-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PCI1DLOtCrG36tEaA8NZzixbksxpWdw8Nn2ilWicSo4PV/dOmAWZLp/Z4d4YBkPq VN7chkvUcNqJO6MJZDufzQ== 0000929454-97-000017.txt : 19970401 0000929454-97-000017.hdr.sgml : 19970401 ACCESSION NUMBER: 0000929454-97-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RANCON REALTY FUND IV CENTRAL INDEX KEY: 0000743870 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330061355 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14207 FILM NUMBER: 97568463 BUSINESS ADDRESS: STREET 1: 400 SOUTH EL CAMINO REAL STE 1100 CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 4153439300 10-K 1 12/31/96 10-K FOR RANCON REALTY FUND IV UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the year ended December 31, 1996 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: 0-14207 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) California 33-0016355 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 400 South El Camino Real, Suite 1100 94402-1708 San Mateo, California (Zip Code) (Address of principal executive offices) Partnership's telephone number, including area code (415) 343-9300 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of class) 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. [X] 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 No market for the Limited Partnership Units exists and therefore a market value for such Units cannot be determined. DOCUMENTS INCORPORATED BY REFERENCE: Prospectus dated December 29, 1986, as amended on January 5, 1987, filed pursuant to Rule 424(b), File no. 2-90327, is incorporated by reference in Part IV hereof. Report on Form 10-K dated October 31, 1992 filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, File No. 0-14207, is incorporated by reference in Part IV hereof. Exhibit Index located on Page 42 Page 1 of 62 PART I Item 1. Business Rancon Realty Fund IV, a California Limited Partnership, ("the Partnership") was organized in accordance with the provisions of the California Uniform Limited Partnership Act for the purpose of acquiring, developing, operating and ultimately selling real property. The Partnership was organized in 1984 and reached final funding in July, 1987. The general partners of the Partnership are Daniel L. Stephenson ("DLS") and Rancon Financial Corp. ("RFC"). RFC is wholly owned by DLS. At December 31, 1996, 79,846 limited partnership units ("Units") were outstanding. The Partnership has no employees. In April, 1996, the Partnership formed Rancon Realty Fund IV Tri-City Limited Partnership, a Delaware limited partnership ("RRF IV Tri-City") to satisfy certain lender requirements for a loan obtained in 1996. This loan is secured by three properties (see Item 2) which have been contributed to RRF IV Tri-City by the Partnership. The limited partner of RRF IV Tri-City is the Partnership and the general partner is Rancon Realty Fund IV, Inc. ("RRF IV, Inc."), a corporation wholly owned by the Partnership. Since the Partnership owns 100% of RRF IV, Inc. and indirectly owns 100% of RRF IV Tri-City, the Partnership considers all assets owned by RRF IV, Inc. and RRF IV Tri-City to be owned by the Partnership. At December 31, 1996, the Partnership owns six rental properties totaling approximately 412,000 square feet of space in a master-planned development known as Tri-City Corporate Centre ("Tri-City") in San Bernardino, California and a 240-unit apartment complex in Vista, California. Tri-City is zoned for mixed commercial, office, hotel, transportation-related, and light industrial uses and all of the parcels thereof are separately owned by the Partnership and Rancon Realty Fund V ("Fund V"), a partnership sponsored by the general partners of the Partnership. The Partnership also owns for development or sale approximately 35.3 acres in Tri-City, 24.8 acres in Lake Elsinore, California, 17.14 acres in Perris, California and 11.29 acres in Temecula, California. Competition Within the Market Management believes that characteristics influencing the competitiveness of a real estate project are the geographic location of the property, the professionalism of the property manager and the maintenance and appearance of the property, in addition to external factors such as general economic circumstances, trends, and the existence of new, competing properties in the vicinity. Additional competitive factors with respect to commercial and industrial properties are the ease of access to the property, the adequacy of related facilities, such as parking, and the ability to provide rent concessions and tenant improvements commensurate with local market conditions. Although management believes the Partnership properties are competitive with comparable properties as to those factors within the Partnership's control, over-building and other external factors could adversely affect the ability of the Partnership to attract and retain tenants. The marketability of the properties may also be affected (either positively or 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 Partnership may be required to retain ownership of its properties for periods longer than anticipated, or may need to sell earlier than anticipated or refinance a property, at a time or under terms and conditions that are less advantageous than would be the case if unfavorable economic or market conditions did not exist. Page 2 of 62 Working Capital The Partnership's practice is to maintain cash reserves for normal repairs, replacements, working capital and other contingencies. The Partnership knows of no statistical information which allows comparison of its cash reserves to those of its competitors. Other Factors Approximately 23 acres of the Tri-City Corporate Centre land owned by the Partnership was part of a landfill operated by the City of San Bernardino ("the City") from approximately 1950 to 1960. There are no records of which the Partnership is aware disclosing that hazardous wastes exist at the landfill. The Partnership's landfill monitoring program currently meets or exceeds all regulatory requirements. The Partnership is currently working with the Santa Ana Region of the California Regional Water Quality Control Board and the City to determine the need and responsibility for any further testing. There is no current requirement to ultimately clean up the site, however, no assurance can be made that circumstances will not arise which could impact the Partnership's responsibility related to the property. Item 2. Properties Tri-City Corporate Centre On December 24, 1984, the Partnership acquired 68.97 acres on seven parcels of partially developed land in Tri-City. On August 19, 1985, the Partnership acquired an additional 7.59 acres on 4 parcels in Tri-City. During that time, Fund V acquired the remaining 76.21 acres within Tri-City. The Partnership acquired the initial seven parcels of land in Tri-City for $9,019,000 and the additional 7.59 acres for $898,000. Tri-City is located at the northeastern quadrant of the intersection of Interstate 10 (San Bernardino Freeway) and Waterman Avenue in the southernmost part of the City of San Bernardino. The Partnership has constructed and owns the following six operating properties in Tri-City: Property Type Square Feet - ----------------------- ----------------------------- ----------- One Vanderbilt Four story office building 73,809 Two Vanderbilt Four story office building 69,094 Carnegie Business Center I Two light industrial buildings 62,605 Service Retail Center Two retail buildings 20,780 Promotional Retail Center Four strip center retail buildings 104,865 Inland Regional Center Two story office building 81,079 These properties total approximately 412,000 leasable square feet and offer a wide range of retail, commercial, industrial and office product to the market. The I-10/San Bernardino corridor consists of approximately 2,865,000 square feet of office space, with a vacancy rate of 28% as of October, 1996, and approximately 12,806,000 square feet of light industrial Page 3 of 62 space, with a vacancy rate of 23% as of October, 1996 (the vacancy rates and square feet amounts are according to research conducted by the Partnership's property manager). Within the Tri-City Corporate Centre at December 31, 1996, the Partnership has 223,982 square feet of office space with a vacancy rate of 28%, 125,645 square feet of retail space with a vacancy rate of 1% and 62,605 square feet of light industrial space with a vacancy rate of 10%. The following are the occupancy levels for the Partnership's Tri-City buildings at December 31, 1996, October 31, 1995, 1994 and 1993, expressed as a percentage of the total net rentable square feet: December 31, October 31, October 31, October 31, 1996 1995 1994 1993 ----------- ---------- ---------- ---------- One Vanderbilt 86% 70% 100% 95% Two Vanderbilt 25% 95% 100% 100% Carnegie Business Center I 90% 97% 100% 89% Service Retail Center 100% 90% 98% 82% Promotional Retail Center 98% 97% 94% 94% Inland Regional Center 100% N/A N/A N/A In 1996, management renewed three leases totaling 5,709 square feet of space and executed six new leases totaling 111,457 square feet of space. A major tenant who occupied 73,914 square feet at various Tri-City properties vacated upon the expiration of their lease on November 15, 1995. This tenant occupied 56,744 square feet in Two Vanderbilt which is approximately 82% of the total leasable square feet of that property. Management has entered into a temporary ground lease convertible to a 20-year triple net operating lease, when construction is completed in April or May of 1997, with a nationally recognized retailer for a 38,600 square feet build-to-suit retail building. Management is currently in various stages of negotiation for two new leases totaling 39,965 square feet of space. In addition, management is negotiating three lease renewals totaling 27,801 square feet of space. The annual effective rent per square foot for the years ended December 31, 1996 and October 31, 1995 were: 1996 1995 -------- -------- One Vanderbilt $ 18.07 $ 20.94 Two Vanderbilt $ 13.91 $ 19.16 Carnegie Business Center I $ 10.02 $ 11.00 Service Retail Center $ 14.37 $ 14.63 Promotional Retail Center $ 9.85 $ 10.49 Inland Regional Center $ 13.49 N/A At December 31, 1996, annual rental rates ranged from $13.44 to $18.77 per square foot for office space; $9.00 to $16.67 per square foot for retail space; and $7.32 to $13.90 per square foot for industrial space. The Partnership also has a temporary ground lease for $3.89 per square foot until construction is completed in April or May of 1997. The Two Vanderbilt property's annual effective rental rate decreased by 27% in fiscal year 1996 compared to fiscal year 1995 due to the vacancy in November, 1995 of a tenant who occupied 73,914 total square feet of office space, 56,744 square feet of which was in Two Vanderbilt. Page 4 of 62 According to research conducted by the property manager, the average annual effective rent per square foot in the Partnership's competitive market averages $17.76 for office buildings, $10.44 for retail and $9.00 for light industrial space. Tri-City's rental properties had the following five tenants which occupied a significant portion of the net rentable square footage as of December 31, 1996: Inland ITT Regional Educational Comp Circuit Tenant Center Services USA PetsMart City Inland Carnegie Regional Business Promotional Promotional Promotional Building Center Center I Retail Retail Retail Social Educational Pet Nature of Business Services Services Computer Retail Electronics Lease Term 13 yrs. 12 yrs. 10 yrs. 15 yrs. 20 yrs. Expiration Date 7/16/09 12/31/04 8/31/03 1/10/09 1/31/18 Square Feet 81,079 33,551 23,000 25,015 38,600 (% of rentable total) 20% 8% 6% 6% 9% Annual Rent $1,104,000 $330,089 $207,000 $249,940 $150,000 Future Rent Increases 6% every between 3% 10% in 5% in lesser of 10% 2.5 yrs. and 3.75% 1998 1999 and or 5 yr.CPI annually 2004 every 5 yr. during lease three term four 5-year 5 year 5 year options, fixed four 5-year Renewal Options options None fixed rate rate options In the opinion of management, the properties are adequately covered by insurance. The Partnership's Tri-City rental properties are owned by the Partnership, in fee, subject to the following notes and deeds of trust: Service Retail Center, Carnegie Inland One Business Center and Regional Security Vanderbilt Promotional Retail Center Center Principal balance at December 31, 1996 $2,351,000 $6,457,000 $2,488,000 Interest Rate 9% 8.74% 8.75% Monthly Payment $20,141 $53,413 $20,771 Maturity Date 1/1/05 5/1/06 4/23/01 Page 5 of 62 Approximately 26 acres of the Tri-City property owned by the Partnership remain undeveloped. It is the Partnership's intention to develop parcels of this property as tenants become available or dispose of the property at the optimal time and sales price. During 1996, the Partnership's Tri-City properties were assessed $751,000 in property taxes based on an average realty tax rate of 2.62% (including additional assessments and bonds). Shadowridge Woodbend Apartments On June 26, 1987, the Partnership acquired an apartment complex known as Shadowridge Woodbend Apartments ("Shadowridge") in an all cash transaction for $12,850,000. The apartment complex contains 240 units, consisting of 124 one bedroom/one bath units, 44 two bedroom/one bath units and 72 two bedroom/two bath units and is located in Vista, California. Some of the amenities the complex has to offer include pool and spa, indoor racquetball court, tennis court, fitness center and laundry facilities. Seven communities within the area are considered to be in competition with Shadowridge. At December 31, 1996, Shadowridge is 96% leased, just under the average of its competition of 97% (according to research conducted by the property manager). Also according to the property manager's research, all complexes are offering some type of concessions. Shadowridge is offering lower required security deposit on approved credit with a six or twelve month lease. The other complexes in the area are offering from $150 up to the first month rent free for a six or twelve month lease. The December 31, 1996 average rental rates at Shadowridge and the market rents at the competing properties are as follows: Shadowridge Competition ---------- ----------- 1 Bedroom/1 bath $587 $590-$640 2 Bedroom/1 bath $657 $660-$690 2 Bedroom/2 bath $708 $710-$750 The current rents at Shadowridge are slightly below market due to a number of older leases with tenants that have below market rents. In the opinion of management, the property is adequately covered by insurance. The Shadowridge property is secured by a note and first deed of trust with a current balance of $5,960,000. The note bears interest at 7.95% payable in monthly installments of principal and interest of $48,416 and matures on April 15, 1998. During 1996, the Shadowridge property was assessed $147,000 in property taxes based on an average realty tax rate of 1.32%. Page 6 of 62 Lake Elsinore Property In 1988, the Partnership acquired 17 parcels, totaling approximately 24.8 acres in Lake Elsinore, Riverside County, California for a purchase price of $4,475,000. The property is immediately west of Interstate 15 near the Lake Elsinore Outlet Center. The undeveloped property is commercially zoned. The Partnership had originally planned to develop this site as a neighborhood shopping center, however, improvements to the property have been put on hold indefinitely. A tentative parcel map expired and there is no development activity planned for the near future. In the opinion of management, the property is adequately covered by insurance. At December 31, 1996, the Lake Elsinore Square property is unencumbered. During 1996, the Lake Elsinore Square property was assessed $36,000 in property taxes based on an average realty tax rate of 1.29%. Perris Property In 1988, the Partnership acquired 17.14 acres of unimproved land near Perris Lake in Perris, Riverside County, California at a purchase price of $3,000,000. There has been no development of this property to date. The Partnership currently holds the property for sale to retail users and interested developers. In the opinion of management, the property is adequately covered by insurance. At December 31, 1996, the Perris property is unencumbered. During 1996, the Perris property was assessed $17,000 in property taxes based on an average realty tax rate of 1.12%. Temecula Property In June, 1992, the Partnership acquired 12.4 acres of undeveloped commercial property in Temecula, Riverside County, California. The property has been divided into twelve parcels via a tentative parcel map intending to accommodate retail and commercial development. Final map approval was received on January 2, 1996. The Partnership sold a 1.11 acre parcel in March, 1996 for a sales price of $275,000. The Partnership has completed the street utility and sewer improvements on this site which will greatly assist in the marketing efforts of the property. The Partnership currently has 3.16 acres under contract to sell to a mini storage operator for $607,000, pending satisfactory completion of due diligence. Negotiations are currently underway to sell another two lots totaling 1.56 acres. The remaining lots are currently held for sale by the Partnership. In the opinion of management, the property is adequately covered by insurance. The Partnership is also contingently liable for a subordinated note payable in connection with the 11.29 acre property in Temecula, California, that the Partnership reacquired in June, 1992 through a deed in lieu Page 7 of 62 of foreclosure in satisfaction of a $2,276,000 note receivable held by the Partnership that had gone into default during 1991. The subordinated note payable and accrued interest total $532,000 as of December 31, 1996. This amount is payable upon the sale of the property only after the Partnership receives the full amount of the prior note receivable with accrued and unpaid interest, costs of development, costs of sale, and other amounts paid to obtain good title to the property, subject to certain release provisions. During 1996, the Temecula property was assessed $75,000 in property taxes based on an average realty tax rate of 2.60% (including additional assessments and bonds). Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None. Page 8 of 62 PART II Item 5. Market for Partnership's Common Equity and Related Stock Holder Matters Market Information There is no established trading market for the Units issued by the Partnership. Holders As of December 31, 1996, there were 11,880 holders of Partnership Units. Dividends Distributions are paid from either Cash From Operations or Cash From Sales or Refinancing. Cash From Operations is defined in the Partnership Agreement as all cash receipts from operations in the ordinary course of business (except for the sale, refinancing, exchange or other disposition of real property in the ordinary course of business) after deducting payments for operating expenses. All distributions of Cash From Operations are paid in the ratio of 90% to the Limited Partners and 10% to the General Partners. Cash From Sales or Refinancing is defined in the Partnership Agreement as the net cash realized by the Partnership from the sale, disposition or refinancing of any property after retirement of applicable mortgage debt and all expenses related to the transaction, together with interest on any notes taken back by the Partnership upon the sale of a property. All distributions of Cash From Sales or Refinancing are generally allocated as follows (a more explicit statement of these distribution policies is set forth in the Partnership Agreement): (i) First, 1 percent to the General Partners and 99 percent to the Limited Partners until the Limited Partners have received an amount equal to their capital contributions, plus a 12 percent return on their unreturned capital contributions (less prior distributions of Cash from Operations); (ii) Second, to Limited Partners who purchased their units of limited partnership interest prior to April 1, 1985, an additional return (depending on the date on which they purchased the units) on their unreturned capital of either 9 percent, 6 percent or 3 percent (calculated through October 31, 1985); and (iii) Third, 20 percent to the General Partners and 80 percent to the Limited Partners. There were no distributions made by the Partnership during the three most recent fiscal years (including the two month stub period ended December 31, 1995). Page 9 of 62 Item 6. Selected Financial Data The following is selected financial data for the year ended December 31, 1996, the two months ended December 31, 1995 and the years ended October 31, 1995, 1994, 1993 and 1992 (in thousands, except per Unit data):
For the For the two year ended months ended For the years ended October 31, Dec. 31, Dec. 31, ------------------------------------------------------ 1996 1995 1995 1994 1993 1992 ---- ---- ------ ------ ------ ----- Rental Income $ 5,149 $ 768 $ 5,784 $ 5,465 $ 5,294 $ 4,708 Gain on sale of real estate $ -- $ -- $ -- $ -- $ 150 $ -- Provision for impairment of real estate investments $ -- $ -- $ (12,224) $ -- $ (1,800) $ (250) Net loss $ (1,510) $ (308) $ (13,417) $ (663) $ (2,027) $ (1,026) Net loss Allocable to Limited Partners $ (1,510) $ (308) $ (13,417) $ (663) $ (2,034) $ (1,026) Net loss per Unit $ (18.91) $ (3.86) $ (168.03) $ (8.30) $ (25.44) $ (12.83) Total assets $ 52,695 $ 48,282 $ 49,321 $ 59,537 $ 59,937 $ 61,377 Long-term obligations $ 17,256 $ 11,757 $ 11,766 $ 8,860 $ 8,647 $ 8,000 Cash distributions per Unit $ -- $ -- $ -- $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL COMMITMENTS: Background At December 31, 1996, the Partnership had cash of $97,000. The remainder of the Partnership's assets consist primarily of its investments in real estate, totaling approximately $50,058,000 at December 31, 1996. The Partnership's primary sources of funds consist of permanent financing, construction financing, property sales and interest income on certificates of deposit and other deposits of funds invested temporarily, pending their use in the development of properties. A majority of the Partnership's assets are located within the Inland Empire, a submarket of Southern California, and have been directly affected by the economic weakness of the region. Management believes, however, that the market has flattened and is no longer falling in terms of sales prices. While prices have not increased significantly, the Southern California real estate market appears to be improving. Management continues to evaluate the real estate markets in which the Partnership's assets are located in an effort to determine the optimal time to dispose of them and realize their maximum value. Page 10 of 62 Tri-City The Partnership owns and operates six properties within the Tri-City Corporate Centre project in San Bernardino, California ("Tri-City") totaling approximately 412,000 leasable square feet. This includes a 81,079 square foot build-to-suit office building for Inland Regional Center ("IRC") which was completed in 1996. A 38,600 square foot build-to-suit retail building is currently under construction and is scheduled to be completed in April or May, 1997. On April 19, 1996, the Partnership obtained permanent financing of $6,500,000 secured by Service Retail Center, Carnegie Business Center I and Promotional Retail Center. The loan is a 10-year fixed rate loan with a 25-year amortization, bearing interest at 8.744% per annum with monthly principal and interest payments of $53,413. The loan proceeds were used to payoff three loans. After paying refinancing and other fees, and placing funds in escrow for tenant improvements for the Promotional Retail Center, the Partnership netted approximately $448,000 in proceeds. The Partnership benefited from the extension of the weighted average maturity of 1.75 years for the three previous loans to 10 years on the new loan, and the reduction of the weighted average interest rate from 9.72% to 8.74%. On May 14, 1996, the Partnership obtained a $2,500,000 construction loan, secured by the IRC building. The loan converted to a permanent loan on July 23, 1996 and requires $20,771 in monthly principal and interest payments through the maturity date of April 23, 2001. At December 31, 1996, the Partnership holds a note receivable in the amount of $405,000 related to the 1990 sale of the TGI Friday's restaurant. On February 28, 1997, the Partnership purchased the property known as TGI Friday's in San Bernardino, California for $1,750,000. The Partnership paid $1,345,000 in cash and the $405,000 note receivable was retired at the time of this acquisition. By acquiring the TGI Friday's parcel, the Partnership will own all parcels within a certain maintenance association. This gives the Partnership a greater control over the future development of the remaining unimproved parcel within the maintenance association. The Partnership remains contingently liable for subordinated real estate commissions payable to the Sponsor in the amount of $643,000 at December 31, 1996 for sales that transpired in previous years. The subordinated real estate commissions are payable only after the Limited Partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 6% per annum on their adjusted invested capital. Lake Elsinore Offsite improvements remain on hold at Lake Elsinore Square in Lake Elsinore, California. The tentative parcel map expired and there is no development activity planned for the near future. Perris There has been no development of the Perris property to date. The property is being marketed for sale by the Partnership to retail users and interested developers. Negotiations are underway for the sale of two additional lots totaling 1.56 acres. The remaining lots are currently held for sale by the Partnership. Page 11 of 62 Temecula Final map approval was received on January 2, 1996 on the 12.4 acre property in Temecula, California. The Partnership has an executed sales contract on a 3.16 acre parcel for $607,000, pending a due diligence period. The sale is expected to close between June, 1997 and January, 1998. Negotiations are currently underway for the sale of two additional lots totaling 1.56 acres and the remaining lots are held for sale. The Partnership has a $100,000 certificate of deposit ("CD") held as collateral for subdivision improvements and monument bonds related to the 11.29 acres of land held for sale in Temecula, California. It is anticipated that this CD will be released in 1997. The Partnership also has a $2,000 CD pledged as security to a utility district for construction of a sewer crossing which has been completed. Management is currently waiting for the utility district to close this project and release the pledged CD. General Matters The $357,000 or 100% increase in accounts payable and other liabilities at December 31, 1996 from December 31, 1995 is only due to the timing of payments of current payables. The balance in accounts payable at December 31, 1996 was paid in early 1997. Management believes that the Partnership's 1997 cash flow from operations will improve primarily as a result of (i) the placement of the Inland Regional Center into service and (ii) management of working capital and capital expenditures such that, when taken together with the Partnership's cash balance at December 31, 1996 of $97,000, will allow the Partnership to meet its cash obligations, including debt service, without requiring the disposal of the Partnership's assets other than in the normal course of business. In January, 1997, the Partnership obtained an unsecured promissory note for a $1,500,000 revolving line of credit from Glenborough Inland Realty Corporation, a California corporation, an affiliate of the Partnership. In February and March, 1997, the Partnership drew a total of $1,000,000 on this line of credit to fund capital expenditures and miscellaneous charges until permanent financing can be obtained for the TGI Friday's and Circuit City properties. The promissory note requires interest to be paid monthly at 11% per annum and matures on December 31, 1997. In February 1997, the Partnership obtained a $1,200,000 unsecured loan to finance the acquisition of the TGI Friday's property. Management is currently under negotiations for a $5,000,000 loan that would be secured by the Circuit City property. The proceeds from the loan would be used to pay-off the $1,200,000 unsecured loan as well as finance tenant improvements at the Circuit City property and other Partnership expenditures. The General Partners continue to assess the real estate market in Southern California in an effort to determine an appropriate time to liquidate the Partnership and realize the maximum value for its assets. Cash generated from property sales may be utilized in the development of other properties or distributed to the partners. RESULTS OF OPERATIONS: In 1995, the Partnership's reporting year end changed from October 31 to December 31. Since the Partnership's operations are not seasonal, the analysis of results of operations compares the fiscal years ended December 31, 1996 and October 31, 1995. Page 12 of 62 Revenues Rental income for the year ended December 31, 1996 decreased $635,000 or 11% from the year ended October 31, 1995, primarily as a result of the November, 1995 vacancy upon lease expiration of one tenant, Aetna Health Management ("Aetna"), who occupied an aggregate of 74,000 square feet of space at One Vanderbilt, Two Vanderbilt and Carnegie Business Center I. This caused a decrease in average occupancy, as reflected in the table of Tri-City properties below. Aetna's vacancy was primarily a function of the tenant's desire to consolidate its operations into one building. This decrease was partially offset by the $40,000 income recognized by the Partnership as part of a settlement agreement with a former tenant. $40,000 was received in cash with the remaining $80,000 in the form of a note which has been fully reserved. The increase in rental income of $319,000 or 6% for the year ended October 31, 1995 over the year ended October 31, 1994 is largely due to the addition of Phase I of the Promotional Retail Center in Tri-City. The Tri-City properties account for 68%, 72% and 71% of the Partnership's total rental income during the years ended December 31, 1996, October 31, 1995 and October 31, 1994, respectively. The Shadowridge Woodbend Apartments in Vista, California accounted for 32%, 28% and 29% of the total rental income during the same periods (and was 96% leased at December 31, 1996). Occupancy rates at the Partnership's Tri-City properties as of December 31, 1996, October 31, 1995, 1994 and 1993 were as follows: 1996 1995 1994 1993 ---- ---- ---- ---- One Vanderbilt 86% 70% 100% 95% Two Vanderbilt 25% 95% 100% 100% Carnegie Business Center I 90% 97% 100% 89% Service Retail Center 100% 90% 98% 82% Promotional Retail Center 98% 97% 94% 94% Inland Regional Center 100% N/A N/A N/A In 1996, tenants at Tri-City occupying substantial portions of leased rental space included: (i) ITT Educational Services with a lease which expires in December, 2004; (ii) Inland Regional Center with a lease through July, 2009; (iii) CompUSA with a lease through August, 2003; (iv) PetsMart with a lease through January, 2009; and (v) Circuit City, currently on a ground lease which will convert to a twenty year lease expiring in January, 2018 when construction is completed in 1997. These five tenants, in the aggregate, occupied approximately 201,000 square feet of the 412,000 total leasable square feet at Tri-City in 1996. As of December 31, 1996, management is in various stages of negotiation for two new leases totaling 39,965 square feet of space. In addition, management is negotiating three lease renewals for 27,801 square feet of space. Interest and other income for the year ended December 31, 1996 decreased $88,000 or 58% from the year ended October 31, 1995 primarily due to the significant decrease in cash during 1996 compared to fiscal year 1995, as cash was used to fund the construction of the Inland Regional Center property. Interest and other income for the year ended October 31, 1995 decreased $35,000 or 19% from the year ended October 31, 1994 due to the $720,000 principal reduction to the Partnership's note receivable received during 1995. Page 13 of 62 Expenses Operating expenses for the year ended December 31, 1996 remained comparable to the operating expenses for the year ended October 31, 1995. The increase of $286,000 or 12% during the fiscal year ended October 31, 1995 over the prior year is primarily due to an increase in property taxes upon the completion of Phase I of the Promotional Retail Center. Depreciation and amortization decreased $98,000 or 6% during the year ended December 31, 1996 compared to the year ended October 31, 1995 and increased $43,000 or 3% while comparing the year ended October 31, 1995 to the year ended October 31, 1994 as a result of fully amortizing lease commissions paid in connection with a tenant's early vacancy in the One Vanderbilt building in 1995. Interest expense increased $39,000 or 5% and $33,000 or 5% during the year ended December 31, 1996 compared to the year ended October 31, 1995 and during the year ended October 31, 1995 compared to the year ended October 31, 1994, respectively, due to the increased debt to finance the construction of properties over this two year period. Prior to 1995, the Partnership's business strategy was to hold its properties for future development and operations. Conclusions about the carrying value of the Partnership's properties were based upon this strategy. In 1995, the