<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-14271
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited
Partnership
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(Exact name of Registrant as specified in its charter)
California 94-2949474
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0128
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 214-3500
N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK 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 _CK_ No __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Investment in property:
Land $ 10,842 $ 10,842
Buildings, improvements and equipment 41,898 41,602
Less: Accumulated depreciation (23,106) (21,629)
Allowance for loss on impairment of assets (500) (500)
------------- ------------
Net investment in property 29,134 30,315
Cash and cash equivalents 1,803 1,106
Prepaid expenses and other assets, net 1,165 1,200
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Total assets $ 32,102 $ 32,621
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------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable $ 26,650 $ 26,650
Due to affiliates 743 715
Accounts payable and accrued liabilities 722 664
Security deposits and deferred revenue 346 346
Real estate taxes payable 59 57
------------- ------------
Total liabilities 28,520 28,432
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Contingencies
Partners' capital
Unitholders (68,795 depositary units issued and outstanding) 3,853 4,454
General partners (271) (265)
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Total partners' capital 3,582 4,189
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Total liabilities and partners' capital $ 32,102 $ 32,621
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The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended For the three months ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
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(in thousands, except for depositary unit amounts)
<S> <C> <C> <C> <C>
REVENUES
Operating $ 5,413 $ 4,964 $ 1,790 $ 1,741
Recovery of expenses 339 277 114 90
Gain on disposition of investment -- 82 -- 82
------------- ------------- ------------- -------------
5,752 5,323 1,904 1,913
------------- ------------- ------------- -------------
EXPENSES
Property operating 2,090 1,974 791 674
Interest 1,858 1,838 626 625
Depreciation and amortization 1,764 1,871 590 634
General and administrative 647 214 95 68
------------- ------------- ------------- -------------
6,359 5,897 2,102 2,001
------------- ------------- ------------- -------------
Net loss $ (607) $ (574) $ (198) $ (88)
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------------- ------------- ------------- -------------
ALLOCATION OF NET LOSS
Unitholders $ (601) $ (568) $ (196) $ (87)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
General partners $ (6) $ (6) $ (2) $ (1)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss per depositary unit $ (8.74) $ (8.26) $ (2.85) $ (1.27)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
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</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
GENERAL
UNITHOLDERS PARTNERS TOTAL
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(in thousands)
<S> <C> <C> <C>
Partners' capital (deficit)--December 31, 1997 $4,454 $ (265) $ 4,189
Net loss (601) (6) (607)
-------------- -------- -------
Partners' capital (deficit)--September 30, 1998 $3,853 $ (271) $ 3,582
-------------- -------- -------
-------------- -------- -------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
September 30, September 30,
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (607) $ (574)
------------- -------------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,764 1,871
Lease concessions-effective rents 42 3
Leasing commissions paid (74) (286)
Gain on disposition of investment -- (82)
Changes in:
Prepaid expenses and other assets, net (110) (48)
Due to affiliates 28 (15)
Accounts payable and accrued liabilities 58 42
Security deposits and deferred revenue -- 22
Real estate taxes payable 2 38
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Total adjustments 1,710 1,545
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Net cash provided by operating activities 1,103 971
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CASH FLOWS FROM INVESTING ACTIVITIES
Building improvements (296) (592)
Proceeds from disposition of investment -- 140
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Net cash used in investing activities (296) (452)
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CASH FLOWS FROM FINANCING ACTIVITIES
Loan fees (110) (62)
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Net increase in cash and cash equivalents 697 457
Cash and cash equivalents at beginning of period 1,106 697
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Cash and cash equivalents at end of period $ 1,803 $ 1,154
------------- -------------
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 1,868 $ 1,716
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The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential-Bache Properties, Inc. ('PBP') and Glenborough Corporation and
Robert Batinovich (together, 'Glenborough') (collectively, the 'General
Partners'), the financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of Prudential-Bache/Equitec Real Estate Partnership, A California Limited
Partnership (the 'Partnership') as of September 30, 1998, and the results of its
operations for the nine and three months ended September 30, 1998 and 1997 and
its cash flows for the nine months ended September 30, 1998 and 1997. However,
the operating results for the interim periods may not be indicative of the
results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission ('SEC') for the year ended December 31, 1997.
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. At September 30, 1998, the Partnership owned five
properties.
On October 13, 1997, the Partnership entered into a purchase agreement, as
amended (the 'Purchase Agreement'), with Glenborough Realty Trust Incorporated
and a subsidiary partnership, Glenborough Properties, L.P. (together, the
'Purchaser'), which are affiliates of Glenborough. 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 $47,145,000. 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, approximates $655,000 as of
September 30, 1998, if certain items of deferred maintenance at the Properties
are not completed prior to the closing of the Sale. On May 28, 1998, a consent
solicitation statement was sent to Unitholders ('Consent Solicitation'), who
owned interests in the Partnership on April 1, 1998, seeking approval for the
Sale. As of the termination of the consent solicitation period on July 13, 1998,
the requisite vote of Unitholders had consented to the Sale and the liquidation
of the Partnership.
