-----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, NMjPqTk64y5+3Jr26fT2aQERhZD/XCWNiePT7FBdYs1geu9iyciBWvocYKh5zFQ/ jN2tj9F2sUJvX0HeMG1FtQ== 0000950005-95-000036.txt : 19960604 0000950005-95-000036.hdr.sgml : 19960604 ACCESSION NUMBER: 0000950005-95-000036 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLENBOROUGH LTD CENTRAL INDEX KEY: 0000790129 STANDARD INDUSTRIAL CLASSIFICATION: 6512 IRS NUMBER: 942997842 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-03657 FILM NUMBER: 95526158 BUSINESS ADDRESS: STREET 1: 400 SOUTH EL CAMINO REAL STREET 2: SUITE 1100 CITY: SAN MATEO STATE: CA ZIP: 94402-1708 BUSINESS PHONE: 4153439300 MAIL ADDRESS: STREET 1: 400 SOUTH EL CAMINO REAL STREET 2: SUITE 1100 CITY: SAN MATEO STATE: CA ZIP: 94402-1708 FORMER COMPANY: FORMER CONFORMED NAME: GLENBOROUGH LTD DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K 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, 1994 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: 33-3657 GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP as successor to Glenborough Limited pursuant to Rule 15d-5 ---------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2997842 -------------------------------- ---------------- (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: See Exhibit Index in Item 14 Page 1 of 54 PART I ITEM 1. BUSINESS. Organization Glenborough Partners, A California Limited Partnership ("Partners"), successor to Glenborough Limited, A California Limited Partnership pursuant to section 15d-5 of the Securities Exchange Act of 1934, was originally formed in 1986 generally to acquire, own, operate, develop and lease commercial and residential real estate. To facilitate compliance with certain recording and filing requirements, a second limited partnership, GOCO Realty Fund I, a California Limited Partnership formerly known as Glenborough Operating Co. Ltd., A California Limited Partnership ("GOCO"), was formed in April 1986 to hold and operate all real and personal property then or thereafter owned by the Partnership (the "Partnership Property"). Partners and GOCO operated as an economic unit and unless specifically designated otherwise, were referred to collectively as the "Partnership". The present general partners of both Partners and GOCO are Glenborough Realty Corporation, a California corporation, and Robert Batinovich (collectively "Glenborough" or "General Partner"). Glenborough Realty Corporation is the managing general partner of the Partnership (the "Managing General Partner"). Glenborough Partners is the sole limited partner of GOCO. In June 1986, the Partnership acquired (the "Roll Up") 66 real estate projects (the "Original Projects"), subject to non-recourse institutional debt secured by the Original Projects and certain assets, subject to certain liabilities, most of which were related to the operation of the Original Projects ("Net Other Assets"). The Original Projects and the Net Other Assets (collectively, the "Original Assets") were acquired by the Partnership from 21 limited partnerships and one individual (collectively, the "Predecessor Owners"). The Partnership acquired the Original Assets in exchange for 4,948,891 limited partnership units (the "Exchange Transaction"). To facilitate the Partnership's holding and transfer of real property as set forth under the plan of reorganization discussed below, two partnerships were created in February 1994: (i) GPA West, L.P.; and (ii) GPA Industrial, L.P. Subsequently, a third partnership was created in 1994, GPA Bond, L.P., to hold a property purchased on December 29, 1994. All three partnerships are subsidiaries of GOCO Realty Fund I and as such, the financial statements are consolidated with Glenborough Partners. The general partners of each of these partnerships are Glenborough Realty Corporation and Robert Batinovich while the sole limited partner of each is GOCO Realty Fund I. Chapter 11 - Reorganization On May 21, 1992, GOCO Realty Fund I, the partnership holding and operating the Partnership's real property, filed a petition in the Page 2 of 54 United States Bankruptcy Court for the Northern District of California ("the Bankruptcy Court") for reorganization under Chapter 11 of the Federal Bankruptcy Code. The Partnership filed a plan of reorganization with the Bankruptcy Court which became effective January 24, 1994 (see Note 10 of the Notes to Consolidated Financial Statements). The following is a brief description of the principal points of the reorganization plan: 1. The claims of all creditors were satisfied in full. 2. Transfer to Brazos Asset Management, Inc. or its affiliates ("Brazos"), successor to New West Federal which succeeded American Savings and Loan, ("American"), the original lender, (see Note 3 of the Notes to the Consolidated Financial Statements) of the Partnership's interest in the restricted cash and Griffin note receivable from Griffin Investments (Griffin"), successor to Mariani Financial Company ("MFCo"), the original contributor of 15 properties to the Partnership in the Roll-Up (see Note 4 of the Notes to the Consolidated Financial Statements). 3. Twelve properties have been transferred into two separate rollouts, four to Griffin Investments (Phase II Rollout), and eight to a Griffin affiliate (Phase III Rollout), in redemption of all of Griffin's (and its affiliates') 448,894 units in Glenborough Partners (which is successor to Glenborough Limited). These redemptions reduced Glenborough Partners' outstanding equity securities from 3,410,747 limited partner units to 2,961,853 limited partner units. Those entities were given options to pay off Brazos' lien on those properties, at negotiated prices, or transfer them to Brazos. 4. GOCO's obligation to deliver the property known as Burlingame Plaza to Robert Fraser was satisfied through the payment by GOCO Realty Fund I of $750,000 toward the price charged by Brazos for release of Burlingame Plaza, which was then delivered to Mr. Fraser free and clear following his payment of $150,000 owed by him to GOCO. GOCO paid this amount over to Brazos against the balance of the release price. 5. The claims of Brazos were satisfied through a multipart transaction including the following: a. Brazos unconditionally released its lien on two properties; (i) a 50,000-foot industrial facility in Auburn, California, which was leased to Coherent, Inc. - the release of this lien occurred on February 4, 1994, as part of a sale of the property to the tenant; and (ii) a vacant 95,500 square foot industrial/office facility in the Stanford Business Park in Palo Alto, California. b. GOCO paid Brazos the sum of $500,000, from the Coherent Auburn sale, discussed below, in return for which Brazos released its lien on the property known as Rosemead Page 3 of 54 Springs Business Park in El Monte, California - this transaction occurred on February 4, 1994. c. GOCO had an option (exercisable at any time prior to April 30, 1994) to obtain a release of the Brazos lien as to any of the remaining properties (the "Option Properties") subject to Brazos' lien by paying a negotiated release price to Brazos. The Partnership exercised its option on eight properties as discussed in paragraph 4, 5.a and 5.b above and 6. below. The remaining options were not exercised and those properties were transferred to Brazos in satisfaction of the remaining balance of Brazos claims in May 1994. 6. GOCO closed the sale of the Coherent Auburn facility to the tenant for $3,650,000 on February 4, 1994, and applied a portion of the net proceeds from the sale toward the payment of the release price for the Rosemead Springs property referred to in paragraph 5.b., above. Most of the remaining proceeds were applied toward the partial paydown of Brazos' discounted lien release price for four of the Option Properties referred to in paragraph 5.c., above. The balance of the funds required for the payment of those release prices were financed through a $12 million loan obtained by GPA Industrial, L.P. from Heller Financial, Inc. Such financing was applied to the release of the liens on the two properties known as the J.I. Case buildings and the two properties known as the Navistar buildings. The total release price for these properties and the Rosemead property was $14,500,000. 7. Included in the above transactions, was $962,000 in net transaction fees payable to a general partner which was paid in August 1994. Material Disposition of Properties MFCo. Phase I Rollout - Effective January 1, 1987, the Partnership transferred to MFCo., under an installment land contract, equitable title to nine of the 15 properties originally contributed by MFCo. and its affiliates to the Partnership in the Exchange Transaction. These properties had an original exchange value of $73,852,000. In consideration for the properties and related net assets and liabilities, David W. Mariani and MFCo. transferred back 1,110,863 units of partnership interest in Limited and gave Limited a note in the original principal amount of $53,172,000, which included undrawn reserves of $1,960,000. This amount approximated the prorata share of refinanced New West Federal Debt (now known as the "Brazos Debt")(see Note 3 - Notes Payable) attributable to the MFCo. Rollout properties. This note has an original maturity date of June 30, 1996. The difference between the promissory note received from MFCo. and the book value of the assets transferred/rolled out was recorded on the Partnership's books as deferred gain. MFCo. Rollout price adjustments affecting deferred gain have been made subsequent to the Rollout, due to a provision in the original Master Lease on one Page 4 of 54 of the properties rolled-out. The note receivable was discounted to yield the same effective interest rate as the Brazos Debt, 7.44%. No accounting recognition has been given to the surrender of Partnership Units. This transaction substantially reduced MFCo.'s interest in the Partnership from approximately 31% to approximately 11%. In addition, David W. Mariani withdrew as a general partner of both Glenborough Limited and GOCO and also resigned as an officer and director of Glenborough Realty Corporation, the managing general partner of Glenborough Limited and GOCO, effective July 9, 1987. In January 1988, MFCo. assigned to Griffin Investments, a California limited partnership, its interest in the installment sale land contract. Interest only payments (originally five percent increasing over time to ten percent) are due monthly. Effective July 1, 1991, the Partnership agreed to forbear from collecting from Griffin Investments the increased interest payments which would otherwise have taken effect on that date, in the approximate amount of $77,000 per month. At December 31, 1993, the Partnership remained primarily liable for the full amount of the Brazos Debt and the MFCo. Rollout properties remained collateral for that debt. Griffin Investments had the right to partially reinstate its prorata share of the Brazos Debt in the event of a default by the Partnership. The Partnership also had the right to transfer title of the properties to Griffin Investments. On January 24, 1994, pursuant to the plan of reorganization discussed above, the claims of Brazos were satisfied through a multipart transaction which included a transfer by the Partnership to Brazos of the Griffin note receivable. Business Plan In general, the Partnership's intentions were to acquire and hold properties for the long term, with the objective of providing a strong, growing, diversified portfolio that can generate predictable cash distributions. The business of the Partnership consists primarily of owning and operating as a continuing business, the current projects ("Partnership Properties" or "Properties") and mortgages (the "Partnership Assets"). Information regarding the Partnership Properties is incorporated herein by reference to Item 2 - -Properties. Management and Operation Glenborough Partners operates through GOCO Realty Fund I, GPA Industrial L.P., GPA West L.P., and GPA Bond L.P. (collectively "the Operating Partnerships"). The Operating Partnerships have engaged Glenborough Corporation, a California corporation controlled by Robert Batinovich, to act as property manager (the "Property Manager") to manage the Partnership Assets. Pursuant to a written management agreement, Glenborough Corporation has broad managerial responsibility for all Partnership Assets, including Page 5 of 54 collection of all rental and other charges due from tenants. The agreement as amended, expires in 1996, except that the Partnership may terminate the agreement without cause on 30-days written notice or immediately if Glenborough Realty Corporation ceases to be the managing general partner. Federal, state and local statutes, ordinances and regulations which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment do not presently have a material effect on the operations of the Properties nor on the capital expenditures, earnings or competitive position of the Partnership. The Partnership does not directly employ any individuals. All regular employees rendering services on behalf of the Partnership are employees of Glenborough Corporation or its affiliates. The business of the Partnership to date has involved only one industry segment. The partnership has no foreign operations and the business of the partnership is not seasonal. Competition The Managing General Partner 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 additional tenant improvements commensurate with local market conditions. Such competition may lead to rent concessions that could adversely affect the Partnership's cash flow. Although the Managing General Partner believes the Partnership Properties are competitive with comparable properties as to those factors within the Partnership's control, continued 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 future market and economic conditions, the Partnership may be required to retain ownership of its current Properties for periods longer than originally anticipated, or may need to dispose 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 6 of 54 ITEM 2. PROPERTIES. As discussed above under Chapter 11 - Reorganization, the Partnership exercised its option to obtain a release of the Brazos lien on eight properties. The options on the remaining properties were not exercised and those properties were transferred to Brazos in satisfaction of the remaining balance of Brazos' claims in May 1994. As of December 31, 1994, the Partnership has a total of 6 projects. There are 170,000 rentable square feet of multi-tenant office space located in suburban areas of Los Angeles and Detroit with aggregate occupancy of 34%. Industrial/warehouse facilities, totaling 1.2 million rentable square feet are located in Memphis, Chicago, Kansas City, and Baltimore. The industrial/warehouse space is 100% leased. The overall property occupancy is 92%. In the opinion of management, the insurance coverage on each of the real estate projects has been and continues to be adequate. There are four leases which occupied ten percent or more of the total net rentable square footage available at year end. See "Material Leases" below for the lease and option provisions for these leases. On a cumulative basis, these light industrial warehouse projects produced gross revenue of $2,101,000 for the last fiscal year equal to approximately 34% of the aggregate gross revenues of the Partnership. Information regarding encumbrances on Partnership Projects is incorporated herein by reference to Item 8, Note 3 - Notes Payable in the Notes to Consolidated Financial Statements. The following table sets forth information regarding the Partnership Projects which were owned as of December 31, 1994, grouped by type of project, including project name, location, general physical characteristics, and total amount of leasable square feet. Page 7 of 54
PARTNERSHIP PROJECTS - OFFICE COMPLEXES Leasable Square Occupancy Project Name General Description Feet % Location - ------------ ------------------- -------- --------- -------- Rosemead Springs Seven, one-story and 129,503 16% El Monte, Business Center two-story buildings CA (GPA West, L.P.) Bond Street One, one-story 40,594 97% Farmington Building connected to one, Hills, (GPA Bond, L.P.) two-story building MI
PARTNERSHIP PROJECTS - LIGHT INDUSTRIAL WAREHOUSE PROJECTS Leasable Square Occupancy Project Name General Description Feet % Location - ------------ ------------------- -------- --------- -------- Navistar One-story building 474,426 100% West International Chicago, Corp., Parts IL Distribution Center (GPA Industrial, L.P.) Navistar One-story building 274,000 100% Baltimore, International MD Corp., Parts Distribution Center (GPA Industrial, L.P.) J. I. Case One-story building 205,594 100% Memphis, Company Building TN (GPA Industrial, L.P.) J. I. Case One-story building 199,750 100% Kansas Company Building City, (GPA Industrial, L.P.) KS