Partnership modified this strategy to focus on eventual disposition of its assets at the optimal time and sales price, however, development opportunities will be pursued for certain sites. The Partnership revalued certain of its assets based upon the change in strategy, independent appraisals and management's estimates of development value. Appraisals and development values are estimates of fair value based upon assumptions about the property and the market in which it is located. Due to the uncertainties inherent in these processes, these valuations do not purport to be the price at which a sale transaction involving these properties can or will take place. The Partnership made the following provisions to reduce the carrying value of investments in real estate for the year ended October 31, 1995: Unimproved Land: San Bernardino, CA $ 6,158,000 Perris, CA 2,024,000 Lake Elsinore, CA 4,042,000 ----------- Total $12,224,000 =========== No such provisions were recorded in 1996, the two month period ended December 31, 1995 or in 1994. Expenses associated with undeveloped land include property taxes as well as maintenance association fees. Any expenses associated with land currently under construction (i.e., undergoing activities necessary to get it ready for its intended use) have been capitalized pursuant to Statement of Financial Accounting Standards No. 67 (SFAS 67) "Accounting for Costs and Initial Rental Operations of Real Estate Projects". The $197,000 or 26% decrease in expenses associated with undeveloped land during the year ended December 31, 1996 compared to the year ended October 31, 1995 was in large part due to the capitalization of expenses at the Circuit City and Rancon Town Village projects in 1996. Expenses associated with undeveloped land during the year ended October 31, 1995 compared to the year ended October 31, 1994 decreased by $116,000 or 13% due to: (i) the capitalization of property taxes during the construction of a 15,000 square foot retail building in the Promotional Retail Center and the 81,000 square foot build-to-suit office building for Inland Regional Center and (ii) a decrease in the assessed value of certain portions of the Partnership's unimproved land and refunds of previously paid property taxes. Page 14 of 62 Administrative expenses decreased $109,000 or 8% during the year ended December 31, 1996 from the year ended October 31, 1995, a result of a one-time severance payment to RFC's terminated employees in 1995, but partially offset by a $72,000 increase in general overhead expenses related to the management of the Partnership and a $28,000 increase in general partnership legal costs in 1996. The increase in administrative expenses of $568,000 or 70% during the year ended October 31, 1995 over the year ended October 31, 1994 is largely due to: (i) the aforementioned severance payment to RFC; (ii) an increase in investor update meetings and the associated costs in 1995; and (iii) the payment and expense of 1994 audit and tax return fees in 1995. Since January 1, 1995, audit and tax fees have been accrued in the year to which they relate. In December, 1994, RFC entered into an agreement with Glenborough Inland Realty Corporation ("Glenborough") whereby RFC sold to Glenborough, for approximately $4,466,000 and the assumption of $1,715,000 of RFC's debt, the contract to perform the rights and responsibilities under RFC's agreement with the Partnership and other related Partnerships (collectively, "the Rancon Partnerships") to perform or contract on the Partnership's behalf for financial, accounting, data processing, marketing, legal, investor relations, asset and development management and consulting services for the Partnership for a period of ten years or to the liquidation of the Partnership, whichever comes first. According to the contract, the Partnership will pay Glenborough for its services as follows: (i) a specified asset administration fee of $993,000 per year, which is fixed for five years subject to reduction in the year following the sale of assets; (ii) sales fees of 2% for improved properties and 4% for land; (iii) a refinancing fee of 1% and (iv) a management fee of 5% of gross rental receipts. As part of this agreement, Glenborough will perform certain responsibilities for the General Partner of the Rancon Partnerships and RFC agreed to cooperate with Glenborough, should Glenborough attempt to obtain a majority vote of the limited partners to substitute itself as the Sponsor for the Rancon Partnerships. Glenborough is not an affiliate of RFC. RFC entered into the transaction with Glenborough described above, when it determined to sell that portion of its business relating to investor relations services, property management services and asset management services, and those services are now rendered to the Partnership, eight other related partnerships and third parties by Glenborough. Item 8. Financial Statements and Supplementary Data For information with respect to this Item 8, see Financial Statements and Schedules as listed in Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On June 6, 1995, Price Waterhouse LLP was dismissed as the principal independent accountant for the Partnership. The decision to dismiss Price Waterhouse LLP was made by the Partnership's General Partner. The reports of Price Waterhouse LLP on the Partnership's financial statements for the period ending October 31, 1994, do not contain an adverse opinion or a disclaimer of an opinion, nor were such opinions modified as to uncertainty, audit scope, or accounting principles. During the fiscal years ended October 31, 1994 and 1993 and the subsequent interim period from November 1, 1994 to June 6, 1995, there were no disagreements between the Partnership and Price Waterhouse LLP on any matter of accounting principles or practices, financial statement disclosure, or Page 15 of 62 auditing scope or procedure, which, if not resolved to the satisfaction of Price Waterhouse LLP, would have caused it to make a reference to the subject matter of the disagreement in connection with its reports. For this purpose the term disagreement does not include initial differences of opinion based on incomplete facts or preliminary information that were later resolved to the satisfaction of Price Waterhouse LLP by obtaining additional relevant facts or information. During the fiscal years ended October 31, 1994 and 1993 and the subsequent interim period from November 1, 1994 to June 6, 1995, there were no "reportable events" of the type described in Rule 304(a)(1)(v)(A) through (D) of Regulation S-K. On June 6, 1995, the Partnership engaged Arthur Andersen LLP as its new principal independent accountant. During the fiscal years ended October 31, 1994 and 1993 and the subsequent interim period from November 1, 1994 through June 6, 1995, the Partnership did not consult with Arthur Andersen LLP as to the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on the Partnership's financial statements. Page 16 of 62 Part III Item 10. Directors and Executive Officers of the Partnership Daniel Lee Stephenson and RFC are the General Partners of the Partnership. The executive officer and director of Rancon is: Daniel L. Stephenson Director, President, Chief Executive Officer and Chief Financial Officer There is no fixed term of office for Mr. Stephenson. Mr. Stephenson, age 53, founded RFC (formerly known as Rancon Corporation) in 1971 for the purpose of establishing itself as a commercial, industrial and residential property syndication, development and brokerage concern. Mr. Stephenson has, from inception, held the position of Director. In addition, Mr. Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986, from August 1991 to September 1992 and from March 31, 1995 to present. Mr. Stephenson is Chairman of the Board of PacWest Group, Inc., a real estate firm which has acquired a portfolio of assets from the Resolution Trust Corporation. Effective January 1, 1994 RFC acquired all the outstanding shares of Partnership Asset Management Company, a California corporation, which previously performed or contracted on the Partnership's behalf for financial, accounting, data processing, marketing, legal, investor relations, asset and development management and consulting services for the Partnership. These services were provided to the Partnership by RFC subject to the provisions of the Partnership Agreement during calendar year 1994. Rancon Development Fund VII (RDFVII), a partnership sponsored by the General Partners, filed for protection under Chapter 11 of Federal Bankruptcy Law on May 6, 1994 in order to put an automatic stay on RDFVII's property and to forestall the pending foreclosure. In March, 1994, the General partners were approached by a non-affiliated party interested in acquiring the interests of RDFVII's general partners and attempting to restructure the partnership and its secured debt. Although the necessary majority-in-interest of RDFVII's limited partners was received, an agreement regarding the terms of the transfer and the plan of reorganization could not be reached. The holder of the note secured by RDFVII's property filed for and was granted a relief from the stay thereby allowing the foreclosure sale to proceed. Such sale took place on September 15, 1994 and the bankruptcy was subsequently dismissed, as the property was RDFVII's only asset. Six Stoneridge L.P. (SSRLP), a partnership formed by Rancon Development Fund VI (RDFVI), a partnership sponsored by the General Partners filed for protection under Chapter 11 of Federal Bankruptcy Law in December, 1992. Efforts to negotiate a modification of the purchase agreement of StoneRidge I, to obtain loans, joint venture partners or other vehicles to meet or modify the cash payment requirements were unsuccessful. In February, 1993, an adversary complaint was filed against SSRLP in the bankruptcy court to determine the nature and extent of SSRLP's interest in StoneRidge I and the debt associated with the property. A tentative agreement has been reached and the bankruptcy was dismissed effective November 8, 1995. As of December 31, 1996, SSRLP and RDFVI have been dissolved. Page 17 of 62 Item 11. Executive Compensation The Partnership has no executive officers. For information relating to fees, compensation, reimbursement and distributions paid to related parties, reference is made to Item 13 below. Item 12. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners No person is known by the Partnership to be the beneficial owner of more than 5% of the Units. Security Ownership of Management Title Amount and Nature of Percent of Class Name of Beneficial Owner Beneficial Ownership of Class - -------- -------------------------------- -------------------- -------- Units Daniel Lee Stephenson (I.R.A.) 4 Units (direct) * Units Daniel Lee Stephenson Family Trust 100 Units (direct) * * Less than 1 percent Changes in Control The Limited Partners have no right, power or authority to act for or bind the Partnership. However, the Limited Partners have the power to vote upon the following matters affecting the basic structure of the Partnership, each of which shall require the approval of Limited Partners holding a majority of the outstanding Units: (i) amendment of the Partnership's Partnership Agreement; (ii) termination and dissolution of the Partnership; (iii) sale, exchange or pledge of all or substantially all of the assets of the Partnership; (iv) removal of the General Partners or any successor General Partner; (v) election of a new General Partner or General Partners upon the removal, retirement, death, insanity, insolvency, bankruptcy or dissolution of the General Partners or any successor General Partner; and (vi) extension of the term of the Partnership. Item 13. Certain Relationships and Related Transactions Due to the agreement with Glenborough whereby RFC sold to Glenborough the contract to perform the rights and responsibilities under RFC's agreement with the Partnership, there were no such fees or reimbursements for the year ended December 31, 1996 or the two months ended December 31, 1995. Page 18 of 62 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of the report (1) Financial Statements: Reports of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1996 and 1995 and October 31, 1995 Consolidated Statements of Operations for the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 Consolidated Statements of Partners' Equity (Deficit) for the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 Consolidated Statements of Cash Flows for the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 Notes to Consolidated Financial Statements (2) Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1996 and Note thereto (3) Exhibits: (3.1) Second Amended and Restated Certificate and Agreement of Limited Partnership of the Partnership (included as Exhibit B to the Prospectus dated December 29, 1986, as amended on January 5, 1987, filed pursuant to Rule 424(b), file number 2-90327, is incorporated herein by reference). (3.2) First Amendment to the Second Amended and Restated Agreement and Certificate of Limited Partnership of the Partnership, dated March 11, 1991 (included as Exhibit 3.2 to 10-K dated October 31, 1992, File number 0-14207, is incorporated herein by reference). (3.3) Limited Partnership Agreement of RRF IV Tri-City Limited Partnership, A Delaware limited partnership of which Rancon Realty Fund IV, A California Limited Partnership is the limited partner (filed as Exhibit 3.3 to the Partnership's annual report on Form 10-K for the year ended December 31, 1996 is incorporated herein by reference) Page 19 of 62 (10.1) Management, administration and consulting agreement and amendment thereto for services rendered by Glenborough Inland Realty Corporation dated December 20, 1994 and March 30, 1995, respectively. (10.2) Construction loan agreement and promissory note on the Discovery Zone site in the Promotional Retail Center at Tri-City Corporate Centre in the amount of $1,000,000 dated February 15, 1995. (10.3) Promissory note secured by a deed of trust on the One Vanderbilt building at the Tri-City Corporate Centre in the amount of $2,400,000 dated January 17, 1995. (10.4) Construction loan agreement and promissory note on the Inland Regional Center at Tri-City Corporate Centre in the amount of $1,000,000 dated May 12, 1995. (10.5) Note secured by deed of trust on Carnegie Business Center I and Service Retail Center at Tri-City Corporate Centre in the amount of $2,800,000 dated June 1, 1995. (10.6) Promissory note in the amount of $6,500,000, dated April 19, 1996, secured by Deeds of Trust on three of the Partnership Properties (filed as Exhibit 10.6 to the Partnership's annual report on Form 10-K for the year ended December 31, 1996 is incorporated herein by reference). (27) Financial Data Schedule. (b) Reports on Form 8-K None. Page 20 of 62 SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RANCON REALTY FUND IV, a California Limited Partnership (Partnership) Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON -------------------------- Daniel L. Stephenson, General Partner and Director, President, Chief Executive Officer and Chief Financial Officer of Rancon Financial Corporation, General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by following persons on behalf of the Partnership and in the capacities and on the dates indicated. Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON -------------------------- Daniel L. Stephenson, General Partner and Director, President, Chief Executive Officer and Chief Financial Officer of Rancon Financial Corporation, General Partner Page 21 of 62 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Financial Statements and Schedule Page Financial Statements: Reports of Independent Public Accountants 23 & 24 Consolidated Balance Sheets as of December 31, 1996 and 1995 and October 31, 1995 25 Consolidated Statements of Operations for the year ended December 31, 1996 the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 26 Consolidated Statements of Partners' Equity (Deficit) for the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 27 Consolidated Statements of Cash Flows for the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 28 Notes to Consolidated Financial Statements 30 Schedule: III - Real Estate and Accumulated Depreciation as of December 31, 1996 and Note thereto 41 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Page 22 of 62 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP: We have audited the accompanying consolidated balance sheets of RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP as of December 31, 1996 and 1995 and October 31, 1995, and the related statements of operations, partners' equity (deficit) and cash flows for the year ended December 31, 1996, the two months ended December 31, 1995 and the year ended October 31, 1995. These consolidated financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996 and 1995 and October 31, 1995 and the results of its operations and its cash flows for the year ended December 31, 1996, the two months ended December 31, 1995, and the year ended October 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying schedule listed in the index to financial statements and schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic consolidated financial statements. This information has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. San Francisco, California February 12, 1997 (except with regards to the matter discussed in Note 3, as to which the date is February 28, 1997) Page 23 of 62 REPORT OF INDEPENDENT ACCOUNTANTS To the General and Limited Partners of Rancon Realty Fund IV In our opinion, the accompanying statements of operations, of partners' equity and of cash flows present fairly, in all material respects, the results of operations and cash flows of Rancon Realty Fund IV for the year ended October 31, 1994, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the statements of Rancon Realty Fund IV for any period subsequent to October 31, 1994. Our audit for the year ended October 31, 1994 was made for the purpose for forming an opinion on the basic financial statements taken as a whole. Our audit also included an audit of the Financial Statement Schedule listed in Item 14 (a) of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. PRICE WATERHOUSE LLP San Diego, California January 20, 1995 Page 24 of 62