On June 26, 1998, a purported class action entitled Arthur Unger v.
Prudential-Bache Properties, Inc., Glenborough Corporation, et.al., was filed in
the Supreme Court of the State of New York, County of New York (the 'Unger
Action'). The Unger Action claims, among other things, that the General Partners
of the Partnership breached their fiduciary duty to the Unitholders of the
Partnership by, among other things, failing to act reasonably to maximize the
distributions to be made to Unitholders pursuant to the proposed liquidation of
the Partnership.
In particular, the Unger Action claims that in considering the advisability
of offers made for one or more of the Partnership's real properties (the
'Properties') and direct and indirect interests in a joint venture whose sole
asset is one real property (the 'Interests,' and, together with the Properties,
the 'Assets'), the General Partners failed to use their best efforts to obtain
the highest possible bid from Hallwood Realty Partners L.P., which submitted an
unsolicited offer to the Partnership in November 1995 to purchase all of the
Assets. The Unger Action also claims that the consideration for which the
General Partners have agreed to sell the Assets pursuant to the Purchase
Agreement to the Purchaser is inadequate in that it is $2,000,000 less than the
appraised fair market value of the Assets. Moreover, the Unger Action alleges
that the Consent Solicitation disseminated by the General Partners in connection
with the proposed liquidation of the Partnership, contains certain
representations which are materially false and misleading. The Unger Action
seeks declaratory and compensatory relief and attorneys' fees and experts' fees.
The General Partners do not believe there is merit to these allegations and
intend to vigorously defend against the Unger Action.
5
<PAGE>
Prior to the scheduled closing of the Sale on July 31, 1998, the Purchaser
advised the Partnership that it had elected not to proceed with the closing
because of the pendency of the Unger Action.
Thereafter, on November 19, 1998, the parties to the Unger Action entered
into a Stipulation of Settlement (""Settlement Stipulation''), which, if
approved by the Court, will allow the Sale pursuant to the Purchase Agreement
to go forward. Among other things, the Settlement Stipulation also provides
that the Purchaser will deposit $2,000,000 with plaintiffs counsel on the date
of the closing of the Sale (the 'Settlement Consideration'). The Settlement
Consideration will be used to pay certain costs and expenses related to the
Unger Action and the remainder will be distributed to all eligible Unitholders
other than those who elect not to participate in the settlement. As required
by the Settlement Stipulation, on November 16, 1998, the Partnership and the
Purchaser entered into a Third Amendment to Purchase Agreement, pursuant to
which the parties agreed, among other things, (a) to extend the closing date
to a date not more than thirty (30) days after (i) the expiration of the
appeals period after the entry of a final judgment approving the Settlement
Stipulation, and (ii) the satisfaction of any remaining conditions to closing,
subject to the Purchaser's right to extend the closing date for a period of up
to thirty (30) days for the purpose of facilitating a Section 1031 exchange,
(b) that if the closing does not occur on or before September 1, 1999, the
transaction shall be terminated and the Purchaser shall be entitled to a
refund of its $1,000,000 earnest money deposit, and (c) that if the closing
occurs after March 31, 1999, all prorations and adjustments to the purchase
price shall nonetheless be made as of March 31, 1999 (the 'Effective Closing
Date'), thereby shifting to the Purchaser the risks of loss and the prospects
of gain with respect to the Assets as of the Effective Closing Date.
Mr. Robert Batinovich and the Glenborough Corporation, who played key roles
in ensuring that mortgage financing was available to the Partnership under
difficult conditions a few years ago by providing certain guarantees, have
agreed to continue to provide their guarantees through September 1, 1999 to
ensure the continuation of the Partnership's mortgage financing. However, the
Partnership may be required to refinance the mortgage.
In the event the Settlement Stipulation is not approved by the court, or the
Sale is not otherwise achieved, the Partnership will review alternatives for a
disposition of its Assets. It is anticipated that any alternative liquidation
plan will entail additional costs that the Sale to the Purchaser would not have
required. There can be no assurance that the Partnership will be able to sell
all of its Assets, or that any sales will exceed the prices offered by the
Purchaser pursuant to the Purchase Agreement.
As a result of this situation, the Partnership will not liquidate prior to
the end of the year.
Certain expenses relating to lease commissions, lease concessions and loan
fees have been deferred, although previously paid, and are being amortized over
the terms of the respective leases or loans. At the closing of the Sale, the
remaining amount of these deferred items will be expensed. As of September 30,
1998, the amount of such deferred items approximates $905,000 which is reflected
in 'Prepaid expenses and other assets, net' in the Consolidated Statements of
Financial Condition.