Page 8 of 54 Material Leases The following is a description of leases containing an option to purchase the project. Currently, the Partnership is not a party to any leases with any General Partner of the Partnership, or officers, directors or affiliates of a General Partner of the Partnership. J. I. Case Company Building, Kansas City, KS - J. I. Case Company occupies 100% of the leasable space under a lease assigned by Navistar International Corporation that commenced in 1984 and expires on February 29, 2004, with an option to extend for two five-year terms. Gross base rent annualized is currently $360,000. The lessee did not exercise its option to purchase the property on March 1, 1993. On March 1, 1997, the Lessee has another option to purchase the property for the greater of fair market value of the property at the time of exercise or $2,061,000. J. I. Case Company Building, Memphis, TN - J. I. Case Company leases but does not occupy 100% of the leasable space under a lease assigned by Navistar International Corporation that commenced in 1984 and expires on February 29, 2004, with an option to extend for two five-year terms. Gross base rent annualized is currently $316,000. The lessee did not exercise its option to purchase the property on March 1, 1993. On March 1, 1997, the Lessee has another option to purchase the property for the greater of fair market value of the property at the time of exercise or $1,664,000. Navistar International Corporation Building, Baltimore, MD -Navistar International Corporation occupies 100% of the leasable space under a lease that commenced in 1984 and expires on February 29, 2004, with an option to extend for two five-year terms. The rental amounts payable under the lease were modified in 1989 and 1990 in consideration of waiver by the tenant of purchase options exercisable in those years. Gross annual rent, triple net, is $422,000. The lessee did not exercise its option to purchase the property on March 1, 1993, but has an option to purchase the property every three years thereafter, at a price equal to fair market value, but not less than $3,700,000 and not more than $4,200,000, a figure determined in accordance with a formula specified in the 1990 modification. This figure may change in future years based on the formula specified in the modification. Navistar International Corporation Building, West Chicago, IL -Navistar International Corporation occupies 100% of the leasable space under a lease that commenced in 1984 and expires on February 29, 2004, with an option to extend for two five-year terms. The rental amounts payable under the lease were modified in 1989 and 1990 in consideration of waiver by the tenant of purchase options exercisable in those years. Gross annual rent, triple net, is $1,003,000. The lessee did not exercise its option to purchase the property on March 1, 1993, but has an option to purchase the property every three years thereafter, at a price equal to fair market value, but not less than $8,195,000 and not more than $9,952,000, a figure determined in accordance with a formula Page 9 of 54 specified in the 1990 modification. This figure may change in future years based on the formula specified in the modification. ITEM 3. LEGAL PROCEEDINGS. On May 21, 1992, New West Federal Savings and Loan Association filed a judicial foreclosure action in Superior Court in Orange County. Also on May 21, the Partnership (i) filed a civil action against New West Federal in Superior Court in San Mateo County, seeking in excess of $30 million in damages for a variety of claims, including misrepresentation and breach of contract, and (ii) filed a petition in the United States Bankruptcy Court ("the Court") for the Northern District of California for reorganization under Chapter 11 of the Federal Bankruptcy Code. On January 13, 1994, the Court entered an order confirming a plan of reorganization (the "Plan") (see Item 8 - Note 10). The Plan became effective on January 24, 1994. Pursuant to the Plan, the lawsuits were dropped in 1994 after all the terms of the Plan were met. ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS. During the fourth quarter of fiscal year 1994, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS. Market Information There is no public market for units of limited partnership interest in the Partnership (the "Units") and it is not expected that any will develop. The Units have limited transferability. Restrictions on transfer may be imposed under certain state securities laws. Consequently, holders of Units may not be able to liquidate their investments and the Units may not be readily acceptable as collateral. Holders As of December 31, 1994, 414 holders of record held 2,961,853 Limited Partnership Units. Cash Distributions The Partnership began paying quarterly cash distributions on April 30, 1987, at a quarterly rate of $0.375 per Limited Partnership Unit and continued paying the same quarterly cash distribution through the fourth quarter 1988 distribution on January 31, 1989. In 1989, the Partnership lowered its quarterly cash distribution rate to $0.25 per Unit for the first quarter distribution and to $0.1875 per Unit beginning with the second quarter 1989 Page 10 of 54 distribution. Distributions were suspended as of the second quarter of 1990. It is not known when they will be resumed. ITEM 6. SELECTED FINANCIAL DATA. The selected financial data should be read in conjunction with the financial statements and related notes contained elsewhere in this report. This selected financial data is not covered by the reports of the independent public accountants.
Condensed Consolidated Operating Data (in thousands, except for Per Unit Data and actual number of assets) 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Total Revenues $ 6,098 $ 22,061 $ 24,963 $ 30,567 $ 30,096 Operating Expenses (9,126) (28,389) (31,140) (40,412) (39,031) Income (Loss) from Operations (3,028) (6,328) (6,177) 11,745 12,313 Gain (Loss) on Property Sales 1,631 --- --- --- (1,028) Loss on Investment in Real Estate (1,000) --- --- --- --- Loss Before Extraordinary Items (2,397) (6,328) (6,177) (9,845) (9,963) Extraordinary Items (Note 1) 119,954 (30) (40) --- --- ------- ------ ------ ------ ------ Net Income (Loss) $117,557 $(6,358) $(6,217) $(9,845) $(9,963) ======= ====== ====== ====== ====== Cash Distributed (Note 2) --- --- --- --- 1,318 Per Limited Partnership Unit (Note 3): Loss before Extraordinary Items $ (.74) $ (1.81) $ (1.77) $ (2.80) $ (2.84) Net Income (Loss) 36.52 (1.82) (1.78) (2.80) (2.84) Distributions --- --- --- --- .38 At December 31, actual number of: Projects held 6 30 30 30 30 Mortgage Notes Receivable held - 1 1 1 1 See accompanying notes.
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Condensed Consolidated Balance Sheet Data (in thousands) December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Assets Net Real Estate Investment (Note 4) $ 19,778 $123,701 $127,395 $131,236 $137,379 Net Notes Receivable - 44,951 45,635 45,656 45,316 Other Assets 3,407 16,630 19,618 19,638 18,489 ------- ------- ------- ------- ------- Total Assets $ 23,185 $185,282 $192,648 $196,530 $201,184 ======= ======= ======= ======= ======= Liabilities and Partners' Equity (Deficit) Notes Payable and Accrued Interest $ 17,267 $295,380 $295,310 $294,004 $288,936 Other Liabilities 629 2,170 3,248 2,219 2,096 ------- ------- ------- ------- ------- Total Liabilities 17,896 297,550 298,558 296,223 291,032 Total Partners' Equity (Deficit) 5,289 (112,268) (105,910) (99,693) (89,848) ------- ------- ------- ------- ------- Total Liabilities Partners' Equity (Deficit) $ 23,185 $185,282 $192,648 $196,530 $210,184 ======= ======= ======= ======= ======= See accompanying notes.
NOTES TO SELECTED FINANCIAL DATA 1. The Partnership recognized extraordinary items from the Chapter 11 bankruptcy reorganization, early extinguishment of debt, and related costs. 2. The Partnership suspended distributions in the second quarter of 1990. 3. In 1990 and 1991, the per unit data is based on 98.01% of the subject divided by 3,442,110 total limited partner units outstanding. In 1992 and 1993, with a limited partner reassigning 27,271 units back to Glenborough Limited (a predecessor to Glenborough Partners) at the close of business December 31, 1991, the per unit data is based on 98.01% of the subject divided by 3,414,839 limited partner units outstanding. In 1994, after the redemption of a total of 449,894 units as part of the reorganization plan (see Note 10 of the Notes to the Consolidated Financial Statements), the per unit data is based on 97.73% of the subject divided by 3,146,492 weighted average limited partner units. 4. Real Estate Investment additions at cost, were $2,767,000, $595,000, $980,000, $633,000 and $440,000 for the years ended Page 12 of 54 December 31, 1990, 1991, 1992, 1993 and 1994 respectively. Net Real Estate Investment deletions due to sales were $9,842,000 and $6,182,000 for the years ended December 31, 1990 and 1994, respectively. In 1994, the Partnership transferred back to the lender, Brazos Asset Management Inc., net real estate investments of $106,049,000 in satisfaction of the remaining balance of Brazos' claims (see Legal Proceedings and Item 1. Chapter 11 - Reorganization). The comparability of the Consolidated Financial Data reflected in the above table has been affected by the reduction of total assets and related debt resulting from the bankruptcy reorganization and early extinguishment of debt in 1994 and by the Statement of Position 90-7 - Financial Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7") in 1993 and 1992. Interest on secured claims accrues only to the extent that the value of the underlying collateral exceeds the principal amount of the secured claim. Therefore, interest is accrued only through May 21, 1992. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Introduction The predecessor partnership commenced operations as of June 30, 1986, following its acquisition of 66 real estate projects subject to non-recourse institutional debt secured by the projects and certain other assets, subject to certain liabilities, most of which related to the operation of the projects. The predecessor partnership acquired the projects and other assets in exchange for the Units, in an Exchange Transaction involving 21 limited partnerships and one individual property owner. At the end of 1993, there was a technical termination of the predecessor partnership and Glenborough Partners commenced as successor to Glenborough Limited (collectively, "the Partnership"). The following discussion addresses the Partnership's financial condition at December 31, 1994 and its results of operations for the years ended December 31, 1994, 1993 and 1992. This information should be read in conjunction with the Consolidated Financial Statements, notes thereto and other information contained elsewhere in this report. LIQUIDITY AND CAPITAL RESOURCES On May 21, 1992, New West Federal Savings and Loan Association ("New West") filed a judicial foreclosure action in Superior Court in Orange County. Also on May 21, the Partnership (i) filed a civil action against New West in Superior Court in San Mateo County, seeking in excess of $30 million in damages for a variety of claims, including misrepresentation and breach of contract, and (ii) filed a petition in the United States Bankruptcy Court for the Northern District of California for reorganization under Chapter 11 of the Federal Bankruptcy Code (see Results of Operations below). The Bankruptcy Court approved the Partnership as debtor in possession, the continuation of Glenborough as manager of the Page 13 of 54 Partnership's assets, and an agreement between the Partnership and New West relating to the use of cash collateral, as well as ruling on a variety of other miscellaneous issues. On December 23, 1992, the Partnership and New West agreed on the terms of a litigation moratorium under which virtually all activity in the civil actions and in the Bankruptcy Court (other than routine matters relating to day-to-day operations) were suspended while the parties attempted to negotiate a settlement. As a result of the Chapter 11 filing, a cash collateral agreement was implemented between the Partnership and New West, whereby the Partnership was required to pay to New West monthly, all but $50,000 of the funds remaining in the operating cash accounts as of the last day of the previous month. In accordance with SOP 90-7, such payments have been recognized as interest expense. Net cash paid to New West, Brazos (discussed below) or its agent for interest pursuant to the cash collateral agreement was $2,216,000 and $12,219,000 in 1994 and 1993, respectively. On November 19, 1993, GOCO and Brazos executed a settlement agreement, which was incorporated into a Second Amended Plan of Reorganization (incorporated by reference to Exhibit 2.1 to the Partnership's Current Report on Form 8-K dated January 24, 1994) ("Amended Plan") for GOCO, which was confirmed by the court on January 13, 1994, without opposition from any party, and became effective on January 24, 1994. The Amended Plan and settlement had five principal components. First, Brazos unconditionally released its lien on two properties: (i) a 50,000-foot industrial facility leased to Coherent, Inc. in Auburn, California, which was sold to the tenant as described more fully below; and (ii) a vacant 95,500 square foot industrial/office facility in the Stanford Business Park in Palo Alto, California, which was sold to Coherent in December 1994 as described more fully below. Second, GOCO acquired Rosemead for $500,000. Third, GOCO had an option (exercisable at any time prior to April 30, 1994) to obtain a release of the Brazos lien as to any remaining properties subject to Brazos's lien by paying a negotiated release price to Brazos. The Partnership exercised its option on a few properties as discussed below. Fourth, by April 30, 1994, GOCO was to have transferred to Brazos, in satisfaction of the balance of Brazos's claims, any property as to which GOCO had not exercised the option described above. This transaction actually closed on May 6, 1994. Fifth, certain properties were transferred by GOCO to Griffin (see Item 8. note 4 - Griffin Transfer) or a related party in redemption of Griffin's interest in Glenborough Partners, which were required to pay negotiated release prices or transfer those properties to Brazos on or before July 31, 1994. The transfers were effectively completed by May 31, 1994. GOCO closed the sale of the Coherent Auburn facility to the tenant for $3,650,000 on February 4, 1994, and applied a portion of the net proceeds from the sale toward the payment of the release price for the Rosemead Springs property. Most of the remaining proceeds were applied toward Brazos's lien release price for four properties known as the J.I. Case and Navistar buildings with a portion Page 14 of 54 applied to an investment in real estate as described more fully below. On December 22, 1994, the Partnership sold the property formerly known as Coherent Palo Alto to the former tenant for $4,300,000. After paying for other fees, the Partnership received net proceeds from escrow of $4,213,000. The Partnership then paid off a note payable in the current amount of $1,358,000 on December 23, 1994 and purchased the Bond Street Building on December 29, 1994. The remaining balance was added to working capital reserves. The Bond Street Building was purchased for $3,150,000. The Partnership paid $308,000, financed $2,835,000 and received operating credits of approximately $7,000. Monthly interest only payments at three hundred fifty (350) basis points plus the three month "Libor" rate commenced February 1, 1995 and will continue until the maturity date of December 31, 1999. In addition, principal payments are required on a quarterly basis commencing April 15, 1995 at an amount of excess cash flow, which is defined as net cash flow less: (i) current payments due ont he loan; (ii) a ten percent (10%) per annum return on equity to the borrower. Through the May 1994 escrow related to the Partnership's obtaining free and clear title from Brazos on the properties known as the J.I.Case and Navistar buildings (discussed above), the Partnership made a $1,000,000 principal paydown on a note payable for an affiliated partnership. Financing for the J.I.Case and Navistar buildings was extremely difficult to find in the current market, so as an inducement for the lender to finance this release price purchase, the Partnership paid down a portion of an affiliate's note payable in good faith. In December 1994, the Partnership and the affiliated partnership, UCT Associates, A California Limited Partnership ("UCT") agreed that the $1,000,000 paid by the Partnership on behalf of UCT was an investment in UCT. Coupled with that, Robert Batinovich contributed his limited partner interest in the profits and losses of UCT. This gave the Partnership a 45% non-voting limited partner interest, a 99% allocation of future income and losses, and an economic interest in any future upside of this property, without exposure to any loss. This was made possible after Glenborough waived a portion of its potential transaction fees on the disposition of properties in 1994. At December 31, 1994, the General Partner believes that there is no real equity in UCT, therefore the $1,000,000 invested in UCT was recognized as a loss on investment in real estate. Previous reports have discussed the liquidity and capital resources problems associated with vacancies by two large tenants, Solectron and SEEQ. However, pursuant to the Amended Plan