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Balance Sheets December 31, 1996 and 1995 and October 31, 1995 (in thousands, except units outstanding) December 31, December 31, October 31, Assets 1996 1995 1995 - ------ ----------- ---------- --------- Investments in real estate: Rental property, net of accumulated depreciation of $13,077 as of December 31, 1996, $11,799 as of December 31, 1995 and $11,609 as of October 31, 1995 $ 38,094 $ 30,766 $ 30,915 Construction in progress 2,184 2,931 2,646 Land held for development 4,911 9,088 9,063 Land held for sale 4,869 1,632 1,630 --------- --------- -------- Total real estate investments 50,058 44,417 44,254 --------- --------- -------- Cash and cash equivalents 97 1,296 1,934 Restricted cash 102 926 1,213 Accounts and interest receivable 188 8 14 Notes receivable 405 405 405 Deferred financing costs and other fees, net of accumulated amortization of $775 as of December 31, 1996, $675 as of December 31, 1995 and $643 as of October 31, 1995 1,223 640 643 Prepaid expenses and other assets 622 590 858 --------- -------- -------- Total assets $ 52,695 $ 48,282 $ 49,321 ========= ======== ======== Liabilities and Partners' Equity (Deficit) - ----------------------------------------- Notes payable $ 17,256 $ 11,757 $ 11,766 Accounts payable and accrued expenses 713 356 1,034 Interest payable 67 -- 44 --------- -------- -------- Total liabilities 18,036 12,113 12,844 --------- -------- -------- Commitments and contingent liabilities (see Note 8) Partners' equity (deficit): General partners (891) (891) (891) Limited partners, 79,846 limited partnership units outstanding at December 31, 1996, December 31, 1995 and October 31, 1995 35,550 37,060 37,368 --------- -------- -------- Total partners' equity 34,659 36,169 36,477 --------- -------- -------- Total liabilities and partners' equity $ 52,695 $ 48,282 $ 49,321 ========= ======== ======== The accompanying notes are an integral part of these financial statements
Page 25 of 62
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Operations For the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 (in thousands, except per unit amounts and units outstanding) For the For the two For the For the year ended months ended year ended year ended December 31, December 31, October 31, October 31, 1996 1995 1995 1994 ---------- --------- ---------- --------- Revenues: Rental income $ 5,149 $ 768 $ 5,784 $ 5,465 Interest and other income 65 16 153 188 --------- -------- --------- --------- Total revenues 5,214 784 5,937 5,653 --------- -------- --------- --------- Expenses: Operating, including $54 and $278 paid to Sponsor for the years ended October 31, 1995 and 1994, respectively 2,642 411 2,683 2,397 Depreciation and amortization 1,449 207 1,547 1,504 Interest expense 792 139 753 720 Provision for impairment of real estate investments -- -- 12,224 -- Expenses associated with undeveloped land 571 124 768 884 Administrative, including $345 and $840 paid to Sponsor in 1995 and 1994, respectively 1,270 211 1,379 811 --------- -------- --------- -------- Total expenses 6,724 1,092 19,354 6,316 --------- -------- --------- -------- Net loss $ (1,510) $ (308) $ (13,417) $ (663) ========= ======== ========= ======== Net loss per limited partnership unit $ (18.91) $ (3.86) $ (168.03) $ (8.30) ======== ======= ========= ======= Weighted average number of limited partnership units outstanding during each period used to compute net loss per limited partnership unit 79,846 79,846 79,850 79,901 ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements
Page 26 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Partners' Equity (Deficit) For the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 (in thousands) General Limited Partners Partners Total -------- -------- -------- Balance at October 31, 1993 $ (891) $ 51,484 $ 50,593 Retirement of Limited Partnership Units -- (24) (24) Net loss -- (663) (663) ------- -------- -------- Balance at October 31, 1994 (891) 50,797 49,906 Retirement of Limited Partnership Units -- (12) (12) Net loss -- (13,417) (13,417) ------- -------- -------- Balance at October 31, 1995 (891) 37,368 36,477 Net loss -- (308) (308) ------- -------- -------- Balance at December 31, 1995 (891) 37,060 36,169 Net loss -- (1,510) (1,510) ------- -------- -------- Balance at December 31, 1996 $ (891) $ 35,550 $ 34,659 ======= ======== ======== The accompanying notes are an integral part of these financial statements Page 27 of 62
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Cash Flows For the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 (in thousands) For the For the two For the For the year ended months ended year ended year ended Dec. 31, 1996 Dec. 31, 1995 Oct. 31, 1995 Oct. 31, 1994 ------------- ------------- ------------- ------------- Cash flows from operating activities: Net loss $ (1,510) $ (308) $ (13,417) $ (663) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 1,449 207 1,496 1,417 Amortization of loan fees, included in interest expense 68 15 51 87 Provision for impairment of real estate investments -- -- 12,224 -- Changes in certain assets and liabilities: Deferred fees (596) (6) (13) (140) Accounts and interest receivable (180) 6 (6) 1,143 Prepaid expenses and other assets 155 268 32 (37) Accounts payable and accrued expenses 357 (678) 349 266 Interest payable 67 (44) 22 -- Payable to Sponsor -- -- (8) (73) ----------- -------- --------- ------- Net cash provided by (used for) operating activities (190) (540) 730 2,000 ----------- -------- --------- ------- Cash flows from investing activities: Collection on note receivable -- -- 720 -- Net proceeds from sale of real estate 248 -- -- -- Additions to real estate and property development costs (7,166) (353) (2,538) (1,537) ----------- -------- --------- ------- Net cash used for investing activities (6,918) (353) (1,818) (1,537) ----------- -------- --------- ------- Cash flows from financing activities: Net loan proceeds 5,492 -- 3,083 -- Reduction (addition) of restricted cash, net 824 287 (1,213) -- Payment of loan fees (211) (23) (224) (77) Notes payable principal payments (196) (9) (178) (100) Retirement of Limited Partnership Units -- -- (12) (24) Other liabilities -- -- 11 (22) ----------- -------- --------- ------- Net cash provided by (used for) financing activities 5,909 255 1,467 (223) ----------- -------- --------- ------- (continued)
Page 28 of 62
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Cash Flows (continued) For the year ended December 31, 1996, the two months ended December 31, 1995, and the years ended October 31, 1995 and 1994 (in thousands) For the For the two For the For the year ended months ended year ended year ended Dec. 31, 1996 Dec. 31, 1995 Oct. 31, 1995 Oct. 31, 1994 ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (1,199) (638) 379 240 Cash and cash equivalents at beginning of period 1,296 1,934 1,555 1,315 ----------- ---------- --------- ------- Cash and cash equivalents at end of period $ 97 $ 1,296 $ 1,934 $ 1,555 =========== ========== ========= ======= Supplemental disclosure of cash flow information: Cash paid for interest $ 1,254 $ 176 $ 861 $ 616 =========== ========== ========= ======= Interest capitalized $ 597 $ 28 $ 130 $ -- =========== ========== ========= ======= Supplemental disclosure of non-cash refinancing activity: New financing $ 11,273 $ -- $ -- $ -- Original financing paid-off in escrow (5,586) -- -- -- Increase in other assets and loan fees paid (195) -- -- -- ----------- ---------- --------- ------- Net loan proceeds $ 5,492 $ -- $ -- $ -- =========== ========== ========= ======= The accompanying notes are an integral part of these financial statements
Page 29 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rancon Realty Fund IV, a California Limited Partnership, ("the Partnership"), was organized in accordance with the provisions of the California Uniform Limited Partnership Act for the purpose of acquiring, developing and operating real property. The General Partners of the Partnership are Daniel L. Stephenson and Rancon Financial Corporation, ("RFC") hereinafter referred to as the Sponsor. RFC is wholly-owned by Daniel L. Stephenson. The Partnership reached final funding in July, 1987. 79,846 Partnership units were outstanding at December 31, 1996 and 1995. Allocation of profits, losses and cash distributions from operations and cash distributions from sale or financing are made pursuant to the terms of the Partnership Agreement. Generally, net income and distributions from operations are allocated 90% to the limited partners and 10% to the general partners. Net losses from operations are allocated 99% to the limited partners and 1% to the general partners until such time as a partner's account is reduced to zero. Additional losses will be allocated entirely to those partners with positive account balances until such balances are reduced to zero. A majority of the Partnership's assets are located within the Inland Empire, a submarket of Southern California, and have been directly affected by the economic weakness of the region. Management believes, however, that the market has flattened and is no longer falling in terms of sales prices. While prices have not increased significantly, the Southern California real estate market appears to be improving. Management continues to evaluate the real estate markets in which the Partnership's assets are located in an effort to determine the optimal time to dispose of them and realize their maximum value. General Partners and Management Matters Effective January 1, 1994, the Partnership contracted with RFC to perform or contract on the Partnership's behalf for financial, accounting, data processing, marketing, legal, investor relations, asset and development management and consulting services for the Partnership. These services were provided by RFC subject to the provisions of the Partnership Agreement. In December 1994, RFC entered into an agreement with Glenborough Inland Realty Corporation ("Glenborough") whereby RFC sold to Glenborough the contract to perform the rights and responsibilities under RFC's agreement with the Partnership and other related Partnerships (collectively, "the Rancon Partnerships") to perform or contract on the Partnership's behalf for financial, accounting, data processing, marketing, legal, investor relations, asset and development management and consulting services for the Partnership for a period of ten years or to the liquidation of the Partnership, whichever comes first. According to the contract, the Partnership will pay Glenborough for its services as follows: (i) a specified asset administration fee of $993,000 per year, which is fixed for five years subject to reduction in the year following the sale of assets; (ii) sales fees of 2% for improved properties and 4% for land; (iii) a refinancing fee of 1% and (iv) a management fee of 5% of gross rental receipts. As part of this agreement, Glenborough will perform certain responsibilities for the General Partner of the Rancon Page 30 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 Partnerships and RFC agreed to cooperate with Glenborough, should Glenborough attempt to obtain a majority vote of the limited partners to substitute itself as the Sponsor for the Rancon Partnerships. This agreement became effective January 1, 1995. Glenborough is not an affiliate of RFC or the Partnership. As a result of this agreement, RFC terminated several of its employees between December 31, 1994 and February 28, 1995. Also as a result of this agreement, certain of the officers of RFC resigned from their positions effective February 28, 1995, March 31, 1995 and July 1, 1995. Significant Accounting Policies Basis of Accounting - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles under the presumption that the Partnership will continue as a going concern. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations during the reporting period. Actual results could differ from those estimates. Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash flow from operations, (ii) meet its debt obligations, (iii) provide distributions either from operations or the ultimate disposition of the Partnership's properties or (iv) continue as a going concern, may be impacted by changes in interest rates, property values, geographic economic conditions, or the entry of other competitors into the market. The accompanying financial statements do not provide for adjustments with regard to these uncertainties. Investments in Real Estate - In March, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." The Partnership adopted SFAS 121 in the fourth quarter of fiscal year 1995. SFAS 121 requires that an evaluation of an individual property for possible impairment be performed whenever events or changes in circumstances indicate that an impairment may have occurred and that long-lived assets to be disposed of be carried at the lower of carrying amount or fair value. The specific accounting policies for assets to be held and used and those to be disposed of are described in more detail below. Rental Property - Rental properties including the related land, are stated at cost unless events or circumstances indicate that cost cannot be recovered in which case carrying value is reduced to estimated fair value. Estimated fair value: (i) is based upon the Partnership's plans for the continued operations of each property; (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized rental income based upon the age, construction and use of the building, and (iii) does not purport, for a specific property, to represent the current sales price that the Partnership could obtain from third parties for such property. The fulfillment of the Partnership's plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process Page 31 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 and in the economy, it is reasonably possible that the actual results of operating and disposing of the Partnership's properties could be materially different than current expectations. Depreciation is provided using the straight line method over the useful lives of the respective assets. Land Held for Development and Construction in Progress - Land held for development and construction in progress is stated at cost unless events or circumstances indicate that cost cannot be recovered in which case the carrying value is reduced to estimated fair value. Estimated fair value: (i) is based on the Partnership's plans for the development of each property; (ii) is computed using estimated sales price, based upon market values for comparable properties; (iii) considers the cost to complete and the estimated fair value of the completed project; and (iv) does not purport, for a specific property, to represent the current sales price that the Partnership could obtain from third parties for such property. The fulfillment of the Partnership's plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to either hold the properties for eventual sale or obtain financing to further develop the properties. Land Held for Sale - Land held for sale is stated at the lower of cost or estimated fair value. During fiscal year ended October 31, 1995, the Partnership wrote down the carrying value of the land held for sale based upon independent appraisals obtained in 1995. Appraisals are estimates of fair value based upon assumptions about the property and the market in which it is located. Due to the uncertainties inherent in the appraisal process, these valuations do not purport to be the price at which a sale transaction involving these properties can or will take place. Cash and Cash Equivalents - The Partnership considers certificates of deposit and money market funds with original maturities of less than ninety days to be cash equivalents. Deferred Financing Costs and Other Fees - Deferred loan fees are amortized on a straight-line basis over the life of the related loan and deferred lease commissions are amortized over the initial fixed term of the related lease agreement. Rental Income - Rental income is recognized as earned over the life of the respective leases. Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is calculated using the weighted average number of limited partnership units outstanding during the period and the Limited Partners' allocable share of the net loss. Income Taxes - No provision for income taxes is included in the accompanying financial statements, as the Partnership's results of operations are allocated to the partners for inclusion in their respective income tax returns. Net loss and partners' equity (deficit) for financial reporting purposes will differ from the Partnership income tax return because of different accounting methods used for certain items, including depreciation expense, provisions for impairment of investments in real estate, capitalization of development period interest and income and loss recognition. Page 32 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 Consolidation - In order to satisfy certain lender requirements for the Partnership's 1996 loan secured by Service Retail Center, Promotional Retail Center and Carnegie Business Center (see Note 6), Rancon Realty Fund IV Tri-City Limited Partnership, a Delaware limited partnership ("RRF IV Tri-City") was formed in April, 1996. The three properties securing the loan were contributed to RRF IV Tri-City by the Partnership. The limited partner of RRF IV Tri-City is the Partnership and the general partner is Rancon Realty Fund IV, Inc., a corporation wholly owned by the Partnership. Since the Partnership indirectly owns 100% of RRF IV Tri-City, the financial statements of RRF IV Tri-City have been consolidated with those of the Partnership. All intercompany transactions have been eliminated in consolidation. Reclassifications - Certain 1995 and 1994 balances have been reclassified to conform with the current year presentation. Note 2. RELATED PARTY TRANSACTIONS Payable to Sponsor - As a result of the agreement between RFC and Glenborough (see Note 1), RFC terminated certain employees who were previously responsible for performing the administrative, legal and development services for the Partnership. Upon termination, certain employee costs including severance benefits were allocated to the various Rancon partnerships. Such costs allocated to the Partnership aggregated $200,000 and are included in administrative costs for the year ended October 31, 1995. Reimbursable Expenses and Management Fees to Sponsor - Through December 31, 1994, the Partnership had an agreement with the Sponsor for property management services. The agreement provided for a management fee equal to 5% of gross rentals collected while managing the properties. Fees incurred under this agreement totaled $54,000 and $278,000 for the years ended October 31, 1995 and 1994, respectively. Effective January 1, 1995 the Partnership contracted with Glenborough to provide these services to the Partnership (see Note 1). The Partnership paid $4,000 and $25,000 in program management fees to the Sponsor during the years ended October 31, 1995 and 1994, respectively. The Sponsor received this fee for its management and administration of unimproved or non-income producing properties. As a result of the agreement with Glenborough, effective January 1, 1995 this fee was no longer payable. The Partnership Agreement also provides for the reimbursement of actual costs incurred by the Sponsor in providing certain administrative, legal and development services necessary for the prudent operation of the Partnership. Reimbursable costs incurred by the Partnership totaled $341,000 and $815,000 for the years ended October 31, 1995 and 1994, of which the Partnership capitalized $43,000 and $274,000 in fiscal years 1995 and 1994, respectively.Effective January 1, 1995, such services are being provided by Glenborough. Page 33 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 Note 3. NOTES RECEIVABLE Included in notes receivable at December 31, 1996, the Partnership had a $405,000 note receivable secured by a deed of trust on the TGI Friday's property (which the Partnership sold in December, 1990). The note bore interest at 10% per annum and matured on December 31, 2000. On February 28, 1997, the Partnership purchased the property known as TGI Friday's in San Bernardino, California for $1,750,000. The Partnership paid $1,345,000 in cash and the $405,000 note receivable was retired at the time of this acquisition. In 1996, the Partnership reached a $120,000 settlement with a former tenant. The Partnership received cash of $40,000 and an $80,000 note receivable which has been fully reserved. The note bears interest at ten percent per annum and requires monthly principal and interest payments of $4,805 commencing January 1, 1998 until the note matures on June 1, 1999. Note 4. INVESTMENTS IN REAL ESTATE Rental property components are as follows (in thousands): December 31, December 31, October 31, 1996 1995 1995 ----------- ------------ ---------- Land $ 4,976 $ 4,226 $ 4,226 Buildings 37,378 30,954 30,921 Leasehold and other improvements 8,817 7,385 7,377 ----------- ----------- ---------- 51,171 42,565 42,524 Less: accumulated depreciation (13,077) (11,799) (11,609) ----------- ----------- ---------- Total rental property, net $ 38,094 $ 30,766 $ 30,915 =========== =========== ========== The Partnership's rental property includes projects at the Tri-City Corporate Centre in San Bernardino, California and Shadowridge Woodbend Apartments in Vista, California. In the second quarter of 1996, construction was completed on the IRC project, an 81,000 square foot office building, and the tenant commenced a 13-year lease. Upon completion of IRC, the Partnership reclassified $8,599,000 of construction in progress to rental property. Land held for development consists of the following (in thousands): December 31, December 31, October 31, 1996 1995 1995 ---------- --------- --------- 26.0 acres in 1996 and 27.2 acres in 1995 at Tri-City Corporate Centre, San Bernardino, CA $ 2,975 $ 4,648 $ 4,643 24.8 acres in Lake Elsinore, CA 1,936 1,935 1,935 11.29 acres in 1995, in Temecula, CA -- 2,505 2,485 ---------- ---------- ---------- Total land held for development $ 4,911 $ 9,088 $ 9,063 ========== ========== ========== Page 34 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 In 1996, the Partnership reclassed $1,874,000 (after 1996 additions) from land held for development (Circuit City project in Tri-City) to construction in progress. Construction is expected to be completed by April 1, 1997. The Partnership also reclassed $3,483,000 (after 1996 additions) from land held for development (11.29 acres in Temecula, CA) to land held for sale. The above land held for development remains unencumbered at December 31, 1996. Land held for sale consists of the following (in thousands): December 31, December 31, October 31, 1996 1995 1995 --------- ---------- ----------- 17.14 acres in Perris, CA $ 1,386 $ 1,386 $ 1,384 11.29 acres and 1.11 acres in Temecula, CA in 1996 and 1995, respectively 3,483 246 246 --------- ---------- ----------- Total land held for sale $ 4,869 $ 1,632 $ 1,630 ========= ========== =========== The 1.11 acres of land in Temecula, California was sold on March 26, 1996 for $275,000 which after commissions and other fees, approximated cost. The Partnership currently has 3.16 acres under contract to sell to a mini storage operator for $607,000, pending satisfactory completion of due diligence. Negotiations are currently underway to sell another two lots totaling 1.56 acres. The Partnership does not intend to develop the remaining sites held for sale. The proceeds generated from the future sale would be used to reduce the Partnership's existing debt or to increase reserves. The above land remains unencumbered at December 31, 1996. During the year ended October 31, 1995, the Partnership recorded the following provisions to reduce the carrying value of investments in real estate (in thousands): Land held for development: San Bernardino, CA $ 6,158 Lake Elsinore, CA 4,042 Land held for sale: Perris, CA 2,024 ---------- Total provision for impairment of real estate investments $ 12,224 ========== Prior to 1995, the Partnership's business strategy was to hold its properties for future development and operations. Conclusions about the carrying value of the Partnership's properties were based upon this strategy. In 1995, the Partnership modified this strategy to focus on eventual disposition of its assets at the optimal time and sales price, however, development opportunities will be pursued for certain sites. The Page 35 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 Partnership revalued certain of its assets based on the business strategy for the assets. Due to the uncertainties inherent in the valuation process, the carrying values do not purport to be the price at which a sale transaction involving these properties can or will take place. Approximately 23 acres of the Tri-City Corporate Centre land owned by the Partnership was part of a landfill operated by the City of San Bernardino ("the City") from approximately 1950 to 1960. There are no records of which the Partnership is aware disclosing that hazardous wastes exist at the landfill. The Partnership's landfill monitoring program currently meets or exceeds all regulatory requirements. The Partnership is currently working with the Santa Ana Region of the California Regional Water Quality Control Board and the City to determine the need and responsibility for any further testing. There is no current requirement to ultimately clean up the site, however, no assurance can be made that circumstances will not arise which could impact the Partnership's responsibility related to the property. Construction in progress of $2,184,000 at December 31, 1996 primarily represents development costs incurred on the Circuit City site in Tri-City. The construction in progress of $2,931,000 at December 31, 1995 and $2,646,000 at October 31, 1995 represented development costs incurred on the 81,000 square foot build-to-suit office building for Inland Regional Center which was completed and reclassed to rental property in 1996. Note 5. RESTRICTED CASH Restricted cash of $102,000 at December 31, 1996 is comprised of two certificates of deposit ("CD"). The first is a $100,000 CD which is held as collateral for subdivision improvement bonds related to the 11.29 acres of land held for development in Temecula, California. The other is a $2,000 CD pledged as security to a utility district for construction of a sewer crossing. Note 6. NOTES PAYABLE Notes payable as of the stated balance sheet dates was as follows (in thousands): December 31, December 31, October 31, 1996 1995 1995 ----------- ---------- --------- Note payable, secured by first deed of trust on Service Retail Center, Promotional Retail Center and Carnegie Business Center I. The loan, which matures May 1, 2006, is a 10-year, 8.744% fixed rate loan with a 25-year amortization and requires $53 in principal and interest payments due monthly. $6,457 $ -- $ -- Permanent construction loan secured by the IRC building. Interest accrues at a fixed rate of 8.75% per annum. Monthly payments of $21 of principal and interest are due until the loan matures on April 23, 2001. 2,488 -- -- Page 36 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 Note payable, secured by first deed of trust on the Shadowridge Woodbend Apartments. Interest accrues at a fixed rate of 7.95% per annum. Monthly installments of $48 of principal and interest are due until the loan matures on April 15, 1998. $ 5,960 $ 6,063 $ 6,079 Permanent loan, converted from a construction loan secured by a first deed of trust on Phase I of the Promotional Retail Center. Interest accrued at a fixed rate of 8.75% with monthly installments of principal and interest of $22. The unpaid principal and interest was due on May 3, 1999, but was paid off in April, 1996. -- 2,650 2,658 Construction loan secured by a portion of Phase II of the Promotional Retail Center. Interest accrued at a variable rate and was payable monthly upon full utilization of the $98 interest reserve portion of the $1,000 loan. The unpaid principal and accrued interest was due on February 15, 1996, but was extended until April, 1996 and then paid off. -- 649 629 Note payable secured by first deed of trust on the One Vanderbilt building. Interest accrues at a fixed rate of 9%. Monthly installments of $20 are payable which include principal and interest amortized over 25 years. The unpaid principal and interest is due on January 1, 2005. 2,351 2,380 2,385 Note payable secured by Carnegie Business Center I and Service Retail Center. Interest was payable monthly at the Imperial Bank Prime Rate plus 2%. The unpaid principal and interest was due on May 15, 1997, but was paid off in April, 1996. -- 15 15 --------- ---------- --------- Total notes payable $ 17,256 $ 11,757 $ 11,766 ========= ========== ========= Page 37 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 The annual maturities of notes payable subsequent to December 31, 1996 are as follows (in thousands): 1997 $ 254 1998 6,005 1999 171 2000 186 2001 2,498 Thereafter 8,142 ------------ Total $ 17,256 ============ Note 7. LEASES The Partnership's rental properties are leased under operating leases that expire at various dates through January, 2018. In addition to monthly base rents, several of the leases provide for additional rents based upon a percentage of sales levels attained by the tenants; however, no contingent rentals were realized during the years ended December 31, 1996, October 31, 1995 and 1994. Future minimum rents on non-cancelable operating leases as of December 31, 1996 are as follows (in thousands): 1997 $ 4,696 1998 4,076 1999 4,073 2000 3,889 2001 3,667 Thereafter 23,410 ----------- Total $ 43,811 =========== Note 8. COMMITMENTS AND CONTINGENT LIABILITIES The Partnership is contingently liable for subordinated real estate commissions payable to the Sponsor in the amount of $643,000 at December 31, 1996 for sales that transpired in previous years. The subordinated real estate commissions are payable only after the Limited Partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of six percent per annum on their adjusted invested capital. Note 9. TAXABLE INCOME The Partnership's tax returns, the qualification of the Partnership as a partnership for federal income tax purposes, and the amount of income or loss are subject to examination by federal and state taxing Page 38 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 authorities. If such examinations result in changes to the Partnership's taxable income or loss, the tax liability of the partners could change accordingly. The Partnership's tax returns are filed on a calendar year basis. As such, the following reconciliation has been prepared using tax amounts estimated on a calendar year basis. The following is a reconciliation for the years ended December 31, 1996 and October 31, 1995 and 1994 of the net loss for financial reporting purposes to the estimated taxable income (loss) determined in accordance with accounting practices used in preparation of federal income tax returns (in thousands). December 31, October 31, October 31, 1996 1995 1994 ----------- ----------- ---------- Net loss per financial statements $ (1,510) $ (13,417) $ (663) Financial reporting depreciation in excess of tax reporting depreciation 191 599 578 Provision for impairment of investments in real estate -- 12,224 -- Operating expenses recognized in a different period for financial reporting than for income tax reporting, net (692) (271) -- Property taxes capitalized for tax 465 476 -- ----------- ----------- -------- Estimated net loss for federal income tax purposes $ (1,546) $ (389) $ (85) =========== ========== ======== Page 39 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, October 31, 1995 and 1994 The following is a reconciliation as of December 31, 1996 and October 31, 1995 of partner's capital for financial reporting purposes to estimated partners' capital for federal income tax purposes (in thousands). 1996 1995 ---------- -------- Partners' equity per financial statements $ 34,659 $ 36,477 Cumulative provision for impairment of investments in real estate 14,274 14,274 Financial reporting depreciation in excess of tax reporting depreciation 4,386 4,195 Operating expenses recognized in a different period for financial reporting than for income tax reporting, net (692) (271) Property taxes capitalized for tax 941 476 Other, net (287) (325) ---------- --------- Estimated partners' capital for federal income tax purposes $ 53,281 $ 54,826 ========== ========= Note 10. SUBSEQUENT EVENT In January, 1997, the Partnership obtained an unsecured promissory note for a $1,500,000 revolving line of credit from Glenborough Inland Realty Corporation, a California corporation, an affiliate of the Partnership. In February and March, 1997, the Partnership drew a total of $1,000,000 on this line of credit to fund capital expenditures and miscellaneous charges until permanent financing can be obtained for the TGI Friday's and Circuit City properties. The promissory note requires interest to be paid monthly at 11% per annum and matures on December 31, 1997. In February 1997, the Partnership obtained a $1,200,000 unsecured loan to finance the acquisition of the TGI Friday's property. Management is currently under negotiations for a $5,000,000 loan that would be secured by the Circuit City property. The proceeds from the loan would be used to pay-off the $1,200,000 unsecured loan as well as finance tenant improvements at the Circuit City property and other Partnership expenditures. Page 40 of 62