6
<PAGE>
B. 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>
Nine months Nine months
ended ended
September 30, 1998 September 30, 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
(in thousands)
PBP and affiliates:
General and administrative $111 $ 72
------ ------
Glenborough and affiliates:
Property management fee and expenses 475 502
Leasing commissions 15 96
------ ------
490 598
------ ------
$601 $670
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, 1998 September 30, 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
(in thousands)
PBP and affiliates:
General and administrative $ 67 $ 24
------ ------
Glenborough and affiliates:
Property management fee and expenses 166 180
Leasing commissions -- 65
------ ------
166 245
------ ------
$233 $269
------ ------
------ ------
</TABLE>
The reimbursement to PBP for general and administrative expenses is not
current. During the nine months ended September 30, 1998, PBP was reimbursed
$100,000 which was applied to prior years' general and administrative expenses
due. PBP was reimbursed an additional $200,000 in October 1998 which was also
applied to prior years' general and administrative expenses due. At September
30, 1998 and December 31, 1997, the total liability outstanding to PBP was
approximately $720,000 and $715,000, respectively. At September 30, 1998, the
total liability outstanding to Glenborough was approximately $22,000.
The Partnership maintains an 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, an affiliate of PBP, owns 180 depositary
units at September 30, 1998.
C. Contingencies
See discussion in Note A to the Consolidated Financial Statements.
7
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership generated cash from operations of $1,103,000 for the nine
months ended September 30, 1998. During the nine months ended September 30,
1998, the Partnership disbursed $296,000 for building and tenant improvements,
primarily at the Park Plaza, Poplar Towers and Gateway properties. In order to
keep the properties competitive, building and tenant improvements will continue
to be required.
The Partnership had cash of $1,803,000 at September 30, 1998. The
reimbursement to PBP for general and administrative expenses is not current.
However, partial payments against deferred amounts are periodically made. At
September 30, 1998, the total liability outstanding was approximately $720,000.
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.
In December 1996, the Partnership 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 lender has
agreed to several extensions of the note, mostly recently to extend the note to
February 1, 1999.
The Partnership has entered into a Purchase Agreement to sell all of its
Properties for cash and the Unitholders have approved the sale and plan of
liquidation of the Partnership. (See Note A to the Consolidated 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
The Partnership's net loss increased $33,000 and $110,000, respectively, for
the nine and three months ended September 30, 1998 as compared to the
corresponding periods in 1997 for the reasons discussed below.
Property operating revenues increased $449,000 and $49,000, respectively, for
the nine and three months ended September 30, 1998 as compared to the
corresponding periods in 1997 primarily due to increases at the Montrose and
Park Plaza properties. The increase in operating revenues was primarily the
result of increased occupancies at these two properties.
Recovery of expenses increased $62,000 and $24,000, respectively, for the
nine and three months ended September 30, 1998 as compared to the corresponding
periods in 1997 primarily due to increased escalation charges at the Montrose
property.
Property operating expenses increased $116,000 and $117,000, respectively,
for the nine and three months ended September 30, 1998 as compared to the
corresponding periods in 1997 primarily due to increased maintenance expenses at
the Montrose property in the second quarter of 1998, increased utility costs at
the Poplar Towers property in the third quarter of 1998 in addition to a
reversal of certain over-accrued expenses in the third quarter of 1997.
Depreciation and amortization decreased $107,000 and $44,000, respectively,
for the nine and three months ended September 30, 1998 as compared to the
corresponding periods in 1997 primarily due to fully amortized loan fees during
1997.
General and administrative expenses increased $433,000 and $27,000,
respectively, for the nine and three months ended September 30, 1998 as compared
to the same periods in 1997 due primarily to professional fees incurred in
connection with the Partnership's preparation of the Consent Solicitation to the
Unitholders.
8
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings--This information is incorporated by reference to Note A to the
Consolidated Financial Statements in Part I.
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders
Pursuant to the Consent Solicitation dated May 28, 1998, the Unitholders of the
Registrant approved, on July 13, 1998, the sale of all the properties and plan of
liquidation of the Registrant. The vote was 38,193 Units or 55.5% in favor, 1,514
Units or 2.2% against and 680 Units or 1.0% abstaining. Reference is made to the
Consent Solicitation dated May 28, 1998 which is incorporated by reference.
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2 Consent Solicitation Statement dated May 28, 1998 filed on the Registrant's Proxy
Statement on Schedule 14A and incorporated by reference.
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 Registrant's 1994 Annual
Report on Form 10-K)
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)
10(k) Purchase Agreement, dated as of Effective Date, by and among the Registrant,
Glenborough Realty Trust Incorporated and Glenborough Properties, L.P.(1)
10(l) Amendment to Purchase Agreement, dated December 19, 1997 by and among the Registrant,
Glenborough Realty Trust Incorporated and Glenborough Properties, L.P.(1)
10(m) Second Amendment to Purchase Agreement, dated April 27, 1998 by and among the
Registrant, Glenborough Realty Trust Incorporated and Glenborough Properties, L.P.(1)
10(n) Third Amendment to Purchase Agreement, dated November 16, 1998 by and among the Regis-
trant, Glenborough Realty Trust Incorporated and Glenborogh Properties, L.P. (filed
herewith)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
---------------
(1) Filed as an exhibit to Registrant's Proxy Statement on Schedule 14A dated May 28,
1998 and incorporated by reference.
