternatives available to the Partnership, including holding the Assets
and selling them at some time in the future or marketing the Assets either
directly or through a third party; (xi) considered the fact that a single
purchaser other than the Purchaser would likely not be found given the nature of
the Assets and the geographic dispersion of the portfolio; (xii) considered the
time value of money in light of the delay that would occur if the Assets were to
be actively marketed; (xiii) considered the favorable terms of the Purchase
Agreement to the Partnership and the "as is/where is/with all faults" nature of
the Sale; and (xiv) considered such other factors as C&W deemed appropriate.
In connection with its review, C&W assumed and relied upon, without
independent verification, the accuracy and completeness of the information
supplied or otherwise made available to C&W by the Partnership for the purposes
of the C&W Opinion. The C&W Opinion is necessarily based on economic, market and
other conditions as in effect on and information made available to us as of the
date of the C&W Opinion. Events occurring after that date could materially
effect the assumptions and conclusions contained in the C&W Opinion.
C&W will receive a fee for the preparation and rendering of the C&W
Opinion in the amount of $75,000. C&W subsidiaries also provided appraisal
services to the Partnership and have received $51,000 for the Initial Appraisals
and Updated Appraisals and have informed the General Partner such fees do not
constitute a significant portion of its revenues.
USE OF PROCEEDS AND CASH DISTRIBUTIONS
The following table sets forth the anticipated application of the
proceeds from the Sale. The amount available for distribution to Unitholders
shown below assumes that all of the Assets are sold to the Purchaser for the
price and subject to the other terms and conditions (including a possible
reduction in such price due to the Credits) contained in the Purchase Agreement.
As promptly as practicable following the Sale, the General Partners
will determine the amount of assets that they believe will be sufficient to
provide for the Partnership's contingent liabilities, if any. The remainder of
the Partnership's cash will be distributed to the Unitholders and the General
Partners, in accordance with the Partnership Agreement, in an initial
liquidating distribution. Once all contingent obligations have been satisfied,
the Partnership will distribute its remaining net assets, if any, and dissolve.
The Partnership estimates that the total distribution to the
Unitholders will be approximately $267 per Unit. This estimate is based on the
following factors and other assumptions as of December 31, 1997, and assuming a
closing as of June 30, 1998 and a liquidation of the Partnership by September
30, 1998. HOWEVER, THERE CAN BE NO ASSURANCES AS TO THE ACTUAL AMOUNTS
DISTRIBUTED, OR AS TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS MAY VARY
MATERIALLY FROM THESE FIGURES.
15
<PAGE>
In accordance with the Partnership Agreement, the initial and any
subsequent liquidating distributions will be distributed in proportion to, and
to the extent of, the positive capital account balances of the Unitholders and
the General Partners.
<TABLE>
<CAPTION>
<S> <C> <C>
Gross Purchase Price ......................................................... $47,145,000
Certain Credits Due to GRTI .................................................. (690,000)
-----------
Subtotal ................................................................... 46,455,000
Less: Notes Payable on Properties and the Related Property ................... (26,650,000)
Less: Expenses of Sale and Liquidation ....................................... (1,068,000)(1)
Reduced by Expenses Incurred through December 31, 1997 ....................... 295,000 (773,000)
---------- -----------
Less: Current Liabilities in Excess of Current Assets ........................ (530,000)(2)
-----------
Net Distributable Amount ..................................................... 18,502,000 (3)
Less: Distributions to General Partners ...................................... (150,000)
-----------
Distributions to Unitholders ................................................. $18,352,000
===========
Distributions to Unitholders per Unit ........................................ $ 267
===========
</TABLE>
- ----------
(1) Sale and liquidation expenses of the Partnership have been estimated by the
General Partners to be the following approximate amounts: filing ($10,000);
legal ($250,000); fairness opinion ($75,000); appraisals ($18,000);
accounting and tax services ($40,000); solicitation ($10,000); printing and
postage ($150,000); closing ($215,000); and liquidation-related ($300,000).
The liquidation-related expenses include refinancing costs for the mortgage
loan ($50,000); accounting and tax services ($45,000); printing and postage
($20,000); legal ($50,000); and other general and administrative expenses
($135,000). The Purchaser anticipates incurring and paying approximately
$95,000 of additional closing expenses.
(2) Estimated based upon assets and liabilities as of December 31, 1997. The
estimate of the liabilities includes $710,000 in reimbursements due to PB
Properties which have been deferred by the Partnership.
(3) Of this amount, the General Partners initially will withhold up to $1
million (approximately $15 per Unit) as a reserve against future
liabilities and unforeseen contingent obligations of the Partnership.
On the date of liquidation, liquidating distributions shall be made to
each Unitholder that is a beneficial owner of Units.
RECOMMENDATION OF THE GENERAL PARTNERS; FAIRNESS OF THE PLAN
The General Partners and the Purchaser believe that the advantages of
consummating the Sale at this time exceed any disadvantages and therefore the
General Partners recommend that the Unitholders approve the Plan.
In reaching their conclusion to recommend that the Unitholders approve
the Plan, the General Partners and the Purchaser considered a number of factors,
including, but not limited to, the following:
(i) The fact that the Partnership's $26,650,000 mortgage debt matured
on December 9, 1997, and the maturity date of such debt has been orally
extended only until July 31, 1998;
(ii) The fact that the Purchase Price under the Purchase Agreement is
$47,145,000 and is based upon recent negotiations with the Purchaser
whereby the Purchaser increased its purchase price by $3,625,000,
representing an increase of approximately 8% over the Original Purchase
Price and an approximately 62.5% increase over the amount of the
unsolicited Hallwood offer. While the Purchase Price is $2,000,000 less
than the Updated Appraisals, the General Partners believe that, based upon
the C&W Opinion which states that the Purchase Price is fair and reasonable
from a financial point of view to the Partnership and the Unitholders for
the reasons considered therein, the Purchase Price is fair to and in the
best interests of the Partnership and the Unitholders.
(iii) The General Partners' belief that in a sale of all the Assets in
one transaction, such as pursuant to the Plan, negotiations (including
those relating to price) generally yield greater net proceeds available for
distribution than negotiations conducted on a property-by-property or
asset-by-asset basis, as the case may be;
(iv) The General Partners' belief that because the Purchaser is an
affiliate of Glenborough, there is a greater certainty of closing;
(v) The fact that selling the Assets at one time would result in lower
aggregate sales costs than selling the Assets piecemeal;
(vi) The fact that no brokerage commissions are required to be paid by
the Partnership in connection with the Sale;
16
<PAGE>
(vii) The fact that the Purchaser's obligations under the Purchase
Agreement with respect to the Properties and the Related Property to which
the Interests relate are not contingent on physical inspection,
environmental review, engineering and structural analysis, seismic
evaluation, lease review survey, lender estoppels, beneficiary statements
or receipt of financing;
(viii) The terms and conditions of the Purchase Agreement which
provide that, among other things, (a) the Purchase Agreement may be
terminated by the Partnership if, prior to the Closing Date, the
Partnership receives a superior offer for the purchase of the Assets from a
bona fide third party, (b) the Partnership may negotiate in good faith in
the event that it receives an unsolicited superior offer, (c) the
Partnership and PB Properties make only a few of the representations,
warranties and covenants that are routinely made in sales to third parties
and (d) the Property and the Related Property are being sold and conveyed
to the Purchaser "AS IS, WHERE IS, WITH ALL FAULTS";
(ix) The recent general improvement in the occupancies and revenues of
the Assets, which the General Partners believe enhances their salability;
(x) The fact that retaining the Assets will continue to subject the
Partnership to the risks inherent in the direct or indirect ownership of
rental property, such as fluctuations in occupancy rates and operating
expenses and rental rates (which in turn may be affected by general and
local economic conditions), the supply and demand for properties of the
type directly or indirectly owned by the Partnership, increased competition
and federal and local laws and regulations affecting the ownership and
operation of real estate;
(xi) The General Partners' belief that it would be advantageous to
sell the Assets now before further aging and wear in the ordinary course
occurs at the Properties and the Related Property, thereby requiring
substantially increased expenditures for repairs and refurbishment;
(xii) The fact that the Sale will provide liquidity to the
Unitholders;
(xiii) The fact that the Partnership has not made any cash
distributions to Unitholders since 1988;
(xiv) The remote possibility of a resumption of distributions; and
(xv) The fact that the Assets have now been held beyond their
originally anticipated holding periods.
The General Partners also considered the following potential risks
relating to the Plan: (i) by selling at this time, the Partnership would not
benefit from possible further improvements in economic and market conditions
which might produce increased cash flow and possibly increase the sales prices
of the Assets; and (ii) pursuant to the Purchase Agreement, although the
Partnership is permitted to accept better offers, it is not permitted to
actively market the Assets or solicit better offers (unless the Partnership
determines, in its sole discretion, that its fiduciary duties or applicable law
requires it to do so), so that the purchase price of the Sale may be less than
the Partnership may be able to obtain with an active public marketing of the
Assets. Moreover, the General Partners considered certain potential conflicts of
interest of PB Properties and Glenborough, as described under "SPECIAL
FACTORS--Certain Conflicts of Interest," and their effect on the unaffiliated
Unitholders. However, the General Partners did not believe such potential
conflicts of interest adversely affected the procedural or substantive fairness
of the Plan to the unaffiliated Unitholders because the General Partners
believed the Plan represented the best price available for the Assets, the
negotiation of the Purchase Agreement was undertaken on an arm's length basis by
PB Properties, which retained its own independent legal counsel, the consent of
Unitholders holding a majority of the outstanding Units is required to approve
the Sale, and the Purchase Agreement contained the provisions described above.
The General Partners believed, however, that these potential risks and conflicts
were outweighed by the potential benefits to be realized from the Plan.
Each of the General Partners (of which only PB Properties, whose
principals are identified in "IDENTITY AND BACKGROUND OF CERTAIN PERSONS--PB
Properties--Officers and Directors," is not affiliated with the Purchaser) and
the Purchaser met separately to consider the fairness of the Plan, and each of
the General Partners and the Purchaser determined, by a unanimous vote of its
directors (except that Robert Batinovich, acting in his individual capacity as
General Partner, reached such determination individually) and after considering
the factors listed herein and above in "SPECIAL FACTORS--Background of Proposed
Sale of the Assets" and "--Recommendation of the General Partners; Fairness of
the Plan," that the Plan, including the transactions contemplated thereby, would
serve the best interests of the Partnership and the Unitholders by maximizing
the proceeds from a disposition of the Assets and, consequently, the per Unit
liquidating distributions to the Unitholders and is fair to all Unitholders,
both affiliated and unaffiliated. Thereafter, pursuant to Article V, Section 1
of the Partnership Agreement, the Investment Committee (which consists of three
officers of PB Properties and three officers of Glenborough) unanimously
approved the Plan, including the transactions contemplated thereby.
The foregoing discussion of the information and factors considered by
the General Partners is not intended to be exhaustive, and such were considered
collectively by the General Partners in connection with their review of the Plan
and the transactions contemplated thereby. In view of the variety of factors
considered in connection with their evaluation of the Plan, the General Partners
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching their
determination. In addition, each General Partner may have given different
weights to different factors.
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The Partnership did not establish a committee of independent partners
to consider the fairness of the Plan to Unitholders. Notwithstanding the absence
of such a committee, the General Partners believe that the manner in which the
Plan was considered by the Partnership was procedurally fair to the Unitholders.
Among other things, the negotiation of the Purchase Agreement was undertaken on
an arm's length basis by PB Properties which retained its own independent legal
counsel, and the consent of Unitholders holding a majority of the outstanding
Units is required to approve the Sale.
DISADVANTAGES OF PLAN
The primary disadvantage of the Sale at this time is that the
Partnership would not benefit from possible further improvements in economic and
market conditions which might produce increased cash flow and possibly increase
the sales prices of the Assets. Another disadvantage is that, pursuant to the
Purchase Agreement, although the Partnership is permitted to accept better
offers, it is not permitted to actively market the Assets or solicit better
offers. Thus, it is possible that the price being received by the Partnership
from the Purchaser via the Sale may be less than the Partnership may be able to
obtain with an active public marketing of the Assets.
ADVANTAGES OF PLAN
The General Partners have arrived at their recommendations based on the
following factors, in addition to those factors listed above in "SPECIAL FACTORS
- --Background of Proposed Sale of the Assets" and --Recommendation of the General
Partners; Fairness of the Plan" and not listed below:
Negotiated Purchase Price. The Purchase Price of the Assets under the
Purchase Agreement was negotiated at arm's length and was based upon the sum of
the individual appraised fair market values of the Properties and the Related
Property, upon the C&W Opinion and upon recent negotiations with the Purchaser
whereby the Purchaser increased its purchase price by $3,625,000, representing
an increase of approximately 8% over the Original Purchase Price and an
approximately 62.5% increase over the amount of the unsolicited Hallwood offer.
See "SPECIAL FACTORS--Background of Proposed Sale of the Assets."
Benefits of Bulk Sale. Based on their business experience, the General
Partners believe that in a sale of all the Assets in one transaction such as
pursuant to the Plan, negotiations (including those relating to price) generally
yield greater net proceeds available for distribution than negotiations
conducted on a property-by-property or asset-by-asset basis, as the case may be.
Certainty of Price. The purchase price for the Assets under the
Purchase Agreement is subject to reduction only for items of deferred
maintenance. Thus, unlike other property sales situations in which the purchase
price could decrease as a result of due diligence uncertainties and other
contingencies, there is no risk of continuing price negotiations with respect to
the Sale.
Reduction of Administrative and Sales Costs. Selling all of the Assets
at one time and completing the liquidation and dissolution of the Partnership in
1998 would eliminate the need for the Partnership to incur ongoing
administrative and other expenses of continuing to operate the Partnership
during an extended sales period. Additionally, selling all of the Assets at one
time would result in lower aggregate sales costs, unlike selling the Assets
piecemeal (such as would have occurred had the Partnership accepted either the
unsolicited Perrin/Molitor offer or Crow Family Trust offer). See "SPECIAL
FACTORS--Background of Proposed Sale of the Assets."
Elimination of Need for Brokerage Commissions. No brokerage commissions
are required to be paid by the Partnership in connection with the Sale.
Improved Occupancies and Revenues. General improvement in the
occupancies and revenues of the Assets has occurred recently, which the General
Partners believe enhances their salability.
Risks of Continued Ownership. Retaining the Assets will continue to
subject the Partnership to the risks inherent in the direct or indirect
ownership of rental property, such as fluctuations in occupancy rates, operating
expenses and rental rates (which in turn may be affected by general and local
economic conditions), the supply and demand for properties of the type directly
or indirectly owned by the Partnership, increased competition and federal and
local laws and regulations affecting the ownership and operation of real estate.
The Condition of the Properties and the Related Property. The General
Partners believe that it would be advantageous to sell the Assets now before
further aging and wear in the ordinary course occurs at the Properties and the
Related Property, thereby requiring substantially increased expenditures for
repairs and refurbishment.
The Partnership's Original Objectives and Policies. The Sale of the
Assets at this time is compatible with the Partnership's originally anticipated
holding period.
Liquidity. The Sale will provide liquidity to the Unitholders. At
present, there is no established public trading market for the Partnership's
Units, and one is not expected to develop in the future. Liquidity has been
limited to sporadic sales which have
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occurred within an informal secondary market. See "MARKET PRICES OF UNITS AND
DISTRIBUTIONS TO UNITHOLDERS--Secondary and Market Prices for Units."
The Terms of the Purchase Agreement. See "SPECIAL FACTORS--The Purchase
Agreement."
In reaching a determination that the Plan is fair to all Unitholders,
each of the General Partners accorded added weight to the following factors: the
fact that the Sale price is $47,145,000 and is based upon recent negotiations
with the Purchaser whereby the Purchaser increased its purchase price by
$3,625,000, representing an increase of approximately 8% over the Original
Purchase Price, and upon the C&W Opinion, which price will be reduced by the
Credits; the absence of cash distributions to Unitholders since 1988; the
strength of the present real estate market in general; the certainty of price to
be received pursuant to the Purchase Agreement; and the savings to Unitholders
in administrative and sales costs gained via the Plan.
FAILURE TO APPROVE PLAN
If the Unitholders fail to approve the Plan, the Partnership will
continue to own the Assets. In such event, the General Partners expect that the
Partnership would operate the Properties and would cause the Related Property to
be operated for an indefinite period, which over time would likely entail the
need for the Partnership to make substantial expenditures for repairs and
refurbishment of one or more of the Properties and the Related Property.
Consistent with the Partnership Agreement, the General Partners might receive or
solicit offers for the sale of one or more of the Assets as opportunities arise.
In any such sale, the Partnership would benefit from any increase in value of
the affected Assets over the value of a sale at the time pursuant to the Plan,
and would suffer a detriment to the extent of decrease in such value. Failure by
the Unitholders to approve the Plan will not affect their rights under the
Partnership Agreement.
AMENDMENT TO PARTNERSHIP AGREEMENT
Pursuant to Section V.2.f. of the Partnership Agreement, the General
Partners may not sell substantially all of the assets of the Partnership without
the prior consent of the Unitholders. Additionally, pursuant to V.2.i. of the
Partnership Agreement, neither the General Partners nor any Affiliate (as
defined in the Partnership Agreement) of any of the General Partners is
generally permitted to purchase or lease property (or interests thereon) from
the Partnership. Thus, in order for the Partnership to consummate a sale of all
or any of the Assets, and in order for the Purchaser to be able to purchase the
Assets, the Partnership Agreement must be amended, which requires the approval
of Unitholders holding a majority of the outstanding Units. Additionally,
consent is being solicited to amend Section V.1. of the Partnership Agreement to
specifically permit effectuation of the Plan.
LIQUIDATION
As soon as practicable following the closing of the Sale, PB
Properties, as managing general partner of the Partnership and on behalf of the
Partnership, will cause the Partnership (i) to pay all costs associated with the
Sale, including the solicitation of Consents from the Unitholders; (ii) to
estimate and reserve for all such costs associated with the Sale for which bills
have not yet been received; and (iii) to provide a further contingency reserve
for all other expenses and liabilities of the Partnership. PB Properties will
then cause the Partnership to distribute the balance of the cash from the Sale
to the Unitholders and General Partners as provided in the Partnership
Agreement.
The remaining assets of the Partnership, and any remainder of the
contingency reserve, will be distributed to the Unitholders as soon as
practicable after the closing of the Sale.
The Partnership will terminate and be dissolved upon the disposition of
all of the net assets of the Partnership.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
General
The following discussion generally summarizes the federal income tax
consequences expected to arise from the consummation of the Plan. This summary
is not intended to and should not be considered an opinion respecting the
federal or state income tax consequences to a particular Unitholder. Due to the
complexity of the tax issues involved, Unitholders are urged to consult with
their personal tax advisors regarding their individual circumstances and the tax
reporting consequences of the transaction.
This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"); existing final, temporary and proposed Treasury
regulations thereunder (the "Regulations"); published rulings and practices of
the Internal Revenue Service (the "IRS"); and court decisions, each as currently
in effect. There can be no assurance that the IRS will agree with the
conclusions
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herein or that future legislation or administrative changes or court decisions
will not significantly modify the federal income tax law regarding the matters
described herein, potentially with retroactive effect.
This summary is also based upon the advice of the Partnership's
independent accountants, Deloitte & Touche LLP, and tax counsel, Skadden, Arps,
Slate, Meagher & Flom LLP, and their interpretation of recently enacted
legislation, the Taxpayer Relief Act of 1997, as such legislation relates to the
treatment of gain on the sale of real and personal property. This interpretation
is also subject to subsequent issuance of Treasury regulations and procedures
for federal income tax reporting.
This summary does not discuss all the federal income tax aspects of the
Plan that may be relevant and material to a particular Unitholder in light of
the Unitholder's personal circumstances, or to certain types of Unitholders
subject to special treatment. For example, insurance companies, subchapter S
corporations, partnerships, pension and profit-sharing plans, tax-exempt
organizations, non-U.S. taxpayers and others may be subject to special rules not
discussed below. This summary also does not address other federal, state, local
or foreign tax consequences of consummation of the Plan.
Based upon the description of the Plan contained in this Statement, and
assuming the Plan will be consummated on June 30, 1998 pursuant to the Purchase
Agreement, the Partnership's independent accountants have advised the
Partnership that the Sale will result in a total gain allocable to the
Unitholders for federal income tax purposes in 1998 (after taking into account
reductions in each Unitholder's share of the Partnership's indebtedness) of
approximately $12.2 million or an average of approximately $177 per Unit,
substantially all of which will represent recapture of depreciation taken in
respect of real property ("unrecaptured" Section 1250 Gain, as defined below)
and will be taxed at a maximum rate of 25% in the case of non-corporate
Unitholders. The amount of Section 291(a) ordinary income recharacterization for
a corporate Unitholder is approximately $25 per Unit (see discussion below). The
amount of gain actually realized by a particular Unitholder may differ from the
estimates set forth above as a result of the operation of the Partnership
Agreement, specifically the equalization provisions with respect to the capital
account balances. The varying capital account balances of the Unitholders result
from, among other things, the date each Unitholder was admitted to the
Partnership, the amount paid by each Unitholder for such Unit and the
allocations of Partnership income or loss to each Unitholder.
Partnership Status
Under current law, a "partnership" is not a taxable entity and incurs
no federal income tax liability. Instead, each partner is required to take into
account in computing such partner's income tax liability such partner's
allocable share of the partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss"). The distribution of cash
attributable to partnership income is generally not a separate taxable event.
This tax treatment, however, depends entirely upon the Partnership's
classification as a "partnership" (rather than as an "association taxable as a
corporation") for federal income tax purposes. This summary assumes, and the
General Partners believe, that the Partnership has been and will continue to be
properly classified as a "partnership" for federal income tax purposes. No
opinion of counsel or of the Partnership's independent accountants or ruling
from the IRS is currently being sought with respect to this partnership status
issue.
Federal Income Tax Consequences
Realization of Gain or Loss. Consummation of the Plan pursuant to the
Purchase Agreement will cause the Partnership to recognize income for federal
income tax purposes, which income will be allocated to the Unitholders. In
general, such income will equal the excess of the "amount realized" over the
Partnership's "adjusted basis" in the Assets. The amount realized will equal the
amount paid by the Purchaser, reduced by any expenses of sale. The "adjusted
basis" of an asset will equal its cost (including nondeductible capital
expenditures made by the Partnership at the time of purchase) with certain
additions or subtractions for expenditures, transaction costs, depreciation and
other items during the period of time from acquisition of the asset until
consummation of the Sale. In addition, the reduction in each Unitholder's share
of the Partnership's indebtedness will be treated as a deemed cash distribution,
which will reduce such Unitholder's basis in its interest.
Gain realized on the sale of the common stock of EVC will be
characterized as long-term capital gain. In general, under Section 1231 of the
Code, a taxpayer's gain attributable to the disposition of real property used in
a trade or business (such as the Properties and the Related Property) will be
treated as capital gain ("Section 1231 Gain"). Under the Taxpayer Relief Act of
1997 (the "Act"), the maximum rate of tax on the adjusted net capital gain of a
non-corporate unitholder is reduced from 28% to 20%. However, under Sections
1245 and 1250 of the Code (which govern recapture of depreciation taken with
respect to personal and real property, respectively), a portion of the amount
allowed as depreciation expense with respect to the Properties will be
"recaptured" upon the Sale (and taxed at different rates) rather than being
characterized as capital gain ("Section 1245 Gain" and "Section 1250 Gain,"
respectively). Under the Act, the "unrecaptured" Section 1250 gain is defined as
the amount of long-term capital gain which would be treated as ordinary income
if section 1250 recapture applied to all depreciation (rather than only to
depreciation in excess of straight line depreciation) from the sale of property.
The amount of "unrecaptured" Section 1250 gain attributable to the disposition
of property to which Section 1231 applies shall not exceed the Section 1231 gain
for the year. The "unrecaptured" Section 1250 gain is taxed at a maximum rate of
25 percent. For this purpose, it is expected that a sale by the
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Partnership of the Interests (other than the common stock of EVC) will have the
effect, for federal income tax purposes, of a direct sale of the Related
Property. In the case of non-corporate Unitholders, Section 1245 and Section
1250 gain will be taxed at ordinary income tax rates and "unrecaptured Section
1250 gain" will be taxed at a maximum rate of 25%.
In the instant case, in the case of non-corporate Unitholders, it is
expected that all or substantially all of the Partnership's gain realized upon
consummation of the Sale will constitute "unrecaptured" Section 1250 Gain
taxable at a maximum rate of 25%; the Partnership will have minimal long-term
capital gain, minimal, (if any) Section 1245 Gain and no Section 1231 or Section
1250 Gain. In the case of corporate Unitholders, the Section 1250 Gain generally
will equal the difference between the accelerated depreciation taken with
respect to the Properties and the Related Property, and the amount of
depreciation that would have been available under the straight-line method. In
addition, pursuant to Section 291(a) of the Code, 20% of the remaining gain on
the sale of the Properties and the Related Property allocated to such corporate
Unitholders will be treated as ordinary income, and the estimates set forth
herein assume such treatment. Under Section 702(a)(3) of the Code (which
generally deals with the "pass through" of tax items from a partnership to its
partners), the Partnership will be required to separately state, and the
Unitholders will be required to account separately for, their distributive share
of all gains and losses. Each Unitholder's allocable share of capital gain,
Section 1245 Gain, "unrecaptured" Section 1250 Gain and Partnership net taxable
income or loss will be reflected on the 1998 Schedule K-1 sent to such
Unitholder.
Passive Activity Losses. Under Section 469 of the Code, a non-corporate
taxpayer or personal service corporation generally can deduct "passive activity
losses" in any year only to the extent of the person's passive activity income
for that year. Closely-held corporations may not offset such losses against
so-called "portfolio" income. Substantially all post-1986 losses of Unitholders
from the Partnership should be considered passive activity losses. Unitholders
may have "suspended" passive losses from the Partnership (i.e., post-1986 net
taxable losses in excess of statutorily permitted "phase-in" amounts which have
not been used to offset income from other passive activities) which may be
available to shelter gain from the Plan. Each Unitholder should consult such
Unitholder's tax advisor regarding the effect that the passive activity loss
rules will have upon such Unitholder's tax situation.