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (in thousands) - -------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - -------------------------------------------------------------------------------------------------------- Initial Cost to Cost Capitalized Subsequent Partnership to Acquisition -------------------- --------------------- Buildings and Carrying Description Encumbrances Land Improvements Improvements Cost - -------------------------------------------------------------------------------------------------------- Rental Properties: Commercial Office Complexes, San Bernardino County, CA: 4.0 acres - One Vanderbilt $ 2,351 $ 572 $ -- $ 8,599 $ 9 2.9 acres - Two Vanderbilt -- 443 -- 6,310 -- 5.3 acres - Carnegie Business Center I (c) 380 -- 5,268 -- 2.2 acres - Service Retail Center (c) 300 -- 1,717 -- Less: Provision for impairment of real estate investment (b) -- -- -- (250) -- 5.2 acres: - Promo Retail (c) 811 -- 5,677 282 Less: Provision for impairment of real estate investment (b) -- -- -- (119) -- 7.4 acres - Inland Regional Center 2,488 608 -- 7,437 -- Less Provision for impairment of real estate investment (b) -- (196) -- -- -- Residential Property, San Diego County, CA: Shadowridge Woodbend Apartments 5,960 1,766 11,118 439 -- ------- ------ ------ -------- ----- 17,256 4,684 11,118 35,078 291 ------- ------ ------ -------- ----- Construction in Progress: San Bernardino County, CA: Circuit City -- 284 -- 2,010 -- Less: Provision for impairment of real estate investment (b) -- -- -- (419) -- Inland Regional Center -- -- -- 309 -- ------- ------ ------ -------- ----- -- 284 -- 1,900 -- ------- ------ ------ -------- ------ Land Held for Development: San Bernardino County, CA: 26 acres - Tri-City -- 4,186 -- 5,597 417 Less: Provision for impairment of real estate investment (b) -- (244) -- (6,980) -- Riverside County, CA: Lake Elsinore property 24.8 acres -- 4,495 -- 1,482 -- Less: Provision for impairment of real estate investment (b) -- (2,560) -- (1,482) -- ------- ------- ------ -------- ----- -- 5,877 -- (1,383) 417 ------- ------- ------ -------- ----- Land Held for Sale: Riverside County, CA: Perris property 17.14 acres -- 3,005 -- 327 78 Less: Provision for impairment of real estate investment (b) -- (1,697) -- (327) -- Temecula property 11.29 acres -- 2,280 -- 1,203 -- ------- ------- ------- -------- ----- -- 3,588 -- 1,203 78 ------- ------- ------- -------- ----- $17,256 $14,433 $11,118 $ 36,798 $ 786 ======= ======= ======= ======== =====
- -------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - -------------------------------------------------------------------------------------------------------------------------- Gross Amount Carried at December 31, 1996 --------------------------- Buildings Date Life and (a) Accumulated Construction Date Depreciated Description Land Improvements Total Depreciation Began Acquired Over - --------------------------------------------------------------------------------------------------------------------------- Rental Properties: Commercial Office Complexes, San Bernardino County, CA: 4.0 acres - One Vanderbilt $ 573 $ 8,607 $ 9,180 $ 3,714 11/30/85 11/06/84 3-40 yrs. 2.9 acres - Two Vanderbilt 443 6,310 6,753 3,040 1/30/86 11/06/84 3-40 yrs. 5.3 acres - Carnegie Business Center I 380 5,268 5,648 2,457 7/31/86 11/06/84 3-40 yrs. 2.2 acres - Service Retail Center 301 1,716 2,017 483 7/31/86 11/06/84 3-40 yrs. Less: Provision for impairment of real estate investment (b) (41) (209) (250) -- 5.2 acres: - Promo Retail 811 5,959 6,770 396 2/01/93 11/06/84 10-40 yrs. Less: Provision for impairment of real estate investment (b) (7) (112) (119) -- 7.4 acres - Inland Regional Center 946 7,099 8,045 115 1/96 6/26/87 10-40 yrs. Less Provision for impairment of real estate investment (b) (196) -- (196) -- Residential Property, San Diego County, CA: Shadowridge Woodbend Apartments 1,766 11,557 13,323 2,872 N/A 6/26/87 5-40 yrs. ------- ------- ------- ------- 4,976 46,195 51,171 13,077 ------- ------- ------- ------- Construction in Progress: San Bernardino County, CA: Circuit City 2,294 -- 2,294 -- Less: Provision for impairment of real estate investment (b) (419) -- (419) -- Inland Regional Center 309 -- 309 -- 8/95 11/06/84 N/A ------- ------ ------- ------- 2,184 -- 2,184 -- ------- ------ ------- ------- Land Held for Development: San Bernardino County, CA: 26 acres - Tri-City 10,200 -- 10,200 -- N/A 11/06/84 N/A Less: Provision for impairment of real estate investment (b) (7,224) -- (7,224) -- Riverside County, CA: Lake Elsinore property 24.8 acres 5,977 -- 5,977 -- N/A 7/06/88 N/A Less: Provision for impairment of real estate investment (b) (4,042) -- (4,042) -- N/A 11/07/88 N/A ------- ------ ------- ------- 4,911 -- 4,911 -- ------- ------ ------- ------- Land Held for Sale: Riverside County, CA: Perris property 17.14 acres 3,410 -- 3,410 -- N/A 11/07/88 N/A Less: Provision for impairment of real estate investment (b) (2,024) -- (2,024) -- Temecula property 11.29 acres 3,483 -- 3,483 -- ------- ------ ------- ------- 4,869 -- 4,869 -- ------- ------ ------- ------- $16,940 $46,195 $ 63,135 $ 13,077 ======= ======= ======== ======== (a) The aggregate cost for federal income tax purposes is $ 79,748. (b) See Note 4 to Financial Statements. (c) Service Retail Centre, Carnegie Business Center I and Promotional Retail Center are collateral for the debt in the aggregate amount of $6,457.
Page 41 of 62 RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands) Reconciliation of gross amount at which real estate was carried: For the For the For the For the year ended two months year ended year ended Dec.31, ended Dec.31, Oct. 31, Oct. 31, 1996 1995 1995 1994 --------- --------- --------- --------- Investment in real estate Balance at beginning of period $ 56,216 $ 55,863 $ 65,560 $ 63,790 Additions during period: Improvements 7,166 353 2,351 1,770 Capitalized carrying costs -- -- 176 -- Provision for impairment of investments in real estate -- -- (12,224) -- Sales (247) -- -- -- -------- ------- -------- -------- Balance at end of period $ 63,135 $ 56,216 $ 55,863 $ 65,560 ======== ======== ======== ======== Accumulated Depreciation Balance at beginning of period $ 11,799 $ 11,609 $ 10,332 $ 9,042 Additions charged to expenses 1,278 190 1,277 1,290 Sales during period -- -- -- -- -------- -------- -------- -------- Balance at end of period $ 13,077 $ 11,799 $ 11,609 $ 10,332 ======== ======== ======== ======== Page 42 of 62 RANCON REALTY FUND IV, a California Limited Partnership INDEX TO EXHIBITS Sequentially Exhibit Number Exhibit Numbered Page (3.3) Limited Partnership Agreement of RRF IV Tri- City Limited Partnership, A Delaware limited partnership of which Rancon Realty Fund IV, A California Limited Partnership is the limited partner 43 (10.6) Promissory note in the amount of $9,600,000, dated April 19, 1996, secured by Deeds of Trust on three of the Partnership Properties 50 Page 43 of 62 Exhibit 3.3 LIMITED PARTNERSHIP AGREEMENT OF RRF IV TRI CITY LIMITED PARTNERSHIP THIS LIMITED PARTNERSHIP AGREEMENT is made as of this 1 5th day of March, 1996. between RRF IV, Inc., a Delaware corporation (the "General Partner") and Rancon Realty Fund IV. a California limited partnership (the "Limited Partner"), herein referred to collectively as the "Partners" and individually as a "Partner," and whose names and addresses are set forth in Exhibit A ARTICLE I NAME AND PURPOSE 1. Formation. The undersigned parties hereby form a partnership (herein called the "Partnership") pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act (the "Act"). 2. Name and Office. The name of the Partnership is RRF IV TRI CITY LIMITED PARTNERSHIP. The principal office of the Partnership shall be located at 400 South E1 Camino Real, San Mateo, California 94402-1708, but the Partnership may select and otherwise operate and conduct its business in any and all parts of the United States as the parties may deem advisable. 3. Purposes. The Partnership has been formed for the purposes of: (a) acquiring all that certain real estate more particularly described on Exhibit B hereto and all improvements thereon and all personally associated therewith and all rentals, leases and agreements relating, thereto (collectively, the "Real Estate") from the transferor identified opposite the description of each such Real Estate described on Exhibit B hereto and financing each such Real Estate with a loan (collectively, the "Loans") from Bear. Stearns Funding. Inc. (the "Lender") and selling, conveying, mortgaging and otherwise disposing of all or any part of the Real Estate subject to the requirement of the documents evidencing and securing the Loans: (b) entering into and performing obligations pursuant to agreements necessary or desirable to effectuate the foregoing (such agreements and the agreements referred to in subparagraph (a) above shall be collectively referred to herein as the "Agreements"); and (c) engaging in any lawful act or activity that may be taken by, and exercising any powers permitted to, limited partnerships organized under the Act that are incidental to and necessary or desirable for the accomplishment of the above-mentioned purposes. The Partnership is authorized to engage in any and all acts necessary, advisable or incidental to the conduct of its business and, after repayment in full of the Loans. may engage in any other business or activity which may be lawfully conducted by partnerships organized under the Act. Page 44 of 62 Exhibit 3.3 4. Term. The term of the Partnership shall be from the date hereof to December 31, 2095. unless Terminated earlier as hereinafter provided or as otherwise provided by law. ARTICLE II CAPITAL 1. Initial Capital contributions of Partners. The initial capital required to carry on the business purposes described in Article 1, Paragraph 3 above shall be advanced by the General Partner and the Limited Partner in the amounts as shown on the attached Exhibit A, which Exhibit is incorporated herein by this reference; provided, that the General Partner s initial capital contribution shall be in an amount equal to the lesser of $500,000 and 1% of the net asset value of the assets of the Partnership. No interest shall be paid by the Partnership to the Partners on any Capital Contribution paid to the Partnership. Except as otherwise provided in the Act or in this Agreement! no Partner shall be required to make any further contribution to the capital of the Partnership. 2. Distributions of Capital. Under circumstances requiring a return of any Capital Contribution, no Partner shall have the right to receive property other than cash. 3. Admission of Additional Partners. Neither the Partnership nor the General Partner on behalf of the Partnership may admit additional Partners without the consent of all of the Partners. ARTICLE III MANAGEMENT 1. Management Decisions. The parties hereto agree that the General Partner is solely responsible for the day-to-day operations of the Partnership. Subject to express limitations set forth in this Partnership Agreement, the General Partner is authorized to do anything necessary and appropriate to achieve the purposes detailed in Article 1, Paragraph 3 above. The General Partner may be removed for cause by a vote of the Partners holding a majority interest in the Partnership but may not otherwise dissolve or resign as General Partner without the vote of the majority interest in the Partnership; provided, the General Partner may not resign or be removed in any event unless a successor bankruptcy remote corporation shall have been appointed and be ready and able to succeed to the General Partner as general partner of the Partnership. Sale of all or a substantial portion of the Partnership assets must be approved by a vote of the Partners holding a majority interest in the Partnership. The General Partner shall devote such time to the Partnership as shall be reasonably required for its welfare and success. The General Partner shall use its best efforts to enable the Partnership to carve out the purposes set forth in Article 1. Paragraph 3. Page 45 of 62 Exhibit 3.3 2. Expenses. The General Partner may be reimbursed by the Partnership for reasonable out-of-pocket expenses incurred by it in connection with the business of the Partnership. 3. Covenants Regarding Operation. (a) The Partnership shall not incur, assume or guarantee any indebtedness except for such indebtedness as may be incurred by the Partnership in connection with the Loans or as Otherwise permitted by the Lender. (b) The Partnership shall not engage in any business or activity other than in connection with or relating to the Partnership s purposes. (c) The Partnership shall not consolidate or merge with or into any other entity or convey or transfer its properties and assets substantially as an entirety to any entity. (d) The Partnership shall not dissolve or liquidate. in whole or in part, except in the event the Loans have been satisfied in full. (e) The funds and other assets of the Partnership shall not be commingled with those of any other entity. (f) The Partnership shall not guaranty or become obligated or hold itself out as being liable for the debts of any other party. The Partnership shall not plead its assets for the benefit of any other person or entity. (g) The Partnership shall not form. or cause to be formed, any subsidiaries. (h) The Partnership shall make no asset distributions, including, without limitation, any distribution of dividends, except to the extent of cash on hand in excess of that needed to cover the expected operating expenses of the Partnership. (i) The Partnership shall not make any loans to any person or entity. (j) The Partnership shall act solely in its name and through the General Partner in the conduct of its business, and shall conduct its business so as not to mislead others as to the identity of the entity with which they are concerned. The Partnership shall pay its own liabilities from its own funds. (k) The Partnership shall not file any voluntary petition or consent to the filing of any petition in or institute any bankruptcy. reorganization. arrangement, insolvency or liquidation proceeding or other proceeding under any federal or state bankruptcy or similar law without the unanimous consent of the Partners. Page 46 of 62 Exhibit 3.3 ( 1 ) The Partnership shall maintain partnership records and books of account and shall not commingle its partnership records and books of account with the corporate records and books of account of any entirety. The books of the Partnership may be kept (subject to any provision contained in the statutes) inside or outside the State of Delaware at such place or places as may be designated from time to time by the members of the General Partner (m) The Partnership shall maintain an arms-length relationship with the Partners and their affiliates and, in particular shall compensate such Partners or affiliates on a commercial reasonable basis for any services or office space provided by them. (n) The Partnership shall maintain a separate telephone number and use its own stationary, invoice and checks. (o) The Partnership shall observe all partnership formalities. ARTICLE IV RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS 1. Management of the Partnership. (a) No Limited Partner may take part in the management of or control of the business of the Partnership, transact any business in the name of the Partnership, incur expenditures on behalf of the Partnership, bind the Partnership or sign any agreement or document in the name of the Partnership. (b) No Limited Partner will have any power or authority with respect to the Partnership or Partnership affairs except to the extent that the express provisions of this Agreement or the Act require or permit the Limited Partner to take certain actions with respect to the Partnership. 