</TABLE>
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Prudential-Bache/Equitec Real Estate Partnership,
A California Limited Partnership
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Eugene D. Burak Date: November 20, 1998
---------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
10
<PAGE>
THIRD AMENDMENT TO PURCHASE AGREEMENT
Prudential-Bache/Equitec
THIS THIRD AMENDMENT TO PURCHASE AGREEMENT
("Agreement") is dated as of the 16th of November, 1998
by and among 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").
Recitals
A. Purchaser and the Partnership entered into
that certain Purchase Agreement dated as of October 13,
1997, as amended by agreements dated December 19, 1997
and April 27, 1998 (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. A putative class action challenging, among
other things, the fairness of the Purchase Agreement to
the unitholders of the Partnership has been filed in the
Supreme Court of the State of New York for the County of
New York entitled Arthur Unger v. Prudential-Bache
Properties, Inc., et al., Index No. 98111570 (the
"Action"). Purchaser and the Partnership desire to
resolve this litigation and proceed with the sale of the
Assets.
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 agree as
follows:
1. Definitions. Capitalized terms used in this
Agreement and not separately defined shall have the
meanings set forth in the Purchase Agreement.
2. Modifications. The Purchase Agreement is
hereby modified and amended as follows:
(a) Closing Date. The Closing Date shall
occur as soon as practicable, but in no event more than
thirty (30) days, after receipt of the Consents,
satisfaction of the Purchaser's Conditions Precedent as
set forth in Sections 4(a)(i) through 4(a)(viii) and
satisfaction of the Partnership's Conditions Precedent,
as set forth in section 4(b)(i) through 4(b)(x). The
Partnership shall give Purchaser a minimum of 5 days
advance notice that the Closing Date will occur (the
"Closing Notice").
<PAGE>
(b) "Drop Dead" Date. Notwithstanding
anything to the contrary contained in the Purchase
Agreement, in the event that the Closing Date does not
occur on or before September 1, 1999, the transaction
will be terminated pursuant to the terms of Section 14.
(c) Interim Ownership Period.
(i) Notwithstanding anything to the contrary
contained in the Purchase Agreement, in the event that
the Closing Date occurs on a date on or after March 31,
1999, (1) all prorations and adjustments to the Purchase
Price at Closing (other than any credit for an
assumption of the Loan under Section 3(a)(ii) of the
Purchase Agreement) shall be calculated as of April 1,
1999 (the "Effective Closing Date"), (2) the references
to "Closing Date" in the last two lines of Section 12(c)
shall be replaced with "Effective Closing Date", (3)
Purchaser shall make an additional payment to the
Partnership in immediately available funds on the
Closing Date in an amount equal to interest at the rate
of five percent (5%) per annum on the Net Purchase
Price (as hereinafter defined) for the period commencing
on the Effective Closing Date and ending on the Closing
Date (the "Interim Ownership Period"), calculated using
a 360 day year, and (4) an additional increase or
reduction, as applicable, shall be made to the Purchase
Price at Closing in the amount of the Interim Ownership
Adjustment. Purchaser acknowledges and agrees that if
the Interim Ownership Adjustment results in an increase
in the Purchase Price, such increase (1) shall be the
sole obligation of Purchaser, (2) shall be payable by
Purchaser in immediately available funds on the Closing
Date, and (3) shall not affect or limit Purchaser's
obligations under the Purchase Agreement in any manner,
whether such increase results from casualty,
condemnation, force majeure, or any other reason
whatsoever. Notwithstanding anything to the contrary
contained in the Purchase Agreement, all adjustments and
prorations to the Purchase Price, other than the Interim
Ownership Adjustment, which are finalized and agreed to
by the Partnership and the Purchaser on the Closing Date
shall not be subject to recalculation after the Closing
Date, unless the Closing Date occurs less than sixty
(60) days after the Effective Closing Date, in which
event there shall be a post closing adjustment period as
provided in Section 6(d) of the Purchase Agreement which
shall expire sixty (60) days after the Effective Closing
Date. The Interim Ownership Adjustment shall remain
subject to recalculation in accordance with Section 6(d)
of the Purchase Agreement. As used herein, the term
"Net Purchase Price" means the gross Purchase Price
adjusted pursuant to the prorations and adjustments as
of the Effective Closing Date, minus the outstanding
principal balance under the Loan as of the Effective
Closing Date. As used herein, the term "Interim
Ownership Adjustment" means (whether resulting in a
positive or negative number) (1) all cash inflow to the
2
<PAGE>
Property and the Related Property during the Interim
Ownership Period, minus (2) all cash outflow from the
Property and the Related Property during the Interim
Ownership Period (in each case other than cash inflow
and cash outflow relating to revenue and expenses of the
period prior to the Effective Closing Date which have
resulted in an adjustment to the Purchase Price in
accordance with Section 6 of the Purchase Agreement).