Unrelated Business Income. For most tax-exempt Unitholders, only a
portion of the gain from the sale of the Properties will be treated as unrelated
business income. Under Section 514(a) of the Code, gain from the sale of
"debt-financed property" is treated as unrelated business income generally in an
amount equal to a ratio determined by comparing the property's debt to its cost
basis. If the Properties are sold for net proceeds which results in estimated
total gain allocable to the Unitholders of approximately $12.2 million, the
portion of the gain that will be treated as unrelated business income is
estimated to be approximately $9.6 million (or approximately $140 per Unit).
Additional unrelated business income may result to a tax-exempt Unitholder which
borrowed funds to purchase its Units. Tax-exempt Unitholders should consult
their own tax advisors regarding the unrelated trade or business income that may
result from the sale of the Properties.
Liquidation of the Partnership. The Partnership expects to make
distributions from the proceeds of the Sale in accordance with the Partnership
Agreement. See "Market Prices and Distributions-Distributions." This
distribution will first reduce a Unitholder's basis in such Unitholder's Units
and, to the extent the amount of the distribution is in excess of that basis,
such excess will be taxed to non-corporate Unitholders as long-term capital
gains at a maximum rate of 20% if the Unitholder's holding period for the Unit
exceeds eighteen months or as mid-term gain at a maximum rate of 28% if the
Unitholder's holding period for the Unit exceeds one year but does not exceed
eighteen months. If upon the subsequent termination of the Partnership a
Unitholder has a basis remaining for such Unitholder's Unit, the amount of such
remaining basis will give rise, in the year of the termination, to a long-term
or short-term capital loss, depending on a Unitholder's holding period.
ACCOUNTING TREATMENT
For financial reporting purposes, the transaction will be treated as a
sale of properties with respect to the Sale and the gain from such Sale will be
recorded in the Partnership's Statement of Operations, reduced by certain
unamortized deferred charges and closing costs. Under generally accepted
accounting principles, the Partnership would realize a gain of approximately
$15.5 million on the sale of the Properties assuming the Plan will be
consummated on June 30, 1998.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the Units on the Record Date vote
in favor of the Plan, such approval will bind all Unitholders. The Partnership
Agreement and the California Revised Uniform Limited Partnership Act, under
which the Partnership is governed, do not give rights of appraisal or similar
rights to Unitholders who dissent from the vote of the majority in approving or
disapproving the Plan. Accordingly, dissenting Unitholders do not have the right
to have their Units appraised and to have the value of their Units paid to them
because they disapprove of the action of a majority in interest of the
Unitholders.
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MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS
SECONDARY AND MARKET PRICES FOR UNITS
No established market for the Units was ever expected to develop, and
the secondary market transactions for the Units have been limited and sporadic.
It is not known to what extent the transactions in the secondary market are
between buyers and willing sellers, each having access to relevant information
regarding the financial affairs of the Partnership, expected value of its
assets, and its prospects for the future. Sellers in the secondary market who
desire to dispose of their Units but who have limited means to effectuate such
sales are often willing to accept substantial discounts from what might
otherwise be regarded as the fair value of the interest being sold, to
facilitate the sales. Secondary market prices generally do not reflect the
current market of the Partnership's assets, nor are they indicative of total
return, since prior cash distributions and tax benefits received by the original
investor are not reflected in the price. Nonetheless, notwithstanding these
qualifications, the secondary market prices, to the extent that the reported
data are reliable, are indicative of the prices at which the Units trade in the
illiquid secondary market.
The following table sets forth the high and low sales prices at which
the Units traded in the secondary market as reported by Partnership Spectrum in
certain of its semimonthly publications of "The Partnership Spectrum":
PARTNERSHIP SECONDARY TRADING AS REPORTED
IN "THE PARTNERSHIP SPECTRUM"
HIGH LOW
------ ------
08/01/95 - 09/30/95 ................ $40.00 $26.50
10/01/95 - 11/30/95 ................ 30.00 30.00 (1 trade)
12/01/95 - 01/31/96 ................ 45.00 40.00
02/01/96 - 03/31/96 ................ 51.00 30.00
04/01/96 - 05/30/96 ................ 40.00 30.00
06/01/96 - 07/31/96 ................ 52.00 25.00
08/01/96 - 09/30/96 ................ 46.20 20.00
10/01/96 - 11/30/96 ................ 62.50 20.00
12/01/96 - 01/31/97 ................ 55.00 55.00 (1 trade)
02/01/97 - 03/31/97 ................ 63.50 46.00
04/01/97 - 05/30/97 ................ 41.00 41.00 (1 trade)
06/01/97 - 07/31/97 ................ 58.00 46.00
08/01/97 - 09/30/97 ................ 58.31 46.00
10/01/97 - 11/30/97 ................ No reported trades
12/01/97 - 01/31/98 ................ No reported trades
Partnership Spectrum has advised that its methodology for compiling
trade prices is as follows: trade price information reflects per unit
transaction prices for trades involving the purchase of Units by third-party
investors during the applicable period. Firms supplying trade price data are
instructed to provide information only on those transactions whereby third-party
investors acquired Units from or through such firms. If the firm acted as an
agent, the per Unit price is to include any commissions charged the buyer (but
not including commissions paid to retail brokers representing buyers). Due to
commission and mark-ups, sellers of Units typically receive less than the
amounts paid for Units by buyers as set forth in the above table.
DISTRIBUTIONS TO UNITHOLDERS
From the inception of the partnership through January 31, 1988 (the end
of the first quarter of the 1988 fiscal year), the partnership made aggregate
cash distributions to the Unitholders in the amount of $2,367,000, or $38.17 per
Unit (with respect to Unitholders who were admitted to the partnership at the
initial closing of the partnership). Such distributions were made from operating
cash flow. The Partnership has paid no distributions from operations or
otherwise since 1988.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 68,795 Units issued and outstanding and
entitled to vote on matters upon which Unitholders may vote or consent, which
Units were held by 4,958 Unitholders. According to publicly available
information, and to the best knowledge of PB Properties, as of the Record Date,
no person or entity owned more than 5% of the outstanding Units. As of the
Record Date, neither the General Partners nor the Purchaser nor any officer or
director thereof owned any Units. PSI beneficially owned 180 Units as of April
1, 1998, and has advised PB Properties that it intends to vote such Units in
favor of the Plan. PSI has made no recommendation with respect to the Plan.
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IDENTITY AND BACKGROUND OF CERTAIN PERSONS
PB PROPERTIES
PB Properties, a General Partner of the Partnership, is a Delaware
corporation whose principal business is serving as a general partner in various
real estate limited partnerships. The address of its principal executive offices
is One Seaport Plaza, New York, NY 10292.
Officers and Directors
Brian J. Martin is President, Chief Executive Officer and Chairman of
PB Properties, and a Senior Vice President of PSI. Mr. Martin also serves in
various capacities for other affiliated companies. Mr. Martin joined PSI in
September 1980. He is a U.S. citizen, and his business address is the same as
the address for PB Properties, which is set forth above.
Barbara J. Brooks is the Vice President--Finance and Chief Financial
Officer of PB Properties, and a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. Ms. Brooks has held
several positions within PSI since 1983. She is a U.S. citizen, and her business
address is the same as the address for PB Properties, which is set forth above.
Eugene D. Burak is a Vice President of PB Properties, and a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. He is a U.S. citizen, and his business address is
the same as the address for PB Properties, which is set forth above.
Chester A. Piskorowski is a Senior Vice President of PB Properties, and
a Senior Vice President of PSI. Mr. Piskorowski has held several positions
within PSI since April 1972. He is a U.S. citizen, and his business address is
the same as the address for PB Properties, which is set forth above.
Frank W. Giordano is a director of PB Properties, and a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management LLC, an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies, and has been with
PSI since July 1967. He is a U.S. citizen, and his business address is the same
as the address for PB Properties, which is set forth above.
Nathalie P. Maio is a director of PB Properties, and a Senior Vice
President and Deputy General Counsel of PSI. She joined PSI's Law Department in
1983; presently she also serves in various capacities for other affiliated
companies. She is a U.S. citizen, and her business address is the same as the
address for PB Properties, which is set forth above.
GLENBOROUGH
Glenborough Corporation, a General Partner of the Partnership, is a
California corporation whose principal business is serving as a general partner
in various real estate limited partnerships and providing asset and property
management services for various properties. The address of its principal
executive offices is 400 South El Camino Real, Suite 1100, San Mateo, CA
94402-1708.
GLB, which owns all of the non-voting preferred stock of Glenborough
Corporation, is a Maryland corporation whose principal business is functioning
as a self-administered and self-managed real estate investment trust that owns a
diversified portfolio of office, office/flex, industrial, retail, multi-family
and hotel properties. The address of its principal executive offices is 400
South El Camino Real, Suite 1100, San Mateo, CA 94402-1708.
Glenborough Properties, L.P. is a California limited partnership whose
principal business is operating a real estate portfolio as the operating
partnership of GLB. The address of its principal executive offices is c/o
Glenborough Realty Trust Incorporated, 400 South El Camino Real, Suite 1100, San
Mateo, CA 94402-1708.
Officers and Directors
Robert Batinovich individually is a General Partner of the Partnership.
Since January 1996, Mr. Batinovich has been Chairman and Chief Executive Officer
of GLB. Mr. Batinovich was also President of GLB from January 1996 until
September 1997. From 1978 until December 1995, Mr. Batinovich was Chairman and
President of Glenborough Corporation. Mr. Batinovich is a U.S. citizen. His
business address is the same as the business address of the Purchaser, which is
set forth above.
Andrew Batinovich has been President of GLB since September 1997, and
Chief Operating Officer and a director of GLB since January 1996. He has also
been Chairman and Chief Executive Officer of Glenborough Corporation since
January 1996. From 1978 until December 1995, Mr. Batinovich was Chief Operating
Officer and Chief Financial Officer of Glenborough Corporation. Mr. Batinovich
is a U.S. citizen. His business address is the same as the business address of
the Purchaser, which is set forth above.
Sandra L. Boyle has been Executive Vice President of GLB since
September 1997, and President of Glenborough Corporation since January 1996.
From January 1996 until September 1997, Ms. Boyle was Senior Vice President of
GLB. From
23
<PAGE>
1989 until December 1995, Ms. Boyle was Vice President of Glenborough
Corporation. Ms. Boyle is a U.S. citizen. Her business address is the same as
the business address of the Purchaser, which is set forth above.
Frank E. Austin has been Senior Vice President and General Counsel of
GLB since January 1996. From 1987 until December 1995, Mr. Austin was Vice
President of Glenborough Corporation. Mr. Austin is a U.S. citizen. His business
address is the same as the business address of the Purchaser, which is set forth
above.
Terri Garnick has been Senior Vice President and Chief Accounting
Officer of GLB, and Chief Financial Officer of Glenborough Corporation, since
January 1996. From 1991 until December 1995, she was Vice President of
Glenborough Corporation. Ms. Garnick is a U.S. citizen. Her business address is
the same as the business address of the Purchaser, which is set forth above.
Robert Bailey has been Secretary of Glenborough Corporation since 1995.
Mr. Bailey joined Glenborough Corporation in 1989 as Associate Counsel and is
responsible for all landlord/tenant documentation, tenant litigation, and
corporate, partnership and employment matters. He is a U.S. citizen, and his
business address is the same as the business address of the Purchaser, which is
set forth above.
June Gardner is a director of Glenborough Corporation. Prior to January
1996, Ms. Gardner served as Senior Vice President and Controller of Glenborough
Corporation. She is a U.S. citizen, and her business address is the same as the
business address of the Purchaser, which is set forth above.
Laurence Walker is a director of Glenborough Corporation. Mr. Walker is
an attorney in private practice specializing in real estate law. He is a U.S.
citizen, and his business address is the same as the business address of the
Purchaser, which is set forth above.
Stephen R. Saul has been Vice President of GLB since May 1996 and
became GLB's Executive Vice President and Chief Financial Officer in September
1997. He is a U.S. citizen, and his business address is the same as the business
address of the Purchaser, which is set forth above.
Anna Cheng has been Vice President of GLB since June 1996. Prior to
joining GLB, Ms. Cheng was Vice President of Operations of SCG Realty Services,
a subsidiary of Security Capital Group in Santa Fe, New Mexico. She is a U.S.
citizen, and her business address is the same as the business address of the
Purchaser, which is set forth above.
Alan L. Shapiro has been Vice President of GLB since October 1997,
prior to which he had served as Portfolio Acquisition Officer of GLB since
January 1997. Mr. Shapiro is a U.S. citizen, and his business address is the
same as the business address of the Purchaser, which is set forth above.
Richard C. Blum is a director of GLB. Since 1975, Mr. Blum has been
Chairman and President of Richard C. Blum & Associates, Inc., which is the
general partner of Richard C. Blum and Associates, C.P., a merchant banking
firm. Mr. Blum is a U.S. citizen, and his business address is the same as the
business address of the Purchaser which is set forth above.
Patrick Foley is a director of GLB. Since 1988, Mr. Foley has been
Chairman and Chief Executive Officer of DHL Corporation, Inc. and its major
subsidiary, DHL Airways. He is a U.S. citizen, and his business address is the
same as the business address of the Purchaser, which is set forth above.
Richard A. Magnuson is a director of GLB. He is currently Managing
Director of Nomura International, plc. He is a U.S. citizen, and his business
address is the same as the business address of the Purchaser, which is set forth
above.
Laura Wallace is a director of GLB. Since 1985, she has been Chief
Investment Officer of the Public Employees Retirement System of Nevada. Ms.
Wallace is a U.S. citizen, and her business address is the same as the business
address of the Purchaser, which is set forth above.
PRUDENTIAL SECURITIES GROUP INC.
Prudential Securities Group Inc., the parent of PB Properties, is a
Delaware corporation whose principal business is as a holding company for PB
Properties and various other subsidiaries, including PSI. The address of its
principal executive offices is One Seaport Plaza, New York, NY 10292.
PSI
PSI, an affiliate of PB Properties, is a Delaware corporation. PSI is a
diversified global securities firm with operations pertaining to mutual funds,
capital markets, investment banking, commodities and securities brokerage. The
address of its principal executive offices is One Seaport Plaza, New York, NY
10292.
On October 27, 1994, PSI entered into cooperation and deferred
prosecution agreements (the "PSI Agreements") with the Office of the United
States Attorney for the Southern District of New York (the "U.S. Attorney"). The
PSI Agreements resolved a
24
<PAGE>
grand jury investigation that had been conducted by the U.S. Attorney into PSI's
sale during the 1980s of the Prudential-Bache Energy Income Fund oil and gas
limited partnerships (the "Income Funds"). In connection with the PSI
Agreements, the U.S. Attorney filed a complaint charging PSI with a criminal
violation of the securities laws. In its request for a deferred prosecution, PSI
acknowledged having made certain misstatements in connection with the sale of
the Income Funds. Pursuant to the PSI Agreements, the U.S. Attorney will defer
any prosecution of the charge in the complaint for a period of three years,
provided that PSI complies with certain conditions during this period. These
include conditions that PSI not violate any criminal laws; that PSI contribute
an additional $330 million to a pre-existing settlement fund; that PSI cooperate
with the government in any future inquiries; and that PSI comply with various
compliance-related provisions. If, at the end of the three-year period, PSI has
complied with the terms of the PSI Agreements, the U.S. Attorney will be barred
from prosecuting PSI on the charges set forth in the complaint. If, on the other
hand, during the course of the period ending October 27, 1997, PSI violates the
terms of the PSI Agreements, the U.S. Attorney can elect to pursue such charges.
The PSI Agreements, by their terms, expired on October 27, 1997.
On October 21, 1993, PSI entered into an omnibus settlement with the
SEC, state securities regulators in 51 jurisdictions (49 states, the District of
Columbia and Puerto Rico) and the NASD to resolve allegations that had been
asserted against PSI with respect to the sale of interests in more than 700
limited partnerships generated by PSI's Direct Investment Group and sold from
January 1, 1980 through December 31, 1990. Subsequently, PSI reached a
settlement with the remaining state. The partnerships principally involved real
estate, oil and gas producing properties and aircraft leasing ventures.
The allegations against PSI, which were set forth in a Complaint filed
by the SEC on October 21, 1993 and in an Administrative Order issued by the SEC
also on October 21, 1993, asserted that federal and state securities laws had
been violated through sales of limited partnership interests (and a limited
number of certain other securities) to persons for whom such securities were not
suitable and that the safety, potential returns and liquidity of the investments
had been misrepresented. PSI neither admitted nor denied the allegations. The
Administrative Order (to which PSI consented without admitting or denying the
SEC's findings) directed PSI to cease and desist from violating the federal
securities laws and imposed a $10 million civil penalty. The Administrative
Order also required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors.
PSI's settlement with the state securities regulators included an
agreement to pay a penalty of $500,000 per jurisdiction. All fifty-two
jurisdictions have resolved this matter. In settling the NASD disciplinary
action, PSI consented to a censure and paid a $5 million fine to the NASD.
In connection with the settlement of the allegations asserted against
it, and pursuant to a Final Order and Judgment entered on October 21, 1993 in
the action commenced by the SEC, PSI deposited $330 million into a fund to be
used for the resolution of claims for compensatory damages asserted by persons
who purchased limited partnership interests from PSI, and agreed to provide
additional funds, if necessary, for that purpose. The fund and claims resolution
process were administered by a court-approved Claims Administrator.
AVAILABLE INFORMATION
This Statement does not purport to be a complete description of all
agreements and matters relating to the condition of the Partnership, its Assets
and the transactions described herein. Attached to this Statement as Exhibit F
is the Partnership's Annual Report on SEC Form 10-K for the year ended December
31, 1997, which provides additional information regarding the Partnership. With
respect to statements contained in this Statement as to the content of any
contract or other document filed as an exhibit to the Form 10-K, each such
statement is qualified in all respects by reference to such report and the
schedules thereto, which may be obtained without charge upon written request to
the Partnership. To make such a request, a Unitholder must write to PB
Properties, One Seaport Plaza, New York, New York 10292-0128.
All documents filed by the Partnership with the Securities and Exchange
Commission after the date of this Statement, but before the Partnership takes
action pursuant to this Consent, shall be deemed to be incorporated by reference
into this Statement. Copies of these documents will be available without charge
upon oral or written request to PB Properties, Attention: Brian J. Martin, One
Seaport Plaza, New York, New York 10292-0128, (212) 214-3500. Copies will be
sent by first class mail within one business day of receipt of such request.
Such documents may also be accessed electronically by means of the Securities
and Exchange Commission's Web site at http://www.sec.gov. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this Statement shall be deemed to be modified or superseded for purposes of
this Statement to the extent that a statement contained in this Statement (or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference in this Statement) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Statement.
25
<PAGE>
GLOSSARY OF DEFINED TERMS
"Amendments" shall mean the amendment of the Amended and Restated
Agreement of Limited Partnership, dated as of February 11, 1985, and as
subsequently amended, by and among the General Partners and Limited Partners of
the Partnership to permit (i) the purchase by an affiliate of Glenborough
Corporation and/or Robert Batinovich of all or any of the Assets and (ii) the
effectuation of the Plan by the General Partners on behalf of the Partnership.
"Appraisals" shall mean the prepared individual appraisals of each of
the Properties and the Related Property, collectively.
"Assets" shall mean the Interests and the Properties.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Costs" shall mean certain selling costs and liquidation expenses to be
deducted from the proceeds of the Sale.
"Credits" shall mean certain credits to the Purchaser to be deducted
from the proceeds of the Sale.
"C&W" shall mean Cushman & Wakefield, Inc. Subsidiaries.
"Equitec" shall mean Equitec Financial Group, Inc.
"EVC" shall mean Equitec Venture Corp. III, Inc., a California
corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value of the Assets" shall mean the sum of the individual
appraised fair market values of the Properties and the appraised fair market
value of the Related Property to which the Interests relate.
"General Partners" shall mean Glenborough and PB Properties.
"GLB" shall mean Glenborough Realty Trust Incorporated, a Maryland
corporation.
"Glenborough" shall mean Glenborough Corporation and Robert Batinovich.
"Glenborough Corporation" shall mean Glenborough Corporation, a
California corporation.
"Glenborough Properties, L.P." shall mean Glenborough Properties, L.P.,
a California limited partnership.
"Hallwood" shall mean Hallwood Realty Partners L.P.
"Initial Appraisals" shall mean the individual appraisals by C&W of
each of the Properties and the Related Property, as of the dates set forth
therien (i.e., May 1997 (except for the Poplar Tower appraisal, which was dated
October 1996)), the sum of which was $43,520,000.
"Interests" shall mean all of the direct and indirect ownership
interests relating to the Related Property which consist of (i) a general
partnership interest in the Joint Venture, (ii) a general partnership interest
in the Montrose Partnership and (iii) ownership of all of the issued and
outstanding shares of common stock of EVC.
"IRS" shall mean the Internal Revenue Service.
"Joint Venture" shall mean the Montrose Office Park Joint Venture, a
Maryland single purpose general partnership.
"managing general partner" shall mean PB Properties.
"Montrose Partnership" shall mean the Montrose Office Park Limited
Partnership, a Maryland limited partnership.
"Morrow" shall mean Morrow & Co., Inc.
"Original Purchase Price" shall mean the Purchaser's all-cash offer of
$43,520,000 (which price, reduced by certain credits to the Purchaser
approximated $42,783,000) to purchase all of the Assets.
"Partnership" shall mean Prudential-Bache/Equitec Real Estate
Partnership, a California limited partnership.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership, dated as of February 11, 1985, and as subsequently
amended, by and among the General Partners and Limited Partners of the
Partnership.
"PB Properties" shall mean Prudential-Bache Properties, Inc., a
Delaware corporation.
"Perrin/Molitor" shall mean Perrin I, LLC and R. Molitor Ford, Sr.
"Plan" shall mean a plan of action which consists of (i) the Sale, (ii)
the Amendments and (iii) the Plan of Liquidation.
"Plan of Liquidation" shall mean one or more liquidating distributions
to the Unitholders and the General Partners and, after providing for the payment
of all expenses and other liabilities of the Partnership, the dissolution and
termination of the Partnership and subsequent liquidation.
26
<PAGE>
"Properties" shall mean all of the real properties of the Partnership.
"Prudential Securities Group Inc." shall mean Prudential Securities
Group Inc., a Delaware corporation and the parent of PB Properties.
"PSI" shall mean Prudential Securities Incorporated, a Delaware
corporation.
"Purchaser" shall mean GLB and Glenborough Properties, L.P.
"Purchase Agreement" shall mean the Purchase Agreement, dated October
13, 1997, and as subsequently amended, between the Partnership and the
Purchaser.
"Purchase Price" shall mean the Purchaser's all-cash offer of
$47,145,000 (which price, reduced by certain credits to the Purchaser,
approximates $46,455,000) to purchase all of the Assets.
"Record Date" shall mean the close of business on April 1, 1998.
"Regulations" shall mean the existing final, temporary and proposed
Treasury regulations under the Code.
"Related Property" shall mean an office building complex located in
Maryland.
"Sale" shall mean the sale of the Assets to the Purchaser for an amount
equal to the Fair Market Value of the Assets.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities and Exchange Commission" shall mean the United States
Securities and Exchange Commission.
"Smithtown" shall mean Smithtown Bay, LLC.
"soliciting agent" shall mean Morrow & Co., Inc.
"Statement" shall mean the Statement Furnished in Connection with the
Solicitation of Consents, dated May, 1998, distributed by the Partnership.
"Unitholders" shall mean the holders of the beneficial ownership
interest in the limited partnership interests of the Partnership.
"Units" shall mean the beneficial ownership interest in the limited
partnership interests of the Partnership.
"Updated Appraisals" shall mean the individual appraisals by C&W of
each of the Properties and the Related Property, which were completed in April
1998, the sum of which was $49,145,000.
"Wells Fargo" shall mean Wells Fargo Bank, National Association.