those properties were transferred to an affiliate of Griffin, and the partnership's claims for delinquent rent have been transferred to Brazos, so these issues are no longer pertinent to the Partnership's liquidity and capital resources. Page 15 of 54 Near-term prospects for liquidity and capital resources are somewhat problematic, since one of the Partnership's current properties, Rosemead is substantially vacant and is currently held for sale. The other property, the former Coherent facility in Palo Alto, which was totally vacant, was sold on December 22, 1994. Until Rosemead is sold, management anticipates that, assuming no new leasing at Rosemead, the Partnership's near-term cash flow will be roughly break-even. To facilitate current financing, the Rosemead and Palo Alto properties were transferred to a newly-formed subsidiary of GOCO, GPA West, L.P. in early 1994, while the recently purchased Bond Street Building was purchased by GPA Bond, L.P. Management is seeking new tenants, particularly for the Rosemead property, and pursuing renewals of existing leases as they expire. However, absent a dramatic improvement in nationwide economic conditions and demand for commercial space, management anticipates a continuation of rent concessions and lower effective rental rates, as well as higher tenant delinquencies. As always, the Partnership remains vulnerable to a variety of other factors beyond the Partnership's control, that may adversely affect capital resources and liquidity, such as excess supply in relation to demand, increases in unemployment, population shifts, levels of corporate activity, zoning changes, changes in tenant's needs, and bulk sale activities of the Resolution Trust Corporation as discussed above. The Partnership suspended its distributions in 1990 in an attempt to increase liquidity and capital resources for tenant and capital improvements, leasing commissions, refinancing costs, and increasing debt service payments. As of March 15, 1995, distributions remain suspended and at this time, management is unable to predict when they may be resumed. Results of Operations Interest expense decreased for each of the last two years due to the bankruptcy discussed above. In 1992, interest was accrued only through May 21, 1992 and thereafter pursuant to SOP 90-7 interest expense is recognized only to the extent monthly net cash payments were made to New West Federal/Brazos. In accordance with Accounting Principles Board Opinion 30, the net costs directly related to the reorganization were expensed as incurred and presented as an extraordinary item in 1993 and 1992. 1994 versus 1993 Operating revenue and expenses decreased in all areas except professional fees from 1993 compared to 1994 due to the transferring of all but six of the remaining properties back to Brazos in the bankruptcy reorganization (see Note 10 of the Notes to the Consolidated Financial Statements). Professional fees increased as a result of legal and tax consulting fees indirectly related to the reorganization discussed above. Since these fees were not directly related to the bankruptcy reorganization or early Page 16 of 54 extinguishment of debt, these items could not be recognized as extraordinary items. Prior to transferring the remaining properties back to Brazos, rental revenue was lower in 1994 compared to 1993 due to the loss of a major revenue producing tenant, Coherent (Palo Alto), in May 1993 and an overall decrease in total average occupancy of all Partnership commercial properties from a high of approximately 80% at March 31, 1993 to approximately 75% at December 31, 1993. Interest and other revenue also decreased during the period in 1994 through the date of transfer to Brazos compared to the same period in 1993 due to the transfer of the Partnership's interest in interest bearing restricted cash accounts and Griffin notes receivable in January 1994. Through the date of transfer of properties in 1994, operating expenses, in total, also decreased when comparing a comparable period in 1993 largely due to: (i) the utilities expenses related to a single-tenant facility while it was vacant in 1993; (ii) the determination in the first quarter of 1993 that a portion of the outstanding receivable related to a particular tenant, was uncollectible and charged to bad debt (other expense); and (iii) a portion of the tenant improvements becoming fully depreciated in 1993. 1993 versus 1992 Rental revenue decreased in 1993 compared to 1992 primarily due to the loss of three major revenue producing tenants since May 31, 1992, Solectron (May 1992), SEEQ (September 1992) and Coherent Palo Alto (May 1993), from three single-tenant facilities. Upon filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, the Partnership adopted SOP 90-7, whereby interest on secured claims accrues only to the extent that the value of underlying collateral exceeds the principal amount of the secured claim. Therefore, interest revenue relating to the Griffin Investment note receivable was accrued only through May 21, 1992. Subsequent to May 21, 1992, interest revenue was recognized only to the extent it was received in cash. Operating expenses in 1993 decreased slightly compared to 1992 due to (i) the 1992 accrual of late charges on unpaid property tax bills (which were subsequently paid in 1993); (ii) lower 1993 rental receipts discussed above, on which management fees are calculated, compared to 1992 rental receipts; (iii) the increased 1992 professional fees for legal costs connected with the civil action against New West and GOCO's filing of a petition for reorganization under Chapter 11 of the Federal Bankruptcy Code; and (iv) the comprehensive review of the remaining useful lives and carrying values of individual fixed assets for depreciation purposes. Slightly offsetting these decreases in operating expenses were factors increasing operating expenses in 1993 over 1992. These Page 17 of 54 factors include: (i) increased utilities expenses related to the vacancies of the single-tenant facilities discussed above; and (ii) increased repairs and maintenance associated with additional exterior landscape work on the vacated single-tenant properties, roof and window repairs for minor leaks, and other exterior wood working repairs. Page 18 of 54 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Page ---- Report of Independent Public Accountants....................................20 Financial Statements: Consolidated Balance Sheets - December 3l, l994 and l993 ........................................................21 Consolidated Statements of Operations for the years ended December 3l, l994, l993 and l992.........................................................23 Consolidated Statements of Partners' Equity (Deficit) for the years ended December 3l, l994, l993 and l992....................................................25 Consolidated Statements of Cash Flows for the years ended December 3l, l994, l993 and l992...........................26 Notes to the Consolidated Financial Statements........................28 Financial Statement Schedule: Schedule III - Consolidated Real Estate Investments and Related Accumulated Depreciation and Amortization at December 31, 1994.....................................................46 Other schedules are omitted either because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. Page 19 of 54 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP: We have audited the accompanying consolidated balance sheets of GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP (formerly known as GLENBOROUGH LIMITED, A CALIFORNIA LIMITED PARTNERSHIP), as of December 3l, l994 and l993, and the related consolidated statements of operations, partners' equity (deficit), and cash flows for each of the three years in the period ended December 3l, l994. 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 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, as of December 3l, l994, and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 3l, l994, 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 schedule listed in the index to consolidated financial statements and schedules is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSON LLP San Francisco, California, February 10, 1995 GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP Consolidated Balance Sheets (in thousands, except units outstanding) December 31, 1994 and 1993 1994 1993 ------- -------- Assets Real estate investments, at cost: Land $ 2,045 $ 28,620 Building and improvements 16,076 137,956 ------- -------- 18,121 166,576 Less: Accumulated depreciation (2,901) (42,875) ------- -------- Net real estate investments 15,220 123,701 Real estate held for sale - net 4,558 - Other Assets: Cash and cash equivalents 2,604 1,506 Restricted cash - 8,247 Receivables, net of allowance for doubtful receivables of $117 at December 31, 1993 (including $70 from a related party at December 31, 1993) 15 2,276 Deferred loan fees, net of accumulated amortization of $44 and $8,856 at December 31, 1994 and 1993, respectively 352 2,933 Deferred leasing commissions, net of accumulated amortization of $161 and $2,278 at December 31, 1994 and 1993, respectively 10 721 Griffin notes receivable, net (including premium of $4,092 at December 31, 1993) - 44,830 Other notes receivable - 121 Prepaid incentive and transaction fees (paid to related party) - 623 Prepaid expenses 69 - Deposits 199 275 Other assets 158 49 ------- ------- Total assets $23,185 $185,282 ======= ======== (continued) The accompanying notes are an integral part of these consolidated statements. Page 21 of 54 GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP Consolidated Balance Sheets - continued (in thousands, except units outstanding) December 31, 1994 and 1993 1994 1993 ------- -------- Liabilities and Partners' Equity (Deficit) Prepetition liabilities: Notes payable, including premium of $38,641 at December 31, 1993 (including $90 to a related party at December 31, 1993) $ - $273,762 Accrued interest - 21,237 Accounts payable - 563 Deposits and other liabilities - 726 ------- -------- Total prepetition liabilities - 296,288 ------- -------- Postpetition liabilities: Notes payable 17,160 381 Accounts payable 85 - Accrued expenses 496 239 Advances from related parties 60 - Lease obligation - 167 Deposits and other liabilities 95 475 ------- -------- Total postpetition liabilities 17,896 1,262 ------- -------- Partners' equity (deficit) General partner 435 (2,234) Limited partners, 2,961,853 and 3,414,839 units outstanding at December 31, 1994 and 1993, respectively 4,854 (110,034) ------- -------- Total partners' equity (deficit) 5,289 (112,268) ------- -------- Total liabilities and partners' equity (deficit) $23,185 $185,282 ======= ======== The accompanying notes are an integral part of these consolidated statements. Page 22 of 54
GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Operations (in thousands, except per unit amounts) For the years ended December 31, 1994, 1993 and 1992 1994 1993 1992 ------ ------ ----- Revenue: Rental $ 5,821 $ 18,720 $ 20,824 Interest and other 277 3,341 4,139 ------- ------- ------- Total revenues 6,098 22,061 24,963 ------- ------- ------- Operating expenses: Property taxes 677 2,201 2,293 Repairs and maintenance 486 1,873 1,661 Management fees and reimbursed expenses (paid to related parties) 810 1,884 1,994 Insurance 112 221 226 Utilities 496 2,176 1,871 Salaries and wages (including $206, $751 and $762 paid to related parties in 1994, 1993 and 1992, respectively) 221 777 801 Professional fees 981 688 794 Depreciation and amortization 1,982 5,723 6,193 Interest expense and amortization of debt premium/discount (contractual amount is $21,683 and $21,695, including premium amortization for 1993 and 1992) 3,178 12,219 14,752 Other (including $19, $156 and $219 paid to related parties in 1994, 1993 and 1992 respectively for miscellaneous reimbursement) 183 627 555 ------- ------ ------ Total operating expenses 9,126 28,389 31,140 ------- ------ ------ Operating loss (3,028) (6,328) (6,177) Other expense: Gain on property sales 1,631 - - Loss on investment in real estate (1,000) - - ------- ------- ------- Loss before extraordinary items (2,397) (6,328) (6,177) Extraordinary items: Gain (loss) from bankruptcy reorganization and early extinguishment of debt 119,954 (30) (40) -------- ------- ------- Net income (loss) $ 117,557 $ (6,358) $ (6,217) ======== ======= =======
(continued) Page 23 of 54 GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Operations - continued (in thousands, except per unit amounts) For the years ended December 31, 1994, 1993 and 1992 Loss before extraordinary items per Limited Partnership Unit ............................. $ (.74) $ (1.81) $ (1.77) Extraordinary items per Limited Partnership Unit ......................................... $ 37.26 (0.01) (0.01) ------ ------ ------ Net income (loss) per Limited Partnership Unit ......................................... $ 36.52 $ (1.82) $ (1.78) ====== ====== ====== Distributions per Limited Partnership Unit ....... $ -- $ -- $ -- ====== ====== ====== The accompanying notes are an integral part of these consolidated statements. Page 24 of 54 GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Partners' Equity (Deficit) (in thousands) For the years ended December 31, 1994, 1993 and 1992 Total Partners' General Limited Capital Partner Partners (Deficit) ------- -------- --------- Consolidated balance, December 31, 1991 . $ (1,983) $ (97,710) $ (99,693) Net loss .............................. (124) (6,093) (6,217) --------- --------- --------- Consolidated balance, December 31, 1992 . (2,107) (103,803) (105,910) Net loss .............................. (127) (6,231) (6,358) --------- --------- --------- Consolidated balance, December 31, 1993 . (2,234) (110,034) (112,268) Net income ............................ 2,669 114,888 117,557 --------- --------- --------- Consolidated balance, December 31, 1994 . $ 435 $ 4,854 $ 5,289 ========= ========= ========= The accompanying notes are an integral part of these consolidated statements. Page 25 of 54
GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Cash Flows (in thousands) For the years ended December 31, 1994, 1993 and 1992 1994 1993 1992 ------ ------ ----- Cash flows from operating activities: Net income (loss) $ 117,557 $ (6,358) $ (6,217) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Debt premium amortization - - (2,405) Notes receivable premium/discount amortization (accretion) - (17) 128 Depreciation and amortization 1,982 5,723 6,193 Gain on property sales (1,631) - - Loss on investment in real estate 1,000 - - Gain from bankruptcy reorganization and early extinguishment of debt (119,954) - - Changes in assets and liabilities: Decrease (increase) in receivables (85) (79) 140 Increase in deferred leasing commissions and deferred loan fees (462) (212) (512) Decrease (increase) in prepaid incentive and transaction fees (paid to related party) 348 662 625 Decrease (increase) in legal retainers - 443 (443) Decrease (increase) in other assets (158) 296 (7) Decrease in deposits (191) - - Decrease in prepaid expenses (69) - - Decrease in advance from related parties 60 - - Increase in accrued interest 107 - 3,903 Increase (decrease) in accounts payable and accrued expenses (277) (1,115) 1,269 Increase (decrease) in deposits and other liabilities (277) 55 (226) ------ ------ ------ Net cash provided by (used for) operating activities (2,050) (602) 2,448 ------ ------ ------ Cash flows from investing activities: Purchases of real estate (318) - - Improvements to real estate (440) (633) (980) Proceeds from sales of real estate 5,520 - - Decrease (increase) in restricted cash (35) (244) 157 Investment in real estate (1,000) - - Decrease (increase) in other notes receivable - 701 (2) Increase in Griffin notes receivable - - (105) ------ ------ ------ Net cash provided by (used for) investing activities 3,727 (176) (930) ------ ------ ------
(continued) Page 26 of 54
Consolidated Statements of Cash Flows (in thousands) - continued For the years ended December 31, 1994, 1993 and 1992 1994 1993 1992 ------ ------ ----- Cash flows from financing activities: Borrowings on notes payable 912 202 98 Principal payments on notes payable and lease obligations (1,491) (150) (304) ------ ------ ------ Net cash provided by (used for) financing activities (579) 52 (206) ------ ------ ------ Net increase (decrease) in cash and cash equivalents 1,098 (726) 1,312 Cash and cash equivalents (net of restricted cash): Beginning of period 1,506 2,232 920 ------ ------ ------ End of period $ 2,604 $ 1,506 $ 2,232 ====== ====== ====== Supplemental disclosure of cash flow information: Cash paid for interest $ 3,070 $12,219 $13,256 ======== ====== ====== Supplemental disclosure of non cash transactions: Purchase of real estate: Increase in notes payable for purchase of real estate $ 2,835 $ - $ - ======== ====== ====== Bankruptcy reorganization and early extinguishment of debt: Rollout and foreclosure of real estate, net $ 99,867 $ - $ - ======== ====== ====== Extinguishment of debt $(280,482) $ - $ - ======== ====== ====== Other $ 60,661 $ - $ - ======== ====== ====== The accompanying notes are an integral part of these consolidated statements.