For the purposes of the preceding calculation, cash
outflow shall include, without limitation, all capital
expenditures and payments of interest under the Loan,
and shall exclude payments of principal under the Loan.
(ii) During the Interim Ownership Period,
the risk of loss of the Property and the Related
Property shall belong solely to Purchaser.
Notwithstanding anything to the contrary contained in
the Purchase Agreement, in the event that a Major Loss
occurs during the Interim Ownership Period, Purchaser's
obligations under the Purchase Agreement shall not be
affected, provided that (1) 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 Major
Loss, and (2) if the proceeds have not been collected
as of the Closing, the Partnership's or its affiliates'
right, title and interest to such proceeds shall be
assigned to Purchaser. The provisions of this paragraph
(b) are intended to supersede any applicable statutory
risk of loss provisions in the states where the Property
and the Related Property are located.
(d) Section 1031 Exchange. In order to
facilitate a tax-free exchange by Purchaser (the
"Exchange"), Purchaser may use a Qualified Intermediary
for this transaction as that term is used in Regulation
1.1031(k)-1(g)(4) under the Code and/or a Qualified
Escrow Account as that term is used in Regulation
1.1031(k)-1(g)(3) under the Code. The Qualified
Intermediary shall be nominated, or the Qualified Escrow
Account shall be selected, by Purchaser, and Purchaser
shall notify the Partnership of the nomination or
selection no later than 5 business days prior to the
Closing. The Partnership agrees reasonably to cooperate
with Purchaser and any such Qualified Intermediary,
provided there is no adverse effect upon the
Partnership, and the Partnership shall execute such
documents as may be reasonably requested by Purchaser
provided that (i) such documents shall not materially
increase the Partnership's obligations over those
otherwise contained in the Purchase Agreement, (ii) such
documents are reasonably acceptable to the Partnership
and contain appropriate non-recourse language, and
(iii) Purchaser remains obligated under the Purchase
Agreement. Purchaser shall pay all costs and expenses
associated with such Exchange, including, but not
limited to, all fees and expenses charged by the
Qualified Intermediary and any out-of-pocket third-party
costs and expenses incurred by the Partnership as a
result of the use of a Qualified Intermediary or
Qualified Escrow Account. In addition, Purchaser shall
indemnify the Partnership and PB Properties from and
against any and all liability arising out of such
Exchange and any of the actions taken
3
<PAGE>
pursuant to this Section 2(d). The Partnership makes no
representation to Purchaser regarding qualification of the
Exchange under Section 1031 of the Code and shall not be liable
to Purchaser in any manner whatsoever if the Exchange
should not qualify for any reason under Section 1031 of
the Code and shall not be responsible for compliance
with the Code. At its sole option, Purchaser may extend
the Closing Date a single time for a period not
exceeding thirty (30) days, in order to facilitate a
tax-free exchange pursuant to this section, by providing
the Partnership with written notice of its intention to
do so within one (1) business day after its receipt of
the Closing Notice. If Purchaser is unable, for any
reason, to close under such Exchange simultaneously with
the Closing hereunder, Purchaser shall proceed with the
Closing pursuant to the terms of this Agreement without
participating in an Exchange. The provisions of this
Section 2(d) shall survive the Closing.
(e) Settlement Consideration.
(i) At Closing, Purchaser shall deliver or
cause to be delivered to the Settlement Administrator in
immediately available funds or wire transfers, the total
amount of $2,000,000 (the "Settlement Consideration").
The Settlement Consideration shall be administered in
accordance with the terms of the Settlement Stipulation.
(ii) In the event that the Partnership
purchases fee title to all or any portion of the
property leased to the Partnership under the Totem
Valley Lease (the "Additional Totem Valley Property")
prior to the Closing, (1) the Additional Totem Valley
Property shall be part of the Property for all purposes
hereunder, and (2) the Consideration shall be increased
by the amount of the purchase price and any fees, costs
and expenses (including, but not limited to, attorneys
fees) actually incurred by the Partnership in acquiring
such property to a maximum of $185,000.
(iii) For the purposes of calculating
title insurance coverage amounts and conveyance tax
payments, the Settlement Consideration shall be
allocated among the Assets pro rata consistent with the
allocations contained in Section 3(c) of the Purchase
Agreement. The consideration actually payable, if any,
pursuant to clause (ii) above shall be allocated to the
Totem Valley Business Park, Seattle, Washington.
(f) The Loan. Notwithstanding anything to the
contrary contained in the Purchase Agreement, the
Partnership will bear any and all fees, expenses or
charges incurred in obtaining any extension of the
Loan's maturity date to any date up to and including the
Closing Date. By separate letter dated November 16,
1998, attached hereto as Exhibit H, Glenborough has
agreed to renew its guarantee of the standard non-recourse
carve-outs in the Loan.