2. Liability of Limited Partners. Except as otherwise provided in the Act or this Agreement and irrespective of any deficit in a Limited Partners' Capital Account, no Limited Partner will be required to contribute funds to the Partnership other than its Capital Contribution and will not be personally liable for any obligations of the Partnership beyond the amount of its Capital Contribution. Except as provided in this Agreement, no Limited Partner in its capacity as limited partner is required to loan funds to the Partnership. Page 47 of 62 Exhibit 3.3 ARTICLE V ACCOUNTING 1. Books and Records. The Partnership through the General Partner shall cause full and accurate books of the Partnership to be maintained at the Partnership's principal place of business. Such books and records shall include all receipts and expenditures, assets and liabilities, profits and losses and all other records necessary for recording the Partnership's business and affairs. Such books and records shall be open to inspection and examination by all Partners, in person or by their duly authorized representatives, at reasonable times. 2. Fiscal Year. The fiscal years the Partnership will end on the last day of December, unless changed by the General Partner with the consent of the Limited Partner. 3. Reports. Annual balance sheets and statements showing the income and expenses of the Partnership. Together with the Partnership federal and state income tax returns. shall be prepared and submitted to the Partners not later than 60 days after the end of the fiscal year. The General Partner is hereby authorized to designate itself as tax matters partner of the Partnership. 4. Bank Accounts and Investment of Funds. All funds of the Partnership shall be deposited in its name in such checking and savings accounts or time certificates as shall be designated by the Partners. Withdrawals therefrom shall be made upon such signature or Signatures as the Partners may designate. 5. Method of Accounting. The books of the Partnership shall be kept on the accrual basis of accounting. ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS 1. Profits and Losses. The profits and losses of the Partnership shall be determined each year in accordance with accounting methods used for federal income tax purposes and shall be allocated among the Partners and credited (or charged) to their Capital Accounts (as defined and maintained in accordance with Regulations under Section 704(b) of the Internal Revenue Code of 1986, as amended) in accordance with the Partnership Percentages (as such percentages are set forth on Exhibit A hereto). 2. Cash Distributions. All cash distributions of the Partnership shall be distributed among the Partners and charged to their Capital Accounts in accordance with the Partnership Percentages. Page 48 of 62 Exhibit 3.3 ARTICLE VII TERMINATION OF THE PARTNERSHIP 1. Termination. The Partnership shall be dissolved upon the first to occur of the following: (a) the sale of all or substantially all of the Partnership assets; (b) the mutual unanimous agreement of the Partners; provided, that the Partners shall not agree to dissolve the Partnership while the Loans are outstanding. (c) the date December 31, 2095; or (d) the General Partner shall dissolve or file. or be the subject of, any reorganization, bankruptcy, insolvency or liquidation proceeding or other proceeding under any federal or state bankruptcy or similar law; provided, that any such act shall not cause a dissolution of the Partnership if within 90 days after such withdrawal, dissolution filing or commencement of proceeding the limited partners shall unanimously (i) elect to continue the Partnership, and (ii) appoint a successor General Partner. 2. Dissolution. Upon the occurrence of any one of the above events. the Partnership will be dissolved. the affairs of the Partnership wound up and the assets liquidated. allocated and distributed, as realized, in the following order: (a) to creditors of the Partnership; and (b) to the Partners in accordance with their Capital Account balances. If, upon liquidation. the General Partner has a deficit Capital Account balance, the General Partner shall be required to contribute cash to the Partnership in an amount equal to such deficit Capital Account balance ARTICLE VIII TRANSFER OF INTEREST No partner may sell, transfer or otherwise assign its interest in the Partnership, in whole or in part; provided, that the initial General Partner may transfer its general partner interest in the Partnership to a corporation which is a wholly owned, qualified real estate investment trust subsidiary of Rancon Financial Corporation and is otherwise approved by the Lender, and following such transfer such transferee shall be the General Partner for all purposes of this Agreement. Anything contained herein to the contrary notwithstanding, in no event shall the Partners or any of them have the authority to amend the provisions of this Article VIII. Page 49 of 62 Exhibit 3.3 ARTICLE IX GENERAL PROVISIONS 1. Indemnification. If the General Partner shall violate any of the terms, provisions and conditions of this Partnership Agreement, it shall, in addition to being subjected to the other remedies. liabilities and obligations herein imposed upon it therefor, keep and save harmless the Partnership property and indemnify the other Partners from any and all claims. demands and actions that may arise out of or by reason of such a violation of any of the terms, provisions and conditions thereof. 2. Amendments. This Partnership Agreement may not be modified or amended except with the unanimous written consent of the Partners. Notwithstanding anything herein to the contrary, Article VIII may not be amended at any time. 3. Governing Law; Binding. This Partnership Agreement shall be construed and enforceable in accordance with the laws of the State of Delaware and shall be binding upon all the parties and their assigns, successors, estates, heirs or legatees. 4. Counterparts. This Partnership Agreement may be executed in any number of counterparts. each of which shall be deemed to constitute an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF. we have hereunto set our hands the day and year heretofore mentioned. GENERAL PARTNER: RRF IV. INC. By: /s/ Robert Batinovich Robert Batinovich. President LIMITED PARTNER: Rancon Realty Fund IV. L.P., a California limited partnership By: /s/ Daniel Lee Stephenson Daniel Lee Stephenson, General Partner By: Rancon Financial Corporation, General Partner By: /s/ Daniel Lee Stephenson Its: President Page 50 of 62 Exhibit 10.6 PROMISSORY NOTE $6,500,000 New York, New York April 19, 1996 FOR VALUE RECEIVED RRF IV TRI CITY LIMITED PARTNERSHIP, a Delaware limited partnership, as maker, having its principal place of business at c/o Glenborough Inland Realty Corporation, 400 South El Camino Real, San Mateo, California 94402 ("Borrower"), hereby unconditionally promises to pay to the order of BEAR, STEARNS FUNDING, INC., a Delaware corporation, as payee, having an address at 245 Park Avenue, New York, New York 10167 ("Lender"), or at such other place as the holder hereof may from time to time designate in writing, the principal sum of SIX MILLION FIVE HUNDRED THOUSAND Dollars ($6,500,000), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate (defined below), and to be paid in installments as follows: ARTICLE 1: PAYMENT TERMS (a) A payment on the date hereof on account of all interest that will accrue on the principal amount of this Note from and after the date hereof through and including the last day of the present month; (b) A constant payment of $53,412.84 on the first day of June, 1996 and on the first day of each calendar month thereafter (the "Monthly Payment") up to and including the first day of April, 2006; each Monthly Payment to be applied as follows: (i) first, to the payment of interest computed at the Applicable Interest Rate; and (ii) the balance toward the reduction of the principal sum and the balance of the principal sum and all interest thereon shall be due and payable on the first day of May, 2006 (the "Maturity Date"). Interest on the principal sum of this Note shall be calculated on the basis of a three hundred sixty (360) day year based on twelve (12) thirty (30) day months, except that interest due and payable for a period of less than a full month shall be calculated by multiplying the actual number of days elapsed in such period by a daily rate based on said 360-day year. ARTICLE 2: INTEREST The term "Applicable Interest Rate" as used in the Security Instrument (defined below) and this Note shall mean an interest rate equal to eight and seven hundred forty four thousandths percent (8.744%) per annum. Page 51 of 62 Exhibit 10.6 ARTICLE 3: DEFAULT AND ACCELERATION (a) The whole of the principal sum of this Note, (b) interest, default interest, late charges and other sums, as provided in this Note, the Security Instrument or the Other Security Documents (defined below), (c) all other monies agreed or provided to be paid by Borrower in this Note, the Security Instrument or the Other Security Documents, (d) all sums advanced pursuant to the Security Instrument to protect and preserve the Property (defined below) and the lien and the security interest created thereby, and (e) all sums advanced and costs and expenses incurred by Lender in connection with the Debt (defined below) or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender (all the sums referred to in (a) through (e) above shall collectively be referred to as the "Debt") shall without notice become immediately due and payable at the option of Lender if any payment required in this Note is not paid within ten (10) days of the date the same is due or on the Maturity Date or on the happening of any other default, after the expiration of any applicable notice and grace periods, herein or under the terms of the Security Instrument or any of the Other Security Documents (collectively, an "Event of Default"). ARTICLE 4: DEFAULT INTEREST Borrower does hereby agree that upon the occurrence of an Event of Default, Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at a rate equal to the lesser of (a) five percent (5%) plus the Applicable Interest Rate and (b) the maximum interest rate which Borrower may by law pay (the "Default Rate"). The Default Rate shall be computed from the occurrence of the Event of Default until the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full. Interest calculated at the Default Rate shall be added to the Debt, and shall be deemed secured by the Security Instrument. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of any Event of Default. ARTICLE 5: PREPAYMENT Borrower shall not have the right or privilege to prepay all or any portion of the unpaid principal balance of this Note until the third anniversary of the date hereof. During the period commencing on the third anniversary of the date hereof and ending on or before the date which is six (6) months prior to the Maturity Date, Borrower may, provided it has given Lender prior written notice in accordance with the terms of this Note, prepay the unpaid principal balance of this Note in whole or in part by paying, together with the amount to be prepaid, (a) interest accrued and unpaid on the portion of the principal balance of this Note being prepaid to and including the date of prepayment, (b) unless prepayment is tendered on the first day of a calendar month, an amount equal to Page 52 of 62 Exhibit 10.6 the interest that would have accrued on the amount being prepaid after the date of prepayment through and including the last day of the calendar month in which the prepayment occurs had the prepayment not been made (which sum shall constitute additional consideration for the prepayment), (c) all other sums then due under this Note, the Security Instrument and the Other Security Documents, and (d) a prepayment consideration (the "Prepayment Consideration") equal to the greater of (i) one percent (1%) of the principal balance of this Note being prepaid and (ii) the excess, if any, of (A) the product of (1) the sum of the present values of all then-scheduled payments of principal and interest under this Note including, but not limited to, principal and interest on the Maturity Date, (with each such payment discounted to its present value at the date of prepayment at the rate which, when compounded monthly, is equivalent to the Prepayment Rate (hereinafter defined)) and (2) a fraction, the numerator of which is the principal amount of this Note being prepaid and the denominator of which is the then outstanding principal amount of this Note, over (B) the principal amount of this Note being prepaid. Partial prepayments of the principal amount of this Note shall not be in increments of less than $100,000, be permitted more than once in any period of one year commencing on the date hereof or any anniversary hereof or result in a recalculation of the Monthly Payment. The term "Prepayment Rate" means the bond equivalent yield (in the secondary market) on the United States Treasury Security that as of the Prepayment Rate Determination Date (hereinafter defined) has a remaining term to maturity closest to, but not exceeding, the remaining term to the Maturity Date, as most recently published in the "Treasury Bonds, Notes and Bills" section in The Wall Street Journal as of such Prepayment Rate Determination Date. If more than one issue of United States Treasury Securities has the remaining term to the Maturity Date referred to above, the "Prepayment Rate" shall be the yield on the United States Treasury Security most recently issued as of the Prepayment Rate Determination Date. The rate so published shall control absent manifest error. The term "Prepayment Rate Determination Date" shall mean the date which is five (5) Business Days prior to the scheduled prepayment date. As used herein, "Business Day"" shall mean any day other than Saturday, Sunday or any other day on which banks are required or authorized to close in New York, New York. Lender shall notify Borrower of the amount and the basis of determination of the required prepayment consideration. If the publication of the Prepayment Rate in The Wall Street Journal is discontinued, Lender shall determine the Prepayment Rate on the basis of "Statistical Release H.15 (519), Selected Interest Rates," or any successor publication, published by the Board of Governors of the Federal Reserve System, or on the basis of such other publication or statistical guide as Lender may reasonably select. After the date which is six (6) months prior to the Maturity Date, Borrower may, provided that it has given Lender prior written notice in accordance with the terms of this Note, prepay the unpaid principal balance of this Note in whole or in part, by paying, together with the amount to be prepaid, (a) interest accrued and unpaid on the portion of the principal balance of this Note being prepaid to and including the date of prepayment, Page 53 of 62 Exhibit 10.6 (b) unless the prepayment is tendered on the first day of a calendar month, an amount equal to the interest that would have accrued on the amount being prepaid after the date of prepayment through and including the last day of the calendar month in which the prepayment occurs had the prepayment not been made (which amount shall constitute additional consideration for the prepayment), and (c) all other sums then due under this Note, the Security Instrument and the Other Security Documents. Partial prepayments of this Note during such period shall not be in increments of less than $100,000 or result in a recalculation of the amount of monthly debt service payments due under this Note. Borrower's right to prepay any portion of the principal balance of this Note shall be subject to (i) Borrower's submission of a notice to Lender setting forth the amount to be prepaid and the projected date of prepayment, which date shall be no less than thirty (30) or more than sixty (60) days from the date of such notice, and (ii) Borrower's actual payment to Lender of the amount to be prepaid as set forth in such notice on the projected date set forth in such notice or any day following such projected date occurring in the