Page 27 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Note. 1. SUMMARY OF ORGANIZATION Glenborough Partners, A California Limited Partnership ("Partners"), successor to Glenborough Limited, A California Limited Partnership pursuant to section 15d-5 of the Securities Exchange Act of 1934 was originally formed in 1986 generally to acquire 66 real estate projects from their predecessor owners in exchange for Partnership units ("the Exchange Transaction"). Debt secured by the properties was restructured and consolidated into one loan at that time. The properties were managed and other services were performed by affiliates of the general partners. To facilitate compliance with certain recording and filing requirements, a second limited partnership, GOCO Realty Fund I, a California Limited Partnership formerly known as Glenborough Operating Co. Ltd., A California Limited Partnership ("GOCO"), was formed in April 1986 to hold and operate all real and personal property then or thereafter owned by the Partnership (the "Partnership Property"). Partners and GOCO operated as an economic unit and unless specifically designated otherwise, were referred to collectively as the "Partnership". The present general partners of both Partners and GOCO are Glenborough Realty Corporation, a California corporation ("Realty"), and Robert Batinovich (collectively "Glenborough" or "General Partner"). Glenborough Realty Corporation is the managing general partner of the Partnership (the "Managing General Partner"). Glenborough Partners is the sole limited partner of GOCO. On May 21, 1992, GOCO Realty Fund I, the partnership holding and operating the Partnership's real property (including its related debt), filed a petition in the United States Bankruptcy Court for the Northern District of California for reorganization under Chapter 11 of the Federal Bankruptcy Code. On January 13, 1994, a plan of reorganization was filed with the Bankruptcy court which became effective January 24, 1994 (see Note 10). To facilitate the Partnership's holding and transfer of real property as set forth under the plan of reorganization, two partnerships were created in February 1994: (i) GPA West, L.P. ("West"), and (ii) GPA Industrial L.P. ("Industrial"). West and Industrial are subsidiaries of GOCO Realty Fund I and as such, the financial statements have been consolidated with Glenborough Partners. The general partners of West and Industrial are Glenborough Realty Corporation and Robert Batinovich while the sole limited partner of each of the two partnerships is GOCO Realty Fund I. A third subsidiary partnership, GPA Bond L.P., was created in 1994 to hold and operate a property purchased on December 29, 1994. Page 28 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Allocation of Net Income/Loss and Equity (Deficit). The limited partners and assignees have a 99% share and the general partners have an aggregate 1% share in the net income/loss and partners' equity (deficit) of Partners. Partners was allocated 99% of the net income/loss and partners' equity (deficit) of GOCO and its subsidiaries and the general partners were allocated an aggregate l% of the net income/loss of GOCO. The 1% general partner interest in both Partners and GOCO for net income/loss and partners' equity (deficit) was equal to a 1.99% interest on a combined basis; while the 99% limited partner interest in each of Partners and GOCO and its subsidiaries is equal to a 98.0l% interest on a combined basis. After the redemption of units as part of the reorganization plan discussed in Note 10, the general partners hold a 2.27% and share of the partnership's net income or loss and distributions. The limited partners currently hold a 97.73% share of the partnership's net income or loss and distributions. Note 2. SIGNIFICANT ACCOUNTING POLICIES Consolidation. The accompanying consolidated financial statements include the accounts of Partners and GOCO and its subsidiaries. All significant intercompany transactions have been eliminated. Real Estate Investments. Land, buildings and improvements are stated at the lower of cost or net realizable value on a property by property basis. The depreciation of building and improvements is calculated on a straight line basis over their estimated useful lives of 35 years for residential properties to 50 years for commercial properties and over an average lease term of five years for tenant improvements (see Financial Statement Schedule III). Cash and Cash Equivalents. The Partnership considers short-term investments, including certificates of deposit, with a maturity of three months or less to be cash equivalents. Restricted Cash. Proceeds from prior period sales were placed into certificates of deposit, which were pledged as cash collateral for the debt owed to Brazos Asset Management, Inc. (the "Brazos Debt"), formerly known as New West Federal Debt or the American Consolidated Debt (see Note 3 - Notes Payable). All of these certificates of deposit were released to Brazos as part of the plan of reorganization (see Note 10). Loan Fees and Leasing Commissions. Loan fees are costs associated with obtaining financing and include refinancing and certain Page 29 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 transaction fees. Loan fees are capitalized and amortized over the original term of the related loan. Leasing commissions are capitalized and amortized over the term of the leases to which they relate. Accrued Interest. Pursuant to Part B of the 1987 refinanced New West Federal Debt, interest expense of $639,375 per month was accrued through May 21, 1992, the date of the Chapter 11 filing. Subsequent to that date and through the completion of the reorganization on January 24, 1994, the Partnership recognized interest expense only to the extent paid in accordance with the requirements of Statement of Position 90-7 - Financial Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"). Interest Paid. As a result of the Chapter 11 filing, a cash collateral agreement was implemented between the Partnership and Brazos Asset Management Inc., ("Brazos", successor to New West Federal), whereby the Partnership was required to pay monthly, to Brazos all but $50,000 of the funds remaining in the operating cash accounts as of the last day of the previous month. Such payments have been applied as interest expense. Total cash paid for interest, for all notes, during 1994, 1993 and 1992 was $3,070,000, $12,219,000 and $13,256,000, respectively. Rental Income. Certain commercial lease agreements provide for significant amounts of free rent to tenants. In such cases, revenue is recognized at a constant rate over the term of the lease. Net Income (Loss) Per Limited Partner Unit. For financial reporting purposes, 4,899,488 units were issued to limited partners upon the consummation of the Exchange Transaction. After considering the MFCo. and Fraser Rollouts (see Note 4 - Property Sales), the units outstanding were adjusted to 3,442,ll0 for December 3l, l990 and 1991. At the close of business on December 31, 1991, a limited partner reassigned 27,271 units back to Glenborough Limited, resulting in 3,414,839 units outstanding at December 31, 1992 and 1993. The net loss per limited partner unit for December 31, 1993 and prior is derived by dividing 98.0l% of the net loss by the number of units outstanding to the limited partners. For financial reporting purposes, after the redemption of units as a result of the plan of reorganization discussed in Note 10, 3,146,492 weighted average units were outstanding to limited partners for the year ended December 31, 1994. Net income (loss) per unit in 1994 is derived by dividing 97.73% of the net income (loss) by the weighted average number of units outstanding to the limited partners. Page 30 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Note 3. NOTES PAYABLE Historical Indebtedness 1987 Debt Refinancing. In l987, agreements were signed between American and the Partnership which provided for, among other items, the consolidation of various American notes into one amended consolidated note (the "Brazos Debt") and the transfer of 541 homes back to American for debt relief of approximately $35 million. The new note which became effective March 1, l987, was divided into two parts, Part A and Part B. Part A provided for principal only payments at various scheduled amounts through March l, l99l, and interest only payments thereafter to maturity at June 30, l996. Interest was a stated dollar amount from February 28, l99l through March l, l993 regardless of the principal balance. From March l, l993 through the maturity date of June 30, l996, the monthly interest rate floated at the Federal Home Loan Board 11th District Cost of Funds plus 250 basis points. Part B was a $45 million note which bore simple non-compounding interest at l7.05% per annum, payable monthly in arrears. Monthly interest was forgiven through February l990 on this part. With the Partnership filing for reorganization under Chapter 11 of the Federal Bankruptcy Code on May 21, 1992 and pursuant to the SOP 90-7, interest ceased to be accrued as of May 21, 1992. The homes sold to American, for debt relief of approximately $35 million, had a net book value of approximately $l6 million. Because the Partnership originally purchased these homes from American, no gain was recognized on this transaction. The difference between net book value and appraised value was transferred to the carrying amount of the Brazos Debt. The revised net book value of the Brazos Debt was compared to cash payments required under the amended note resulting in a constant effective interest rate of 7.44%. The discount/premium on the debt is amortized/accreted to yield this rate over the life of the note. This amortization schedule assumed that the properties, except for one which was contemplated to be sold at the date of refinancing, were to be held for the full term of the note. Chapter 11 - Bankruptcy Reorganization - In 1991 and 1992, the Resolution Trust Corporation disapproved the terms of two separate proposed revisions of the terms of the Brazos Debt that had been negotiated by management and New West Federal. As a result, a forbearance agreement suspending the implementation of required debt service increases expired under the then existing debt terms. Without a modification or forbearance, the Partnership was unable to meet its May 1, 1992 debt service payment to New West Federal. Page 31 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 On May 21, 1992, New West filed a judicial foreclosure action in the Superior Court of Orange County. Also on May 21, 1992, the Partnership (i) filed a civil action against New West Federal in the Superior Court of San Mateo County, seeking in excess of $30 million in damages for a variety of claims, including misrepresentation and breach of contract, and (ii) filed a petition in the United States Bankruptcy Court for the Northern District of California for reorganization under Chapter 11 of the Federal Bankruptcy Code. Since the filing of those actions, the Partnership endeavored to bring about settlement discussions with Brazos. On January 13, 1994, the United States Bankruptcy Court for the Northern District of California confirmed a plan of reorganization which became effective on January 24, 1994. (See Note 10 for discussion the reorganization plan). Current Indebtedness The two subsidiaries of GOCO Realty Fund I, GPA West, L.P. and GPA Industrial, L.P. obtained the Rosemead Springs and J.I. Case/Navistar properties in February 1994 and May 1994, respectively, as described in the plan of reorganization through the payment to Brazos of the negotiated release prices for each of the properties. This required GPA West, L.P. and GPA Industrial, L.P. to secure financing. GPA West, L.P. incurred indebtedness of $2,500,000 to Mid-Peninsula Bank, secured by Rosemead Springs. The interest rate on this promissory note payable is two (2) percentage points per annum over the Mid-Peninsula Bank Base Rate. Regular interest payments are due monthly until the May 1995 maturity, at which time the entire principal balance and accrued interest are due. GPA Industrial, L.P. incurred indebtedness of $12,000,000 to Heller Financial, Inc. ("Heller") secured by the four J.I. Case/Navistar properties. The interest rate on this promissory note payable is five (5) percentage points per annum over the three month London Interbank Offered Rate ("Libor") and is reset the first business day of each month. Monthly $25,000 principal plus interest payments are due during the first two years of the loan. In the third fiscal year of the loan monthly payments increase to $33,333 principal plus interest. Finally, beginning with the fourth fiscal year of the loan until the May 2004 maturity, monthly payments will increase to $41,667 principal plus interest. In August 1994, Glenborough Partners borrowed $1,412,000 from an unaffiliated lender to pay off professional fees and the general partner transaction fees on the reorganization discussed in Note Page 32 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 10. This loan was repaid on December 23, 1994, with the proceeds from the sale of the Palo Alto property (see Note 4). On December 29, 1994, GPA Bond, L.P. purchased the Bond Street Building from Heller. Heller financed $2,835,000 towards this transaction at the rate of three hundred fifty (350) basis points plus the Base Rate (which is defined as the three month Libor rate). Monthly interest only payments commenced February 1, 1995 and will continue until the maturity date of December 31, 1999. Principal payments are required on a quarterly basis commencing April 15, 1995 at an amount of excess cash flow, which is defined as net cash flow less: (i) current payments due on the loan; and (ii) a ten percent (10%) per annum return on equity to the borrower. Subject to the effect of the reorganization plan, the Partnership had the following notes payable including premium outstanding at December 31 (in thousands): 1994 1993 --------- --------- Brazos Debt: Principal ............................. -- $ 235,032 Premium ............................... -- 38,641 --------- --------- Total ................................. -- 273,673 Other notes payable: GPA Industrial - Heller ............... $ 11,825 -- GPA West - Mid Peninsula .............. 2,500 -- GPA Bond - Heller ..................... 2,835 -- Miscellaneous ......................... -- 470 --------- --------- Total ................................. 17,160 470 --------- --------- TOTAL .......................................... $ 17,160 $ 274,143 ========= ========= Principal repayments scheduled on all notes outstanding at December 31, 1994 assuming current interest rates are as follows (in thousands): 1995 $ 2,800 1996 358 1997 458 1998 500 1999 3,335 Thereafter 9,709 ------- TOTAL $ 17,160 ======= Page 33 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Note 4. PROPERTY SALES MFCo. Rollout. Effective January 1, 1987, the Partnership transferred to MFCo., under an installment land contract, equitable title to nine of the 15 properties originally contributed by MFCo. and its affiliates to the Partnership in the Exchange Transaction. These properties had an original exchange value of $73,852,000. In consideration for the properties and related net assets and liabilities, David W. Mariani and MFCo. transferred back 1,110,863 units of partnership interest in Limited and gave the Partnership a note in the original principal amount of $53,172,000, which included undrawn reserves of $1,960,000. This amount approximated the prorata share of refinanced Brazos Debt (see Note 3 - - Notes Payable) attributable to the MFCo. Rollout properties and had an original maturity date of June 30, 1996. The difference between the promissory note received from MFCo. and the book value of the assets transferred was recorded on the Partnership's books as deferred gain, an offset to the note receivable. An additional adjustment affecting the promissory note was made subsequent to the Rollout, due to a provision in the original master lease on one of the properties rolled-out. The note receivable was discounted to yield the same effective interest rate as the Brazos Debt, 7.44% (see Note 5). No accounting recognition had been given to the surrender of Partnership Units. At December 31, 1993, the net Griffin note receivable was $44,830,000. In early 1994, pursuant to the plan of reorganization, the Partnership transferred to Brazos its interest and rights to this Griffin note receivable. The following are combined statements of property revenues and expenses for the MFCo. Rollout properties for 1993 and l992, when the Griffin note was in effect (in thousands): 1993 1992 ------ ------- Rental Revenue ............................. $ 5,334 $ 5,212 Other Revenue .............................. 390 450 ------- ------- Total Revenue ........................ $ 5,724 5,662 ------- ------- Depreciation ............................... (1,060) (1,088) Interest Expense ........................... (2,885) (4,652) Property Taxes ............................. (748) (599) Other Operating Costs ...................... (1,016) (1,203) ------- ------- Total Expense ........................ (5,709) (7,542) ------- ------- Net Income (Loss) .................... $ 15 $(1,880) ======= ======= Page 34 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Coherent Auburn & Coherent Palo Alto - On February 4, 1994, the Partnership sold the Coherent Auburn facility to the tenant for $3,650,000. After paying approximately $93,000 for other fees, $500,000 for Brazos' release of the Rosemead Springs Business Park, and $750,000 for Brazos' release of Burlingame Plaza, the Partnership applied most of the remaining proceeds towards Brazos' lien release price for four properties known as the J.I. Case and Navistar buildings. The gain on sale was approximately $1,503,000. On December 22, 1994, the Partnership sold the property formerly known as Coherent Palo Alto for $4,300,000. After paying approximately $87,000 for other fees, the Partnership received gross proceeds of $4,213,000. The Partnership then paid off a note payable for $1,358,000 on December 23, 1994. The remaining balance was added to working capital reserves. Note 5. NOTES RECEIVABLE Notes receivable generally result from the disposition of rental properties. At December 31, 1993, the Partnership had two notes which bore interest at 8.75% and 11% per annum. Notes arising from sales are typically secured by deeds of trust or letters of credit, while the note resulting from the MFCo. Rollout, net of deferred gain, was secured by an Installment Sale Land Contract, Security Agreement and Assignment of Rents. As discussed in Note 4, premium on the Griffin Note Receivable was accreted and amortized based on the 7.44% internal rate of return on the Brazos Debt (see Note 3). Page 35 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 The following table lists the notes receivable outstanding as of December 31, 1993 (in thousands): Building/Maker Maturity Date Interest 1993 - -------------- -------- ------- MFCo. 5% - 10% Principal $ 53,057 Rolled-Out Premium 4,092 Properties/ Deferred Gain (12,319) ------- Griffin Investments/ Total Griffin 6-30-96 Notes Receivable $ 44,830 ======= Burlingame Prime plus Principal $ 121 Plaza/ 2% (plus 5% Robert Fraser/ while in 6-30-96 default) -------- Total Other Notes Receivable $ 121 ======= Prior to May 21, 1992, the Partnership recognized interest income on the Griffin note receivable at an effective rate of 7.44% as discussed previously. Subsequent to that date, the Partnership only recognized interest income to the extent cash was received from Griffin and ceased to accrue interest receivable in accordance to SOP 90-7. Because the properties underlying these notes in part secure the Brazos Debt, the notes were included as part of the plan of reorganization that was confirmed by the Bankruptcy Court on January 13, 1994 (see Note 10). Under the plan of reorganization, the Griffin note was transferred to Brazos and the Fraser note was paid in the first quarter of 1994. Note 6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions are used to estimate the fair value of each class of instruments for which it is practical to estimate that value: a) Cash and cash equivalents - For those short term instruments the carrying amount is a reasonable estimate of fair value. b) Restricted cash - For those short term instruments the carrying amount is a reasonable estimate of fair value. c) Other notes receivable - For these instruments, the Page 36 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 carrying amount is a reasonable estimate of the fair value given prevailing interest rates and terms of similar instruments. d) Griffin notes receivable and Brazos notes payable - These notes are interdependent and given the pending reorganization (Note 10), it is not practical or possible to estimate the fair value of either instrument. e) Heller and Mid Peninsula notes payable - The carrying amount is a reasonable estimate of the fair value given prevailing interest rates and terms of similar instruments. Note 7. TENANT LEASES Future minimum lease receivables under noncancellable operating leases on currently owned properties as of December 3l, l994 are as follows (in thousands): 1995 $ 2,960 1996 2,778 1997 2,575 1998 2,539 1999 2,444 Thereafter 9,277 ------- TOTAL $ 22,573 ======= Two tenants have options to purchase certain properties. One tenant, J.I. Case did not exercise its option to purchase the Kansas City and Memphis properties on March 1, 1993, but has an option to purchase the property every three years thereafter, at a price equal to fair market value, but not less than $2,061,000 (Kansas City) and $1,664,000 (Memphis). The other tenant, Navistar did not exercise its option to purchase the Baltimore and West Chicago properties on March 1, 1993, but has an option to purchase the property every three years thereafter, at a price equal to fair market value, but not less than $8,195,000 (Chicago) and $3,700,000 (Baltimore), and not more than $9,952,000 (Chicago) and $4,200,000 (Baltimore). These figures are determined in accordance with a formula specified in a 1990 modification of the lease. These figures may change in future years based on the formula specified in the modification. Note 8. RELATED PARTY TRANSACTIONS Background As discussed in Note 1 - Summary of Organization, the general partners of Partners and GOCO and its subsidiaries are Realty and Page 37 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Robert Batinovich. Realty is the managing general partner of the Partnership and has the exclusive management and control of the business of the Partnership. Indemnification of General Partners In September 1992, Sleepy Hollow Associates, holder of the second deed of trust on the Sleepy Hollow property (a property transferred to Brazos in 1994 pursuant to the reorganization plan), made a demand upon Robert Batinovich, a co-general partner of the Partnership, for payment under his guarantee of GOCO Realty Fund I's promissory note to Sleepy Hollow Associates. Mr. Batinovich negotiated a discount from $90,000 to $70,000 and purchased the note from Sleepy Hollow Associates and paid Sleepy Hollow Associates the discounted amount. Pursuant to the Indemnification Provision of the Limited Partnership Agreement, the Partnership reimbursed Mr. Batinovich for the $70,000. However, on December 31, 1993, the Partnership had not relieved the original note of $90,000 because it is a prepetition liability and as such, payment had not yet been approved by the Bankruptcy Court. As a result, the $70,000 reimbursement was recorded as receivable from Mr. Batinovich. Fees to Affiliates Prior to May 21, 1992, Realty and its affiliates received expense reimbursements, fees, and other compensation for services provided to the Partnership pursuant to the Limited Partnership Agreement as follows: Transaction Fee - 2% of qualifying transaction price Property Management Fees - 3 to 5% of gross property receipts Incentive Fee - .5% of the fair value of assets to the extent earnings exceed $1.50 per unit General and Administrative Expenses - actual costs reimbursable Page 38 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 After May 21, 1992, by order of New West Federal and the Bankruptcy Court, Realty and its affiliates received expense reimbursements, fees, and other compensation for services provided to the Partnership pursuant to the Limited Partnership, Cash Collateral and Property Management Agreements (incorporated by reference to Exhibit 10.39 to the Partnership's Annual Report on Form 10-K dated December 31, 1992 - No. 33-3657). The items amended were as follows: Property Management Fees - 2 to 5% of gross property receipts or a minimum of $49,300 per month Leasing Fees - 7% of total first year rent, declining to 2% of rent for the 11th year and beyond After obtaining selected properties through the payment of Brazos' lien release prices, new subsidiary partnership were created. Pursuant to the Limited Partnership Agreements (incorporated by reference to Exhibits 10.40 through 10.43 to the Partnership's Annual Report on Form 10-K dated December 31, 1994 - No. 33-3657), Realty and its affiliates are entitled to receive expense reimbursements, fees, and other compensation for services provided to the Partnership as follows: Property management fees - 3 to 5% (10% for single-family residences) of gross receipts collected Incentive fee - .5% of the fair value of assets to the extent earnings exceed $1.50 per unit Transaction fee - 2% of qualifying transaction price Refinancing fee - 1% of qualifying net loan refinancing proceeds Fees and allocated expenses paid by the Partnership to affiliates for the years ended December 31, 1994, 1993 and 1992 are as follows (in thousands): 1994 1993 1992 ------ ------ ----- Property Management Fees ............. $ 239 $ 736 $ 831 Reimbursed General and Administrative Expenses ............. 571 1,148 1,163 ------- ------- ------- Total Management Fees and Reimbursed General and Administrative Expenses ............. $ 810 $ 1,884 $ 1,994 ======= ======= ======= Leasing fees ......................... $ 50 $ 84 $ 267 ======= ======= ======= In 1992, Glenborough was reimbursed $762,000 for salaries and benefits of on-site management, maintenance and landscape employees and $219,000 for miscellaneous reimbursements. During 1992, with Glenborough under no obligation to immediately reimburse the Page 39 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Partnership for the balance in prepaid incentive fees, the Partnership began amortizing monthly overhead reimbursements from prepaid incentive and transaction fees in lieu of actual payments. In 1993, Glenborough was reimbursed $751,000 for salaries and benefits of on-site management, maintenance and landscape employees and $156,000 for miscellaneous reimbursements. During 1993, the Partnership continued to amortize monthly overhead reimbursements from prepaid incentive fees. The Partnership amortized 56% of the total monthly overhead reimbursements from prepaid incentive and transaction fees in lieu of actual payments. In 1994, Glenborough was reimbursed $206,000 for salaries and benefits of on-site management, maintenance and landscaping employees and $19,000 for miscellaneous reimbursements. During a portion of 1994, the Partnership continued to amortize monthly overhead reimbursements from prepaid incentive fees. The Partnership amortized 61% of the total overhead reimbursements from prepaid incentive and transaction fees in lieu of actual payments. Loss on investment in real estate Through the May 1994 escrow related to the Partnership's obtaining free and clear title from Brazos on the properties known as the J.I.Case and Navistar buildings, the Partnership made a $1,000,000 principal paydown on a note payable for an affiliated partnership. Financing for the J.I.Case and Navistar buildings was extremely difficult to find in the current market, so as an inducement for the lender to finance this release price purchase, the Partnership paid down a portion of an affiliate's note payable in good faith. In December 1994, the Partnership and the affiliated partnership, UCT Associates, A California Limited Partnership ("UCT") agreed that the $1,000,000 paid by the Partnership on behalf of UCT was an investment in UCT. Coupled with that, Robert Batinovich contributed his limited partner interest in the profits and losses of UCT. This gave the Partnership a 45% non-voting limited partner interest, a 99% allocation of future income and losses, and an economic interest in any future upside of this property, without exposure to any loss. This was made possible after Glenborough waived a portion of its potential transaction fees on the disposition of properties in 1994. At December 31, 1994, the General Partner believes that there is no real equity in UCT, therefore the $1,000,000 invested in UCT was recognized as a loss on investment in real estate. Page 40 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 Note 9. OPTION PLAN The Partnership's Option Plan provides for the grant of nonstatutory options to purchase units to the General Partners and the officers, directors, employees and certain consultants of the Managing General Partner, the property manager and its affiliates. Individuals who render services to Realty, Glenborough or its affiliates as an independent contractor may be considered an "employee" for purposes of the Option Plan, provided services are rendered on a continuing basis. In general, options exercisable on the date of termination of employment may remain exercisable for up to one year following termination. At December 31, 1993, options to purchase 14,890 units at an exercised price of $20 were outstanding to former employees and 269,728 units at an exercise price of $6.50 per unit were outstanding to 14 persons including 9 officers, directors or affiliates of the managing general partner. At December 31, 1994, options to purchase 14,890 units at an exercise price of $20 and 2,000 units at an exercise price of $6.50 per unit were outstanding to former employees and 267,728 units at an exercise price of $6.50 per unit were outstanding to 13 persons including 9 officers, directors or affiliates of the managing general partner. No options had been exercised as of December 31, 1994. Note 10. CHAPTER 11 - PLAN OF REORGANIZATION AND RELATED PRO FORMA BALANCE SHEET (UNAUDITED) On May 21, 1992, GOCO Realty Fund I, the partnership holding and operating the Partnership's real property (including its related Brazos Debt), filed a petition in the United States Bankruptcy Court for the Northern District of California for reorganization under Chapter 11 of the Federal Bankruptcy Code. On January 13, 1994, GOCO Realty Fund I entered a plan of reorganization in the United States Bankruptcy Court (the "Court") for the Northern District of California. The plan was confirmed by the Court and the plan became effective January 24, 1994. The following is a brief description of the principal points of the plan of reorganization. 1. The claims of all creditors were satisfied in full. 2. Transfer to Brazos of the Partnership's interest in the restricted cash and Griffin note receivable. Page 41 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 3. Twelve properties have been transferred into two separate rollouts, four to Griffin Investments (Phase II Rollout), and eight to a Griffin affiliate (Phase III Rollout), in redemption of all of Griffin's (and its affiliates') 448,894 units in Glenborough Partners. These redemptions reduced Glenborough Partners' outstanding equity securities from 3,410,747 limited partner units to 2,961,853 limited partner units. Those entities were given options to pay off Brazos' lien on those properties, at negotiated prices, or transfer them to Brazos. The options on both the Phase II and the Phase III Properties were not exercised, and the properties were transferred to Brazos. 4. GOCO's obligation to deliver the property known as Burlingame Plaza to Robert Fraser was satisfied through the payment by GOCO Realty Fund I of $750,000 toward the price charged by Brazos for release of Burlingame Plaza, which was then delivered to Mr. Fraser free and clear following his payment of $150,000 owed by him to GOCO. GOCO paid this amount over to Brazos against the balance of the release price. 5. The claims of Brazos were satisfied through a multipart transaction including the following: a. Brazos unconditionally released its lien on two properties; (i) a 50,000-foot industrial facility in Auburn, California, which was leased to Coherent, Inc. -the release of this lien occurred on February 4, 1994, as part of a sale of the property to the tenant ; and (ii) a vacant 95,500 square foot industrial/office facility in the Stanford Business Park in Palo Alto, California. b. GOCO paid Brazos the sum of $500,000, from the Coherent Auburn sale, discussed below, in return for which Brazos released its lien on the property known as Rosemead Springs Business Park in El Monte, California - this transaction occurred on February 4, 1994. c. GOCO had an option (exercisable at any time prior to April 30, 1994) to obtain a release of the Brazos lien as to any of the remaining properties subject to Brazos' lien (the "Option Properties") by paying a negotiated release price to Brazos. The Partnership exercised its option on eight properties as discussed in paragraph 4, 5.a and 5.b above and 6. below. The remaining options were not exercised and those properties were transferred to Brazos in satisfaction of the remaining balance of Brazos claims in May 1994. Page 42 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 6. GOCO closed the sale of the Coherent Auburn facility to the tenant for $3,650,000 on February 4, 1994, and applied a portion of the net proceeds from the sale toward the payment of the release price for the Rosemead Springs property referred to in paragraph 5.b., above. Most of the remaining proceeds were applied toward the partial paydown of Brazos' discounted lien release price for four of the Option Properties referred to in paragraph 5.c., above. The balance of the funds required for the payment of those release prices were financed through a $12 million loan obtained by GPA Industrial, L.P. from Heller Financial, Inc. Such financing was applied to the release of the liens on the two properties known as the J.I. Case buildings and the two properties known as the Navistar buildings. The total release price for these properties and the Rosemead property was $14,500,000. 