4
<PAGE>
(g) Return of Earnest Money. Section 3(a)(i)
of the Purchase Agreement is amended to add the
following after the last sentence of such Section:
"In the event that the transaction is not
consummated for any reason, the Earnest
Money shall be returned to Purchaser
pursuant to Sections 14(a) or 14(b),
provided that Purchaser is not in default
under the Purchase Agreement."
(h) Purchaser's Conditions Precedent. Section
4(a) of the Purchase Agreement is amended to add the
following at the end of such Section:
"(vi) Representations and Warranties. The
representations and warranties of the
Partnership shall be true in all material
respects as of the Closing Date."
"(vii) Resolution of the Action. Each of the
following events shall have occurred prior to
the Closing Date: (1) the Court has entered a
Final Judgment; and (2) the time to appeal
from the Final Judgment has expired, and no
appeal is pending."
"(viii) Indemnification of the General
Partners. All sums due and owing to the
General Partners pursuant to Section V.5. of
the Partnership Agreement as of the Closing
Date have been paid in full."
(i) The Partnership's Conditions Precedent.
Section 4(b) of the Purchase Agreement is amended to add
the following at the end of such Section:
"(viii) Resolution of the Action. Each of
the following events shall have occurred prior
to the Closing Date: (1) the Court has entered
a Final Judgment; and (2) the time to appeal
from the Final Judgment has expired, and no
appeal is pending;
(ix) Pro Forma Settlement Statement.
Glenborough shall have prepared and delivered
to the Partnership within ten (10) business
days after the Effective Closing Date a pro
forma settlement statement establishing the
proposed Purchase Price adjustments and
prorations as of the Effective Closing Date
(the "Settlement Statement"); and
5
<PAGE>
(x) Updated Settlement Statement/Operating
Statements. Glenborough shall have prepared
and delivered to the Partnership not more than
fifteen (15) and not less than five (5)
business days prior to the Closing Date (1) an
updated pro forma Settlement Statement, and
(2) operating statements for each Property and
the Related Property together with a proposed
calculation of the amount of the Interim
Ownership Adjustment (as hereinafter defined),
in each case together with such supporting
documentation as the Partnership shall
reasonably request."
(j) Post-Closing Adjustments. The language
"but in no event after December 26, 1997," is hereby
stricken from Section 6(d)(iii) of the Purchase
Agreement and the reference to "thirty (30) days" in
such clause is hereby replaced with "sixty (60) days."
(k) No Pending or Threatened Litigation.
Section 7(a)(v) of the Purchase Agreement shall be
designated Section 7(a)(vi) and the following clause
inserted as Section 7(a)(v):
"(v) Other than the Action, there is no
litigation pending or, to the Partnership's
knowledge after reasonable inquiry, threatened
against the Partnership, its general partners,
or its employees by a party other than the
Purchaser or its affiliates alleging a breach
of duty to the Partnership, the Unitholders,
or any other improper conduct by a General
Partner in its capacity as general partner of
the Partnership."
(l) Disclosure of Transaction. Section 15(a)
of the Purchase Agreement is stricken.
(m) Deferred Maintenance. Schedule 4 to the
Purchase Agreement is hereby deleted and the Schedule 4
attached hereto substituted in lieu thereof.
(n) Tenant Improvements and Leasing
Commissions. To the best knowledge of Purchaser,
Schedule 7 attached hereto completely and accurately
lists, among other things, (i) all new leases and
modifications or renewals of existing Leases entered
into after the Effective Date and prior to the date
hereof (collectively, the "New Lease Instruments"), (ii)
the commencement and termination dates of the lease
terms under the New Lease Instruments, (iii) the tenant
improvement costs and leasing commissions payable by the
landlord under the New Lease Instruments, and (iv) a
preliminary calculation of the prorations expected to be
made at Closing in connection with such leasing
commissions and tenant improvement costs, assuming a
Closing Date which occurs
6
<PAGE>
on or after the Effective Closing Date. The parties acknowledge and
agree that, assuming the accuracy of the data and the calculations
contained on Schedule 7, which data and calculations
remain subject to independent verification by the
Partnership in all respects, Schedule 7 reflects the
Purchase Price prorations required at Closing pursuant
to Section 12(c) of the Purchase Agreement with respect
to the New Lease Instruments listed thereon, assuming a
Closing Date which occurs on or after the Effective
Closing Date.
(o) Additional Defined Terms. Terms used in
this Agreement shall have the meanings set forth below:
Court. The Supreme Court of the State of New
York for the County of New York.
Final Judgment. The Final Judgment and Order
of Dismissal substantially as provided for in paragraphs
8.1 through 8.12 of the Settlement Stipulation.
Settlement Administrator. The person provided
for in paragraph 5.5 of the Settlement Stipulation.