EXHIBITS
EXHIBIT A: PURCHASE AGREEMENT, DATED AS OF THE EFFECTIVE DATE, BY AND BETWEEN
THE PARTNERSHIP AND THE PURCHASER
EXHIBIT B: AMENDMENT TO PURCHASE AGREEMENT, DATED DECEMBER 19, 1997, BY AND
BETWEEN THE PARTNERSHIP AND THE PURCHASER
EXHIBIT C: SECOND AMENDMENT TO PURCHASE AGREEMENT, DATED APRIL 27, 1998, BY AND
BETWEEN THE PARTNERSHIP AND THE PURCHASER
EXHIBIT D: PROPOSED AMENDMENTS TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP
EXHIBIT E: FAIRNESS OPINION OF CUSHMAN & WAKEFIELD, INC., DATED APRIL 27, 1998
EXHIBIT F: ANNUAL REPORT OF PARTNERSHIP ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997
EXHIBIT G: FORM OF CONSENT CARD
27
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
<S> <C>
SUMMARY ................................................................................................. 3
The Partnership ........................................................................................ 3
Action by Written Consent .............................................................................. 3
The Purchaser .......................................................................................... 4
The Plan ............................................................................................... 4
Selected Historical Financial Data ..................................................................... 7
SPECIAL FACTORS ......................................................................................... 8
Background of Proposed Sale of the Assets .............................................................. 8
Certain Conflicts of Interest .......................................................................... 11
The Purchase Agreement ................................................................................. 11
Closing of the Sale .................................................................................... 12
Description of Assets .................................................................................. 13
C&W Reports ............................................................................................ 13
C&W Opinion ............................................................................................ 14
Use of Proceeds and Cash Distributions ................................................................. 14
Recommendation of the General Partners; Fairness of the Plan ........................................... 15
Disadvantages of Plan .................................................................................. 17
Advantages of Plan ..................................................................................... 17
Failure to Approve Plan ................................................................................ 18
Amendment to Partnership Agreement ..................................................................... 18
Liquidation ............................................................................................ 18
Federal Income Tax Consequences of the Plan ............................................................ 19
General ............................................................................................... 19
Partnership Status .................................................................................... 19
Federal Income Tax Consequences ....................................................................... 19
Accounting Treatment ................................................................................... 20
No Appraisal Rights .................................................................................... 21
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS ................................................. 21
Secondary and Market Prices for Units .................................................................. 21
Distributions to Unitholders ........................................................................... 21
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF ......................................................... 22
IDENTITY AND BACKGROUND OF CERTAIN PERSONS .............................................................. 22
PB Properties .......................................................................................... 22
Officers and Directors ................................................................................ 22
Glenborough ............................................................................................ 22
Officers and Directors ................................................................................ 23
Prudential Securities Group Inc ........................................................................ 24
PSI .................................................................................................... 24
AVAILABLE INFORMATION ................................................................................... 24
GLOSSARY OF DEFINED TERMS ............................................................................... 25
EXHIBITS ................................................................................................ 27
EXHIBIT A: Purchase Agreement, dated as of the Effective Date, by and
between the Partnership and the Purchaser .................................................... A-1
EXHIBIT B: Amendment to Purchase Agreement, dated December 19, 1997, by and
between the Partnership and the Purchaser .................................................... B-1
EXHIBIT C: Second Amendment to Purchase Agreement, dated April 27, 1998, by and between
the Partnership and the Purchaser ............................................................ C-1
EXHIBIT D: Proposed Amendments to Amended and Restated Agreement of Limited Partnership ................ D-1
EXHIBIT E: Fairness Opinion of Cushman & Wakefield, Inc., dated April 27, 1998 .......................... E-1
EXHIBIT F: Annual Report of Partnership on Form 10-K for the year ended December 31, 1997 ............... F-1
EXHIBIT G: Form of Consent Card ......................................................................... G-1
</TABLE>
<PAGE>
================================================================================
PURCHASE AGREEMENT
BETWEEN
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(THE "PARTNERSHIP"),
AND
GLENBOROUGH REALTY TRUST INCORPORATED,
A MARYLAND CORPORATION
AND
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
(COLLECTIVELY, "PURCHASER")
RELATING TO THE PROPERTIES
COMMONLY KNOWN AS
GATEWAY PROFESSIONAL CENTER, SACRAMENTO, CALIFORNIA
PARK PLAZA, SACRAMENTO, CALIFORNIA
POPLAR TOWERS, MEMPHIS, TENNESSEE
AND
TOTEM VALLEY BUSINESS PARK, SEATTLE, WASHINGTON
AND INTERESTS IN THE ENTITIES KNOWN AS
MONTROSE OFFICE PARK LIMITED PARTNERSHIP,
A MARYLAND LIMITED PARTNERSHIP
MONTROSE OFFICE PARK JOINT VENTURE,
A MARYLAND SINGLE PURPOSE GENERAL PARTNERSHIP
AND
EQUITEC VENTURE CORP. III, INC.,
A CALIFORNIA CORPORATION
================================================================================
A-1
<PAGE>
PURCHASE AGREEMENT
PRUDENTIAL-BACHE/EQUITEC
TABLE OF CONTENTS
Page
----
List of Addenda........................................................... A-3
List of Exhibits.......................................................... A-4
List of Schedules......................................................... A-5
1. Definitions.......................................................... A-6
2. Agreement to Purchase and Sell....................................... A-6
3. Consideration........................................................ A-6
4. Conditions to Closing/Totem Valley Lease............................. A-8
5. Closing and Escrow................................................... A-11
6. Closing Adjustments and Prorations................................... A-12
7. The Partnership's Representations and Warranties/Property
Condition............................................................ A-16
8. Purchaser's Representations and Warranties........................... A-18
9. Indemnification by Purchaser......................................... A-20
10. Risk of Loss......................................................... A-21
11. Condemnation......................................................... A-22
12. The Partnership's Continued Operation of the Properties.............. A-22
13. Cooperation Before Closing........................................... A-23
14. Non-Consummation of the Transaction.................................. A-24
15. Miscellaneous........................................................ A-25
Addenda
Exhibits
Schedules
A-2
<PAGE>
LIST OF ADDENDA
I. Definitions
A-3
<PAGE>
LIST OF EXHIBITS
A. Assignment and Assumption of Leases
B. Bill of Sale
C. Assignment and Assumption of Service Contracts,
Warranties and Guaranties, and Other Intangible Property
D. Certificate of the Partnership Other Than an Individual
(FIRPTA Affidavit)
E. Assignment of Partnership Interests in Montrose Office Park Limited
Partnership
F. Assignment of Joint Venture/General Partnership Interests in Montrose
Office Park Joint Venture
G. Escrow Agreement
A-4
<PAGE>
LIST OF SCHEDULES
SCHEDULES REFERENCED IN ADDENDUM I (DEFINITIONS)
1. Description of Land
2. Permitted Exceptions
3. Rent Roll
4. Deferred Maintenance
5. Loan
6. Description of Related Property
A-5
<PAGE>
PURCHASE AGREEMENT
PRUDENTIAL-BACHE/EQUITEC
THIS PURCHASE AGREEMENT ("Agreement") is dated as of the Effective Date (as
defined in Addendum I hereto) by and among Prudential-Bache/Equitec Real Estate
Partnership, a California limited partnership (the "Partnership") and
Glenborough Realty Trust Incorporated, a Maryland corporation ("GLB") and
Glenborough Properties, L.P., a California limited partnership ("GPLP")
(collectively, "Purchaser").
RECITALS
A. Purchaser desires to acquire the Property (as defined in Addendum I
below) and the Interests (as defined in Addendum I attached hereto) (the
Interests, together with the Property, the "Assets") from the Partnership and
the Partnership desires to sell the Assets to Purchaser, upon the terms and
subject to the conditions set forth in this Agreement (the "Sale").
B. Following such Sale, the Partnership intends to liquidate itself and
distribute its net assets (including the proceeds of such Sale) to its General
Partners (as defined in Addendum I attached hereto) and the holders of the
beneficial ownership interest in the limited partnership interests of the
Partnership (the "Unitholders").
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants and agreements hereinafter contained, and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound, the parties hereby agree
as follows:
1. DEFINITIONS. Terms used in this Agreement shall have the meanings set
forth in Addendum I attached hereto.
2. AGREEMENT TO PURCHASE AND SELL. Subject to and upon the terms and
conditions herein set forth and the representations and warranties contained
herein, the Partnership agrees to sell the Assets to Purchaser, and Purchaser
agrees to acquire the Assets from the Partnership.
3. CONSIDERATION. The Partnership and Purchaser agree that the total
Consideration for the Assets shall be Forty Three Million Five Hundred Twenty
Thousand
A-6
<PAGE>
Dollars ($43,520,000), subject to adjustment for Deferred Maintenance and other
matters as provided herein.
(a) The Consideration shall be comprised of the following components:
(i) EARNEST MONEY DEPOSIT. Within one (1) business day of the
Effective Date, Purchaser shall deposit the Earnest Money in escrow
with the Title Company and shall cause the Title Company to provide
the Partnership with written confirmation on such date that it has
received same. The Earnest Money shall be held in a federally insured
interest-bearing account and interest accruing thereon shall be for
the party entitled thereto pursuant to the terms of this Agreement and
the Escrow Agreement. The Earnest Money shall be in the form of cash.
In the event the transaction contemplated hereby is consummated, the
Earnest Money plus interest accrued thereon shall be credited against
Purchaser's payment obligations hereunder.
(ii) THE LOAN. Provided that the Partnership receives, at
Purchaser's expense, the written consent of the holder of the Loan to
the Sale not less than thirty (30) days prior to the Closing Date, and
subject to delivery of the Release as provided herein, at the Closing,
there shall be credited against the Consideration an amount equal to
the greater of (i) all amounts claimed by the holder of the Loan as of
the Closing Date (other than prepayment fees or similar charges
including but not limited to the Fixed Rate Price Adjustment) under a
payoff demand submitted to the Title Company and approved by the
Partnership, or (ii) the outstanding principal balance of the Loan,
together with all accrued unpaid interest thereon as of the Closing
Date, and all late charges, penalties or other charges (other than
prepayment fees or similar charges including but not limited to the
Fixed Rate Price Adjustment) owing under the Loan. In such event, the
Loan shall be the responsibility of Purchaser, which may, at its
option, acquire the Property subject to the Loan, seek to assume the
Loan, refinance the Loan contemporaneously with or after the Closing,
retire the Loan at the Closing, or take any other actions with respect
to the Loan in whatever manner it sees fit. Should Purchaser assume
the Loan, the cost of any assumption fee or related costs shall be the
obligation of Purchaser. Any costs related to the Release shall be the
obligation of Purchaser. Should Purchaser refinance the Loan, any
costs related to such refinancing shall be the obligation of
Purchaser. Should Purchaser retire the Loan, any
A-7
<PAGE>
prepayment penalty or similar charge including but not limited to the
Fixed Rate Price Adjustment shall be the obligation of Purchaser. In
no event shall the Release or the Purchaser's ability to assume,
retire or refinance the Loan be a condition to Purchaser's obligations
hereunder.
(iii) CASH. On the Closing Date, Purchaser shall deliver to the
Partnership, immediately available funds in an amount equal to the
Consideration less (i) the Earnest Money Deposit, as more fully
described above and (ii) the amount of the Loan credit as calculated
above, and subject to closing adjustments and prorations pursuant to
Subsection 6(c) hereof.
(b) WITHHOLD IF THE PARTNERSHIP A FOREIGN PERSON. The Partnership
acknowledges and agrees that, if the Partnership is a foreign person,
Purchaser may be required to withhold a portion of the Consideration
pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended
(the "Code") or Sections 18805 and 26131 of the California Revenue and
Taxation Code or similar laws or regulations of other states.
(c) ALLOCATION OF CONSIDERATION. The Partnership and Purchaser agree
to allocate the Consideration as follows, subject to adjustment as provided
herein, in accordance with Section 1060 of the Code: Gateway Professional
Center - $4,250,000; Park Plaza - $6,670,000; Poplar Towers - $5,000,000;
Totem Valley Business Park - $7,200,000; Interest in Montrose Office Park
Joint Venture - $19,155,600; Interest in Montrose Office Park Limited
Partnership - $1,244,300; Interest in Equitec Venture Corp. III, Inc. -
$100. Neither the Partnership nor Purchaser shall file any tax return or
other document or otherwise take any position which is inconsistent with
the allocation determined pursuant to this Subsection.
4. CONDITIONS TO CLOSING/TOTEM VALLEY LEASE.
(a) PURCHASER'S CONDITIONS PRECEDENT. Purchaser's Conditions Precedent
as set forth below are precedent to Purchaser's obligation to acquire the
Assets. The Purchaser's Conditions Precedent are intended solely for the
benefit of Purchaser. If any of the Purchaser's Conditions Precedent are
not satisfied, Purchaser shall have the right in its sole discretion either
to waive such Purchaser's Condition Precedent and proceed with the Sale or
terminate this Agreement by written notice to the Partnership and the Title
Company.
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(i) DELIVERIES BY PARTNERSHIP. The Partnership shall fulfill
in all material respects its obligations under Section 5(c)
hereof, except as otherwise set forth herein.
(ii) TITLE POLICY. Title Company shall be committed to issue
a Title Policy at Closing for each Property showing fee or
leasehold title, as applicable, to such insured Property vested
in Purchaser, subject to the Permitted Exceptions.
(iii) DEFERRED MAINTENANCE. The Partnership shall have
completed or shall cause to be completed the Deferred Maintenance
on the Properties and the Related Property, or, to the extent
such work has not been completed, Purchaser shall receive a
credit at Closing, which credit shall be calculated based upon
the agreed valuations set forth in Schedule 4.
(iv) NO ORDERS, ETC. No stay, order, judgment or decree
shall have been entered, and not vacated, by a court or
administrative agency or other governmental body, in any action
which enjoins, materially restrains or prohibits the consummation
of the Sale.
(v) REQUIRED CONSENTS. All material authorizations,
consents, permits and approvals of all federal, state and local
governmental agencies and authorities required to be obtained in
order to permit consummation of the Sale shall have been
obtained.
(b) THE PARTNERSHIP'S CONDITIONS PRECEDENT. The Partnership's
Conditions Precedent as set forth below are precedent to the
Partnership's obligation to transfer the Assets, and are intended
solely for the benefit of the Part nership. If any of the
Partnership's Conditions Precedent are not satisfied, the Partnership
shall have the right in its sole discretion either to waive such
Partnership's Condition Precedent and proceed with the Sale or
terminate this Agreement by written notice to Purchaser and the Title
Company.
(i) LIMITED PARTNER CONSENT. The Partnership shall have
received the Consents on or before December 4, 1997.
(ii) AMENDMENTS. The Amendment shall have been approved by
the Unitholders and executed by the General Partners before
Closing.
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(iii) RELEASE. If the Loan is not retired at Closing, the
Partner ship shall have received a duly executed release in form
and substance acceptable to the Partnership, pursuant to which
Purchaser and the holder of the Loan as of the Closing Date shall
release the Partnership, PB Properties and the Unitholders from
any and all obligations and liabilities under the Loan Documents
whether arising before, on or after the Closing Date (the
"Release").
(iv) NO ORDERS, ETC. No stay, order, judgment or decree
shall have been entered, and not vacated, by a court or
administrative agency or other governmental body, in any action
which enjoins, restrains or prohibits the consummation of the
Sale.
(v) REQUIRED CONSENTS. All authorizations, consents, permits
and approvals of all federal, state and local governmental
agencies and authorities required to be obtained in order to
permit consummation of the Sale shall have been obtained.
(vi) DELIVERIES BY PURCHASER. The Partnership shall have
received the balance of the total Consideration and the duly
executed docu ments to be delivered by Purchaser pursuant to
Section 5 hereof.
(vii) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser shall have been true and correct in
all material respects when made and shall be true and correct in
all material respects as of the Closing Date, as if made at and
as of such date.
(c) TOTEM VALLEY LEASE. Notwithstanding anything to the contrary
contained herein, (i) the consent of the landlord under the Totem Valley
Lease to an assignment of such lease shall in no event be a condition to
Purchaser's obligation to close hereunder, and (ii) in the event that the
landlord under the Totem Valley Lease exercises its right to terminate such
lease without cause prior to or after Closing, no such termination shall
effect the obligations of Purchaser hereunder or entitle the Purchaser to
any credit or offset against the Consideration. The provisions of clause
(ii) of this subparagraph shall survive the Closing.
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5. CLOSING AND ESCROW.
(a) CLOSING DATE. The Closing shall be conducted through, and all
items to be delivered shall be delivered to, the Title Company, on or
before the Closing Date, which may be extended upon mutual written
agreement of the parties.
(b) ESCROW INSTRUCTIONS. Title Company shall hold the Earnest Money in
accordance with the provisions of the Escrow Agreement. The Partnership and
Purchaser hereby designate Title Company as the Reporting Person for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code and
the regulations promulgated thereunder.
(c) THE PARTNERSHIP'S DELIVERIES TO ESCROW. At or before the Closing,
the Partnership shall deliver to escrow the following, to the extent they
have not already been delivered:
(i) the duly executed and acknowledged Deeds for each Property
(except with respect to the portion of one of the Properties leased
by the Partnership under the Totem Valley Lease);
(ii) a duly executed and acknowledged Assignment and Assumption
of Lease with respect to the Totem Valley Lease;
(iii) duly executed Assignments of Leases for each Property;
(iv) duly executed Bills of Sale for each Property;
(v) duly executed Assignments of Contracts for each Property;
(vi) a FIRPTA affidavit (in the form attached as Exhibit E)
pursuant to Section 1445(b)(2) of the Internal Revenue Code of 1986
(the code), and on which Purchaser is entitled to rely, that the
Partnership not a foreign person within the meaning of Section
1445(f)(3) of the Code;
(vii) a California Form 590 (or equivalent form for another
appropriate state) from Purchaser certifying that the Partnership has
a permanent place of business in California or such other state and is
qualified to do business in California or such other state;
(viii) the certificates representing 100% of the issued and
outstanding shares of Equitec Venture Corp. III, Inc., duly endorsed
by the Partnership in blank, or accompanied by stock powers duly
executed by the Partnership in blank;
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(ix) the Interests Transfer Documents, duly executed by the
Partnership as indicated; and
(x) such original resolutions, authorizations, bylaws or other
corporate and/or partnership documents or agreements relating to the
Partnership as shall be reasonably required by Purchaser and/or the
Title Company in connection with its issuance of each Title Policy.
(d) PURCHASER'S DELIVERIES TO THE PARTNERSHIP. At or before the
Closing, Purchaser shall deliver or cause to be delivered to escrow the
following:
(i) a duly executed and acknowledged Assignment and Assumption of
Lease with respect to the Totem Valley Lease;
(ii) a duly executed Assignment of Leases for each Property;
(iii) such original resolutions, authorizations, bylaws or other
corporate and/or partnership documents or agreements relating to
Purchaser as shall be reasonably required by the Partnership;
(iv) a duly executed Assignment of Service Contracts for each
Property;
(v) if the Loan is not retired at Closing, the Release; and
(vi) the Cash.
(e) PAYMENT OF TAXES. Purchaser shall obtain any stock transfer stamps
required and shall properly file, with the cooperation of the Partnership,
on a timely basis all necessary tax returns, reports and forms and other
documentation with respect to any stamp, transfer, notarial, documentary,
sales, use, registration and other similar taxes or fees incurred in
connection with the transfer of the Interests, and shall provide to the
Partnership appropriate invoices evidencing all payments in connection
therewith.
(f) DEPOSIT OF OTHER INSTRUMENTS. The Partnership and Purchaser shall
each deposit such other instruments as are reasonably required by Title
Company in connection with its issuance of each Title Policy, provided,
however, the Partnership shall have no obligation to execute any owner's
affidavits or any indemnity required in order to remove "gap" or
"creditors' rights" exceptions.
6. CLOSING ADJUSTMENTS AND PRORATIONS. With respect to each Property and
the Related Property, the following adjustments shall be made to the
Consideration, and the following procedures shall be followed:
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<PAGE>
(a) BASIS OF PRORATIONS. All prorations shall be calculated as of
12:01 a.m. on the Closing Date, on the basis of a 360-day year.
(b) ITEMS NOT TO BE PRORATED. The Partnership will not assign to
Purchaser any of the hazard insurance policies affecting the Properties or
the Related Property in force as of the Closing Date. Therefore, there
shall be no prorations or adjustments of any kind with respect to insurance
premiums.
(c) CLOSING ADJUSTMENTS. Prior to Closing, Purchaser shall prepare for
review, comment and agreement by the Partnership a proration statement for
each Property and the Related Property, and each party shall be credited or
charged at the Closing, in accordance with the following:
(i) RENTS. The Partnership shall account to Purchaser for any
Rents actually collected by the Partnership or its affiliates for the
rent period in which the Closing occurs, and Purchaser shall be
credited for its share.
(ii) EXPENSES.
a) PREPAID EXPENSES. To the extent Expenses have been paid
prior to the Closing Date for the payment period in which the
Closing occurs, the Partnership shall account to Purchaser for
such prepaid Expenses, and the Partnership shall be credited for
its pro rata share thereof for the period after the Closing Date.
b) NON-DELINQUENT UNPAID EXPENSES. To the extent
non-delinquent Expenses relating to the payment period in which
the Closing occurs are unpaid as of the Closing Date but have
been billed or are subject to reasonably accurate estimation as
outlined below, Purchaser shall be credited for the Partnership's
pro rata share of such non-delinquent Expenses for the period
prior to the Closing Date (unless already credited pursuant to
Section 3(a)(ii)). Purchaser agrees to attempt to obtain partial
bills which detail such unpaid Expenses through the Closing Date.
To the extent Purchaser is unable to obtain such partial bills,
Purchaser agrees to prepare an estimate of such Expenses relating
to the payment period in which the Closing occurs, provided that
such an estimate may be made with reasonable accuracy based upon
prior bills and courses of
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dealing, and provided further that the Partnership approves the
estimate.
c) PROPERTY TAXES. For purposes of this Subsection 6(c)(ii)
hereof, the Title Company shall pro-rate property taxes based on
the most recent available tax bills.
d) DELINQUENT EXPENSES. Delinquent Expenses shall not be
adjusted or prorated and shall be borne by the Purchaser.
(iii) SECURITY DEPOSITS. The Partnership shall deliver
to Purchaser all security deposits, letters of credit and
other collateral given to the Partnership under any of the
Leases to the extent not applied pursuant to the terms of
the Leases prior to the Closing Date.
(iv) TOTEM VALLEY LEASE. All rents, charges and other sums
due under the Totem Valley Lease shall be prorated as of the
Closing Date. Purchaser acknowledges that rent under the Totem
Valley Lease is payable annually in advance and that the
Partnership shall be entitled to a credit for its pro rata share
of such prepaid rent.
(d) POST-CLOSING ADJUSTMENTS. After the Closing Date and
continuing for a period of thirty (30) days thereafter, but in no
event after December 26, 1997, the Partnership and Purchaser shall
meet from time to time to discuss adjust ments in accordance with the
following;
(i) NON-DELINQUENT RENTS. If Purchaser collects any
non-delinquent Rents applicable to the month in which the Closing
occurred, the Partnership's pro rata share of such Rents shall be
paid to the Partnership immediately upon receipt.
(ii) DELINQUENT RENTS. If Purchaser collects from any Tenant
Rents that were delinquent as of the Closing Date, then such
Rents shall be applied in the following order of priority: first,
to reimburse Purchaser for all reasonable out-of-pocket
third-party collection costs actually incurred by Purchaser in
collecting such Rents; second, to satisfy such Tenant's
delinquent Rent obligations relating to the period before the
Closing Date; and third, to satisfy such delinquent Rent
obligations relating to the period including and after the
Closing Date. The Partnership shall have no right
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<PAGE>
to pursue the collection of such delinquent Rents. Purchaser
agrees to actively pursue collection of such delinquent Rents.
(iii) SURVIVAL OF OBLIGATIONS. The obligations of the
Partnership and Purchaser under Subsection 6(d) hereof shall
survive the Closing for a period of thirty (30) days, but in no
event later than December 26, 1997, and all such adjustments and
payments to the entitled party shall be made prior to that time.
(e) ALLOCATION OF CLOSING COSTS. Closing costs shall be allocated as
set forth below; provided, however, that in the event that any real
property transfer taxes which would be due in connection with the transfer
of the Related Property are due with respect to the transfer of the
Interests, such real property transfer taxes shall be the responsibility of
Purchaser, notwithstanding any contrary local custom:
<TABLE>
<CAPTION>
=================================================================================================
Responsible Party
-----------------------------------------------------------------------------
Gateway
Closing Prof. Poplar Totem
Expense Center Park Plaza Towers Valley Interests
- ------- ------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Escrow Charges Equal Split Equal Split Equal Split Equal Split Equal
Split
Title Charges Partnership Partnership Purchaser Partnership Purchaser
Transfer Taxes Equal Split Equal Split Purchaser Partnership Equal
Split
Recording Fees Purchaser Purchaser Purchaser Purchaser N/A
=================================================================================================
</TABLE>
The provisions of this Subsection 6(e) shall survive the Closing.
(f) ADJUSTMENTS REGARDING INTERESTS. Except as specifically set forth
herein with respect to adjustments, prorations or credits to the Consider
ation based upon operations related to the Related Property, there shall be
no adjustments, credits or prorations to the Consideration with respect to
the transfer of Interests. On and after the Closing all liabilities, debts,
obligations, expenses and payables of Montrose Office Park Joint Venture,
Montrose Office Park Limited Partnership and Equitec Venture Corp. III,
Inc., and of the
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<PAGE>
Partnership with respect to the Interests, whether accruing on, before or
after the Closing Date, including but not limited to liabilities for Taxes,
shall be borne by Purchaser, and Purchaser shall indemnify and hold the
Partnership, PB Properties and the Unitholders harmless with respect
thereto, provided, however, that the Partnership shall remain liable for
any taxes with respect to the Partnership's income or capital gains derived
from the transfer of the Interests. The provisions of this Subsection 6(f)
shall survive the Closing.
7. THE PARTNERSHIP'S REPRESENTATIONS AND WARRANTIES/PROPERTY CONDITION.
(a) ORGANIZATION AND AUTHORIZATION. The Partnership hereby represents
and warrants to Purchaser the matters set forth below:
(i) The Partnership is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of
California, and is qualified to do business in the State of
California.
(ii) The Partnership has full partnership power and authority to
execute and deliver this Agreement and to perform all of the terms and
conditions hereof to be performed by the Partnership and to consummate
the transactions contemplated hereby. This Agreement and all documents
executed by the Partnership which are to be delivered to Purchaser at
Closing are or as of the Closing Date will be duly executed and
delivered by the Partnership and are or at the time of Closing will be
the legal, valid and binding obligation of the Partnership and is
enforceable against the Partnership in accordance with its terms,
except as the enforcement thereof may be limited by applicable
Creditors' Rights Laws. The Partnership is not presently subject to
any bankruptcy, insolvency, reorganization, moratorium, or similar
proceeding.
(iii) The individuals executing this Agreement and the
instruments referenced herein on behalf of the Partnership and its
constituent entities, if any, have the legal power, right and actual
authority to bind the Partnership to the terms and conditions hereof
and thereof.