7. Included in the above transactions, was $962,000 in net transaction fees payable to a general partner which was paid in August 1994. The impact of the reorganization is a $119,954,000 extraordinary gain from bankruptcy reorganization and early extinguishment of debt. The consolidated financial statements include adjustments that arose from the reorganization plan. The ultimate result is (i) GPA West obtaining Coherent Palo Alto free and clear, which was subsequently sold on December 22, 1994 (see Note 4); (ii) GPA West obtaining Rosemead Springs, financed through debt of $2,500,000; and (iii) GPA Industrial obtaining the J.I. Case and Navistar buildings financed through debt of $12,000,000. Note 11. INCOME TAXES Federal and state income tax laws provide that the income or loss of the Partnership is reportable by the Partners in their individual tax returns. Accordingly, no provisions for such taxes have been made in the accompanying financial statements. The Partnership reports certain transactions differently for tax and financial reporting purposes. The Partnership's tax returns, its qualification as a partnership for Federal income tax purposes, and the amount of taxable income or loss are subject to examination by the Federal and State taxing authorities. If such examinations result in changes to the Partnership's taxable income or loss, the tax liability of the partners could change accordingly. Page 43 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 For Federal income tax reporting, (a) revenues and expenses are recognized on an accrual basis, i.e. lease income is recognized under the terms of the lease contract, (b) fees paid for services related to seeking and evaluating potential real estate investments are deducted if and when the plans of acquisition are subsequently abandoned, (c) depreciation is provided for under accelerated and modified accelerated cost recovery methods, (d) certain organizational costs classified as syndication costs for tax purposes are not deductible, and (e) bad debts are deducted and written off when deemed uncollectible. The following is a reconciliation for the years ended December 31, 1994, 1993 and 1992, of the net income (loss) for financial reporting purposes to the taxable income (loss) determined in accordance with accounting practices used in preparation of Federal income tax returns. 1994 1993 1992 ------ ------ ----- (in thousands) Net income (loss) per financial statements ................ $ 117,557 $ (6,358) $ (6,217) Adjustments: Depreciation ................ 1,132 (1,838) (1,326) Interest and Original Issue Discount ............ 70 529 935 Loan Fee Amortization ....... (2,626) (51) (51) Prepaid Income .............. (339) 42 (236) Free Rent Revenue ........... -- (30) 474 Gain on disposition of real estate ................ (95,188) -- -- Loss on investment in real estate ................ 1,000 -- -- Other ....................... (74) 166 13 ---------- ---------- ---------- Partners' income (loss) for Federal income tax purposes ............................ $ 21,532 $ (7,540) $ (6,408) ========== ========== ========== Page 44 of 54 GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP Notes to the Consolidated Financial Statements December 31, 1994, 1993 and 1992 The following is a reconciliation as of December 31, 1994 and 1993 of partners' equity (deficit) for financial reporting purposes to partners' equity (deficit) for Federal income tax purposes. 1994 1993 ----- ------ (in thousands) Partners' equity (deficit) per financial statements ........................ $ 5,289 $(112,268) Adjustments: Real Estate Investments ............. (14,500) 85,586 Depreciation ........................ 5,454 (42,875) Loan Fees Net of Amortization ...................... 148 73 Unearned Revenue .................... -- 339 Free Rent ........................... -- (328) Bad Debt ............................ -- 117 Unit Redemptions .................... (35,501) (274) Other ............................... 262 212 --------- --------- Partners' equity (deficit) for Federal income tax purposes ................. $ (38,848) $ (69,418) ========= ========= 12. SUBSEQUENT EVENT In March 1995, GPA West purchased a $1,908,000 note receivable from California Federal Bank, secured by a first deed of trust on a property owned by an affiliate. This transaction was funded from the proceeds of the Palo Alto property sale discussed in Note 4. The note currently bears interest at 7.958% until an anticipated loan modification is ratified in the second quarter of 1995. Page 45 of 54
GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994 (in thousands) Column A Column B Column C Column D Column E - ---------- ---------- ---------- ---------- ------------------------------ Net Costs Capitalized Initial (Reduced) Cost to Subsequent to Gross Amount at Which Partnership Acquisition Carried at Close of Period ---------------- ------------- ------------------------------ Buildings and Properties Encumbrances Land Buildings Improvements Land Improvements Totals - ---------- ------------ ---- --------- ------------ ---- ------------ ------ Navistar & J.I. Case/ Various Midwest/ East Cities $11,825 2,554 21,699 (9,285) 1,572 13,396 14,968 Rosemead Springs Business Center, El Monte, CA (1) 2,500 2,874 9,792 (12,666) - - - Bond Street Building, Farmington Hills, MI 2,835 473 2,680 - 473 2,680 3,153 ------- ------- ------- -------- ------ ------- -------- $17,160 $ 5,901 $34,171 $(21,951) $2,045 $16,076 $18,121 ======= ======= ======= ========= ====== ======= =======
Column A Column F Column G Column H Column I - ---------- ---------- ---------- ---------- --------- Life on which Depreciation in the latest Accumulated Date of Date Income Statement Properties Depreciation Construction Acquired Is Computed - ---------- ------------ ------------ --------- ---------------- Navistar & J.I. Case/ Various Midwest/ East Cities 2,901 1950-1977 3/01/84 50 yrs Rosemead Springs Business Center, El Monte, CA (1) - 1980 7/15/83 50 yrs Bond Street Building, Farmington Hills, MI - - 12/28/94 - ------- $ 2,901 ====== Note (1): Rosemead Springs has been reclassified as real estate held for sale in 1994. See accompanying reconciliations. Page 46 of 54 RECONCILIATION OF REAL ESTATE COST FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands) Note to Real Estate and Accumulated Depreciation Table. (A) In addition to these encumbrances at December 31, 1993, the properties are collateral for the Brazos Debt in the aggregate amount of $235,032,000, plus accrued interest of $21,237,000. 1994 1993 1992 ------ ------ ----- Balance, Beginning of Period ........ $ 166,576 $ 165,943 $ 164,963 Real estate addition ................ 3,153 -- -- Improvements ........................ 440 633 980 Disposition of real estate .......... (144,814) -- -- Real estate held for sale ........... (7,234) -- -- --------- --------- --------- Balance, End of Period .............. $ 18,121 $ 166,576 $ 165,943 ========= ========= ========= RECONCILIATION OF ACCUMULATED DEPRECIATION FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands) 1994 1993 1992 ------ ------ ------- Balance, Beginning of Period ........ $ 42,875 $ 38,548 $ 33,727 Depreciation Expense ................ 1,467 4,327 4,821 Disposition of real estate .......... (38,765) -- -- Real estate held for sale ........... (2,676) -- -- -------- -------- -------- Balance, End of Period .............. $ 2,901 $ 42,875 $ 38,548 ======== ======== ======== The aggregate cost basis of real estate owned at December 31, 1994, for Federal income tax purposes was approximately $ 9,908,000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Page 47 of 54 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. GENERAL PARTNERS The Partnership has no directors or executive officers. The general partners of the Partnership are Glenborough Realty Corporation (the "Managing General Partner") and Robert Batinovich. For informational purposes, the following are the names and additional information relating to each of the controlling persons, directors and executive officers of the Managing General Partner as of March 1, 1995: Name Age Position - ---- --- -------- Robert Batinovich 58 President and Chairman of the Board Andrew Batinovich 36 Senior Vice President, Chief Financial Officer and Director Sandra L. Boyle 46 Vice President Barbara L. Evans 54 Vice President, Secretary and Corporate Counsel Eugene F. Daly 51 Director Wallace A. Krone Jr. 63 Director Laurence N. Walker 62 Director J. Sydney Whalen 60 Director The following is a brief description of the background and experience of Robert Batinovich and each of the officers and directors of Glenborough Realty Corporation. Robert Batinovich has been the President and a Director of Glenborough Corporation since its inception in l978 and of Glenborough Realty Corporation since its inception in l985. He has been the Chief Financial Officer ("CFO") of Glenborough Corporation since April l986 and the CFO of Glenborough Realty Corporation from April l986 through April l988. He was a member of the California Public Utilities Commission from l975 to January l979 and served as its Chairman from January l977 to January l979. He has extensive real estate investment experience. Mr. Batinovich's business background includes managing and owning manufacturing, vending and service companies and a national bank. Page 48 of 54 Andrew Batinovich has been Senior Vice President and Chief Financial Officer of Glenborough Realty Corporation since April l988. He was Vice President-Property Management of Glenborough Realty Corporation from April l986 to April l988. He also is Senior Vice President in charge of property management and partnership accounting for Glenborough Corporation. Prior to joining Glenborough Corporation in June l983, he was employed at Security Pacific National Bank in its international and corporate banking groups specializing in real estate lending. He is the son of Robert Batinovich. Sandra L. Boyle has been Vice President of Glenborough Realty Corporation since February 1991. She first joined Glenborough Corporation in 1984 and is responsible for property management, including maintenance, capital and tenant improvements, rent collection, budgeting and supervision of regional offices. Prior to joining Glenborough Corporation, she was a residential real estate marketing representative for Great Western Realtors. Barbara L. Evans has been Secretary of Glenborough Realty Corporation since April 1986 and Vice President since February 1991. She joined Glenborough Corporation in l985 and serves as Counsel and Secretary. She was admitted as an attorney in the State of California in l983. Prior to attending law school and on a part-time basis during law school, Ms. Evans was a co-owner of TES Associates, a property management and real estate investment advisor. Eugene F. Daly was elected a Director of Glenborough Realty Corporation in August 1989. He is President of Daly International Financial and Insurance Services. Mr. Daly is a Registered Principal with the National Association of Securities Dealers (NASD) and his firm Daly International Financial and Insurance Services is a Registered Investment Advisor with the Securities and Exchange Commission. Wallace A. Krone, Jr. was elected a Director of Glenborough Realty Corporation in August 1989. He has been associated with Glenborough for approximately 15 years as an investor in Glenborough sponsored partnerships. For the past twenty-seven years, he has been self-employed owning various restaurants in the San Francisco Bay Area. Currently Mr. Krone owns a number of Burger King restaurants in the same area. Laurence N. Walker was a Director of Glenborough Corporation from October l984 to November l985 and served as Treasurer from January l985 to November l985. He has been a Director of Glenborough Realty Corporation since its inception in l985. He is an attorney specializing in real estate law. J. Sydney Whalen was elected a Director of Glenborough Realty Corporation in April l988. He is a Canadian Chartered Accountant and since l983 has been president of Whalen & Associates, a management consulting firm specializing in executive management and chief financial officer services to companies experiencing operating or financial difficulties. In 1993, Mr. Whalen was a co- Page 49 of 54 founder and became President of Round Hill Securities, Inc., a securities broker/dealer. From l975 to l982, he was Vice President-Finance and Administration of Raymond Kaiser Engineers, Inc. ITEM 11. EXECUTIVE COMPENSATION. Compensation and Fees In accordance with the Partnership Agreement for GOCO, the Managing General Partner receives expense reimbursements and fees for services provided to the Partnership. Information regarding these fees and reimbursements is incorporated herein by reference to Note 8 of the Notes to Consolidated Financial Statements under the heading "Fees to Affiliates" and Note 1 of the Notes to Consolidated Financial Statements under the heading "Participation in Net Income and Net Loss". The Partnership has no employees and pays no salary or other cash compensation, directly to any person other than the fees and expense reimbursements described above. All officers of the Managing General Partner currently are officers of Glenborough Corporation and receive a salary and other benefits from Glenborough Corporation as compensation for Partnership activities as well as other activities of Glenborough Corporation not related to the Partnership. Option Plan At December 31, 1993, options to purchase 14,890 units at an exercised price of $20 were outstanding to former employees and 269,728 units at an exercise price of $6.50 per unit were outstanding to 14 persons including 9 officers, directors or affiliates of the managing general partner. At December 31, 1994, options to purchase 14,890 units at an exercise price of $20 and 2,000 units at an exercise price of $6.50 per unit were outstanding to former employees and 267,728 units at an exercise price of $6.50 per unit were outstanding to 13 persons including 9 officers, directors or affiliates of the managing general partner. No options had been exercised as of December 31, 1994. Options Issued to Officers and Directors Number of Name Office Units - ---- ------ --------- Robert Batinovich Chairman of the Board/President 38,500 Andrew Batinovich Senior Vice President/ Chief Financial Officer/Director 38,500 Sandra L. Boyle Vice President 16,000 Barbara L. Evans Vice President/Secretary 16,000 Eugene F. Daly Director 17,000 Wallace A. Krone, Jr. Director 17,000 Laurence N. Walker Director 25,000 J. Sydney Whalen Director 17,000 -------- Total 185,000 ======== Page 50 of 54 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding the Units owned on December 3l, l994 by (a) each Unitholder known to the Partnership to own beneficially more than 5% of the outstanding Units; (b) each Unitholder under common control of an officer, director, or 5% Unitholder; (c) each individual general partner of the Partnership and each director of the managing general partner; and (d) all executive officers and directors of the managing general partners as a group. Name of Beneficial Units Exercisable Percent Owner (Notes 1 and 2) Owned Options Owned (3) - --------------------- ----- ------- --------- Robert Batinovich (Note 4) ............................... 542,868 38,500 18.20% Robert Batinovich, General Partner ........................ 34,577 -0- 1.08% Glenborough Corporation ................ 116,945 10,728 4.00% Andrew Batinovich ...................... 24,248 38,500 1.96% Eugene F. Daly ......................... 12,640 17,000 0.93% 577 Airport Boulevard, #200 Burlingame, CA 94010 Wallace A. Krone, Jr ................... 52,026 17,000 2.16% 393 Vintage Park Drive, #120 Foster City, CA 94404 Laurence N. Walker (Note 5) ............ 27,102 25,000 1.63% 2922 Forest Avenue Berkeley, CA 94507 J. Sydney Whalen ....................... -0- 17,000 0.53% 3201 Danville Boulevard, #100 Alamo, CA 94507 All Executive Officers and ............. 696,289 185,000 27.60% Directors as a Group (8 persons) (Notes 4 and 5) Notes: (1) Unless otherwise indicated, the addresses of the above beneficial owners are the same as that of the registrant. (2) The persons named on the table have sole voting and investment power with respect to all interests beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to the table. The table assumes the exercise of outstanding options held by eight officers Page 51 of 54 and directors and one former director to acquire an aggregate of 193,272 Units, which are presently exercisable. (3) Percent owned is calculated by dividing the sum of the Unitholder's Units and exercisable options by the sum of all outstanding Units and exercisable options. (4) Excludes Units held by Glenborough Corporation, of which Mr. Batinovich is an officer and director, and which is owned in majority by Mr. Batinovich. Excludes Mr. Batinovich's 1.15% General Partner interest in the Partnership. Excludes 14,817 Units that Mr. Batinovich may vote pursuant to powers of attorney or as Trustee from one Unitholder, as to which Mr. Batinovich disclaims beneficial ownership. Excludes the 0.1% General Partner interest and 1,108 Limited Partnership Units owned by Glenborough Realty Corporation, of which Mr. Batinovich is majority owner. Excludes 5,198 Units owned by the Robert and Garnet Anne Batinovich l982 Irrevocable Inter Vivos Trust for the benefit of Angela Batinovich, as to which Robert Batinovich disclaims beneficial ownership. (5) Excludes 303,979 Units that Mr. Walker may vote pursuant to a power of attorney or as Trustee, as to which Mr. Walker disclaims beneficial ownership. Excludes 145,907 Units owned by BOS Associates, of which Mr. Walker is the general partner. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Fees and Reimbursable Expenses - During l994 and in accordance with the prior and current Limited Partnership Agreements (incorporated by reference to Exhibits 10.40 thru 10.43 to the Partnership's annual report on Form 10-K dated December 31, 1994, No. 33-3657), the Managing General Partner received management fees and reimbursed expenses (see Item 8., Note 8 - Related Party Transactions). ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (l) Financial Statements and (2) Financial Statement Schedules See Item 8 of this Form 10-K for the Financial Statements of the Partnership, Notes thereto, Report of Independent Certified Public Accountants, and Supplemental Schedules. A Table of Contents to Financial Statements and Supplemental Schedules is included in Item 8 and incorporated herein by reference. Page 52 of 54 (3) Exhibits Page Number or Exhibit Incorporation Number Description By Reference to - ------------------------------------------------------------------------------- 10.39 Cash Collateral and Property Exhibit 10.39 to Management Agreement dated the Annual Report July 1, 1992 and amended on Form 10-K October 23, 1992 by and among No. 33-3657 for the New West Federal Savings and year ended Loan Association, GOCO Realty December 31, 1992. Fund I and Glenborough Corporation. 10.40 Limited Partnership Agreement of Glenborough Partners, A California Limited Partnership 10.41 Limited Partnership Agreement of GPA West L.P. 10.42 Limited Partnership Agreement of GPA Industrial L.P. 10.43 Limited Partnership Agreement of GPA Bond L.P. 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were required to be filed in the period subsequent to September 30, l994. Page 53 of 54 SIGNATURES Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP By: /s/ Robert Batinovich By: Glenborough Realty Corporation, ------------------------- a California corporation, Robert Batinovich the Managing General Partner General Partner Date: 3/30/95 By: /s/ Robert Batinovich --------------- ------------------------------- Robert Batinovich President and Chairman of the Board Date: 3/30/95 ------------------------- By: /s/ Andrew Batinovich ------------------------------ Andrew Batinovich Senior Vice President, Chief Financial Officer and Director Date: 3/30/95 ------------------------- By: /s/ Laurence N. Walker ------------------------------ Laurence N. Walker Director Date: 3/30/95 ------------------------- By: /s/ J. Sydney Whalen ----------------------------- J. Sydney Whalen Director Date: 3/30/95 ------------------------- (A Majority of the Board of Directors of the General Partner) Page 54 of 54 EX-10.40 2 LIMITED PARTNERSHIP AGREEMENT GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP TABLE OF CONTENTS
Page ---- Article 1 Definitions............................................................................1 1.1 Definitions...................................................................1 1.2 Accounting Terms and Determinations...........................................7 Article 2 The Limited Partnership................................................................7 2.1 Formation of the Partnership..................................................7 2.2 Partnership Name..............................................................8 2.3 Business and Purpose..........................................................8 2.4 Principal Office..............................................................8 2.5 Term..........................................................................8 2.6 Execution of Documents........................................................9 Article 3 The General Partners...................................................................9 3.1 General.......................................................................9 3.2 Management Power..............................................................9 3.3 Powers of the Managing General Partner.......................................10 3.4 Liability of General Partners................................................17 3.5 Similar Activities of General Partners.......................................17 3.6 Indemnification of General Partners..........................................18 3.7 Other Matters Concerning General Partners.....................................................................20 3.8 Agreements With a General Partner or a Related Person...............................................................21 3.9 Conveyances..................................................................21 Article 4 Compensation of General Partners......................................................21 4.1 Compensation of General Partners.............................................21 Article 5 The Limited Partners, Assignees and Transferrees..........................................................................22 5.1 Limited Liability............................................................22 5.2 Restrictions on Limited Partners and Assignees................................................................23 5.3 Outside Activities...........................................................23 5.4 No Withdrawal or Dissolution.................................................23 5.5 Assignees....................................................................23 5.6 Transferees..................................................................24 Article 6 Meetings and Voting; Amendments.......................................................24 6.1 Meetings.....................................................................24 6.2 Notice of a Meeting..........................................................24 6.3 Record Date..................................................................25 6.4 Adjournment..................................................................25 6.5 Waiver of Notice; Consent to Meeting.........................................25 6.6 Quorum.......................................................................26 i 6.7 Conduct of Meeting...........................................................26 6.8 Action Without a Meeting.....................................................26 6.9 Voting Rights................................................................27 6.10 Exercise of Voting Rights....................................................28 6.11 Amendments by the Managing General Partner......................................................................28 6.12 Voting Rights................................................................29 6.13 Prohibited Amendments........................................................29 Article 7 Original Limited Partner..............................................................29 7.1 Admission....................................................................29 7.2 Capital Contributions........................................................29 Article 8 Capital Contributions and Initial Issuance of Units..............................................................................29 8.1 Cash Capital Contributions...................................................29 8.2 Contributrion by Partners....................................................30 8.3 Distribution of Original Units...............................................30 8.4 General Partner Interests....................................................31 8.5 Nonassessability of Partners.................................................32 8.6 Distribution of Capital......................................................31 8.7 No Interest on Capital Contribution..........................................32 8.8 Creditor's Interest in the Partnership.......................................32 8.9 Nature of Interests..........................................................32 8.10 One Percent Interest of General Partners.....................................................................32 Article 9 Issuance of Additional Units..........................................................32 9.1 Sale of Additional Units.....................................................32 9.2 General Partner Interests....................................................32 9.3 Preemptive Rights............................................................33 Article 10 Allocation of Net Income, Net Loss and Tax Credits...........................................................................33 10.1 General Allocation...........................................................33 10.2 Allocation on Transfer.......................................................34 Article 11 Cash Distributions....................................................................34 11.1 Time and Amount of Cash Distributions........................................34 11.2 Distributions of Partnership Property........................................36 Article 12 Accounting and Reports................................................................36 12.1 Fiscal Year..................................................................36 12.2 Reports......................................................................36 12.3 Tax Elections................................................................37 12.4 Books and Records............................................................37 12.5 Bank Accounts................................................................38 Article 13 Transfer of Units; Certificates.......................................................38 13.1 Transfer of General Partner Interests........................................38 13.2 Transfer of Limited Partners' Units..........................................38 13.3 New Certificates.............................................................39 ii 13.4 Maintenance of Transfer Records..............................................39 13.5 Legends......................................................................39 Article 14 Admission of Substituted and Additional Limited Partners......................................................................40 14.1 Admission of Substituted Limited Partners.....................................................................40 14.2 Admission of Additional Limited Partners.....................................................................40 Article 15 Removal, Resignation or Withdrawal of General Partner.......................................................................40 15.1 Removal of General Partner...................................................40 15.2 Withdrawal...................................................................41 15.3 Dissolution or Bankruptcy of General Partner..............................................................41 15.4 Liability and Rights.........................................................42 15.5 Successor and Predecessor General Partners.............................................................43 Article 16 Dissolution, Winding Up and Liquidation...............................................43 16.1 Dissolution..................................................................43 16.2 Authority to Wind Up.........................................................44 16.3 Accounting...................................................................44 16.4 Winding Up and Liquidation...................................................44 16.5 Claim of Limited Partners and Assignees......................................45 16.6 No Restoration of Negative Capital Accounts.....................................................................45 Article 17 Power of Attorney.....................................................................45 17.1 Power of Attorney............................................................45 17.2 Additional Documents.........................................................46 Article 18 Miscellaneous.........................................................................47 18.1 Notices......................................................................47 18.2 Choice of Law................................................................47 18.3 Article and Section Headings.................................................47 18.4 Sole Agreement...............................................................48 18.5 Execution in Counterparts....................................................48 18.6 Remedies Cumulative..........................................................48 18.7 Waiver.......................................................................48 18.8 Waiver of Action for Partition...............................................48 18.9 Assignability................................................................48 18.10 Gender and Number............................................................48 18.11 Severability.................................................................48 Signatures.......................................................................................................49
iii LIMITED PARTNERSHIP AGREEMENT OF GLENBOROUGH PARTNERS A CALIFORNIA LIMITED PARTNERSHIP This Limited Partnership Agreement (the "Agreement"), dated as of December 30, 1993, is made and entered into by GLENBOROUGH REALTY CORPORATION, a California corporation and ROBERT BATINOVICH, an individual, as General Partners, and ROBERT BATINOVICH, an individual, as the Initial Limited Partner, and all other parties who shall become partners of this limited partnership as hereinafter provided. In consideration of the mutual covenants and promises herein, the parties hereby form a limited partnership under the California Revised Limited Partnership Act upon the following terms and conditions: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. When used in this Agreement, the following terms shall have the meanings set forth below, except as otherwise specifically modified: "ACT" means the California Revised Limited Partnership Act, as amended from time to time. "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as an additional Limited Partner pursuant to Article 14 hereof. "AFFILIATE" means any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question. "ALLOCABLE SHARE" of a General Partner is his or its percentage interest as set forth in Section 8.2(B) comprising an aggregate of one percent (1%) and of the Limited Partners and Assignees, at any particular time, an aggregate of 99%. The "Allocable Share" of a Limited Partner or Assignee, at any particular time, means the percentage which the number of Units held by such Limited Partner or assigned to such Assignee is of the total number of Units outstanding multiplied by 99%. If at any time, the aggregate of all General Partner Interests represents more than 1% of all Units, the Allocable Share of all General Partners shall be the percentage interest represented by the ratio between all such Units which are represented by General Partner Interests and all Units, and the Allocable Share of all Limited Partners and Assignees shall be the percentage interest represented by the ratio between all Units held by Limited Partners and Assignees and all Units. "ASSIGNEE" means a Person to whom one or more Units have been assigned by a Partner but who has not become a Substituted Limited Partner. "ASSOCIATE means any shareholder, director, officer, employee or agent of any General Partner and any employee or agent of the Partnership. "BOOK DEPRECIATION" means the depreciation, cost recovery or amortization of nondepletable assets that would be allowable to the Partnership for federal income tax purposes if its tax basis in such assets were equal to the Book Value of such assets. "BOOK GAIN" OR "BOOK LOSS" means the gain or loss that would be recognized by the Partnership for federal income tax purposes as a result of sales or exchanges of its assets if its tax basis in such assets were equal to the Book Value of such assets. "BOOK VALUE" means (a) as to property contributed to the Partnership, its agreed value; (b) as to property acquired in any other manner, its value as reflected on the books of the Partnership as of the date it is acquired by the Partnership; and (c) as to property owned by the Partnership at the time of any repurchase or issuance of Units for money or other property, its fair market value at that time, all adjusted for Book Depreciation. "CAPITAL ACCOUNT" means the account (maintained on a per- Unit basis in the case of Unitholders) which shall be credited with the Unitholder's or General Partner's distributive share of (a) cash contributed to the Partnership; (b) the Book Value of contributed property; (c) Net Income; (d) the amount of Partnership liabilities assumed by such Unitholder or General Partner or that are secured by any Partnership Property distributed to such Unitholder or General Partner, and (e) increases in the basis of Partnership Property attributable to investment credit recapture; and which shall be debited