Settlement Class. The class of persons
holding units in the Partnership, as defined in
paragraph 1.29 of the Settlement Stipulation.
Settlement Stipulation. The Stipulation of
Settlement dated November 19, 1998 between plaintiff
Arthur Unger, individually and in his capacity as
representative of the Settlement Class, and the
defendants to the Action.
3. Withdrawal of Termination and Default Notices
and Earnest Money Demands. The Purchaser and the
Partnership hereby withdraw (i) any or all notices
declaring a default under or purporting to
terminate the Purchase Agreement, and (ii) any or
all notices to the Title Company or either party
demanding delivery of the Earnest Money.
4. Effective Date. This Agreement is being
executed in reliance upon and shall not be
effective, and shall be null and void, unless the
Settlement Stipulation has been executed on behalf
of the Parties contemporaneously herewith.
5. Counterparts. This Agreement may be executed
in counter-parts, each of which shall be deemed an
original, but all of which taken together shall
constitute one and the same instrument.
7
<PAGE>
[NO FURTHER TEXT ON THIS PAGE]<PAGE>
8
<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
9
<PAGE>
EXHIBIT H
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
199 Water Street
One Seaport Plaza, 28th Floor
New York, New York 10292-0128
November 16, 1998
Glenborough Corporation
400 South El Camino Real
San Mateo, California 94402-1708
Robert Batinovich
c/o Glenborough Corporation
400 South El Camino Real
San Mateo, California 94402-1708
Re: Renewal of Partnership Debt Refinancing
Gentlemen:
This will confirm that, pursuant to Section 2(e) of the
Third Amendment to the Purchase Agreement (the
"Modification") between Prudential-Bache/Equitec Real
Estate Partnership (the "Partnership") and Glenborough
Realty Trust, Inc. and Glenborough Properties, L.P.
dated on or about the date hereof, and in consideration
of the Partnership's agreement to enter into the
Modification, Glenborough Corporation and Robert
Batinovich (collectively, "Guarantors") hereby agree to
provide (i) their written consent to the modification of
the Partnership's mortgage debt (the "Loan") as
refinanced with Wells Fargo Bank, National Association
("Wells Fargo") for the purpose of extending the
maturity date thereof for any period or periods ending
not later than September 1, 1999, and (ii) their written
reaffirmation of their obligations under the Guaranty of
Non-Recourse Exceptions dated December 13, 1996 in
connection with any such modification, pursuant to
documentation acceptable to Wells Fargo. The Guarantors
acknowledge and agree that they will materially benefit
from the Partnership's agreement to enter into the
Modification.
Sch. H-1
<PAGE>
<PAGE>
This will also confirm that, pursuant to Section 2(e) of
the Agreement, the Partnership will bear any and all
fees, expenses or charged incurred in obtaining an
extension of the Loan's maturity date through the
Closing Date (as defined in the Modification).
Very truly yours,
PRUDENTIAL-BACHE/EQUITEC
REAL ESTATE PARTNERSHIP
By: PRUDENTIAL-BACHE
PROPERTIES, INC.
By: /s/ Brian J. Martin
________________________
Name: Brian J. Martin
Title: President
AGREED TO AND ACCEPTED
THIS 16th DAY OF NOVEMBER, 1998:
GLENBOROUGH CORPORATION,
a California corporation
By: /s/ Terri Garnick
__________________________
Name: Terri Garnick
Title: Chief Financial Officer
By: /s/ Robert E. Bailey
---------------------------
Name: Robert E. Bailey
Title: Secretary
/s/ Robert Batinovich
------------------------------
Robert Batinovich, Individually
Sch. H-2
<PAGE>
<PAGE>
SCHEDULE 4
Prudential/Bache-Equitec Real Estate Partnership
Deferred Maintenance Items
Totem Valley
None
Popular Towers
6. 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.
$111,000
7. 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.
$ 45,000
8. 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
9. 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 floor have been done. 9
floors at $1,822 per floor.
$ 16,400
10. Asphalt Pavement Repair and Seal: Replacement of
deteriorated areas, removal of oil spills, seal
coat and stripe.
$ 20,000
Sch. 4-1
<PAGE>
11. 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
12. Replace canopy at main entrance, refurbish the main
lobby area with new wall covering and paint.
$ 24,200
Montrose
1. Dumpster enclosure - furnish and install concrete
pad and fence area around dumpsters.
$ 5,700
2. Cooling tower fill replacements - 4 buildings at
$3,500 per building.