(iv) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement, nor
the compliance with the terms and conditions hereof will (a) violate
or
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<PAGE>
conflict, in any material respect, with any provision of the
Partnership's organizational documents or any statute, regulation or
rule, or, to the Partnership's actual knowledge, any injunction,
judgment, order, decree, ruling, charge or other restrictions of any
government, governmental agency or court to which the Partnership is
subject, and which violation or conflict would have a material adverse
effect on the ownership and operation of the Property, or (b) to the
Partnership's actual knowledge result in any material breach or
termination of any agreement or other instrument or obligation to
which the Partnership is a party (other than any lease) or cause a
lien or other encumbrance to attach to any of the Property, or violate
the terms and provisions of the organizational documents of Montrose
Office Park Limited Partnership, Montrose Office Park Joint Venture or
Equitec Venture Corp. III, Inc., a California corporation, which would
have a material adverse effect on the ownership of the Property. To
the Partnership's actual knowledge, the Partnership is not a party to
any contract or subject to any other legal restriction that would
prevent fulfillment by the Partnership of all of the material terms
and conditions of this Agreement or compliance with any of the
material obligations under it.
(v) The Partnership is not a "foreign person" within the meaning
of Section 1445(f)(3) of the Code.
(b) PROPERTY CONDITION. The Property is being sold and conveyed by
Purchaser to the Partnership "AS IS, WHERE IS, WITH ALL FAULTS", in such
condition as the same may be on the Closing Date, without any
representations and warranties by the Partnership as to any conditions of
the Property, including, without limitation, surface and subsurface
environmental conditions, whether latent or patent. The Partnership makes
no guarantee, warranty or representation, express or implied, as to the
quality, character, or condition of the Property (or any part thereof) or
the fitness of the Property (or any part thereof) for any use or purpose or
any representation as to the nonexistence of any toxic or hazardous waste.
Purchaser shall have no claim, in law or in equity against the Partnership,
PB Properties or the Unitholders, based upon the condition of the Property
or the failure of the Property to meet any standards. In no event shall the
Partnership, PB Properties or the Unitholders be liable for any incidental,
special, exemplary or consequential damages, including, without limitation,
loss of profits or revenue, interference with business operations, loss of
tenants, lenders, investors, buyers, diminution in
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value of the Property, or inability to use the Property, due to the
condition of the Property. Purchaser represents and warrants to the
Partnership that Purchaser has had ample opportunity to make a proper
inspection, examination and investigation of the Property to familiarize
itself with its condition. Purchaser agrees that it accepts the condition
of the Property hereunder, and it shall purchase and accept title to the
Property including any and all environmental conditions. In the event that
any hazardous substances are discovered on, at or under the Property,
Purchaser shall not maintain any action or assert any claim against the
Partnership, its successors and their respective members, employees and
agents or PB Properties or the Unitholders arising out of or relating to
any such hazardous substances, including, without limitation, any action or
claim for contribution or the generation, use, handling, treatment,
removal, storage, decontamination, cleanup, transport or disposal thereof.
(c) TITLE TO INTERESTS. To the Partnership's actual knowledge, the
Interests are not subject to any liens, encumbrances or claims of creditors
other than restrictions on transfer, if any, arising out of federal and
state securities laws.
(d) NO OTHER REPRESENTATIONS OR WARRANTIES. Except as may be expressly
set forth herein, neither the Partnership nor any of its affiliates, agents
or representatives has made, and neither are making any representation or
warranty, written or oral, express or implied, whether of merchantability,
quality, suitability or fitness for a particular purpose, with respect to
the Property, the Loan, the Related Property, the Interests, any assets,
properties, liabilities, business, financial condition or prospects of the
entities related to the Interests or any other matter whatsoever, and in
making its decision to enter into this Agreement and consummate the Sale,
Purchaser has not relied upon any representation, warranty, statement,
advice, document, projection or other information of any type provided by
the Partnership or its affiliates, agents or representatives other than the
representations, warranties, covenants and other agreements expressly set
forth in this Agreement, provided, however, the Partnership makes no
representation or warranty with respect to the accuracy of Schedules 3, 4,
5 and 6 hereto, or to any Schedule which may be attached to Exhibits B or C
hereto.
8. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser hereby represents
and warrants to the Partnership as follows:
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<PAGE>
(a) GPLP is a duly organized and validly existing limited partnership
in good standing under the laws of the State of California, and GLB is a
duly organized and validly existing corporation under the laws of the State
of Maryland. This Agreement and all documents executed by Purchaser which
are to be delivered to the Partnership at the Closing are or at the time of
Closing will be duly authorized, executed and delivered by Purchaser, and
are or at the Closing will be legal, valid and binding obligations of
Purchaser enforceable against Purchaser in accordance with their terms,
except as the enforcement thereof may be limited by applicable Creditor's
Rights Laws, and do not and at the time of Closing will not violate any
provisions of any agreement or judicial order to which Purchaser is
subject. Purchaser is not presently subject to any bankruptcy, insolvency,
reorganization, moratorium or similar proceeding.
(b) Purchaser has made an independent investigation with regard to the
Assets and Purchaser's intended use thereof.
(c) There is no litigation pending or, to Purchaser's knowledge after
reasonable inquiry, threatened, against Purchaser or any basis therefor
that might materially and detrimentally affect the ability of Purchaser to
perform its obligations under this Agreement. Purchaser shall notify the
Partnership promptly of any such litigation of which Purchaser becomes
aware.
(d) Purchaser has adequate funds or available credit resources
(independent of the existing Loan) to pay the Consideration (without credit
for the Loan) on the Closing Date as provided herein.
(e) The individuals executing this Agreement and the instruments
referenced herein on behalf of Purchaser and its constituent entities, if
any, have the legal power, right and actual authority to bind Purchaser to
the terms and conditions hereof and thereof.
(f) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement, nor the
compliance with the terms and conditions hereof will (a) violate or
conflict with any provision of Purchaser's organizational documents or any
statute, regulation or rule, or, to Purchaser's knowledge after reasonable
inquiry, any injunction, judgment, order, decree, ruling, charge or other
restrictions of any government, governmental agency or court to which
Purchaser is subject, or (b) result in any breach or the termination of any
lease, agreement or other instrument or
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<PAGE>
obligation to which Purchaser is a party or by which any of the Property
may be subject, or cause a lien or other encumbrance to attach to any of
the Property, or violate the terms and provisions of the organizational
documents of Montrose Office Park Limited Partnership, Montrose Office Park
Joint Venture, Equitec Venture Corp. III, Inc. or Purchaser. Purchaser is
not a party to any contract or subject to any other legal restriction that
would prevent fulfillment by Purchaser of all of the terms and conditions
of this Agreement or compliance with any of the obligations under it.
(g) All representations and warranties set forth herein shall be true
as of the Effective Date and the Closing Date.
9. INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify the
Partnership, PB Properties and the Unitholders and defend and hold the
Partnership, PB Properties and the Unitholders harmless from any claims, losses,
demands, liabilities, costs, expenses, penalties, damages and losses, including,
without limitation, attorneys fees, asserted against, incurred or suffered by
the Partnership resulting from or arising out of (i) Purchaser's inspection of
the Properties and the Related Property prior to or on the Closing Date; (ii)
the operation and maintenance of the Property and the Related Property by
Purchaser on and after the Closing Date, including but not limited to any
personal injury or property damage first occurring in, on or under the Property
or the Related Property during Purchaser's ownership thereof, from any cause
whatsoever; (iii) the failure of Purchaser to perform any obligations under the
Loan Documents to be performed by the borrower after the Closing Date; (iv) any
act or omission to act whether before or after Closing with respect to the
Interests; (v) provided the Partnership maintains all insurance currently
maintained by the Partnership with respect to the Properties and the Related
Property through the Closing Date, the operation and maintenance of the Property
and the Related Property prior to the Closing Date, including but not limited to
any personal injury or property damage from any cause whatsoever, and (vi) any
claim of default or breach of lease, and any acts or omissions by the landlord
under the Totem Valley Lease which relate to or arise out of the assignment of
such lease hereunder without the consent of the landlord. The provisions of this
Section shall survive the Closing or in the case of clause (i) any termination
of this Agreement.
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<PAGE>
10. RISK OF LOSS.
(a) NOTICE OF LOSS. If, prior to the Closing Date, any portion of the
of the Property or the Related Property suffers a Minor or Major Loss,
Purchaser shall immediately notify the Partnership of that fact, which
notice shall include sufficient detail to apprise the Partnership of the
current status of the Property or the Related Property, as applicable,
following such loss.
(b) MINOR LOSS. Purchaser's obligations hereunder shall not be
affected by the occurrence of a Minor Loss, provided that: (i) upon the
Closing, there shall be a credit against the Consideration equal to the
amount of any insurance proceeds collected by the Partnership or its
affiliates as a result of such Minor Loss. If the proceeds have not been
collected as of the Closing, then the Partnership's or its affiliates'
right, title and interest to such proceeds shall be assigned to Purchaser.
(c) MAJOR LOSS. In the event of a Major Loss, the Partnership shall
have the option to adjourn the Closing Date for such reasonable period as
may be required to repair the Major Loss, or if the Partnership elects not
to repair the Property, Purchaser may, at its option to be exercised by
written notice to the Partnership within twenty (20) days of the
Partnership's notice to Purchaser of its election, elect to either (i)
terminate this Agreement, or (ii) consummate the acquisition of the Assets
in accordance with the terms hereof for the full Consideration, subject to
the following. If Purchaser elects to proceed with the acquisition of the
Assets in accordance with the terms hereof, then the Closing shall be
postponed to the later of the Closing Date or the date which is five (5)
days after Purchaser makes such election and, upon the Closing, Purchaser
shall be given a credit against the Consideration equal to the amount of
any insurance proceeds collected by the Partnership or its affiliates as a
result of such Major Loss. If the proceeds have not been collected as of
the Closing, then the Partnership's or its affiliates' right, title and
interest to such proceeds shall be assigned to Purchaser, and the
Partnership will cooperate with Purchaser as reasonably requested by
Purchaser in the collection of such proceeds. If
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<PAGE>
Purchaser fails to give the Partnership notice within such 20-day period,
then Purchaser will be deemed to have elected to terminate this Agreement.
11. CONDEMNATION
If, prior to the Closing Date, all or any portion of any Property or the
Related Property is condemned or taken by eminent domain, then this
Agreement shall nevertheless remain in full force and effect without any
abatement of the Consideration. In such event, the Partnership shall convey
such Property to Purchaser at the Closing in its then condition, and,
subject to the rights of the holder of the Loan, Purchaser shall be
entitled to receive all net or condemnation awards otherwise payable to
the Partnership or its affiliates as a result of such loss or damage and,
in full satisfaction of any claims by Purchaser against the Partnership,
the Partnership or its affiliates shall assign to Purchaser, without
recourse or warranty of any nature whatsoever, all of the Partnership's or
its affiliates' right, title and interest in and to any claims the
Partnership may have to any condemnation awards, as well as all rights or
pending claims of the Partnership or its affiliates with respect to such
condemnation or taking of such Property, and the Partnership or its
affiliates shall pay to Purchaser all payments theretofore made by such
condemning authorities as a result of such loss after deducting therefrom
the costs of collection thereof.
12. THE PARTNERSHIP'S CONTINUED OPERATION OF THE PROPERTIES.
(a) GENERAL. Except as otherwise contemplated or permitted by this
Agreement or approved by Purchaser in writing, from the Effective Date to
the Closing Date, the Partnership or its affiliates will operate, maintain,
repair and lease each of the Properties and the Related Property in a
prudent manner, in the ordinary course of business, on an arm's-length
basis and consistent with its past practices (and without limiting the
foregoing, the Partnership or its affiliates shall, in the ordinary course,
negotiate with prospective tenants and enter into leases of the Property
and the Related Property, enforce leases in all material respects including
eviction proceedings against all Tenants with delinquencies in excess of 30
days, pay all costs and expenses of the Property and the Related Property,
including, without limitation, debt service, real estate taxes and
assessments, and maintain insurance and pay and perform obligations under
the Loan Documents) and will not dispose of or encumber any of the
Properties or the Related Property or any part thereof or of the Interests,
except for dispositions of personal property in the ordinary course of
business.
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Between the Effective Date and the Closing, the Partnership or its
affiliates shall continue to undertake those capital improvements listed on
Schedule 4 with respect to the Properties and the Related Property in the
ordinary course of business.
(b) ACTIONS REQUIRING PURCHASER'S CONSENT. Notwithstanding the above
terms of this Section, the Partnership shall not, without the prior written
approval of Purchaser, take any of the following actions:
(i) LEASES. Execute or renew any Lease; or terminate any Lease;
or modify or waive any material term of any Lease;
(ii) CONTRACTS. Except as otherwise required under this
Agreement, enter into, execute or terminate any operating agreement,
reciprocal easement agreement, management agreement or any lease,
contract, agreement or other commitment of any sort (including any
contract for capital items or expenditures), with respect to the
Property.
(iii) LOAN DOCUMENTS. Waive or modify any material term under any
Loan Document.
(c) COST OF TENANT IMPROVEMENTS AND LEASING COMMISSIONS. In connection
with any new leases or modifications of existing Leases entered into
between the Effective Date and the Closing and approved by Purchaser, the
cost of tenant improvement work and leasing commissions shall be prorated
between Purchaser and the Partnership in proportion to the ratio between
the portion of the new lease term prior to the Closing Date and the portion
of the new lease term after the Closing Date.
13. COOPERATION BEFORE CLOSING. The Partnership and Purchaser shall
cooperate and do such acts as may be reasonably required or requested by the
other with regard to the fulfillment of any Condition Precedent or the
consummation of the transactions contemplated hereby. The Partnership shall not
be required to pay any sums whatsoever in connection with obtaining the consent
of the landlord under the Totem Valley Lease to the assignment of such lease
contemplated hereunder, and the Purchaser shall be primarily responsible for
obtaining such consent. Prior to the Closing, Purchaser will execute and file,
or join in the execution and filing of any application or other document
(including, but not limited to, any filing with the Securities Exchange
Commission) that may be necessary in order to obtain the
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authorization, approval or consent of any governmental entity that may be
required in connection with the consummation of the Sale, and will use its best
efforts to obtain, or, as applicable, to assist the Partnership in obtaining,
all such authorizations, approvals and consents.
14. NON-CONSUMMATION OF THE TRANSACTION. If the transaction is not
consummated on or before the Closing Date, the following provisions shall apply:
(a) NO DEFAULT. If the transaction is not consummated for a reason
other than a default by one of the parties, then (i) Title Company and each
party shall return to the depositor thereof the Earnest Money and all other
funds and items which were deposited hereunder; (ii) the Partnership and
Purchaser shall each bear one-half of any Escrow cancellation charges. Any
return of funds or other items by the Title Company or any party as
provided herein shall not relieve either party of any liability it may have
for its wrongful failure to close.
(b) DEFAULT BY THE PARTNERSHIP. If the transaction is not consummated
as a result of a default by the Partnership, then Purchaser may as its sole
recourse either (i) terminate this Agreement by delivery of notice of
termination to the Partnership, whereupon (A) the Earnest Money plus
interest accrued thereon shall be immediately returned to Purchaser, and
(B) the Partnership shall pay to Purchaser any actual title, escrow, and
legal fees incurred by Purchaser, but in no event to exceed $15,000, in
which case neither party shall have any further rights or obligations
hereunder; or (ii) continue this Agreement pending Purchaser's action for
specific performance.
(c) DEFAULT BY PURCHASER. If the Closing does not occur as a result of
a default by Purchaser, then (i) Purchaser shall pay all escrow
cancellation charges, (ii) Title Company shall deliver the Earnest Money
together with interest earned thereon to the Partnership as its full and
complete liquidated damages and its sole and exclusive remedy for
Purchaser's default. If the transaction is not consummated because of a
default by Purchaser, the Earnest Money together with the interest accrued
thereon shall be paid to and retained by the Partnership as liquidated
damages. THE PARTIES HAVE AGREED THAT THE PARTNERSHIP'S ACTUAL DAMAGES, IN
THE EVENT OF A DEFAULT BY PURCHASER, WOULD BE EXTREMELY DIFFICULT OR
IMPRACTICABLE TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS BELOW,
THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER
NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF THE PART
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NERSHIP'S DAMAGES AND AS THE PARTNERSHIP'S EXCLUSIVE REMEDY AGAINST
PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS
AGREEMENT ON THE PART OF PURCHASER.
INITIALS: Partnership ___ Purchaser ___
15. MISCELLANEOUS.
(a) DISCLOSURE OF TRANSACTION. Except as may be required to comply
with the requirements of any applicable laws (including, but not limited
to, the Securities Act of 1933, as amended from time to time (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended from
time to time (the "Securities Exchange Act")), neither party shall publicly
announce or discuss the execution of this Agreement or the transaction
contemplated hereby except in accordance with the following. The
Partnership shall not publicly announce or discuss the execution of this
Agreement or the transaction contemplated hereby without the prior written
consent of Purchaser, which shall not be unreasonably withheld. Purchaser
shall not publicly announce or discuss the execution of this Agreement or
the transaction contemplated hereby unless Purchaser has obtained the prior
written consent of the Partnership, which shall not be unreasonably
withheld.
(b) POSSESSION. Possession of the Real Property and the Personal
Property shall be delivered to Purchaser upon the Closing.
(c) NOTICES. Any notice, consent or approval required or permitted to
be given under this Agreement shall be in writing and shall be deemed to
have been given upon (i) hand delivery, (ii) one (1) day after being
deposited with Federal Express, DHL Worldwide Express or another reliable
overnight courier service or transmitted by facsimile telecopy, or (iii)
two (2) days after being deposited in the United States mail, registered or
certified mail, postage prepaid, return receipt required, and addressed as
indicated below, or such other address as either party may from time to
time specify in writing to the other.
If to Purchaser: If to the Partnership:
Glenborough Realty Trust Incorporated Prudential-Bache/Equitec
400 South El Camino Real, 11th Floor Real Estate Partnership
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San Mateo, CA 94402-1708 One Seaport Plaza, 28th Floor
Attention: Andrew Batinovich New York, NY 10292-0128
Attention: Mr. Brian J. Martin
with a copy to: with a copy to:
Glenborough Realty Trust Incorporated Skadden, Arps, Slate, Meagher
400 South El Camino Real, 11th Floor & Flom LLP
San Mateo, CA 94402-1708 919 Third Avenue
Attention: Stephen Saul New York, NY 10022
Attention: Wallace L. Schwartz
(d) BROKERS AND FINDERS. Neither party has had any contact or dealings
regarding the Assets, or any communication in connection with the subject
matter of this transaction through any real estate broker or other person
who can claim a right to a commission or finder's fee in connection with
the Sale contemplated herein. In the event that any broker or finder
perfects a claim for a commission or finder's fee based upon any such
contact, dealings or communication, the party through whom the broker or
finder makes its claim shall be responsible for said commission or fee and
shall indemnify and hold harmless the other party from and against all
liabilities, losses, costs and expenses (including reasonable attorneys'
fees) arising in connection with such claim for a commission or finder's
fee. The provisions of this Subsection shall survive the Closing.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors,
heirs, administrators and assigns. Neither Purchaser nor the Partnership
shall have the right to assign its interest in this Agreement. The
Partnership's obligations hereunder and under any document executed by the
Partnership pursuant to this Agreement shall be joint and several.
(f) AMENDMENTS. Except as otherwise provided herein, this Agreement
may be amended or modified only by a written instrument executed by the
Partnership and Purchaser.
(g) GOVERNING LAW. This Agreement has been negotiated and executed in
New York County, New York and the substantive laws of the State of New
York, without reference to its conflict of laws provisions, will govern the
validity, construction, and enforcement of this Agreement.
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(h) MERGER OF PRIOR AGREEMENTS. This Agreement and the Addenda,
Exhibits and Schedules hereto constitute the entire agreement between the
parties and supersede all prior agreements and understandings between the
parties relating to the subject matter hereof.
(i) ARBITRATION OF DISPUTES. Any controversy, claim, counterclaim, or
disputes between or among the parties hereto arising out of or relating to
the interpretation, application, breach or enforcement of this Agreement or
any related agreements or instruments ("Subject Documents") ("Dispute"),
shall, at the option of any party, and at that party's expense, be
submitted to mediation, using either the American Arbitration Association
(AAA) or Judicial Arbitration and Mediation Services, Inc. (JAMS). If
mediation is not used, or if it is used and it fails to resolve the Dispute
within 30 days from the date AAA or JAMS is engaged, then the Dispute shall
be determined by neutral binding arbitration in accordance with the
Commercial Arbitration Rules then in effect of either JAMS or AAA (at the
option of the party initiating the arbitration) and Title 9 of the U.S.
Code, notwithstanding any other choice of law provision(s) herein or in the
Subject Documents. Any controversy concerning whether a Dispute is
arbitrable shall be determined by the arbitrator(s). The parties agree that
related arbitration proceedings may be consolidated. The arbitrator shall
prepare written reasons for the award. The parties hereto agree that the
arbitrator shall be empowered to grant equitable, as well as legal, relief,
including, without limitation, the power to compel specific performance of
this Agreement. The parties further consent that the initiation of
mediation and/or arbitration pursuant to these provisions shall constitute
an action or the equivalent for purposes of determining a party's right to
file a lis pendens in the official records of the jurisdiction where the
Property is/are located. The parties consent that judgment on the award
rendered may be entered in any state court sitting in New York County, New
York, and that any mediation and/or arbitration shall take place in New
York, New York.
(j) ENFORCEMENT. If either party fails to perform any of its
obligations under this Agreement or if a dispute arises between the parties
concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such
dispute shall pay any and all costs and expenses incurred by the other
party on account of such default and/or in enforcing or establishing its
rights hereunder, including, without limitation, arbitration or court costs
and attorneys' fees and disbursements. Any such attorneys' fees and other
expenses incurred by either party in enforcing a judgment in its favor
under this Agreement shall be recoverable separately from and in addition
to any other amount
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included in such judgment, and such attorneys' fees obligation is intended
to be severable from the other provisions of this Agreement and to survive
and not be merged into any such judgment.
(k) TIME OF THE ESSENCE. Time is of the essence of this Agreement.
(l) SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by
a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other
persons, places and circumstances shall remain in full force and effect.
(m) MARKETING. The Partnership agrees not to market the Assets or
actively solicit competing offers from any other prospective purchasers,
unless the Partnership determines, in its sole discretion, that its
fiduciary duties or applicable law require it to take such actions.
(n) CONFIDENTIALITY. Purchaser and, except as permitted under Section
15(m) above, the Partnership shall each maintain as confidential any and
all material or information about the other or, in the case of Purchaser
and its agents, employees, consultants and contractors, about the Property,
and shall not disclose such information to any third party, except, in the
case of information about the Property and the Partnership, to Purchaser's
investment bankers, lender or prospective lenders, insurance and
reinsurance firms, attorneys, environmental assessment and remediation
service firms and consultants, as may be reasonably required for the
consummation of the transaction contemplated hereunder and/or as required
by law (including, but not limited to, the Securities Act and the
Securities Exchange Act).
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
(p) ADDENDA, EXHIBITS AND SCHEDULES. All addenda, exhibits and
schedules referred to herein are, unless otherwise indicated, incorporate
herein by this reference as though set forth herein in full.
(q) CONSTRUCTION. Headings at the beginning of each section and
subsection are solely for the convenience of the parties and are not a part
of the Agreement. Whenever required by the context of this Agreement, the
singular shall
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include the plural and the masculine shall include the feminine and vice
versa. This Agreement shall not be construed as if it had been prepared by
one of the parties, but rather as if both parties had prepared the same. In
the event the date on which the Partnership or Purchaser is required to
take any action under the terms of this Agreement is not a business day,
the action shall be taken on the next succeeding business day.
(r) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS.
Except as otherwise expressly set forth herein, none of the
representations, warranties and indemnifications contained in this
Agreement shall survive the Closing.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
PARTNERSHIP
Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership
By Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By /s/ BRIAN J. MARTIN
------------------------------
Brian J. Martin
President
Date: October 13, 1997
PURCHASER
Glenborough Realty Trust Incorporated,
a Maryland corporation
By /s/ ANDREW BATINOVICH
-----------------------------------
Andrew Batinovich
President
Glenborough Properties, L.P.,
a California limited partnership
By Glenborough Realty Trust Incorporated, a Maryland corporation,
its General Partner
By /s/ ANDREW BATINOVICH
--------------------------------
Andrew Batinovich
President
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<PAGE>
Date: October 9, 1997
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ADDENDUM I
DEFINITIONS
Terms used in this Agreement shall have the meanings set forth below:
1. ADDITIONAL RENTS. All amounts, other than Fixed Rents, due from any Tenant
under any Lease, including without limitation percentage rents, escalation
charges for real estate taxes, parking charges, marketing fund charges,
reimbursement of operating expenses or common area expenses, maintenance
escalation rents or charges, cost-of-living increases or other charges of a
similar nature, if any, and any additional charges and expenses payable
under any Lease.
2. AGREEMENT. This Agreement between the Partnership and Purchaser, including
all Addenda, Schedules and Exhibits attached hereto and incorporated herein
by reference.
3. AMENDMENTS. The amendment of the Amended and Restated Agreement of Limited
Partnership, dated as of February 11, 1985 and as subsequently amended, by
and among the General Partners and Limited Partners of the Partnership (as
defined therein) to permit (a) the purchase by an affiliate of Glenborough
of the Assets, and (b) the effectuation of the Plan by the Partnership's
General Partners on behalf of the Partnership.
4. ASSIGNMENT AND ASSUMPTION OF LEASE. An Assignment and Assumption of Lease,
without recourse, in form acceptable to the Partnership in its sole
discretion, with respect to the Partnership's interest, as tenant, under
the Totem Valley Lease.
5. ASSIGNMENT OF CONTRACTS. An Assignment and Assumption of Service Contracts,
Guaranties and Warranties and Other Intangible Property in the form of
Exhibit D attached hereto.
6. ASSIGNMENT OF LEASES. An Assignment and Assumption of Leases in the form of
Exhibit B attached hereto.
7. ASSETS. The Property, together with the Interests.
8. BILL OF SALE. A Bill of Sale in the form of Exhibit C attached hereto.
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9. CASH. Immediately available funds to be paid by Purchaser at the Closing,
as provided in Section 3 hereof.
10. CODE. As defined in Section 3(b) hereof.
11. CLOSING. The delivery of the Deeds, and the Assignment and Assumption of
Lease, and the other documents required to be delivered hereunder and the
payment of the Consideration.