same calendar month as such projected date. Following an Event of Default and acceleration of this Note, if Borrower or anyone on Borrower's behalf makes a tender of payment of the amount necessary to satisfy the indebtedness evidenced by this Note and secured by the Security Instrument at any time prior to foreclosure sale (including, but not limited to, sale under power of sale under the Security Instrument), or during any redemption period after foreclosure, (i) the tender of payment shall constitute an evasion of Borrower's obligation to pay any Prepayment Consideration due under this Note and such payment shall, therefore, to the maximum extent permitted by law, include a premium equal to the Prepayment Consideration that would have been payable on the date of such tender had this Note not been so accelerated, or (ii) if at the time of such tender a prepayment of the principal amount of this Note would have been prohibited under this Note had the principal amount of this Note not been so accelerated, the tender of payment shall constitute an evasion of such prepayment prohibition and shall, therefore, to the maximum extent permitted by law, include an amount equal to the greater of (i) 1% of the then principal amount of this Note and (ii) an amount equal to the excess of (A) the sum of the present values of a series of payments payable at the times and in the amounts equal to the payments of principal and interest (including, but not limited to the principal and interest payable on the Maturity Date) which would have been scheduled to be payable after the date of such tender under this Note had this Note not been accelerated, with each such payment discounted to its present value at the date of such tender at the rate which when compounded monthly is equivalent to the Prepayment Rate, over (B) the then principal amount of this Note. ARTICLE 6: SECURITY This Note is secured by the Security Instrument and the Other Security Documents. The term "Security Instrument" as used in this Note shall mean those three (3) Deeds of Trust, Fixture Filings and Security Agreements dated as of the date hereof in the principal sum of this Note given by Borrower to (or for the benefit of) Lender each Page 54 of 62 Exhibit 10.6 covering the fee simple estate of Borrower in certain premises located in Riverside County, State of California, and other property, as more particularly described therein (collectively, the "Property") and intended to be duly recorded in said County. The term "Other Security Documents" as used in this Note shall mean all and any of the documents other than this Note or the Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guarantee payment of this Note. Whenever used, the singular number shall include the plural, the plural number shall include the singular, and the words "Lender" and "Borrower" shall include their respective successors, assigns, heirs, executors and administrators. All of the terms, covenants and conditions contained in the Security Instrument and the Other Security Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. All capitalized terms not defined herein shall have the meanings ascribed to them in the Security Instrument and the Other Security Documents. ARTICLE 7: SAVINGS CLAUSE This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due thereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Borrower is at any time required or obligated to pay interest on the principal balance due thereunder at a rate in excess of such maximum rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. ARTICLE 8: LATE CHARGE If any sum payable under this Note is not paid prior to the tenth (10th) day after the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of the unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing the delinquent payment and to compensate Lender for the loss of the use of the delinquent payment and the amount shall be secured by the Security Instrument and the Other Security Documents. Page 55 of 62 Exhibit 10.6 ARTICLE 9: NO ORAL CHANGE This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver,' extension, change, discharge or termination is sought. ARTICLE 10: JOINT AND SEVERAL LIABILITY If Borrower consists of more than one person or party, the obligations and liabilities of each person or party shall be joint and several. ARTICLE 11: WAIVERS Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest and non-payment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instrument or the Other Security Documents made by agreement between Lender or any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other person or entity who may become liable for the payment of all or any part of the Debt, under this Note, the Security Instrument or the Other Security Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in this Note, the Security Instrument or the Other Security Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the partnership. If Borrower is a corporation, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation. If Borrower is a limited liability company, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the members comprising, or the managers, officers or agents relating to, the limited liability company. The term "Borrower", as used herein, shall include any alternate or successor partnership, corporation, limited liability company or other entity or person to the Borrower named herein, but any predecessor partnership (and their partners), corporation, limited liability company, other entity or person shall not thereby be released from any liability. Nothing in this Article 11 shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership which may be set forth in the Security Instrument or any Other Security Document. Page 56 of 62 Exhibit 10.6 ARTICLE 12: TRANSFER Lender may, at any time, sell, transfer or assign this Note, the Security Instrument and the Other Security Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage passthrough certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the "Securities"). Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such Securities or any Rating Agency rating such Securities (collectively, the "Investor") and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any guarantor and the Property, whether furnished by Borrower, any guarantor or otherwise, as Lender determines necessary or desirable. Borrower and any guarantor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to the Security Instrument, including, without limitation, the delivery of an estoppel certificate in accordance therewith, and such other documents as may be reasonably requested by Lender. Borrower shall also furnish and Borrower and any guarantor consent to Lender furnishing to such Investors or such prospective Investors any and all information concerning the Property, the Leases, the financial condition of Borrower and any guarantor as may be requested by Lender, any Investor or any prospective Investor in connection with any sale, transfer or participation interest. Lender may retain or assign responsibility for servicing the Loan, including the Note, the Security Instrument, this Agreement and the Other Security Documents, or may delegate some or all of such responsibility and/or obligations to a servicer including, but not limited to, any subservicer or master servicer. Lender may make such assignment or delegation on behalf of the Investors if the Note is sold or this Agreement or the Other Security Documents are assigned. All references to Lender herein shall refer to and include any such servicer to the extent applicable. ARTICLE 13: WAIVER OF TRIAL BY JURY BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. ARTICLE 14: EXCULPATION (a) Except as otherwise provided herein, in the Security Instrument or in the Other Security Documents, Lender shall not enforce the liability and obligation of Borrower, to perform and observe the obligations contained in this Note, the Security Instrument or the Other Security Documents by any action or proceeding wherein a money judgment shall Page 57 of 62 Exhibit 10.6 be sought against Borrower or any partner of Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon this Note, the Security Instrument, the Other Security Documents, and the interests in the Property; and any other collateral given to Lender pursuant to the Security Instrument and the Other Security Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower or any partner of Borrower only to the extent of Borrower's interest in the Property and in any other collateral given to Lender, and Lender, by accepting this Note, the Security Instrument and the Other Security Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower or any partner of Borrower, in any such action or proceeding, under or by reason of or in connection with this Note, the Security Instrument or the Other Security Documents. The provisions of this paragraph shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by the Security Instrument or the Other Security Documents, (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Security Instrument, (iii) affect the validity or enforceability of any guaranty made in connection with this Note, the Security Instrument or the Other Security Documents, (iv) impair the right of Lender to obtain the appointment of a receiver, (v) impair the enforcement of any assignment, or (vi) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys' fees and costs reasonably incurred) arising out of or in connection with the following: (a) fraud or misrepresentation by Borrower in connection with this Note, the Security Instrument or the Other Security Documents; (b) the gross negligence or willful misconduct of Borrower; (c) material physical waste of the Property by Borrower; (d) the breach of provisions in this Note, the Security Instrument or the Other Security Documents concerning Environmental Laws and Hazardous Substances and any indemnification of Lender with respect thereto in either document; (e) the removal or disposal of any portion of the Property by Borrower after default under this Note, the Security Instrument or the Other Security Documents; (f) the misapplication or conversion by Borrower of (i) any insurance proceeds paid by reason.- of any loss, damage or destruction to the Property, (ii) any a-wards or other amounts received in connection with the condemnation of all or a portion of the Property, or (iii) any Rents following default under this Note, the Security Instrument or the Other Security Documents; Page 58 of 62 Exhibit 10.6 (g) Borrower's failure to pay Taxes (provided that the liability of Borrower shall be only for amounts in excess of the amount held by Lender in escrow for the payment of Taxes), assessments, charges for labor or materials or other charges that can create liens on any portion of the Property; and (h) Borrower's failure to deliver any security deposits collected with respect to the Property which are not delivered to Lender upon a foreclosure of the Property or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof. Notwithstanding anything to the contrary in this Note, the Security Instrument or the Other Security Documents (i) the Debt shall be fully recourse to Borrower; and (ii) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), ll.(b) or any other provisions of the US Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with this Note, the Security Instrument or the Other Security Documents, in the event that: (A) the first full Monthly Payment is not paid when due; (B) Borrower fails to permit on-site inspections of the Property, fails to provide financial information, or fails to maintain its status as a single purpose entity, as required by the Security Instrument; (C) Borrower fails to obtain Lender's prior written consent to any subordinate financing or other voluntary lien encumbering the Property; (D) Borrower fails to obtain Lender's prior written consent to any assignment, transfer, or conveyance of the Property or any interest therein as required by the Security Instrument. ARTICLE 15: AUTHORITY Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute and deliver this Note, the Security Instrument and the Other Security Documents and that this Note, the Security Instrument and the Other Security Documents constitute valid and binding obligations of Borrower. ARTICLE 16: APPLICABLE LAW This Note shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York. ARTICLE 17: SERVICE OF PROCESS (a) (i) Borrower will maintain a place of business or an agent for service of process in California and give prompt notice to Lender of the address of such place of business and of the name and address of any new agent appointed by it, as appropriate. Borrower Page 59 of 62 Exhibit 10.6 further agrees that the failure of its agent for service of process to give it notice of any service of process will not impair or affect the validity of such service or of any judgment based thereon. If, despite the foregoing, there is for any reason no agent for service of process of Borrower available to be served, and if it at that time has no place of business in California then Borrower irrevocably consents to service of process by registered or certified mail, postage prepaid, to it at its address given in or pursuant to the first paragraph hereof. (ii) Borrower initially and irrevocably designates CT Corporation System, with offices on the date hereof at 818 West Seventh Street, Los Angeles, California 90017, to receive for and on behalf of Borrower service of process in California with respect to this Note. (b) With respect to any claim or action arising thereunder or under the Security Instrument or the Other Security Documents, Borrower (a) irrevocably submits to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York, New York, and appellate courts from any thereof, and (b) irrevocably waives any objection which it may have at any time to the laying on venue of any suit, action or proceeding arising out of or relating to this Note brought in any such court, irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. (c) Nothing in this Note will be deemed to preclude Lender from bringing an action or proceeding with respect hereto in any other jurisdiction. ARTICLE 18: COUNSEL FEES In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security therefor, Borrower also agrees to pay all reasonable fees and expenses of Lender, including, without limitation, reasonable attorney's fees for the services of such counsel whether or not suit be brought. ARTICLE 19: NOTICES All notices or other written communications thereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person with receipt acknowledged by the recipient thereof, (ii) one (1) Business Day (defined below) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: Page 60 of 62 Exhibit 10.6 If to Borrower: RRF IV Tri City Limited Partnership c/o Glenborough Inland Realty Corporation 400 South El Camino Real San Mateo, CA 94402-1708 Attention: Mr. Robert Batinovich With a copy to: Morrison & Foerster LLP 345 California Street San Francisco, CA 94104 Attn: Noel Nellis, Esq. If to Lender: Bear, Stearns Funding, Inc. 245 Park Avenue New York, New York 10167 Attention: Kenneth A. Rubin or addressed as such party may from time to time designate by written notice to the other parties. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. "Business Day" shall mean any day other than Saturday, Sunday or any other day on which banks are required or authorized to close in New York, New York. ARTICLE 20: MISCELLANEOUS (a) Wherever pursuant to this Note (i) Lender exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory to Lender, or (iii) any other decision or determination is to be made by Lender, the decision of Lender to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Lender, shall be in the sole and absolute discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein. (b) Wherever pursuant to this Note it is provided that Borrower pay any costs and expenses, such costs and expenses shall include, but not be limited to, legal fees and disbursements of Lender, whether retained firms, the reimbursement for the expenses of in-house staff, or otherwise. ARTICLE 21: DEFINITIONS All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Security Instrument. Page 61 of 62 Exhibit 10.6 IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written. RRP IV TRI CITY LIMITED PARTNERSHIP By: RRF IV, Inc., its general partner By: /s/ Robert Batinovich Name: Robert Batinovich Title: President Page 62 of 62 EX-27 2 FDS --
5 0000743870 RANCON REALTY FUND IV 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 199 0 593 0 4,869 387 58,266 13,077 52,695 780 17,256 0 0 0 34,659 52,695 0 5,214 0 0 5,932 0 792 (1,510) 0 (1,510) 0 0 0 (1,510) (18.91) (18.91)
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