$ 14,000
Park Plaza
1. Roof replacement.
$ 76,500
Gateway Executive Suites
1. Paint existing tenants' suites not yet renovated
Partially completed - remaining cost equals$ 1,333
2. Carpet existing tenants' suites not yet replaced.
Partially completed - remaining cost equals$ 8,418
3. Upgrade lobby furniture.
$ 6,000
Gateway Professional Center
1. Replace penthouse roof. $ 16,900
Sch. 4-2
<PAGE>
Schedule 7
Third Amendment to Purchase Agreement
Prudential-Bache/Equitec Real Estate Partnership
Leasing Cost Pro-Ration Analysis
(As of November 18,1998)
<TABLE>
<CAPTION>
Term Commence Proration PBP
Property Tenant Type Sq.Ft. (Yrs.) Date Exp. Date TI's LC's Total Date Percent
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PP Sac Convention Center N 11,216 5 10/20/97 11/30/2002 - 43,742 43,742 04/01/99 28.28%
PT River City Auction & R/E 3,291 3 01/01/98 12/31/2000 - 2,926 2,926 04/01/99 41.55%
Rlty.
PT Radwan F. Haykal R 1,364 3 01/01/98 12/31/2000 1,000 1,269 2,269 04/01/99 41.55%
TV Rognlien, Wright & R 1,065 3 01/01/98 12/31/2000 2,312 870 3,182 04/01/99 41.55%
Pennan
TV Tenant Constr Specialties R 1,652 3 02/01/98 01/31/2001 2,371 1,207 3,578 04/01/99 38.72%
PT Ron Kim R 2,477 1 04/01/98 03/31/99 - 768 768 04/01/99 100.00%
PP CA State Univ- N 2,139 3 02/15/98 02/14/2001 7,535 5,877 13,412 04/01/99 37.44%
Sacramento
PP CA State ASCS E 3,300 1 03/01/98 01/31/99 650 130 780 04/01/99 100.00%
TV Court Development, Inc. E 1,211 1.5 02/01/98 10/31/99 - 745 745 04/01/99 66.56%
TV DeYoung Manufacturing R 2,275 3 02/01/98 01/31/2001 - 1,265 1,265 04/01/99 38.72%
TV W.R. Hanson R 1,752 3 03/01/98 02/28/2001 3,195 1,332 4,527 04/01/99 36.16%
PP CA CAD Solutions, Inc. N 1,004 5 04/01/98 03/31/2003 5,260 4,181 9,441 04/01/99 20.00%
TV Master Int'l. R 2,378 3 05/01/98 04/30/2001 - 1,634 1,634 04/01/99 30.59%
Corporation
PT Sharon Carney R/E 682 4 05/01/98 04/30/2002 8,906 1,207 10,113 04/01/99 22.95%
PT Steve Roberts R 855 3 03/01/98 02/28/2001 3,005 821 3,826 04/01/99 36.16%
PP AIA R 4,400 5 09/01/98 08/31/2003 14,000 9,240 23,240 04/01/99 11.62%
TV TCI Cablevision N 3,500 3 05/08/98 04/30/2001 4,126 2,352 6,478 04/01/99 30.15%
TV Regional Bldg. Services N 850 3 10/01/98 09/30/2001 - 1,043 1,043 04/01/99 16.62%
------------------------------
Total - Existing Leases 52,360 80,609 132,969
<CAPTION>
PBP Glenborough
Property Tenant Share Share
<C> <S> <C> <C>
PP Sac Convention Center 12,371 31,371
PT River City Auction & 1,216 1,710
Rlty.
PT Radwan F. Haykal 943 1,326
TV Rognlien, Wright & 1,322 1,860
Pennan
TV Tenant Constr Specialties 1,385 2,193
PT Ron Kim 768 0
PP CA State Univ- 5,022 8,390
Sacramento
PP CA State ASCS 780 0
TV Court Development, Inc. 496 249
TV DeYoung Manufacturing 490 775
TV W.R. Hanson 1,637 2,890
PP CA CAD Solutions, Inc. 1,888 7,553
TV Master Int'l. 500 1,134
Corporation
PT Sharon Carney 2,320 7,793
PT Steve Roberts 1,384 2,442
PP AIA 2,700 20,540
TV TCI Cablevision 1,953 4,525
TV Regional Bldg. Services 173 870
------------------------
Total - Existing Leases 37,348 95,621
PP = Park Plaza N = New
PT = Poplar Towers R = Renewal
TV = Totem Valley E = Expansion
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Prudential-Bache Equitec Real Estate
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000757191
<NAME> Prudential-Bache Equitec Real Estate
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Sep-30-1998
<PERIOD-TYPE> 9-Mos
<CASH> 1,803,000
<SECURITIES> 0
<RECEIVABLES> 1,165,000
<ALLOWANCES> 500,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 52,740,000
<DEPRECIATION> 23,106,000
<TOTAL-ASSETS> 32,102,000
<CURRENT-LIABILITIES> 28,520,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,582,000
<TOTAL-LIABILITY-AND-EQUITY> 32,102,000
<SALES> 0
<TOTAL-REVENUES> 5,752,000
<CGS> 0
<TOTAL-COSTS> 4,501,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,858,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (607,000)
<EPS-PRIMARY> (8.74)
<EPS-DILUTED> 0
</TABLE>