12. CLOSING DATE. The first Tuesday that is not less than five days after the
Partnership's receipt of the Consents, subject to extension as provided
herein, but in no event later than December 9, 1997.
13. CONSENTS. The written consent of the Unitholders to the Plan pursuant to
the Solicitation of Consents.
14. CONSIDERATION. The total consideration to be paid by Purchaser to the
Partnership as described in Section 3 hereof.
15. CONTRACTS. The service contracts, construction contracts for work in
progress, any warranties thereunder, management contracts, unrecorded
reciprocal easement agreements, operating agreements, maintenance
agreements, franchise agreements and other similar agreements relating to
the Property or the Related Property, if any.
16. CREDITORS' RIGHTS LAWS. All bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally, as
well as general equitable principles whether or not the enforcement thereof
is considered to be a proceeding at law or in equity.
17. DEED. A quit claim deed or deed without covenants if a quit claim deed can
not be utilized in a jurisdiction where a Property is located; so long as
the Title Company is willing to issue a policy of title insurance which is
customary in the applicable jurisdiction containing no exceptions from
coverage solely out of the delivery by the Partnership of a quit claim deed
or deed without covenants).
18. DEFERRED MAINTENANCE. Those items of deferred maintenance for the
Properties and the Related Property, as shown on Schedule 4 attached.
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19. EARNEST MONEY. An earnest money deposit paid by Purchaser pursuant to
Section 3 hereof, in the amount of $1,000,000.
20. EFFECTIVE DATE. The date this Agreement is signed by the Partnership or
Purchaser, whichever signs last.
21. ESCROW AGREEMENT. The Escrow Agreement attached hereto as Exhibit G, to be
executed by Title Company, the Partnership and Purchaser simultaneously
with the execution of this Agreement.
22. EXPENSES. All operating expenses normal to the operation and maintenance of
the Property and the Related Property, including without limitation real
property taxes and assessments; current installments of any improvement
bonds or assessments which are a lien on the Property or the Related
Property or which are pending and may become a lien on the Property or the
Related Property; water, sewer and utility charges; amounts payable under
any Contract for any period in which the Closing occurs; permits, licenses
and inspection fees; and interest on the Loan.
23. FIXED RATE PRICE ADJUSTMENT. As defined in the Loan Documents.
24. FIXED RENTS. The fixed periodic rental payments under any Lease.
25. GENERAL INTANGIBLES. To the extent assignable, all general intangibles
relating to design, development, operation, management and use of the Real
Property; all certificates of occupancy, zoning variances, building, use or
other permits, approvals, authorizations, licenses and consents obtained
from any governmental authority or other person in connection with the
development, use, operation or management of the Real Property and all
payment and performance bonds or warranties or guarantees relating to the
Real Property; and all of the Partnership's right, title and interest in
and to any and all of the following to the extent assignable: trademarks,
service marks, logos or other source and business identifiers, used at or
relating to the Real Property.
26. GENERAL PARTNERS. Collectively, Glenborough Corporations, Robert
Batinovich, and Prudential-Bache Properties, Inc.
27. GLB. Glenborough Realty Trust Incorporated, a Maryland corporation.
28. GPLP. Glenborough Properties, L.P., a California limited partnership.
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29. GLENBOROUGH. Glenborough Corporation, together with Robert Batinovich.
30. IMPROVEMENTS. All buildings, parking lots, signs, walks and walkways,
fixtures and equipment and all other improvements located at or on or
affixed to the Land to the full extent that such items are owned by the
Partnership and constitute realty under the laws of the state in which the
Land is located.
31. INTERESTS. All of the Partnership's direct and indirect interests in a
joint venture whose sole asset is the Related Property, said Interests
being more particularly described as follows: all right, title and interest
of the Partnership in and to Montrose Office Park Limited Partnership, a
Maryland limited partnership, Montrose Office Park Joint Venture, a
Maryland single purpose general partnership, and Equitec Venture Corp. III,
Inc., a California corporation.
32. INTERESTS TRANSFER DOCUMENTS. An Assignment of Partnership Interests in
Montrose Office Park Limited Partnership and An Assignment of Joint
Venture/General Partnership Interest in Montrose Office Park Joint Venture,
in the form set forth in Exhibits E and F attached hereto.
33. LAND. The land described in Schedule I attached hereto, together with all
appurtenances thereto, including without limitation easements and mineral
and water rights.
34. LEASES. The leases listed in the Rent Roll, together with any leases
approved by Purchaser pursuant to Section 12 hereof.
35. LOAN. The mortgage loan or loans described in Schedule 5 attached hereto.
36. LOAN DOCUMENTS. All notes or other evidence of indebtedness, loan
agreements, mortgages, guaranty agreements, and any and all other documents
entered into by the Partnership and all amendments, modifications and
supplements thereto relating to the Loan.
37. MAJOR LOSS is defined as any damage or destruction to any Real Property or
to the Related Property as to which the cost to repair exceeds 10% of the
Consideration.
38. MINOR LOSS is defined as any such damage or destruction that is not a Major
Loss.
39. PARTNERSHIP. As defined in the recitals hereto.
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40. PARTNERSHIP'S CONDITIONS PRECEDENT. Conditions precedent to the
Partnership's obligations to consummate this transaction, as set forth in
Section 4 hereof.
41. PB PROPERTIES. Collectively, Prudential-Bache Properties, Inc. and its
affiliates.
42. PERMITTED EXCEPTIONS. The Leases and the exceptions to title set forth on
Schedule 2 hereto.
43. PERSONAL PROPERTY. All of the Partnership's right, title and interest in
and to the personal property and any interest therein owned by the
Partnership, if any, located on the Real Property and used in the operation
or maintenance of the Real Property, including, without limitation, all
licensed software and any personal computer based security system.
44. PLAN. The plan of action, which consists of (i) the Sale, (ii) the
Amendments, and (iii) one or more liquidating distributions to the
Unitholders and the General Partners and, after providing for the payment
of all expenses and other liabilities of the Partnership, the dissolution
and termination of the Partnership and subsequent liquidation.
45. PROPERTY. The Partnership's fee or leasehold interest, as applicable, in
the Real Property, together with the Leases, the Personal Property, the
General Intangibles, and the Contracts.
46. PURCHASER. As defined in the recitals hereto.
47. PURCHASER'S CONDITIONS PRECEDENT. Conditions precedent to Purchaser's
obligation to consummate this transaction, as set forth in Section 4
hereof.
48. REAL PROPERTY. The Land and Improvements.
49. RELATED PROPERTY. That certain real property and improvements located in
Rockville, Maryland, and commonly known as the Montrose Office Park, as
more particularly described on Schedule 6.
50. RELEASE. As defined in Subsection 4(b)(ii) hereof.
51. RENT ROLL. The list of each of the Leases as of the date of this Agreement,
attached hereto as Schedule 3.
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52. RENTS. Fixed Rents and Additional Rents.
53. SALE. As defined in the recitals hereto.
54. SECURITIES ACT. As defined in Section 15(a) hereof.
55. SECURITIES EXCHANGE ACT. As defined in Section 15(a) hereof.
56. SERVICE CONTRACTS. All Contracts involving ongoing services and periodic
payment therefor, as distinguished from franchise agreements, easements,
guarantees, warranties and the like.
57. SOLICITATION OF CONSENTS. The solicitation of written consents by
Prudential-Bache Properties, Inc. in its capacity as the managing general
partner of the Partnership.
58. TAXES. All net income, capital gains, gross income, gross receipt, sales,
use, transfer, ad valorem, franchise, tariffs, profits, license, capital,
withholding, payroll, employment, excise, goods and services, severance,
stamp, occupation, premium, property, windfall profits or other tax or
customs duties, or any interest, any penalties, additions to tax or
additional amounts incurred or accrued under applicable tax law or assessed
or charged by any taxing authority.
59. TENANT(S). Each and all tenants as listed on the Rent Roll.
60. TITLE COMPANY. Chicago Title Insurance Company, whose address is: 700 South
Flower Street, Suite 900, Los Angeles, CA 90017.
61. TITLE POLICY. A policy of extended coverage American Land Title Association
Policy of Owner's Title Insurance (Form B, rev. 10/17/70), issued by Title
Company in the amounts set forth below, subject to adjustment in accordance
with any adjustments in the portion of the Consideration applicable to such
Properties, showing fee or leasehold title, as applicable, vested in
Purchaser subject only to the Permitted Exceptions: Gateway Professional
Center - $4,250,000; Park Plaza - $6,670,000; Totem Valley Business Park -
$7,200,000; Poplar Towers - $5,000,000.
62. TOTEM VALLEY LEASE. Lease dated March 15, 1987, by and between Burlington
Northern Railroad Company, as landlord, and the Partnership, as tenant, as
amended by agreement by and between The Burlington Northern And Santa Fe
Railway Company and the Partnership, a memorandum of which amendment was
recorded on
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April 9, 1997, which lease relates to "Parcel H" on the legal description
for Totem Valley Business Park, Seattle Washington, set forth on Schedule 1
attached hereto.
63. UNITHOLDERS. As defined in the recitals hereto.
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EXHIBIT A
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES ("Assignment") dated as of
______________, 1997, is entered into by and between Prudential-Bache/Equitec
Real Estate Partnership, a California limited partnership ("Assignor"), and
Glenborough Properties, L.P., a California limited partnership ("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor is the lessor under certain leases executed with respect
to that certain real property commonly known as ________________ (the
"Property") as more fully described in Exhibit A attached hereto, which leases
are described in the Rent Roll attached hereto as Schedule 1 (the "Leases"); and
WHEREAS, Assignor has entered into that certain Purchase Agreement (the
"Agreement") by which title to the Property is being transferred to Assignee;
and
WHEREAS, Assignor desires to assign its interest as lessor in the Leases to
Assignee, and Assignee desires to accept the assignment thereof;
NOW, THEREFORE, in consideration of the promises and conditions contained
herein, the parties hereby agree as follows:
1. Effective as of the Closing Date (as defined in the Agreement),
Assignor hereby assigns to Assignee, without recourse, all of its right,
title and interest in and to the Leases, and any guarantees related
thereto.
2. Effective as of the Closing Date, Assignee hereby assumes all of
the lessor's obligations arising after the Closing Date under the Leases
and agrees to indemnify Assignor against and hold Assignor harmless from
any and all cost, liability, loss, damage or expense, including without
limitation, reasonable attorneys' fees, arising out of facts or
circumstances occurring subsequent to the Closing Date and arising out of
the lessor's obligations under the Leases.
3. Any rental and other payments under the Leases shall be prorated
between the parties as provided in the Agreement.
4. This Assignment shall be binding on and inure to the benefit of the
parties hereto, their heirs, executors, administrators, successors in
interest and assigns.
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5. This Assignment shall be governed by and construed in accordance
with the laws of the State of New York.
6. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF Assignor and Assignee have executed this Assignment the
day and year first above written.
ASSIGNEE ASSIGNOR
Glenborough Properties, L.P., Prudential-Bache/Equitec Real Estate
a California limited partnership Partnership,
a California limited partnership
By Glenborough Realty Trust Incorporated, By Prudential-Bache Properties, Inc.,
a Maryland corporation, a Delaware corporation,
its General Partner its General Partner
By By
----------------------------------- ----------------------------------
Name: Name:
Title: Title:
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EXHIBIT A
TO ASSIGNMENT AND ASSUMPTION OF LEASES
REAL PROPERTY DESCRIPTION
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SCHEDULE 1
TO ASSIGNMENT AND ASSUMPTION OF LEASES
RENT ROLL
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EXHIBIT B
BILL OF SALE
For good and valuable consideration the receipt of which is hereby
acknowledged, Prudential-Bache/Equitec Real Estate Partnership, a California
limited partnership (the "Partnership"), does hereby sell, transfer, and convey
to Glenborough Properties, L.P., a California limited partnership ("Purchaser"),
all personal property owned by the Partnership and located on or in or used in
connection with the Real Property (as defined in that certain Purchase Agreement
relating to the real property, between the Partnership and Purchaser),
including, without limitation, those items described in Schedule 1 attached
hereto.
Dated: _____________, 1997
PARTNERSHIP
Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership
By Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By
--------------------------------------------
its
--------------------------------------
A-43
<PAGE>
SCHEDULE 1
TO BILL OF SALE
PERSONAL PROPERTY
A-44
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER GENERAL INTANGIBLES
This Assignment of Service Contracts, Warranties and Guaranties and
Other Intangible Property ("Assignment") is made and entered into as of _______,
1997, by Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership ("Assignor"), to Glenborough Properties, L.P., a California limited
partnership ("Assignee"), pursuant to that certain Purchase Agreement (the
"Agreement") between Assignor and Assignee relating to the Real Property (as
defined in the Agreement).
For good and valuable consideration, the receipt of which is hereby
acknowledged, effective as of the Closing Date (as defined in the Agreement),
Assignor hereby assigns and transfers unto Assignee, without recourse, all of
its right, title, claim and interest in and under:
(a) all warranties and guaranties made by or received from any third
party with respect to any building, building component, structure, fixture,
machinery, equipment, or material situated on, contained in any building or
other improvement situated on, or comprising a part of any building or
other improvement situated on, any part of that certain real property
described in Exhibit A attached hereto including, without limitation, those
warranties and guaranties listed in Schedule 1 attached hereto
(collectively, "Warranties");
(b) all of the Service Contracts listed in Schedule 2 attached hereto;
and
(c) any General Intangibles (as defined in the Agreement).
Assignor and Assignee further hereby agree and covenant as follows:
1. Effective as of the Closing Date, Assignee hereby assumes all of
Assignor's obligations under the Service Contracts and agrees to indemnify
Assignor against and hold Assignor harmless from any and all cost,
liability, loss, damage or expense, including, without limitation,
reasonable attorneys' fees, originating on or subsequent to the Closing
Date and arising out of the owner's obligations under the Service
Contracts.
2. Assignor and Assignee shall, at the reasonable request of the other
party, execute, acknowledge, and deliver any further instruments to carry
out effectively the intent of this Assignment.
A-45
<PAGE>
3. This Assignment shall be binding on and inure to the benefit of the
parties hereto, their heirs, executors, administrators, successors in
interest and assigns.
4. This Assignment shall be governed by and construed in accordance
with laws of the State of New York.
5. This Assignment may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
A-46
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the
day and year first above written.
ASSIGNEE ASSIGNOR
Glenborough Properties, L.P., Prudential-Bache/Equitec Real Estate
a California limited partnership Partnership,
a California limited partnership
By Glenborough Realty Trust Incorporated, By Prudential-Bache Properties, Inc.,
a Maryland corporation, a Delaware corporation,
its General Partner its General Partner
By By
----------------------------------- -------------------------------
Name: Name:
Title: Title:
A-47
<PAGE>
EXHIBIT A
TO
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER GENERAL INTANGIBLES
REAL PROPERTY DESCRIPTION
A-48
<PAGE>
SCHEDULE 1
TO
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER INTANGIBLE PROPERTY
WARRANTIES AND GUARANTIES
A-49
<PAGE>
SCHEDULE 2
TO
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER INTANGIBLE PROPERTY
SERVICE CONTRACTS
A-50
<PAGE>
EXHIBIT D
CERTIFICATE OF TRANSFEROR
OTHER THAN AN INDIVIDUAL
(FIRPTA AFFIDAVIT)
Section 1445 of the Internal Revenue Code provides that a transferee of a
U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform Glenborough Properties, L.P., a California limited
partnership, the transferee of certain real property located at _________,
__________, that withholding of tax is not required upon the disposition of such
U.S. real property interest by Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership (the "Partnership"), the undersigned hereby
certifies the following on behalf of the Partnership:
1. The Partnership is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The Partnership's U.S. employer identification number is
94-2949474; and
3. The Partnership's office address is Prudential-Bache/Equitec Real
Estate Partnership
One Seaport Plaza, 28th Floor
New York, NY 10292-0128
The Partnership understands that this certification may be disclosed to the
Internal Revenue Service by Purchaser and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury, I declare that I have examined this certificate
and to the best of my knowledge and belief it is true, correct and complete, and
I further declare that I have authority to sign this document on behalf of the
Partnership.
Dated: __________, 1997
---------------------------------------
---------------------------------------
on behalf of:
Prudential-Bache/Equitec Real Estate
Partnership,
a California limited partnership
A-51
<PAGE>
EXHIBIT E
ASSIGNMENT OF PARTNERSHIP INTERESTS
IN
MONTROSE OFFICE PARK LIMITED PARTNERSHIP
The undersigned Assignor (the "Assignor") owns a 99.992% general
partnership interest (the "Partnership Interest") in Montrose Office Park
Limited Partnership, a Maryland limited partnership (the "Partnership") formed
pursuant to that certain Certificate and Agreement of Limited Partnership dated
as of June 13, 1980 and recorded in Liber 5536, at folio 195 in the Clerk's
Office of Montgomery County, Maryland, as amended by First Amendment of
Certificate and Agreement of Limited Partnership made as of March 1, 1981, and
as restated by Restated Certificate of Limited Partnership dated October 15,
1984 and as further amended (insert re any further amendments) (the "Partnership
Agreement").
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Assignor hereby transfers and assigns, without recourse,
100% of the Partnership Interest to Glenborough Properties, L.P., a California
limited partnership, including, but not limited to, all of the capital, profits,
losses and distributions of the Partnership and each item of income, loss,
deduction and credit and any other items to which the Partnership Interest is
entitled. The Partnership Interest constitutes all of the right, title and
interest of the Assignor as a partner, general or limited, in the Partnership.
IN WITNESS WHEREOF, the Assignor has executed this Assignment of
Partnership Interest on this ___ day of _______________, 1997.
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
a California limited partnership
By: Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By: ______________________________
Name:
Title:
A-52
<PAGE>
EXHIBIT F
ASSIGNMENT OF JOINT VENTURE/GENERAL PARTNERSHIP INTERESTS
IN
MONTROSE OFFICE PARK JOINT VENTURE
The undersigned Assignor (the "Assignor") owns a 93.9% General
Partnership interest (the "Partnership Interest") in Montrose Office Park Joint
Venture, a Maryland single purpose general partnership (the "Partnership")
formed pursuant to that certain Joint Venture Agreement dated as of November 12,
1981 and as amended (insert re any further amendments) (the "Agreement").
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Assignor hereby transfers and assigns, without
recourse, 100% of the Partnership Interest to Glenborough Properties, L.P., a
California limited partnership, including, but not limited to, all of the
capital, profits, losses and distributions of the Partnership and each item of
income, loss, deduction and credit and any other items to which the Partnership
Interest is entitled. The Partnership Interest constitutes all of the right,
title and interest of the Assignor as a partner in the Partnership.
IN WITNESS WHEREOF, the Assignor has executed this Assignment of
Partnership Interest on this __________ day of _____________, 1997.
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
a California limited partnership
By: Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By: ______________________________
Name:
Title:
A-53
<PAGE>
SCHEDULE G
ESCROW AGREEMENT
Agreement made this ____ day of October, 1997 by and among Glenborough
Realty Trust Incorporated and Glenborough Properties, L.P. (Collectively
"PURCHASER"), and Prudential-Bache/Equitec Real Estate Partnership ("SELLER"),
and Chicago Title Insurance Company, Inc., as escrow agent ("ESCROW AGENT").
1. The Parties hereto agree that the sum of $1,000,000 (the "ESCROW
AMOUNT"), to be held pursuant to a Purchase Agreement between Seller and
Purchaser of even date herewith (the "CONTRACT"), shall be held in escrow by the
Escrow Agent upon the terms and conditions set forth herein.
2. (a) The Escrow Agent shall deliver the Escrow Amount then in its
possession in accordance with Paragraph 3 hereof to Seller (i) upon the Closing,
as that term is used in and in accordance with the Contract or (ii) in the event
that Seller makes a written demand therefor stating that Purchaser has failed to
perform Purchaser's obligations under the Contract.
(b) Escrow Agent shall return the Escrow Amount then in its possession
in accordance with Paragraph 3 hereof to Purchaser in the event that
Purchaser makes a written demand therefor stating (i) that Seller has
failed to perform Seller's obligations under the Contract or (ii) that
Purchaser is otherwise entitled to the return of the Escrow Amount in
accordance with the terms of the Contract.
(c) In the event that Escrow Agent intends to release the Escrow
Amount and any interest earned thereon in accordance with Paragraph 3
hereof to either party pursuant to Paragraph 2(a)(ii) or 2(b) hereof, then
Escrow Agent shall give to the other party not less than ten days prior
written notice of such fact and, if Escrow Agent actually receives written
notice during such ten day period that such other party objects to the
release, then Escrow Agent shall not release the Escrow Amount and any such
dispute shall be resolved as provided herein.
(d) In the event that a dispute shall arise as to the disposition of
the Escrow Amount or any other funds held hereunder in escrow, Escrow Agent
shall have the right, at its option, to either hold the same or deposit the
same with a court of competent jurisdiction pending decision of such court,
and Escrow Agent shall be entitled to rely upon the decision of such court.
A-54
<PAGE>
(e) Escrow Agent may commingle the Escrow Amount with other funds held
in its "trustees account".
(f) Escrow Agent shall hold the Escrow Amount in a savings bank
account or a liquid assets account in the City of Los Angeles bearing
interest at such rate as may from time to time be paid or invest the Escrow
Amount in U.S. Treasury Bills or other securities guaranteed by the
Government of the United States of America. The rate of interest or yield
need not be the maximum available and deposits, withdrawals, purchases and
sales shall be made in the sole discretion of Escrow Agent, which shall
have no liability whatsoever therefor except for its gross negligence or
willful misconduct. Discounts earned shall be deemed interest for the
purposes hereof.
(g) Escrow Agent shall have no liability whatsoever arising out of or
in connection with its activity as Escrow Agent except for its gross
negligence or willful misconduct. Seller and Purchaser jointly and
severally agree to indemnify and hold harmless Escrow Agent from and
against any and all loss, cost, claim, cause of action, damage, liability
and expense (including attorneys' fees and court costs) which may be
incurred by reason of its acting as Escrow Agent.
(h) Escrow Agent shall be entitled to rely upon any judgment,
certification, demand or other writing delivered to it hereunder without
being required to determine the authenticity or the correctness of any fact
stated therein, the propriety or validity thereof, or the jurisdiction of a
court issuing any such judgment. Escrow Agent may act in reliance upon (i)
any instrument or signature believed to be genuine and duly authorized, and
(ii) advice of counsel in reference to any matter or matters connected
herewith.
(i) Any notice, demand or other communication to Escrow Agent
hereunder shall be in writing and delivered in person or sent by certified
mail, return receipt requested, postage prepaid, addressed to Escrow Agent
as follows:
Chicago Title Insurance Company
700 South Flower Street, Suite 900
Los Angeles, California 90017
Attention: _______________________
The same shall be deemed given on the date delivered, if delivered in
person, or on the third business day following the date of mailing the same, if
mailed.
A-55
<PAGE>
3. The interest, if any, earned on the Escrow Amount shall be for the
account of the party entitled to the Escrow Amount hereunder. At the Closing,
such interest shall be a credit against the Purchase Price.
A-56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
Purchaser:
Glenborough Realty Trust Incorporated
By:______________________________
Name:
Title:
Glenborough Properties, L.P.:
By Glenborough Realty Trust Incorporated
By:______________________________
Name:
Title:
Seller:
Prudential-Bache/Equitec Real Estate Partnership
By: Prudential-Bache Properties, Inc.,
its general partner
By:______________________________
Brian J. Martin
President
Chicago Title Insurance Company, Inc., as Escrow Agent
By:_____________________________
Name:
Title:
A-57
<PAGE>
SCHEDULE 1
DESCRIPTION OF LAND
Legal Descriptions of the following properties attached:
1. Gateway Professional Center, Sacramento, California
2. Park Plaza, Sacramento, California
3. Poplar Towers, Memphis, Tennessee
4. Totem Valley Business Park, Seattle, Washington
A-58
<PAGE>
SCHEDULE 2
PERMITTED EXCEPTIONS
Current real property taxes and assessments not yet due and payable, the lien of
any unpaid real property taxes and assessments for periods prior to the period
in which the Closing occurs, standard utility, access, and related easements and
licenses, covenants, conditions and restrictions currently of record, matters
which an accurate survey of the Real Estate would disclose, parties in
possession, all those matters affecting title over which the Title Company would
provide coverage at no additional premium based upon an affidavit from the owner
of the Property (it being expressly understood that the Partnership shall have
no obligation to execute any such owner's affidavit or any indemnity required in
order to remove standard "gap" or "creditors' rights" exceptions to title
coverage), and all other matters affecting title, together with the Leases and
the Loan and any and all other monetary liens affecting the Property or matters
which might result in monetary liens affecting the Property.
A-59
<PAGE>
SCHEDULE 3
RENT ROLL
A-60
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 4
DEFERRED MAINTENANCE
TOTEM POPLAR PARK GATEWAY
Item # VALLEY TOWERS MONTROSE PLAZA GATEWAY EXEC SUITES
- --------------- --------------- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 1,758 2,751 1,900 79,200 2,100 4,800
2 865 128,000 3,500 76,500 17,400 13,691
3 43,000 3,300 16,900 6,000
4 68,000 5,700
5 257,500 14,000
6 16,400
7 20,000
8 52,000
9 24,200
10 7,800
11
12
TOTAL 2,623 619,651 28,400 155,700 36,400 24,491
--------------------------------------------------------------------------------------------------
GRAND
TOTAL 867,265
</TABLE>
A-61
<PAGE>
PRUDENTIAL/BACHE-EQUITEC REAL ESTATE PARTNERSHIP
DEFERRED MAINTENANCE ITEMS
TOTEM VALLEY
1. Curbing is cracked and deteriorating, and needs replacing at a cost of
$2,705,00. The worst areas were replaced in 1996 at a cost of $1,750.00.
750 s.f. of sidewalks are damaged and require replacement at a cost of
$6,448.27.
PARTIALLY COMPLETED - REMAINING COST EQUALS $1,758
2. City of Kirkland is requiring all commercial buildings' fire alarm panels
to be monitored per new ordinance in effect July 1, 1997. We will need to
install a monitoring panel in each of seven buildings and provide two
telephone lines to each panel location. In addition to this capital cost,
monthly monitoring service and telephone lines will cost approximately
$58/mo. for each building. These expenses are included in operating costs.
Included in cost are monitoring panels at $5,599.35, installation of 14
telephone lines at $625.
PARTIALLY COMPLETED - REMAINING COST EQUALS $865
POPLAR TOWERS
1. Tenant Signage: Designer signage for renovated floors will include ADA
requirements for tenant doors, common area doors, i.e., rest rooms,
janitors closets and individual floor directories. Approximate cost is $850
per floor for 8 floors.
PARTIALLY COMPLETED - REMAINING COST EQUALS $2,751
2. Rest Room Renovation: Renovation of men's and ladies rest rooms on all
floors. Scope of work to include new tile floors, new vinyl, lighting,
painting of stalls and new sink, fixtures and cabinets. Cost per rest room:
$8,000.
$128,000
A-62
<PAGE>
3. Window Film: The solar film on the east, west, and south sides of the
building was applied 20 years ago. Replace with a P-18 film manufactured by
3M. Clean outside windows at same time.
$43,000
4. Common Area Improvements: Renovation of common areas on all floors. The
common area hallways will cost approximately $8,500 per floor. The scope of
work will include carpet, base, new vinyl, paint, sheet rock over existing
aggregate wall and lower elevator buttons.
$68,000
5. Paint and Seal Exterior of Building: The building's exterior paint
continues to deteriorate, in some areas whole sections have stripped off.
The Aluminum must be stripped of all paint and have a special aluminum
paint applied, the aggregate sealed, and a clear coat applied to the
concrete.
$257,500
6. Electric Panel: Replacement of one each hi and low voltage electrical panel
boxes. The existing panel boxes are obsolete. A floor replacement is
necessary to avoid major power problems in the future. The 2nd and 3rd
floors have been done. 9 floors at $1,822 per floor.
$16,400
7. Asphalt Pavement Repair and Seal: Replacement of deteriorated areas,
removal of oil spills, seal coat and stripe.
$20,000
8. Electronic Ballast: Conversion to electronic ballast and octron bulbs as
the start of a building wide replacement. The retrofit is required by the
new Energy Policy Act. 11 floors at $4,731 per floor.
$52,000
9. Replace canopy at main entrance, refurbish the main lobby area with new
wall covering and paint.
$24,200
A-63
<PAGE>
10. Common Area Stairwells: Paint walls, ceiling and handrails of east and west
stairwell.
$7,800
MONTROSE
1. Installation of fail-safe electric locks on stairwell exit doors per Fire
Marshall inspection (fire code) for 3202 and 3206.
$1,900
2. Parking Structure - repair precast double T's plus various other structural
repairs to concrete.
$3,500
3. Parking Structure Lights - Repair/replacement of wire cages, light fixtures
and equipment as well as conduit.
$3,300
4. Dumpster enclosure - furnish and install concrete pad and fence area around
dumpsters.
$5,700
5. Cooling tower fill replacements - 4 buildings at $3,500 per building.
$14,000
PARK PLAZA
1. Restroom retrofit for ADA and refurbish for floors 2, 3, 4 and 7 (2
restrooms per floor), including remove and replace flooring and
wallcoverings, replace vanity countertops, new toilet partitions per ADA,
ADA faucets.
$79,200
2. Roof replacement.
A-64
<PAGE>
$76,500
GATEWAY EXECUTIVE SUITES
1. Paint existing tenants' suites not yet renovated.
$4,800
2. Carpet existing tenants' suites not yet replaced.
$13,961
3. Upgrade lobby furniture.
$6,000
GATEWAY PROFESSIONAL CENTER
1. Replace worn out components of security garage gate.
$2,100
2. Restore building facade, which has oxidized and is stained.
$17,400
3. Replace penthouse roof.
$16,900
A-65
<PAGE>
SCHEDULE 5
LOAN
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
WELLS FARGO BANK LOAN
$26,650,000 ONE YEAR BRIDGE LOAN
BORROWERS: Prudential-Bache/Equitec Real Estate Partnership, a
California limited partnership; and Montrose Office
Park Joint Venture, a Maryland joint venture
SECURED PROPERTIES: 1. Gateway Professional Center, Sacramento, CA
2. Park Plaza, Sacramento, CA
3. Poplar Towers, Memphis, TN
4. Totem Valley Business Park, Kirkland, WA
5. Montrose Office Park, Rockville, MD
RECORD DATE: December 20, 1996
MATURITY DATE: December 9, 1997
LOAN AMOUNT: $26,650,000
LENDER: Wells Fargo Bank
333 South Grand Ave., #900
Los Angeles, Calif. 90071
David Weber, Regional Vice President
(415) 396-8200
INTEREST RATE: LIBOR plus 350 basis points. 30 day LIBOR contracts
automatically set by Wells Fargo Bank. Notice of
each rate set provided by fax to borrower.
LOAN ASSUMPTION: The loan is not assumable.
MONTHLY PAYMENT: Interest only, no amortization. Monthly payment
will vary depending on 30 day LIBOR rate.
AMORTIZATION: None.
DUE DATE OF PAYMENTS: Interest payments are due on the 1st day of each
month with a 15 day grace period.
A-66
<PAGE>
LATE PAYMENT FEES: 4% of the installment due.
PREPAYMENT: The loan is prepayable at any time in full without
penalty (except for LIBOR contract breakage costs,
if any). No partial payments or partial releases.
NON-RECOURSE: The loan is non-recourse to the borrower.
GUARANTORS: Glenborough Corporation and Robert Batinovich
have guaranteed the standard non-recourse carve
outs in the loan.
GUARANTOR REPORTING: Within 90 days of fiscal year end, balance sheet and
income statements from the guarantors.
BORROWER FINANCIAL o Property operating statements and rent rolls
REPORTING: within 15 days of the end of each month.
o Balance sheet and income statement for the
borrower within 90 days of the end of the year.
o 1997 budgets by January 1, 1997.
o Certificate of no default with the delivery of the
above statements.
CROSS COLLATERAL: All properties secure the full amount of the loan.
CROSS DEFAULT: The loan is not cross defaulted with any other
financing.
LOAN COVENANTS: o No additional partnership debt without the writ
ten consent of the lender. (Section 7.4)
o No distributions to the limited partners during
the term of the loan without the written consent
of the lender. (Section 7.7)
o Lender approval of all leases over 10,000 s.f.
(Section 7.8)
IMPOUND ACCOUNTS: No impound accounts for taxes, insurance or capital
expenditures.
A-67
<PAGE>
SCHEDULE 6
LEGAL DESCRIPTION OF THE RELATED PROPERTY
Legal Description of Montrose Office Park, Rockville Maryland, attached.
A-68
<PAGE>
AMENDMENT TO PURCHASE AGREEMENT
PRUDENTIAL-BACHE/EQUITEC
THIS AMENDMENT TO PURCHASE AGREEMENT ("Agreement") is dated as of the 19th
day of December, 1997 by and among Prudential-Bache/Equitec Real Estate
Partnership, a California limited partnership (the "Partnership") and
Glenborough Realty Trust Incorporated, a Maryland corporation ("GLB") and
Glenborough Properties, L.P., a California limited partnership ("GPLP") (collec
tively, "Purchaser").
RECITALS
A. Purchaser and the Partnership entered into that certain Purchase
Agreement dated as of October 13, 1997 (the "Purchase Agreement") pursuant to
which the Partnership agreed to sell to the Purchaser and the Purchaser agreed
to purchase from the Partnership certain Assets (as defined in the Purchase
Agreement) owned by the Partnership upon and subject to the terms and conditions
set forth in the Purchase Agreement.
B. Purchaser and the Partnership desire to amend the Purchase Agreement in
accordance with the terms and provisions hereof.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged and intending to be legally bound, the parties hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement and not separately
defined shall have the meanings set forth in Addendum I attached to the Purchase
Agreement.
2. MODIFICATIONS. The Purchase Agreement is hereby modified and amended as
follows:
(a) CLOSING DATE. Notwithstanding anything to the contrary
contained in the Purchase Agreement, the Closing Date shall be the date that is
ten (10) business days after the Partnership's receipt of the Consents, subject
to extension as provided herein, but in no event later than the earlier to occur
of the following dates (such earlier date hereinafter referred to as the
"Outside Closing Date") (i) March 9, 1998 (or such later date as may be
established in writing by the holder of the Loan for the maturity of the Loan),
and (ii) May 31, 1998. The Partnership shall provide the Purchaser with written
notice specifying the Closing Date not less than three (3) business days after
receipt by the Partnership of the Consents. The Purchaser shall be entitled to
extend the Closing Date a single time by written notice to the Partnership not
less than two (2) business days prior to the original Closing Date to a date
specified in such notice that is not later than the
B-1
<PAGE>
earlier to occur of (i) forty five (45) days from the original Closing Date, and
(ii) the Outside Closing Date. Nothing herein shall create any obligation on the
part of the Partnership to obtain any extensions of the maturity date of the
Loan from the holder of the Loan or pay any sums in connection with any such
extension.
(b) SUPERIOR OFFERS. Paragraph 15(m) of the Purchase Agreement
is hereby deleted in its entirety and the following inserted in lieu thereof as
though originally set forth therein:
"(m) MARKETING AND SUPERIOR OFFERS. The Partnership agrees not to
market the Assets, actively solicit competing offers from any other
prospec tive purchasers, or enter into purchase agreements for the
purchase and sale of the Assets with any other prospective purchasers
unless the Partnership determines, in its sole discretion, that its
fiduciary duties or applicable law require it to take such actions. The
Partnership may by written notice to the Purchaser prior to the Closing
Date terminate this Agreement in the event that the Partnership has
entered into a binding written agreement with a bona fide third party
for the purchase and sale of the Assets upon terms and conditions which
are superior, in the sole discretion of the Partnership, to the terms
and conditions set forth in this Agreement. Purchaser agrees to
cooperate with any such prospective purchasers by providing such access
to the Property and the Related Property and delivering such documents
and materials relating to the Assets and the operation thereof as
Lender may reasonably direct."
3. RATIFICATION. Except as expressly modified herein, all terms and
conditions of the Purchase Agreement are hereby ratified by the parties hereto
and shall remain unmodified and in full force and effect.
4. SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person, place, or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
5. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument
6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and inure
to the benefit of, the parties and their respective successors, heirs,
administra tors and assigns.
7. GOVERNING LAW. This Agreement has been negotiated and executed in New
York County, New York and the substantive laws of the State of New York,
B-2
<PAGE>
without reference to its conflict of laws provisions, will govern the validity,
construction, and enforcement of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
PARTNERSHIP
Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership
By Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By /S/ BRIAN J. MARTIN
-------------------------------
Brian J. Martin
President
PURCHASER
Glenborough Realty Trust Incorporated,
a Maryland corporation
By /S/ ANDREW BATINOVICH
-----------------------------------
Andrew Batinovich
President
Glenborough Properties, L.P.,
a California limited partnership
By Glenborough Realty Trust Incorporated, a Maryland corporation,
its General Partner
By /S/ ANDREW BATINOVICH
-------------------------------
Andrew Batinovich
President
B-3
<PAGE>
SECOND AMENDMENT TO PURCHASE AGREEMENT
PRUDENTIAL-BACHE/EQUITEC
THIS SECOND AMENDMENT TO PURCHASE AGREEMENT ("Agreement") is dated as
of the 27th of April, 1998 by and among Prudential-Bache/Equitec Real Estate
Partnership, a California limited partnership (the "Partnership") and
Glenborough Realty Trust Incorporated, a Maryland corporation ("GLB") and
Glenborough Properties, L.P., a California limited partnership ("GPLP")
(collectively, "Purchaser").
RECITALS
A. Purchaser and the Partnership entered into that certain Purchase
Agreement dated as of October 13, 1997, as amended by agreement dated December
19, 1997 (as so amended, the "Purchase Agreement") pursuant to which the
Partnership agreed to sell to the Purchaser and the Purchaser agreed to purchase
from the Partnership certain Assets (as defined in the Purchase Agreement) owned
by the Partnership upon and subject to the terms and conditions set forth in the
Purchase Agreement.
B. Purchaser and the Partnership desire to further amend the Purchase
Agreement in accordance with the terms and provisions hereof.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged and intending to be legally bound, the parties hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement and not
separately defined shall have the meanings set forth in Addendum I attached to
the Purchase Agreement.
2. MODIFICATIONS. The Purchase Agreement is hereby modified and amended
as follows:
(a) CLOSING DATE. Notwithstanding anything to the contrary
contained in the Purchase Agreement, the Closing Date shall be the date that is
ten (10) business days after the Partnership's receipt of the Consents, subject
to extension as provided herein, but in no event later than July 31, 1998 (the
"Outside Closing Date"). The Partnership shall provide the Purchaser with
written notice specifying the Closing Date not less than three (3) business days
after receipt by the Partnership of the Consents. The Purchaser shall be
entitled to extend the Closing Date a
C-1
<PAGE>
single time by written notice to the Partnership not less than two (2) business
days prior to the original Closing Date to a date specified in such notice that
is not later than the earlier to occur of (i) thirty (30) days from the original
Closing Date, and (ii) the Outside Closing Date.
(b) CONSIDERATION. The first sentence of Section 3 of the
Purchase Agreement is hereby deleted and the following sentence substituted in
lieu thereof:
"The Partnership and Purchaser agree that the total
Consideration for the Assets shall be Forty Seven Million One
Hundred Forty Five Thousand and 00/100 Dollars ($47,145,000),
subject to adjustment for Deferred Maintenance and other
matters as provided herein."
(c) ALLOCATION OF CONSIDERATION. Section 3(c) of the Purchase
Agreement is hereby deleted and the following paragraph substituted in lieu
thereof:
"The Partnership and Purchaser agree to allocate the
Consideration as follows, subject to adjustment as provided
herein, in accordance with Section 1060 of the Code: Gateway
Professional Center - $4,605,000; Park Plaza - $6,662,000;
Poplar Towers - $5,660,000; Totem Valley Business Park -
$7,195,000; Interest in Montrose Office Park Joint Venture -
$21,618,600; Interest in Montrose Office Park Limited
Partnership - $1,404,300; Interest in Equitec Venture Corp.
III, Inc. - $100. Neither the Partnership nor Purchaser shall
file any tax return or other document or otherwise take any
position which is inconsistent with the allocation determined
pursuant to this Subsection."
(d) LIMITED PARTNER CONSENT. The Partnership's Condition
Precedent to close set forth in Section 4(b)(i) of the Purchase Agreement is
hereby deleted and the following substituted in lieu thereof:
"The Partnership shall have received the Consents on or before
July 15, 1998."
(e) POST-CLOSING ADJUSTMENTS. The first clause of Section 6(d)
is hereby deleted and the following clause substituted in lieu thereof:
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<PAGE>
"After the Closing Date and continuing for a period of sixty
(60) days thereafter the Partnership and Purchaser shall meet
from time to time to discuss adjustments in accordance with
the following;"
(f) TITLE POLICY. The definition of the term "Title Policy"
set forth in Addendum I to the Purchase Agreement is hereby deleted and the
following definition substituted in lieu thereof:
"A policy of extended coverage American Land Title Association
Policy of Owner's Title Insurance (Form B, rev. 10/17/70),
issued by Title Company in the amounts set forth below,
subject to adjustment in accordance with any adjustments in
the portion of the Consideration applicable to such
Properties, showing fee or leasehold title, as applicable,
vested in Purchaser subject only to the Permitted Excep tions:
Gateway Professional Center - $4,445,000; Park Plaza -
$6,700,000; Totem Valley Business Park - $7,500,000; Poplar
Towers - $5,000,000."
(g) DEFERRED MAINTENANCE. Schedule 4 to the Purchase Agreement
is hereby deleted and the Schedule 4 attached hereto substituted in lieu
thereof.
3. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument
4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors, heirs,
administra tors and assigns.
5. GOVERNING LAW. This Agreement has been negotiated and executed in
New York County, New York and the substantive laws of the State of New York,
without reference to its conflict of laws provisions, will govern the validity,
construction, and enforcement of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
PARTNERSHIP
Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership
By Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By /S/ BRIAN J. MARTIN
---------------------------
Brian J. Martin
President
PURCHASER
Glenborough Realty Trust Incorporated,
a Maryland corporation
By /S/ ANDREW BATINOVICH
---------------------------
Andrew Batinovich
President
Glenborough Properties, L.P.,
a California limited partnership
By Glenborough Realty Trust Incorporated, a Maryland corporation,
its General Partner
By /S/ ANDREW BATINOVICH
---------------------------
Andrew Batinovich
President
C-4
<PAGE>
PRUDENTIAL/BACHE-EQUITEC REAL ESTATE PARTNERSHIP
DEFERRED MAINTENANCE ITEMS
TOTEM VALLEY
None
POPLAR TOWERS
1. Rest Room Renovation: Renovation of men's and ladies rest rooms on all
floors. Scope of work to include new tile floors, new vinyl, lighting,
painting of stalls and new sink, fixtures and cabinets. Cost per rest
room: $8,000.
$117,043
2. Common Area Improvements: Renovation of common areas on all floors. The
common area hallways will cost approximately $8,500 per floor. The scope of
work will include carpet, base, new vinyl, paint, sheet rock over existing
aggregate wall and lower elevator buttons.
$55,174
3. Paint and Seal Exterior of Building: The building's exterior paint
continues to deteriorate, in some areas whole sections have stripped off.
The Aluminum must be stripped of all paint and have a special aluminum
paint applied, the aggregate sealed, and a clear coat applied to the
concrete.
$257,500
4. Electrical Panel: Replacement of one each hi and low voltage electrical
panel boxes. The existing panel boxes are obsolete. A floor replacement is
necessary to avoid major power problems in the future. The 2nd and 3rd
floors have been done. 9 floors at $1,822 per floor.
$16,400
5. Asphalt Pavement Repair and Seal: Replacement of deteriorated areas,
removal oil spills, seal coat and stripe.
$20,000
6. Electronic Ballast: Conversion to electronic ballast and octron bulbs as
the start of a building wide replacement. The retrofit is required by the
new Energy Policy Act. 11 floors at $4,731 per floor.
$52,000
7. Replace canopy at main entrance, refurbish the main lobby area with new
wall covering and paint.
$24,200
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<PAGE>
8. Common Area Stairwells: Paint walls, ceiling and handrails of east and west
stairwell.
$7,800
MONTROSE
1. Installation of fail-safe electric locks on stairwell exit doors per Fire
Marshall inspection (fire code) for 3202 and 3206.
$1,900
2. Parking Structure--repair precast double T's plus various other structural
repairs to concrete.
$3,500
3. Parking Structure Lights--Repair/replacement of wire cages, light fixtures
and equipment as well as conduit.
$3,300
4. Dumpster enclosure--furnish and install concrete pad and fence area
around dumpsters.
$5,700
5. Cooling tower fill replacements--4 buildings at $3,500 per
building.
$14,000
PARK PLAZA
1. Restroom retrofit for ADA and refurbish for floors 2, 3, 4 and 7 (2
restrooms per floor), including remove and replace flooring and
wallcoverings, replace vanity countertops, new toilet partitions
per ADA, ADA faucets.
PARTIALLY COMPLETED--REMAINING COST EQUALS $2,147
2. Roof replacement.
$76,500
GATEWAY EXECUTIVE SUITES
1. Paint existing tenants' suites not yet renovated.
PARTIALLY COMPLETED--REMAINING COST EQUALS $1,333
1. Carpet existing tenants' suites not yet replaced.
PARTIALLY COMPLETED--REMAINING COST EQUALS $8,908
3. Upgrade lobby furniture.
$6,000
C-6
<PAGE>
GATEWAY PROFESSIONAL CENTER
1. Replace penthouse roof.
$16,900
C-7
<PAGE>
PROPOSED AMENDMENTS TO
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
of
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
A California Limited Partnership
Article V., Section 1 of the Amended and Restated Limited Partnership
Agreement of Prudential-Bache/Equitec Real Estate Partnership (the "Agreement")
is hereby amended by adding to the end of such section the following new
paragraph:
Nothwithstanding any other provision of this Agreement, the
General Partners shall have the authority to effectuate the
Plan, as such term is defined in the Statement Furnished in
Connection with the Solicitation of Consents, dated as of
October , 1997, filed with the Securities and Exchange
Commission on Schedule 13E-3 on October , 1997 and as such
document may be amended (the "Statement").
Article V., Section 2(i) of the Agreement is hereby amended by deleting the
period at the end of such subsection and inserting at the end of such subsection
the following:
; and, provided further, that any Affiliate of Glenborough
Corporation and/or Robert Batinovich may purchase all or
any of the Assets (as such term is defined in the Statement)
from the Partnership.
D-1
<PAGE>
IN WITNESS WHEREOF, the General Partners have, after receiving the
requisite consent of the Unitholders, executed the Amendments to the Partnership
Agreement, effective as of November , 1997.
PRUDENTIAL-BACHE PROPERTIES, INC.,
a Delaware corporation
By:__________________________________
Title:_______________________________
GLENBOROUGH CORPORATION,
a California corporation
By:__________________________________
Title:_______________________________
ROBERT BATINOVICH,
in his individual capacity as
General Partner
By:__________________________________
D-2
<PAGE>
April 27, 1998
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
c/o Prudential-Bache Properties, Inc.
General Partner
One Seaport Plaza, 28th Floor
New York, NY 10292-0128
ATTN: Mr. Brian J. Martin
President
RE: PROPOSED SALE TO
GLENBOROUGH REALTY TRUST
Dear Mr. Martin:
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership, (the "Partnership"), an entity consisting of Prudential-Bache
Properties, Inc ("PB Properties"), the managing general partner of the
Partnership and co-general partner, Glenborough Corporation and Robert
Batinovich, each as general partner of the Partnership (together "Glenborough")
(together with PB Properties, the "General Partner") and Glenborough Realty
Trust Incorporated, a Maryland corporation, and Glenborough Properties, L.P., a
California limited partnership, (collectively, the "Purchaser") have entered
into a purchase and sale agreement dated October 13, 1997 and amended December
19, 1997 and April 27, 1998 (the "Agreement") wherein the Partnership will sell
certain properties and interests in entities to the Purchaser. The properties
are known as Gateway Professional Center, Sacramento, California; Park Plaza,
Sacramento, California; Poplar Towers, Memphis, Tennessee; and Totem Valley
Business Park, Seattle, Washington (collectively, the "Property"). The
Partnership will also sell to the Purchaser its interests in the following
entities: Montrose Office Park Limited Partnership, a Maryland limited
partnership; Montrose Office Park Joint Venture, a Maryland single-purpose
general partnership; and Equitec Venture Corp. III, Inc., a California
Corporation, (collectively the "Interests").
The Property and the Interests (collectively, the "Assets") are to be
sold for $47,145,000. This amount equals the sum of the individual appraised
fair market values of the Property, plus the Partnership's estimate of the fair
market values of the Interests, which estimate is wholly based on and equals the
appraised fair market value of Montrose Office Park, located in Rockville,
Maryland (the "Related Property") less a purchase price adjustment of
$2,000,000. The purchase price will be reduced by certain credits to the
Purchaser (which, in addition to any credits for secured obligations which are
assumed by the Purchaser, could approximate $690,000 if certain items of
deferred maintenance at the Property and the Related Property are not completed
prior to the closing of the sale). Thus, after deducting such credits, the net
proceeds will approximate $46,455,000.
E-1
<PAGE>
Prudential-Bache/Equitec
Real Estate Partnership April 27, 1998
We have been requested by the Partnership to examine the proposed sale
of the Property and the Interests (the "Transactions") and to provide an opinion
that the Transactions are fair from a financial point of view to the unit
holders of the Partnership (the "Assignment").
In arriving at our opinion, we have:
1. interviewed management of the Partnership regarding the negotiation
process leading to the Agreement;
2. reviewed the Agreement;
3. reviewed the original private placement memorandum for the Partnership
and amendments thereto;
4. reviewed Partnership 10-K's from 1988 through 1997;
5. reviewed the Notice of Consent Solicitation submitted to the Securities
and Exchange Commission (the "SEC") by the Partnership, SEC comment
letters addressed to the Partnership, and the Partnership's response to
the SEC comment letters;
6. reviewed limited and dated environmental, engineering and ADA compliance
reports to the extent available;
7. reviewed the 5-year capital budget;
8. reviewed appraisal reports prepared by various Cushman & Wakefield
subsidiaries on the Assets that are the subject of the Agreement;
9. reviewed the recommendation and statement of fairness of the General
Partners which included an enumeration of the factors considered in
arriving at the recommendation and a detailing of the advantages and
disadvantages of the proposed Transactions;
10. considered the $2,000,000 purchase price reduction from the aggregate
appraised value of the Property and Related Property in light of
alternatives available to the Partnership which include holding the
Assets and selling them at some time in the future or marketing the
Assets either directly or through a third party;
11. considered the fact that a single purchaser other than the current
Purchaser would likely not be found given the nature of the Assets and
the geographic dispersion of the portfolio;
12. considered the time value of money in light of the delay that would occur
if the Assets were to be actively marketed;
13. considered the favorable terms of the Agreement to the seller and the "as
is, where is, with all faults" nature of the Transactions;
14. considered such other factors as we have deemed appropriate.
With respect to items (1), (2), (3), (4), (5), (6), and (7) above, we
have assumed and relied upon without independent verification the accuracy and
completeness of the information supplied or otherwise made available to us by
the Partnership for the purposes of this opinion. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of the date hereof.
E-2
<PAGE>
Prudential-Bache/Equitec
Real Estate Partnership April 27, 1998
Affiliates of the undersigned have performed advisory and valuation
services in the past for PB Properties and affiliated entities and received fees
for such services. In addition, our affiliates have appraised the Assets of the
Partnership and have received fees for such services. It is understood that this
letter is solely for the benefit and use of the Partnership in consideration of
the Transactions and may not be used for any other purpose without our prior
written consent. It is further understood that this letter will be included in
its entirety as an exhibit in the Notice of Consent Solicitation filed in
connection with the Transactions and we hereby consent to said inclusion.
Based upon the foregoing, we are of the opinion that the Transactions
and the consideration to be received by the unit holders of the Partnership in
connection with the Transactions are fair to the unit holders of the Partnership
from a financial point of view.
Sincerely,
CUSHMAN & WAKEFIELD, INC.
/s/ FRANK P. LIANTONIO
-----------------------------
Frank P. Liantonio, MAI, CRE
Executive Managing Director
/s/ JAMES W. MONTANARI
-----------------------------
James W. Montanari
Managing Director
E-3
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-14271
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-2949474
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0128
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-3500
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
(Title of class)
Securities registered pursuant to section 12(g) of the Act:
Depositary Units of Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Annual Report to Unitholders for the year ended December 31,
1997 is incorporated by reference into Parts II and IV of this Annual Report on
Form 10-K
Amended and Restated Limited Partnership Agreement of Registrant, dated
February 11, 1985, included as part of the Registration Statement filed with the
Securities and Exchange Commission on February 14, 1985 pursuant to Rule 424(b)
of the Securities Act of 1934 (the "Prospectus") is incorporated by reference
into Part IV of this Annual Report on Form 10-K
Index to exhibits can be found on pages 10 through 12.
F-1
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 4
Item 3 Legal Proceedings................................................................ 5
Item 4 Submission of Matters to a Vote of Unitholders................................... 5
PART II
Item 5 Market for Registrant's Units and Related Unitholder Matters..................... 5
Item 6 Selected Financial Data.......................................................... 6
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 6
Item 8 Financial Statements and Supplementary Data...................................... 6
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 6
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 6
Item 11 Executive Compensation........................................................... 9
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 9
Item 13 Certain Relationships and Related Transactions................................... 9
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Consolidated Financial Statements and Consolidated Financial Statement
Schedules...................................................................... 10
Exhibits......................................................................... 10
Reports on Form 8-K.............................................................. 12
SIGNATURES.................................................................................. 17
</TABLE>
F-2
<PAGE>
PART I
ITEM 1. BUSINESS
General
Prudential-Bache/Equitec Real Estate Partnership, a California Limited
Partnership (the "Registrant"), was formed in June 1984 and will terminate on
December 31, 2009 unless terminated sooner under the provisions of the Amended
and Restated Limited Partnership Agreement (the "Partnership Agreement"). The
Registrant was formed to invest in income-producing real estate with proceeds
raised from the initial sale of 68,795 depositary units ("Units"). The
Registrant's fiscal year for financial reporting and income tax purposes ends on
December 31.
The Registrant is engaged solely in the business of real estate investment;
therefore, presentation of industry segment information is not applicable. For
information regarding the Registrant's properties (collectively, the
"Properties" or individually, a "Property"), see Item 2 Properties. For
information regarding the Registrant's operations, see Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Registrant's Annual Report to Unitholders for the year ended
December 31, 1997 ("Registrant's Annual Report") which is filed as an exhibit
hereto.
The Registrant has entered into a Purchase Agreement (the "Purchase
Agreement") with Glenborough Realty Trust Incorporated and a subsidiary
partnership, Glenborough Properties, L.P., (together, the "Purchaser"), which
are affiliates of two of the Registrant's general partners, Glenborough
Corporation and Robert Batinovich. Pursuant to the Purchase Agreement, the
Registrant intends to sell to the Purchaser (the "Sale") all of the Properties
of the Registrant for cash. The Purchase Agreement provides for a purchase price
equal to $43,520,000. This price will be reduced by certain credits to the
Purchaser, which, in addition to any credits for secured obligations which are
assumed by the Purchaser, could approximate $737,000 as of February 28, 1998, if
certain items of deferred maintenance at the Properties are not completed prior
to the closing of the Sale. As a result of unforeseen delays in processing the
Consent Solicitation Statement with the Securities and Exchange Commission, the
Registrant determined that updates of the appraisals of the Properties should be
obtained and so notified the Purchaser. New appraisals are presently being
prepared for the Registrant's Properties. It is anticipated that further
negotiations with the Purchaser will take place to determine the amount to be
paid for the Registrant's Properties.
For the years ended December 31, 1997, December 31, 1996 and December 31,
1995, respectively, the following Properties' rental revenues exceeded 15% of
the Registrant's total operating revenue:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Montrose Office Park 44% 40% 43%
Poplar Towers 17% 19% --
</TABLE>
Technical Resources, Inc., a tenant in the Montrose Office Park property, on
an annualized basis, would have accounted for approximately 10% of the
Registrant's total operating revenue for the year ended December 31, 1995 and
did account for approximately 10% of the Registrant's total operating revenue
for the years ended December 31, 1996 and December 31, 1997.
General Partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
("PBP"), and Glenborough Corporation and Robert Batinovich (together,
"Glenborough") (collectively, the "General Partners").
Glenborough replaced Equitec Financial Group, Inc. ("EFG") as co-General
Partner of the Partnership on May 4, 1994 when EFG transferred its general
partner interest to Glenborough and withdrew and retired as general partner.
This substitution occurred as a result of the consent of a majority of interests
of the limited partners approving the transaction which was detailed in a proxy
statement dated December 1, 1993. PBP continues as co-General Partner.
Glenborough Corporation continues to receive fees and expense reimbursements in
the same amount that was provided in the property management agreement. See Note
E to the consolidated financial statements in the Registrant's Annual Report
which is filed as an exhibit hereto.
F-3
<PAGE>
Competition
The General Partners and their affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Registrant.
The Registrant faces active competition in all aspects of its business and
must compete with entities which own properties similar in type to those owned
by the Registrant. The ability of the Registrant to compete with these entities
depends on many factors, including the size, condition and specific location of
its facilities, and is affected by the competitive conditions of the real estate
market in general and the local markets in particular. Since each of the
Registrant's Properties is located in an area which contains numerous other
properties which may be considered competitive, the Registrant must compete on,
among other factors, rental rates, lease terms and amenities, including
availability of parking and public transportation.
Many of the factors affecting the ability of the Registrant to compete and,
therefore, affecting its revenues and expenses, are beyond the Registrant's
control, such as oversupply of similar rental facilities as a result of
overbuilding, increases in unemployment, population shifts, levels of corporate
activity, reduced availability of permanent mortgage funds, changes in zoning
laws or changes in tenants' needs. Expenses such as local real estate taxes and
utilities are subject to change and, while the provisions of certain existing
leases may mitigate the impact of any increases in such expenses, such changes
may not be fully reflected in rental rate increases upon lease renewal or in
connection with the execution of new leases if market conditions are not
favorable. Alternatively, the lack of new construction, reduced unemployment and
stable or reduced tax and utility expenses, all beyond the control of the
Registrant, may have a favorable impact upon the operations of the Properties.
The marketability of the Properties may also be affected (both positively and
negatively) by these factors as well as by changes in general or local economic
conditions including prevailing interest rates. Depending on market and economic
conditions, the Registrant may be required to retain ownership of its Properties
for periods longer than anticipated at acquisition or may need to sell or
refinance a Property during periods or under terms and conditions that are less
advantageous than would be the case if unfavorable economic or market conditions
did not exist.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. The General Partners receive compensation
and reimbursement of expenses in connection with such activities as described in
Section X of the Partnership Agreement. See Note E to the consolidated financial
statements in the Registrant's Annual Report which is filed as an exhibit
hereto.
ITEM 2. PROPERTIES
As of December 31, 1997, the Registrant owns the following properties:
<TABLE>
<CAPTION>
EFFECTIVE
AVERAGE ANNUAL
OCCUPANCY RATE AT RENTAL RATE
DECEMBER 31, LAND NET RENTABLE PER SQUARE
LOCATION AND TYPE 1997 (IN ACRES) SQUARE FOOTAGE FOOT
- -------------------------------------- ------------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
Poplar Tower
Memphis, TN
Office building 88% 3.95 100,901 $11.52
Montrose Office Park
Rockville, MD
Office building complex 100% 18.42 186,680 $15.91
Totem Valley Business Center
Kirkland, WA
Industrial park 99% 10.40 121,645 $ 6.46
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE
AVERAGE ANNUAL
OCCUPANCY RATE AT RENTAL RATE
DECEMBER 31, LAND NET RENTABLE PER SQUARE
LOCATION AND TYPE 1997 (IN ACRES) SQUARE FOOTAGE FOOT
- -------------------------------------- ------------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
Gateway Plaza
Sacramento, CA
Office building 92% .87 50,558 $17.42
Park Plaza
Sacramento, CA
Office building 91% 1.37 70,113 $12.62
---------- --------------
35.01 529,897
---------- --------------
---------- --------------
</TABLE>
The Registrant originally invested in seven properties. In May 1993, the
Registrant and the first mortgage holder of the 399 Market Street property
entered into an agreement related to a deed-in-lieu of foreclosure with regard
to the property, and the Registrant delivered to the mortgage holder the title
to the property. Ashby Industrial Center was sold on August 8, 1992 and one of
the eight buildings comprising Totem Valley Business Center was sold on
September 16, 1991.
The General Partners believe the Registrant's Properties are adequately
insured.
For information regarding the Registrant's investment in Properties and the
encumbrances to which the Properties are subject, see Note C to the consolidated
financial statements in the Registrant's Annual Report which is filed as an
exhibit hereto.
For additional information describing the Registrant's Properties, see
Supplementary Schedule III--Real Estate and Accumulated Depreciation on page 15
in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS
As of March 5, 1998, there were 5,016 holders of record owning 68,795 Units.
A significant secondary market for the Units has not developed, and it is not
expected that one will develop in the future. There are also certain
restrictions set forth in Section IV of the Partnership Agreement limiting the
ability of a Unitholder to transfer Units. Consequently, holders of Units may
not be able to liquidate their investments in the event of an emergency or for
any other reason.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement; however, the Registrant has paid no distributions from
operations or otherwise since 1988. The amount, if any, to be distributed by the
Registrant from cash generated by operations in future quarters will be based on
the extent to which cash flow generated by the Properties, after tenant and
capital improvement costs, is sufficient to support such distributions. No
distributions from operations are anticipated in the foreseeable future.
However, the Registrant has entered into a Purchase Agreement to sell all of its
Properties for cash. If the Purchase Agreement is consummated, distributions of
the net proceeds and the remaining assets will be made to Unitholders.
Furthermore, it is unlikely that investors will be returned a significant
portion of their original investment upon the Sale of the Registrant's
Properties and ultimate dissolution of the Registrant.
F-5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the consolidated financial statements of
the Registrant and the notes thereto on pages 2 through 9 of the Registrant's
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 1 YEAR ENDED
DECEMBER 31, THROUGH OCTOBER 31,
------------------------------------- DECEMBER 31, ---------------------
1997 1996 1995 1994(1) 1994 1993
- -----------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue................ $ 7,171 $ 6,414 $ 6,541 $ 1,125 $ 6,544 $ 6,841
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Provision for loss on
impairment of
assets..................... $ -- $ -- $ -- $ -- $ -- $ (250)
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Gain on disposition of
investments................ $ 82 $ 33 $ -- $ -- $ -- $ 338
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Net loss..................... $ (1,144) $(1,138) $ (1,032) $ (122) $ (794) $(1,898)
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Net loss per Unit............ $ (16.47) $(16.38) $ (14.86) $ (1.76) $(11.43) $(27.31)
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Total assets................. $ 32,621 $33,346 $ 34,388 $ 35,737 $36,110 $37,402
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Notes payable................ $ 26,650 $26,650 $ 26,621 $ 26,862 $26,917 $27,328
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
Total cash distributions..... $ -- $ -- $ -- $ -- $ -- $ --
------------ ------- ------------ ------------ ------- -----------
------------ ------- ------------ ------------ ------- -----------
</TABLE>
(1) In November 1994, the General Partners approved a change in the Registrant's
fiscal year for financial reporting purposes from October 31 to December 31.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is incorporated by reference to pages 10 through 11 of the
Registrant's Annual Report which is filed as an exhibit hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's Annual Report which is filed as an exhibit hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partners.
The Registrant, the Registrant's General Partners and their directors and
executive officers, and any persons holding more than ten percent of the
Registrant's Units are required to report their initial ownership of such Units
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such executive officers, directors and persons
who own greater than ten percent of the Registrant's Units are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partners' directors and
executive officers and persons who own greater than ten percent of the
Registrant's Units or
F-6
<PAGE>
copies of the reports they have filed with the Securities and Exchange
Commission during and with respect to its most recent fiscal year.
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP and their positions with regard
to managing the Registrant are as follows:
NAME POSITION
---- --------
Brian J. Martin President, Chief Executive Officer,
Chairman of the Board of Directors
and Director
Barbara J. Brooks Vice President--Finance and Chief
Financial Officer
Eugene D. Burak Vice President and Chief Accounting Officer
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
BRIAN J. MARTIN, age 47, is the President, Chief Executive Officer, Chairman of
the Board of Directors, and a Director of PBP. He is a Senior Vice President of
Prudential Securities Incorporated ("PSI"), an affiliate of PBP. Mr. Martin also
serves in various capacities for other affiliated companies. Mr. Martin joined
PSI in 1980. Mr. Martin is a member of the Pennsylvania Bar.
BARBARA J. BROOKS, age 49, is the Vice President-Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 52, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 54, is a Senior Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 55, is a Director of PBP. He is a Senior Vice President
of PSI and an Executive Vice President and General Counsel of Prudential Mutual
Fund Management LLC, an affiliate of PSI. Mr. Giordano also serves in various
capacities for other affiliated companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 47, is a Director of PBP. She is a Senior Vice President
and Deputy General Counsel of PSI and supervises nonlitigation legal work for
PSI. She joined PSI's Law Department in 1983; presently, she also serves in
numerous capacities for other affiliated companies.
Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of Prudential-Bache Properties,
Inc. effective May 2, 1997. Effective May 2, 1997, Brian J. Martin was elected
President, Chief Executive Officer, Chairman of the Board of Directors and
Director of Prudential-Bache Properties, Inc.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and/or executive officers
have indefinite terms.
Glenborough and Robert Batinovich
Robert Batinovich, age 61, was the President, Chief Executive Officer and
Chairman of Glenborough Corporation from its inception in 1978 until his
resignation effective January 10, 1996. On August 31, 1994, Mr. Batinovich was
elected Chairman, President and Chief Executive Officer of Glenborough Realty
Trust Incorporated ("GLB"), a Real Estate Investment Trust, which began trading
on the New York Stock Exchange on January 31, 1996. He was a member of the
Public Utilities Commission from 1975 to January
F-7
<PAGE>
1979 and served as its President from January 1977 to January 1979. He is a
member of the Board of Directors of Farr Company, a publicly held company that
manufactures industrial filters. He has extensive real estate investment
experience. Mr. Batinovich's business background includes managing and owning
manufacturing, vending and service companies and a national bank.
The directors and executive officers of Glenborough Corporation and their
positions with regard to managing the Registrant are as follows:
NAME POSITION
---- --------
Andrew Batinovich Chief Executive Officer and Chairman
of the Board
Robert E. Bailey Secretary and Corporate Counsel
Sandra L. Boyle President and Chief Operating Officer
Terri Garnick Chief Financial Officer
Kathleen Williams Vice President
June Gardner Director
Laurence N. Walker Director
ANDREW BATINOVICH, age 39, was elected Chairman of the Board and Chief Executive
Officer of Glenborough Corporation on January 10, 1996. He has been employed by
Glenborough Corporation since 1983, and had functioned since 1987 as Chief
Operating Officer and Chief Financial Officer. Mr. Batinovich also serves as
President, Chief Operating Officer, and Director of GLB. He holds a California
real estate broker's license and is a Member of the National Advisory Council of
BOMA International. He received his B.A. in International Finance from the
American University in Paris. Prior to joining Glenborough Corporation, Mr.
Batinovich was a lending officer with the International Banking Group and the
Corporate Real Estate Division of Security Pacific National Bank. He is the son
of Robert Batinovich.
ROBERT E. BAILEY, age 36, joined Glenborough Corporation in 1989 as Associate
Counsel and was elected Secretary of Glenborough Corporation on May 15, 1995. He
is responsible for all landlord/tenant documentation, tenant litigation,
corporate and partnership matters and employment matters. In 1984, he received
his Bachelor of Arts degree from the University of California at Santa Barbara
and his Juris Doctor degree from Vermont Law School in 1987. From 1987 to 1989,
Mr. Bailey was an associate with the law firm of Pedder, Stover, Hesseltine &
Walker, where he specialized in business litigation. He is a member of the State
Bar of California.
SANDRA L. BOYLE, age 49, has been associated with Glenborough Corporation or its
associated entities since 1984 and has served as President and Chief Operating
Officer of Glenborough Corporation since January 10, 1996. She was originally
responsible for residential marketing, and her responsibilities were gradually
expanded to include residential leasing and management in 1985, and commercial
leasing and management in 1987. She was elected Vice President in 1989, and
continues to supervise marketing, leasing, property management operations and
regional offices. Ms. Boyle also serves as an Executive Vice President of GLB.
Ms. Boyle holds a California real estate broker's license and a CPM designation,
and is a member of the National Advisory Council and Finance Committee of BOMA
International; and is on the Board of Directors of BOMA San Francisco and BOMA
California.
TERRI GARNICK, age 37, has served as Chief Financial Officer of Glenborough
Corporation since January 10, 1996. She is also Senior Vice President, Chief
Accounting Officer and Treasurer of GLB. Ms. Garnick is responsible for property
management accounting, financial statements, audits, Securities and Exchange
Commission reporting, and tax returns. Prior to joining Glenborough Corporation
in 1989, Ms. Garnick was a controller at August Financial Corporation from 1986
to 1989 and was a Senior Accountant at Deloitte, Haskins and Sells from 1983 to
1986. She is a Certified Public Accountant and has a Bachelor of Science degree
from San Diego State University.
F-8
<PAGE>
KATHLEEN WILLIAMS, age 49, has been Vice President, Multifamily Housing since
July 1996. She is responsible for management of the Company's multifamily units.
Ms. Williams has seventeen years experience in property management and
previously served eight years as Northern California Regional Manager for Maxim
Property Management in Redwood City, California; and for five years as Asset and
Property Manager for Trammell Crow Company in Dallas, Texas. She has a B.A. in
Foreign Language/Communications from North Texas State University.
JUNE GARDNER, age 46, was elected a director of Glenborough Corporation on
January 10, 1996. She was associated with Glenborough Corporation from 1984
through 1995, as Senior Vice President and Corporate Controller with
responsibilities in the areas of corporate financial planning, reporting,
accounting and banking relationships. Before joining Glenborough Corporation,
Ms. Gardner was Assistant Vice President of JMB Realty Corporation from 1977 to
1984, with responsibilities in the areas of financial management and reporting.
LAURENCE N. WALKER, age 65, was elected a director of Glenborough Inland Realty
Corporation (merged into Glenborough Corporation on June 30, 1997) on January
10, 1996. He has been a member of the California State Bar since 1963, and is an
attorney specializing in in real estate law. Mr. Walker has been a director of
Glenborough Corporation related entities since 1985.
Except as noted above, there are no family relationships among the foregoing
directors or executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partners for their
services. Certain officers and directors of the General Partners receive
compensation from the General Partners and their affiliates, not from the
Registrant, for services performed for various affiliated entities, which may
include services performed for the Registrant; however, the General Partners
believe that any compensation attributable to services performed for the
Registrant is immaterial. See Item 13 Certain Relationships and Related
Transactions for information regarding compensation to the General Partners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Glenborough Corporation's common stock is owned by Sandra L. Boyle, June
Gardner, Frank Austin and Laurence N. Walker and all of the preferred stock is
owned by Glenborough Realty Trust Incorporated.
As of March 5, 1998, no director or executive officer of PBP owns directly or
beneficially any interest in the voting securities of PBP.
As of March 5, 1998, no director or executive officer of any of the General
Partners owns directly or beneficially any of the Units issued by the
Registrant.
As of March 5, 1998, no beneficial owner who is neither a director nor
executive officer of either of the General Partners beneficially owns more than
five percent (5%) of the outstanding Units issued by the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the directors or officers of
the General Partners.
Reference is made to Note E to the consolidated financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto, which identifies
the related parties and discusses the services provided by these parties and the
amounts paid or payable for their services.
F-9
<PAGE>
PART IV
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
-------------
<S> <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements and Independent Auditors' Report--incorporated
by reference to the Registrant's Annual Report which is filed as an exhibit
hereto
Independent Auditors' Report 2
Consolidated Financial Statements:
Consolidated Statements of Financial Condition--December 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations--Years ended December 31, 1997, 1996
and 1995 4
Consolidated Statements of Changes in Partners' Capital--Years ended
December 31, 1997, 1996 and 1995 4
Consolidated Statements of Cash Flows--Years ended December 31, 1997, 1996
and 1995 5
Notes to Consolidated Financial Statements 6
2. Consolidated Financial Statement Schedules and Independent Auditors' Report
on Schedules
Independent Auditors' Report on Schedules
Schedules:
II--Valuation and Qualifying Accounts and Reserves--Year ended December 31,
1997, 1996 and 1995
III--Consolidated Real Estate and Accumulated Depreciation--At December 31,
1997
All other schedules have been omitted because they are not applicable
or the required information is included in the consolidated financial
statements and notes thereto.
3. Exhibits
Description:
2 Consent Solicitation Statement dated January 23, 1998 (incorporated
by reference to Amendment No. 3 to Preliminary Proxy Statement on
Schedule 14A and Amendment No. 3 to Preliminary Proxy Statement on
Schedule 13E-3 both filed with the Securities and Exchange Commission
on January 23, 1998.
3 and 4 Amended and Restated Limited Partnership Agreement of Registrant dated
February 11, 1985 (incorporated by reference to Amendment No. 1 to the
Registrant's Form S-11 Registration Statement filed on February 14, 1985)
and Amendment No. 1 thereto dated April 18, 1985 (incorporated by reference
to Form 8-A filed on February 28, 1986), as amended on March 25, 1994
(incorporated by reference to the Registrant's 1994 Annual Report filed on
Form 10-K)
3 and 4 Amended and Restated Agreement between General Partners dated December 28,
1990 (incorporated by reference to the Registrant's 1990 Annual Report
filed on Form 10-K)
</TABLE>
F-10
<PAGE>
<TABLE>
<S> <C>
10(a) Note Modification Agreement between Montrose Office Park Joint Venture (a
joint venture which is indirectly wholly owned by the Registrant) and
The Variable Annuity Life Insurance Company (incorporated by
reference to the Registrant's 1991 Annual Report filed on Form 10-K)
10(b) Settlement Statement on Ashby Industrial Center dated August 6, 1992
(incorporated by reference to the Registrant's 1992 Annual Report
filed on Form 10-K)
10(c) Escrow Instruction on Sale of Ashby Industrial Center dated August 6,
1992 (incorporated by reference to the Registrant's 1992 Annual
Report filed on Form 10-K)
10(d) Agreement regarding Deed-in-Lieu of Foreclosure and Related Matters
between the Registrant and Fidelity Bank N.A. dated May 11, 1993
(incorporated by reference to the Registrant's Quarterly Report for
the period ended April 30, 1993 filed on Form 10-Q)
10(e) Loan Agreement by and among Registrant and Montrose Office Park Joint
Venture (a joint venture which is indirectly wholly owned by the
Registrant), and Wells Fargo Bank, National Association, executed as
of December 13, 1996.(1)
10(f) Amended, Restated and Consolidated Promissory Note dated December 13,
1996 in the amount of $26,650,000.00 by and among Registrant and
Montrose Office Park Joint Venture and Wells Fargo Bank, National
Association.(1)
10(g) Deed of Trust, With Absolute Assignment of Leases and Rents, Security
Agreement, Assignment of Equipment Leases, Assignment of Permits and
Fixture Filing dated December 13, 1996 by and among Registrant,
American Securities Company, a corporation and Wells Fargo Bank,
National Association relating to the property known as Park Plaza
Professional Center, 1303 J Street, Sacramento, Sacramento County,
California and to the property known as Gateway Executive Center, 801
12th Street, Sacramento, Sacramento County, California.(1)
10(h) Deed of Trust, With Absolute Assignment of Leases and Rents, Security
Agreement, Assignment of Equipment Leases, Assignment of Permits and
Fixture Filing dated December 13, 1996 by and among Registrant,
Chicago Title Insurance Company, a Missouri corporation and Wells
Fargo Bank, National Association relating to the property known as
Totem Valley Business Center, 12800 N.E. 126th Place, Kirkland, King
County, Washington.(1)
10(i) Amended and Restated Deed of Trust, With Absolute Assignment of
Leases and Rents, Security Agreement, Assignment of Equipment Leases,
Assignment of Permits and Fixture Filing dated December 13, 1996 by
and among Montrose Office Park Joint Venture, Chicago Title Insurance
Company, a Missouri corporation and Wells Fargo Bank, National
Association relating to the property known as Montrose Office Park,
3200-3206 Tower Oaks Boulevard, Rockville, Montgomery County,
Maryland.(1)
10(j) Deed of Trust, With Absolute Assignment of Leases and Rents, Security
Agreement, Assignment of Equipment Leases, Assignment of Permits and
Fixture Filing dated December 13, 1996 by and among Registrant, J.
Richard Rossie, a resident of Shelby County, Tennessee and Wells
Fargo Bank, National Association relating to the property known as
Poplar Towers, 6263 Poplar Avenue, Memphis, Tennessee.(1)
10(k) Purchase Agreement, dated as of Effective Date, by and among Registrant and
Glenborough Realty Trust Incorporated and Glenborough Properties, L.P.(2)
10(l) Amendment to Purchase Agreement dated December 19, 1997 by and among
Registrant and Glenborough Realty Trust Incorporated and Glenborough
Properties, L.P.(2)
</TABLE>
F-11
<PAGE>
<TABLE>
<S> <C>
13 Registrant's Annual Report to Unitholders for the year ended December 31,
1997 (with the exception of the information and data incorporated by
reference in Items 7 and 8 of this Annual Report on Form 10-K, no
other information or data appearing in the Registrant's Annual Report
is to be deemed filed as part of this report)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
</TABLE>
- ---------------
(1) Incorporated by reference to applicable exhibit included in Registrant's
Current Report on Form 8-K dated December 20, 1996
(2) Incorporated by reference to Amendment No. 3 to Preliminary Proxy Statement
on Schedule 14A as filed with the Securities and Exchange Commission on January
23, 1998.
F-12
<PAGE>
Deloitte & Touche LLP (LOGO)
50 Fremont Street
San Francisco, California 94105-2230
Telephone: (415) 247-4000
Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' REPORT
Prudential-Bache/Equitec Real Estate Partnership
(a California limited partnership)
We have audited the consolidated financial statements of
Prudential-Bache/Equitec Real Estate Partnership (a California limited
partnership) as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997 and have issued our report thereon dated
February 27, 1998; such financial statements and report are included in your
1997 Annual Report and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedules of
Prudential-Bache/Equitec Real Estate Partnership, listed in Item 14. These
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
San Francisco, California
February 27, 1998
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
F-13
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- --------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
<TABLE>
<CAPTION>
DEDUC-
TIONS-AMOUNTS BALANCE AT
YEAR ENDED BALANCE AT ADDITIONS-AMOUNTS WRITTEN-OFF DURING END OF
DECEMBER 31, BEGINNING OF YEAR RESERVED DURING YEAR YEAR YEAR
- ------------ ----------------- -------------------- ------------------ ----------
<S> <C> <C> <C> <C>
1997 $ 500,000 $ -- $ -- $ 500,000
1996 500,000 -- -- 500,000
1995 500,000 -- -- 500,000
</TABLE>
F-14
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
SCHEDULE III--CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
INITIAL COST TO
REGISTRANT
-------------------------
BUILDINGS GROSS AMOUNT AT WHICH CARRIED
AND NET COSTS AT CLOSE OF PERIOD
IMPROVE- CAPITALIZED --------------------------------------
MENTS, (DISPOSED) BUILDINGS,
ENCUMBRANCES FURNITURE SUBSEQUENT TO FURNITURE
DESCRIPTION (C) LAND AND FIXTURES ACQUISITION LAND AND FIXTURES TOTAL (A)
- ---------------------- ------------ ------- ------------- ------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Poplar Tower
Memphis, TN
Office building $ -- $ 1,678 $ 4,928 $ 1,618 $ 1,678 $ 6,546 $ 8,224
Montrose Office Park
Rockville, MD
Office building
complex -- 5,918 15,766 3,024 5,918 18,790 24,708
Totem Valley
Business Center
Kirkland, WA
Industrial park -- 2,666 5,265 (442) 2,083 5,406 7,489
Gateway and Park
Plaza
Sacramento, CA
Office buildings -- 1,163 9,075 1,785 1,163 10,860 12,023
Note Payable 26,650
------------ ------- ------------- ------------- ------- ------------ ---------
Totals $ 26,650 $11,425 $35,034 $ 5,985 $10,842 $ 41,602 $ 52,444
------------ ------- ------------- ------------- ------- ------------ ---------
------------ ------- ------------- ------------- ------- ------------ ---------
See notes to Schedule III on the following page.
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN THE LATEST
ACCUMULATED STATEMENT OF
DEPRECIATION DATE OF DATE OPERATIONS IS
DESCRIPTION (B) CONSTRUCTION ACQUIRED COMPUTED
- ---------------------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Poplar Tower
Memphis, TN 3 to
Office building $ 4,551 1974 5/01/86 30 years
Montrose Office Park
Rockville, MD
Office building 3 to
complex 8,438 1980-83 8/11/86 30 years
Totem Valley
Business Center
Kirkland, WA 3 to
Industrial park 2,773 1983-86 3/13/87 30 years
Gateway and Park
Plaza
Sacramento, CA 3 to
Office buildings 5,867 1982 6/15/87 30 years
Note Payable
-----------
Totals $21,629
-----------
-----------
</TABLE>
F-15
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
NOTES TO SCHEDULE III
(in thousands)
DECEMBER 31, 1997
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 51,387 $ 50,605 $ 50,013
Additions during period 1,057 810 592
------------ ------------ ------------
52,444 51,415 50,605
Cost of land conveyed -- (28) --
------------ ------------ ------------
Balance at end of period $ 52,444 $ 51,387 $ 50,605
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The allowance for loss on impairment for the above assets is $500 at December
31, 1997. See Note C to the consolidated financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto.
The aggregate cost of land, buildings, and furniture and fixtures for Federal
income tax purposes for the tax year ended December 31, 1997 was $51,033.
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 19,634 $ 17,905 $ 16,177
Additions during period 1,995 1,729 1,728
------------ ------------ ------------
Balance at end of period $ 21,629 $ 19,634 $ 17,905
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE C--ENCUMBRANCES
The note payable is secured by Deeds of Trust on each of the respective
properties and by security interests in the respective property's leases and
rents, and equipment and fixtures contained therein.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Prudential-Bache/Equitec Real Estate Partnership,
A California Limited Partnership
By: Prudential-Bache Properties, Inc.,
A Delaware corporation, Managing General Partner
By: /s/ Eugene D. Burak Date: March 30, 1998
----------------------------------------
EUGENE D. BURAK
VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER
By: Glenborough Corporation
General Partner
By: /s/ Andrew Batinovich Date: March 30, 1998
----------------------------------------
ANDREW BATINOVICH
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
By: Robert Batinovich
General Partner
By: /s/ Robert Batinovich Date: March 30, 1998
----------------------------------------
ROBERT BATINOVICH
GENERAL PARTNER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.,
A Delaware corporation, Managing General Partner
By: /s/ Brian J. Martin Date: March 30, 1998
----------------------------------------
BRIAN J. MARTIN
PRESIDENT, CHIEF EXECUTIVE OFFICER,
CHAIRMAN OF THE BOARD OF DIRECTORS AND
DIRECTOR
By: /s/ Barbara J. Brooks Date: March 30, 1998
----------------------------------------
BARBARA J. BROOKS
VICE PRESIDENT-FINANCE AND CHIEF
FINANCIAL OFFICER
By: /s/ Eugene D. Burak Date: March 30, 1998
----------------------------------------
EUGENE D. BURAK
VICE PRESIDENT
By: /s/ Frank W. Giordano Date: March 30, 1998
----------------------------------------
FRANK W. GIORDANO
DIRECTOR
By: /s/ Nathalie P. Maio Date: March 30, 1998
----------------------------------------
NATHALIE P. MAIO
DIRECTOR
F-17
<PAGE>
By: Glenborough Corporation and Robert Batinovich
General Partners
By: /s/ Robert Batinovich Date: March 30, 1998
----------------------------------------
ROBERT BATINOVICH
INDIVIDUALLY
By: /s/ Andrew Batinovich Date: March 30, 1998
----------------------------------------
ANDREW BATINOVICH
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
By: /s/ Terri Garnick Date: March 30, 1998
----------------------------------------
TERRI GARNICK
CHIEF FINANCIAL OFFICER
By: /s/ June Gardner Date: March 30, 1998
----------------------------------------
JUNE GARDNER
DIRECTOR
By: /s/ Laurence N. Walker Date: March 27, 1998
----------------------------------------
LAURENCE N. WALKER
DIRECTOR
F-18
<PAGE>
1997
- --------------------------------------------------------------------------------
PRUDENTIAL-BACHE/EQUITEC ANNUAL
REAL ESTATE PARTNERSHIP REPORT
F-19
<PAGE>
Deloitte & Touche LLP (LOGO)
50 Fremont Street
San Francisco, California 94105-2230
Telephone: (415) 247-4000
Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' REPORT
Prudential-Bache/Equitec Real Estate Partnership
(a California limited partnership)
We have audited the accompanying consolidated statements of financial condition
of Prudential-Bache/Equitec Real Estate Partnership (a California limited
partnership) as of December 31, 1997 and 1996 and the related consolidated
statements of operations, changes in partners' capital and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of
Prudential-Bache/Equitec Real Estate Partnership at December 31, 1997 and 1996
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
February 27, 1998
(March 2, 1998 as to Note C)
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
F-20
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investment in property:
Land $ 10,842 $ 10,842
Buildings, improvements and equipment 41,602 40,545
Less: Accumulated depreciation (21,629) (19,634)
Allowance for loss on impairment of assets (500) (500)
------------ ------------
Net investment in property 30,315 31,253
Cash and cash equivalents 1,106 697
Prepaid expenses and other assets, net 1,200 1,396
------------ ------------
Total assets $ 32,621 $ 33,346
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Note payable $ 26,650 $ 26,650
Due to affiliates 715 705
Accounts payable and accrued liabilities 664 266
Security deposits and deferred revenue 346 335
Real estate taxes payable 57 57
------------ ------------
Total liabilities 28,432 28,013
------------ ------------
PARTNERS' CAPITAL
Unitholders (68,795 depositary units issued and outstanding) 4,454 5,587
General partners (265) (254)
------------ ------------
Total partners' capital 4,189 5,333
------------ ------------
Total liabilities and partners' capital $ 32,621 $ 33,346
------------ ------------
------------ ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
F-21
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT PER DEPOSITARY UNIT
AMOUNTS)
<S> <C> <C> <C>
REVENUES
Operating $ 6,719 $ 5,987 $ 5,982
Recovery of expenses 370 394 559
Gain on disposition of investments 82 33 --
------- ------- -------
7,171 6,414 6,541
------- ------- -------
EXPENSES
Property operating 2,628 2,873 2,813
Interest 2,471 2,429 2,411
Depreciation and amortization 2,600 2,025 1,965
General and administrative 616 225 384
------- ------- -------
8,315 7,552 7,573
------- ------- -------
Net loss $(1,144) $(1,138) $(1,032)
------- ------- -------
------- ------- -------
ALLOCATION OF NET LOSS
Unitholders $(1,133) $(1,127) $(1,022)
------- ------- -------
------- ------- -------
General partners $ (11) $ (11) $ (10)
------- ------- -------
------- ------- -------
Net loss per depositary unit $(16.47) $(16.38) $(14.86)
------- ------- -------
------- ------- -------
- -----------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL
UNITHOLDERS PARTNERS TOTAL
- ---------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Partners' capital (deficit)--December 31, 1994 $ 7,736 $ (233) $ 7,503
Net loss (1,022) (10) (1,032)
----------- -------- -------
Partners' capital (deficit)--December 31, 1995 6,714 (243) 6,471
Net loss (1,127) (11) (1,138)
----------- -------- -------
Partners' capital (deficit)--December 31, 1996 5,587 (254) 5,333
Net loss (1,133) (11) (1,144)
----------- -------- -------
Partners' capital (deficit)--December 31, 1997 $ 4,454 $ (265) $ 4,189
----------- -------- -------
----------- -------- -------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
F-22
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,144) $ (1,138) $(1,032)
------- -------- -------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 2,600 2,025 1,965
Lease concessions-effective rents 18 72 69
Gain on disposition of investments (82) (33) --
Leasing commissions paid (405) (271) (260)
Changes in:
Prepaid expenses and other assets 15 196 (145)
Due to affiliates 10 5 (7)
Accounts payable and accrued liabilities 398 (25) (2)
Security deposits and deferred revenue 11 103 (30)
Real estate taxes payable -- (16) (37)
------- -------- -------
Total adjustments 2,565 2,056 1,553
------- -------- -------
Net cash provided by operating activities 1,421 918 521
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Building and tenant improvements (1,057) (810) (592)
Proceeds from disposition of investments 140 61 --
------- -------- -------
Net cash used in investing activities (917) (749) (592)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan refinancing -- 26,650 --
Principal payments on notes -- (26,621) (241)
Loan fees (95) (307) --
------- -------- -------
Net cash used in financing activities (95) (278) (241)
------- -------- -------
Net increase (decrease) in cash and cash equivalents 409 (109) (312)
Cash and cash equivalents at beginning of period 697 806 1,118
------- -------- -------
Cash and cash equivalents at end of period $ 1,106 $ 697 $ 806
------- -------- -------
------- -------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 2,338 $ 2,409 $ 2,546
------- -------- -------
------- -------- -------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
F-23
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. GENERAL
Prudential-Bache/Equitec Real Estate Partnership, A California Limited
Partnership (the "Partnership"), was formed on June 19, 1984 and will terminate
on December 31, 2009 unless ended sooner under the provisions of the Amended and
Restated Limited Partnership Agreement (the "Partnership Agreement"). The
Partnership was formed for the purpose of purchasing, holding, operating,
leasing and selling various real properties. The general partners of the
Partnership are Prudential-Bache Properties, Inc. ("PBP") and Glenborough
Corporation and Robert Batinovich (together, "Glenborough") (collectively, the
"General Partners"). At December 31, 1997, the Partnership owned five
properties.
The Partnership has entered into a Purchase Agreement (the "Purchase
Agreement") with Glenborough Realty Trust Incorporated and a subsidiary
partnership, Glenborough Properties, L.P., (together, the "Purchaser"), which
are affiliates of two of the Partnership's general partners, Glenborough
Corporation and Robert Batinovich. Pursuant to the Purchase Agreement, the
Partnership intends to sell to the Purchaser (the "Sale") all of the Properties
of the Partnership for cash. The Purchase Agreement provides for a purchase
price equal to $43,520,000. This price will be reduced by certain credits to the
Purchaser, which, in addition to any credits for secured obligations which are
assumed by the Purchaser, could approximate $737,000 as of February 28, 1998, if
certain items of deferred maintenance at the Properties are not completed prior
to the closing of the Sale. As a result of unforeseen delays in processing the
Consent Solicitation Statement with the Securities and Exchange Commission, the
Partnership determined that updates of the appraisals of the Properties should
be obtained and so notified the Purchaser. New appraisals are presently being
prepared for the Partnership's Properties. It is anticipated that further
negotiations with the Purchaser will take place to determine the amount to be
paid for the Partnership's Properties.
Certain expenses, relating to lease commissions, lease concessions and loan
fees, have been deferred, although previously paid, and are amortized over the
terms of the respective leases or loans (see Note B below). At the closing of
the Sale, the remaining amount of these deferred items would be expensed. As of
December 31, 1997, the amount of such deferred items approximates $1,000,000.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting principles
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partners to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The consolidated financial statements of the Partnership include the accounts
of Montrose Office Park Limited Partnership, in which the Partnership owns a
100% interest.
Investment in property
The Partnership's investment in property is held for use and is recorded at
depreciated cost absent any impairment loss. If a property is determined to be
impaired, it is recorded at the lower of its carrying value or its estimated
fair value. Property investments are depreciated or amortized using the
straight-line method over their estimated economic lives which range from 3 to
30 years depending on property type.
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
F-24
<PAGE>
Other assets
Other assets consist primarily of loan fees, lease concessions, and lease
commissions. Loan fees are capitalized and amortized on a straight-line basis
over the terms of the respective loans. Lease concessions and lease commissions
are deferred and amortized over the terms of the respective leases.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
The following is a reconciliation of net loss for financial reporting
purposes with net loss for tax reporting purposes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss, financial reporting basis $(1,144) $(1,138) $(1,032)
Rental concessions recorded for books not tax -- (120)
Book depreciation in excess of tax depreciation 722 481 475
------- ------- -------
Net loss, income tax basis $ (422) $ (657) $ (677)
------- ------- -------
------- ------- -------
</TABLE>
Profit and loss allocations/distributions
For financial and tax reporting purposes, net profits or losses are allocated
99% to the Unitholders and 1% to the General Partners.
No distributions have been paid since 1988.
C. INVESTMENT IN PROPERTY AND NOTE PAYABLE
The Partnership's properties, net of accumulated depreciation, and the
related debt at December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
INVESTMENT NOTE PAYABLE
------------------- -------------------
PROPERTY 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Montrose Office Park, Rockville, MD $16,270 $16,541 $ -- $ --
Gateway and Park Plaza, Sacramento, CA 6,156 6,623 -- --
Totem Valley Business Center, Kirkland, WA 4,716 4,891 -- --
Poplar Tower, Memphis, TN 3,673 3,698 -- --
Less: allowance for loss on impairment of assets (500) (500) -- --
Note payable -- -- 26,650 26,650
------- ------- ------- -------
$30,315 $31,253 $26,650 $26,650
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
During 1996, a small parcel of land was conveyed to a local jurisdiction to
be used for a road project at the Totem Valley property for proceeds of $61,000
resulting in a gain of $33,000.
Notes held on two of the Partnership's properties, Poplar Towers and Montrose
Office Park matured on October 1, 1996 and December 31, 1996, respectively. As a
result, the Partnership, on December 20, 1996, pursuant to a note agreement
dated December 13, 1996 with Wells Fargo Bank, N.A. ("WFB"), consolidated and
refinanced all of the existing notes on the five properties owned by the
Partnership (the "Note"). WFB held notes on the Partnership's three remaining
properties Totem Valley, Gateway and Park Plaza.
The Note from WFB is in the amount of $26,650,000 (which approximates the
total amount of the individual notes on each of the five properties). The Note
bears interest at LIBOR + 3.5% (i.e., 9.5% at December 31, 1997) reset monthly
and matured on December 9, 1997. On December 9, 1997, the Partnership entered
into a modification agreement with WFB pursuant to which WFB agreed to extend
the maturity date of the Note until March 9, 1998. On March 2, 1998, the
Partnership entered into a second modification
F-25
<PAGE>
agreement with WFB pursuant to which WFB agreed to extend the maturity date of
the Note until April 30, 1998. The Note is secured by Deeds of Trust on each of
the respective properties and by security interests in the respective property's
leases and rents, and equipment and fixtures contained therein.
D. LEASE AGREEMENTS
The provisions of the leases generally require tenants to pay for their
proportionate share of increases in building operating costs and property tax
increases. Future minimum rental receipts due under the noncancellable operating
leases with tenants are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
- ---------------- --------------
<S> <C>
1998 $ 6,997
1999 5,937
2000 4,302
2001 2,880
2002 1,619
Thereafter 5,104
--------------
Total $ 26,839
--------------
--------------
</TABLE>
For the years ended December 31, 1997, December 31, 1996, December 31, 1995,
respectively, the following properties' rental revenues exceeded 15% of the
Partnership's total operating revenue:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Montrose Office Park 44% 40% 43%
Poplar Towers 17 19 --
</TABLE>
During the years ended December 31, 1997 and December 31, 1996, Technical
Resources, Inc., a tenant in the Montrose Office Park property, accounted for
approximately 10% of the Partnership's total operating revenue and, on an
annualized basis, had its new lease covered the entire year, would have
accounted for approximately 10% of the Partnership's total operating revenue for
the year ended December 31, 1995.
F-26
<PAGE>
E. RELATED PARTIES
The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; property management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
PBP and affiliates
General and administrative $124 $ 60 $112
----- ----- -----
Glenborough Corporation and affiliates
Property management fee and expenses 686 634 663
Leasing commissions 119 131 136
----- ----- -----
805 765 799
----- ----- -----
$929 $825 $911
----- ----- -----
----- ----- -----
</TABLE>
- ---------------
PBP is not being paid on a current basis for general and administrative
expenses other than printing costs. During the year ended December 31, 1997, PBP
was reimbursed $100,000, which was applied to prior years' general and
administrative expenses due. At December 31, 1997 and 1996, the total liability
outstanding to PBP was $715,000 and $705,000, respectively.
The Partnership maintains an investment account with the Prudential
Institutional Liquidity Portfolio Fund, an affiliate of PBP, for investment of
its available cash in short-term instruments pursuant to the guidelines
established by the Partnership Agreement.
Prudential Securities Incorporated ("PSI"), an affiliate of PBP, owns 180
depositary units at December 31, 1997.
F-27
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All of the Partnership's properties generated cash flow from operations after
debt service during the year ended December 31, 1997.
During the year ended December 31, 1997, the Partnership incurred $1,057,000
for building and tenant improvements primarily at the Montrose Office Park and
Poplar Towers properties. Of this amount, $609,000 was expended at Montrose
Office Park primarily for build-out of space for new tenants. In order to keep
the Partnership's properties competitive, building and tenant improvements will
continue to be required. Building and tenant improvements for 1998 are currently
budgeted for approximately $900,000.
The Partnership had cash of $1,106,000 at December 31, 1997. PBP is not being
reimbursed for its general and administrative expenses (other than printing) on
a current basis. During the year ended December 31, 1997, PBP was reimbursed
$100,000, which was applied to prior years' general and administrative expenses
due. At December 31, 1997, the total liability outstanding (including printing)
was $715,000. Cash on hand plus any cash generated from operations may not be
sufficient to fund building and tenant improvements and to pay deferred general
and administrative expenses.
The Partnership in December 1996 consolidated and refinanced all of the
existing notes on the five properties. The new Note in the amount of $26,650,000
is secured by all of the properties and matured in December 1997. The
Partnership entered into a modification agreement with the lender in December
1997, pursuant to which the lender agreed to extend the maturity date of the
Note until March 9, 1998. On March 2, 1998, the Partnership entered into a
second modification agreement with WFB pursuant to which WFB agreed to extend
the maturity date of the Note until April 30, 1998.
The Partnership has entered into a Purchase Agreement to sell all of its
Properties for cash. (See Note A to Financial Statements.) It is unlikely that
investors will be returned a significant portion of their original investment
upon the sale of the Properties and ultimate dissolution of the Partnership.
RESULTS OF OPERATIONS
1997 versus 1996
The Partnership's net loss increased by only $6,000 for the year ended
December 31, 1997 as compared to 1996 for the reasons discussed below.
Property operating revenue increased by $732,000 for the year ended December
31, 1997 as compared to 1996 primarily due to an increase at Montrose Office
Park in the amount of $587,000 as a result of increased occupancy in addition to
moderate increases in revenues at the Partnership's other properties.
The Partnership recorded a gain of $82,000 from the disposition of an
investment in a captive insurance company for the year ended December 31, 1997.
Property operating expenses decreased by $245,000 for the year ended December
31, 1997 as compared to 1996 due primarily to decreases at Montrose Office Park,
Poplar Towers, and Park Plaza.
Depreciation and amortization increased by $575,000 for the year ended
December 31, 1997 as compared to 1996 primarily due to the amortization of loan
fees relating to the mortgage refinancing in addition to an increase in
depreciation as a result of increased building and tenant improvement additions.
General and administrative expenses increased by $391,000 for the year ended
December 31, 1997 as compared to 1996 primarily due to professional fees
incurred in connection with the Partnership preparing a consent solicitation
statement to the Unitholders in connection with the proposed sale of the
Partnership's Properties.
1996 versus 1995
The Partnership's net loss increased by approximately $106,000 for the year
ended December 31, 1996 as compared to 1995 for the reasons discussed below.
Property operating revenue increased by approximately $5,000 for the year
ended December 31, 1996 as compared to 1995 as increases at the Totem Valley,
Gateway, Park Plaza and Poplar Tower properties were
F-28
<PAGE>
more than offset by a decrease at Montrose Office Park due to a major tenant's
lease expiring in May 1996. The increase and decrease in operating revenue were
primarily the result of corresponding changes in average occupancies.
Recovery of expenses decreased by approximately $165,000 for the year ended
December 31, 1996 as compared to 1995 primarily due to lower tenant recoveries
at the Montrose property as a result of a major tenant's lease expiring in May
1996, partially offset by increases in expense recoveries at the Totem Valley
property.
Property operating expenses increased by approximately $60,000 during the
year ended December 31, 1996 as compared to 1995 due primarily to increased
utility expenses, building management fees and salaries at Poplar Towers.
Depreciation and amortization increased by approximately $60,000 during the
year ended December 31, 1996 as compared to 1995 due to increased building and
tenant improvements.
General and administrative expenses decreased by approximately $159,000 for
the year ended December 31, 1996 as compared to 1995 in part due to appraisal
fees recorded in 1995.
F-29
<PAGE>
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission is available to limited partners without charge upon
written request to:
Prudential-Bache/Equitec Real Estate Partnership
P.O. Box 2016
Peck Slip Station
New York, N.Y. 10272-2016
F-30
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
CONSENT CARD
CONSENT IS SOLICITED ON BEHALF OF PRUDENTIAL-BACHE PROPERTIES, INC. ("PB
PROPERTIES"), AS MANAGING GENERAL PARTNER AND ON BEHALF OF PRUDENTIAL-
BACHE/EQUITEC REAL ESTATE PARTNERSHIP (THE "PARTNERSHIP"). PB PROPERTIES,
GLENBOROUGH CORPORATION AND ROBERT BATINOVICH, WHICH TOGETHER
CONSTITUTE ALL OF THE GENERAL PARTNERS OF THE PARTNERSHIP, RECOMMEND
CONSENT ON THE PROPOSAL.
Unitholders should not send any Depositary Units with this Consent card.
Unitholders are urged to mark, sign, date and mail promptly this Consent card in
the envelope provided. The Consent card must be received at the address of the
Soliciting Agent by no later than 10:00 a.m., New York time on ________ __, 1998
(unless such date and/or time is extended in the sole discretion of PB
Properties acting as managing general partner of the Partnership).
THIS CARD SHALL BE DEEMED TO APPROVE THE PROPOSAL IF NOT INDICATED TO THE
CONTRARY.
EACH CONSENT CARD MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each sign. If signing as
executor, administrator, attorney, trustee, or guardian, give title as such. If
a corporation, sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE PLAN
The undersigned hereby votes all Units beneficially owned by the undersigned
with respect to the Plan as follows:
|_| Approve |_| Disapprove |_| Abstain
Please refer to the Statement Furnished in Connection with the Solicitation of
Consents, dated _______ __, 1998, for a full description of the Plan.
------------------------------
Signature
------------------------------
Dated: ___________________, 1998
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
G-1