with the Unitholder's or General Partner's distributive share of (v) cash distributions (w) the Book Value of distributed property; (x) Net Loss; (y) the amount of liabilities of a Unitholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Unitholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Unitholder or General Partner to the Partnership; and (z) decreases in the basis of the Partnership Property for any 2 credits allowed under the Code. A Limited Partner's Capital Account shall be the aggregate Capital Account attributable to the Units held by such Limited Partner. In the case of transfer by an existing Partner of a Partnership interest, the transferee will succeed to the Capital Account relating to the Partnership interest transferred. Upon the repurchase of Units or upon the issuance of additional Units for money or other property (other than a de minimis amount) the Capital Accounts of each Unitholder outstanding prior to the repurchase or issuance and the Capital Accounts of the General Partners shall be adjusted to reflect a revaluation of the Partnership Property on the Partnership books to its fair market value and the Capital Accounts of all Partners shall be adjusted simultaneously to reflect such adjustment as if the Partnership recognized Net Income or Net Loss equal to the amount of such adjustment. It is intended by this provision to comply with Treasury Regulations Section 1.704-1(b) and Code Section 704(c). "CAPITAL CONTRIBUTION" means the individual total amount contributed by each Partner to the capital of the Partnership as provided in Article 8 or Article 9 hereof. "CASH AVAILABLE FOR DISTRIBUTION" means cash held by the Partnership in excess of (a) cash required for all expenses, liabilities and obligations of the Partnership (whether for expense items, capital expenditures, improvements, retirement of indebtedness or otherwise); and (b) reserves as established in the sole discretion of the Managing General Partner for Partnership capital expenditures, improvements, retirement of indebtedness, operations, or contingencies, known or unknown, liquidated or unliquidated, including, but not limited to, liabilities which may be incurred in litigation and liabilities undertaken pursuant to the indemnification provisions of this Agreement. "CERTIFICATE" means a certificate, evidencing ownership of one or more Units, in the form approved by the Managing General Partner. "CERTIFICATE OF LIMITED PARTNERSHIP" means the certificate of limited partnership filed pursuant to the Act or any successor statute, as the same may be amended from time to time. "CLOSING DATE" means that date selected by the General Partners for the contribution of the Exchange Assets to the Partnership. "CODE" means the Internal Revenue Code of 1986 or any successor statute, as amended from time to time. 3 "EXCHANGE AGREEMENT" means the agreement between the Original Limited Partner and the Partnership whereby the Exchange Assets are transferred to the Partnership in exchange for a number of Units equal to the number of units of partnership interest, both general and limited, of the Original Limited Partner that are outstanding on the Closing Date. "EXCHANGE ASSETS" means the GOCO L.P. Units and all other assets contributed to the Partnership pursuant to the Exchange Agreement. "EXCHANGE TRANSACTION" means the transaction whereby the Partnership will exchange Units for Exchange Assets. "EXCHANGE VALUE" means the value assigned to the Exchange Assets for purposes of the Exchange Transaction. "GENERAL PARTNERS" means the Persons named hereinabove as general partners in their capacity as general partners of the Partnership, and any successor or additional general partners. "General Partner" means one of the General Partners. "GENERAL PARTNER INTERESTS" means Units designated as such pursuant to Sections 8.4 or 9.2 "GOCO" means GOCO Realty Fund I, a California limited partnership. "GOCO L.P. UNITS" means the entire limited partnership interest in GOCO. "INITIAL LIMITED PARTNER" means Robert Batinovich. "LIMITED PARTNERS" means the Initial Limited Partner, the Original Limited Partner and the Additional Limited Partner for so long as they are limited partners hereunder. "Limited Partner" means one of the Limited Partners. No Assignee who has not been admitted as a Substituted Limited Partner shall be considered a Limited Partner for the purposes of this Agreement. "LIMITED PARTNERS' UNITS" means Units held or owned by any Person or Persons as Limited Partner(s). "MAJORITY INTEREST" means the Limited Partners of record holding more than fifty percent (50%) of the Units held by all Limited Partners of record. "MANAGING GENERAL PARTNER" means the Person so designated pursuant to Section 3.2. 4 "MEMBER" means a Person owning an interest, whether as a general partner, limited partner, sole proprietor or otherwise, in the Original Limited Partner. "NET INCOME" OR "NET LOSS" means the Partnership's taxable income or loss (as an entity) under Code Section 703 computed with the following adjustments: (a) Tax-exempt income described in Code Section 705(a)(1)(B) shall be included and any expenditures not deductible in computing taxable income shall be deductible. (b) The only deduction for depreciation, cost recovery or amortization shall be Book Depreciation. (c) Book Gain or Book Loss shall be used instead of taxable gain or loss. "NET OTHER ASSETS (LIABILITIES)" means the cash, accounts receivable and certain other assets, less accounts payable and certain liabilities of the Original Limited Partner which are included in the Exchange Assets. "OPERATING LIMITED PARTNERSHIP" means a limited partnership or limited partnerships between the General Partners, as general partners, and this Partnership, as the sole limited partner or between the General Partners, as general partners, and any partnership, as the sole limited partner, in which this Partnership is, directly or indirectly, the sole limited partner, as it may be altered from time to time, formed for the purpose of holding and operating all or part of the Partnership Property or to simplify recording or filing requirements, or to facilitate financing or for any other proper purpose. The initial Operating Limited Partnership shall be GOCO, formerly known as Glenborough Operating Co., Ltd., a California Limited Partnership, formed pursuant to an Operating Limited Partnership Agreement, dated February 25, 1986, between the General Partners, as general partners, and the Original Limited Partner, as the sole limited partner. "ORIGINAL LIMITED PARTNER" means Glenborough Limited, a California limited partnership, who becomes a Limited Partner as provided in Article 7 hereof. "PARTNER" means a General Partner or a Limited Partner; and "Partners" means the General Partners and all Limited Partners. "PARTNERSHIP" means the limited partnership created by this Agreement and any successor partnership thereto continuing the business of the Partnership which is a 5 reformation or reconstitution of the partnership governed by this Agreement. "PARTNERSHIP CAPITAL" means the total of all the Partners' Capital Accounts at any given time. "PARTNERSHIP PROPERTY" means the Exchange Assets and any and all other property, real or personal, now or hereafter owned by the Partnership or an Operating Limited Partnership or in or to which the Partnership or an Operating Limited Partnership has any interest, right or claim and shall include any interest in any Operating Limited Partnership received by the Partnership in exchange for Partnership Property. "PERSON" means an individual, partnership (general or limited and whether domestic or foreign), joint venture, estate, association, corporation, trust company, trust or other entity. "PRIMARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership in which the Partnership holds a direct interest as the sole limited partner. "PROJECTS" means the real estate projects owned by all Operating Limited Partnerships. "RECORD DATE" means the date established by the Partnership for determining (a) the identity of Partners entitled to notice of or to vote at any meeting of Partners or entitled to vote by ballot or give consent to Partnership action in writing without a meeting, or entitled to exercise rights in respect of any other lawful action of Partners, or (b) the identity of Partners and Assignees entitled to receive any report or distribution. "RELATED PERSON" means the Original Limited Partner, a General Partner; or any partner, officer, director of Affiliate of any of the foregoing. "REQUEST AND POWER" means a request for admission as a Substituted or Additional Limited Partner, an agreement to be bound by the terms of this Agreement, a power of attorney and the provision of such other information as the Partnership shall request in such forms as are approved by the Partnership. "RETURN OF CAPITAL" means any distribution to the Partners to the extent that such distribution reduces the Partnership Capital. A distribution reduces the Partnership Capital to the extent that it exceeds the following amount: the sum of the Net Income of the Partnership since its formation, reduced by (but not below zero) the sum of the Net 6 Losses of the Partnership since its formation and the sum of all prior distributions. "SECONDARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership that is not a Primary Operating Limited Partnership. "SUBSTITUTED LIMITED PARTNER" means a Person admitted to the Partnership as a limited partner pursuant to Article 8, 9 or 14 hereof. "TRANSFER AGENT" means a Person appointed by the Partnership to act as transfer agent for the Units. "TAX CREDITS" means all credits against income, franchise or similar taxes, including, without limitation, investment tax credits and credits allowable to Partners or Assignees under federal, state or other taxing statutes. "UNIT" means a unit of interest in the Partnership acquired or issued pursuant to 'Articles 8 or 9. "Units" means all of such units of interest. "UNITHOLDER" means any Person who, for tax purposes, is to be treated as a Limited Partner whether such Person is a Limited Partner, an Assignee or a Member of the Original Limited Partner to the extent it has not distributed Units to its Members. 1.2 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein shall be interpreted, and all accounting and tax determinations hereunder shall be made, in accordance with the following: (a) For financial reporting purposes, the Partnership shall adhere to generally-accepted accounting principles; (b) For purposes of determining Partner Capital Accounts, the Partnership shall adhere to the provisions of Treasury Regulations Section 1.704-1(b); (c) For purposes of determining Partner and Assignee distributable shares of taxable income and loss, the Partnership shall adhere to the provisions of Code Sections 704(b) and (c) and the regulations promulgated thereunder. ARTICLE 2 THE LIMITED PARTNERSHIP 2.1 FORMATION OF THE PARTNERSHIP. The General Partners and the Initial Limited Partner hereby agree to form, and by execution 7 of this Agreement do hereby enter into, a limited partnership under the Act, which Act shall, except as set forth in this Agreement, govern the rights and liabilities of the parties hereto. 2.2 PARTNERSHIP NAME. The name of the Partnership is "Glenborough Partners, a California Limited Partnership." The Partnership shall conduct business under such name or such other name or names as the Managing General Partner may from time to time deem necessary, appropriate or advisable. The Managing General Partner in its sole discretion may change the name of the Partnership at any time and from time to time. The General Partners and, if necessary, the Limited Partners, shall promptly execute and the Managing General Partner shall file and record with proper offices in each jurisdiction in which the Partnership does or elects to do business, and publish such certificates or other statements or instruments as are required by the Act, fictitious or assumed name acts, or any other similar statute in effect in such jurisdiction, in order to conduct validly the Partnership business therein as a limited partnership. 2.3 BUSINESS AND PURPOSE. The business and purpose of the Partnership shall be to engage in the Exchange Transaction and any lawful act or activity in which a partnership may engage, including, without limitation, to engage generally in any and all phases of the business of owning, holding, managing, developing, controlling, acquiring, purchasing, disposing of or otherwise dealing in or with any interests or rights in any real or personal property, directly or through one or more Operating Limited Partnerships or other entities or arrangements. Without limiting the generality of the foregoing, the Partnership may perform such other acts incidental and supplementary to the foregoing as the Managing General Partner determines to be necessary, appropriate or advisable. 2.4 PRINCIPAL OFFICE. The office of the Partnership within California for purposes of Section 15614(a) of the Act shall be at 400 South El Camino Real, Eleventh Floor, San Mateo, California 94402. The Managing General Partner may change such office and establish other places of business for the Partnership (within or without the State of California) as it may, from time to time, deem necessary or appropriate; provided, however, that the Managing General Partner shall give the Partners and Assignees notice in writing of any change of address of the office of the Partnership and, in connection therewith, shall amend the Certificate of Limited Partnership in accordance with the Act. The Managing General Partner may select one or more Persons in California to act as agent for service of process on behalf of the Partnership, including, without limitation, a General Partner or a Related Person. 2.5 TERM. The Partnership shall commence on the date the Certificate of Limited Partnership is filed in the office of the 8 Secretary of State of California in accordance with the provisions of the Act and shall continue until January 31, 2037, unless extended by amendment of this Agreement or unless the Partnership is dissolved prior to that date pursuant to Article 16. 2.6 EXECUTION OF DOCUMENTS. The Managing General Partner (or, if required, all the General Partners) shall execute, acknowledge, file, record or deliver all Certificates of Limited Partnership, amended certificates, instruments or other documents and counterparts thereof and make all filings and recordings and perform all other acts as shall be necessary to comply with the laws of the State of California for the formation of the Partnership, thereafter for the continued good standing of the Partnership, and, when appropriate, for the termination of the Partnership. The Managing General Partner (or, if required, all the General Partners) shall also execute such certificates, amended certificates and other documents conforming hereto and perform such recording, publishing and other acts as may be appropriate to comply with the requirements of law for the formation, reformation, qualification and/or operation of a limited partnership in all jurisdictions where the Partnership may wish to do business, if deemed necessary by the Managing General Partner. Such certificates, instruments, documents and counterparts may be signed by the Managing General Partner on behalf of any or all of the Limited Partners acting pursuant to the powers of attorney from the Limited Partners. ARTICLE 3 THE GENERAL PARTNERS 3.1 GENERAL. The General Partners shall devote such time and attention to the business of the Partnership as may be reasonably necessary to carry out their duties hereunder in the conduct of such business, but any General Partner and its partners, shareholders, officers, directors, employees and agents shall have the right to be otherwise employed by an entity or entities other than the Partnership, including, without limitation, Affiliates of the Partnership, on a part-time or full-time basis. Nothing contained herein shall prevent a General Partner or any partner, shareholder, officer, director, employee or agent of a General Partner from becoming an Assignee or a Substituted or Additional Limited Partner, whereupon such Person shall be entitled to all rights, shall be subject to all obligations and shall be deemed, as to such Units, an Assignee or a Limited Partner, as applicable. 3.2 MANAGEMENT POWER. The Managing General Partner shall have full, exclusive and complete discretion in the management and control of the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business of the Partnership, shall act as tax matters partner for the Partnership, and may take such actions as it deems necessary or appropriate to 9 accomplish the purposes of the Partnership as set forth herein. The Managing General Partner shall be Glenborough Realty Corporation and any successor to the Managing General Partner which becomes the Managing General Partner of the Partnership pursuant to Article 15. If there is no successor which becomes a Managing General Partner pursuant to Article 15, then Robert Batinovich shall become Managing General Partner until a meeting of the Partners can be convened to elect a Person to serve as a General Partner and as Managing General Partner hereunder. Except as may otherwise be set forth in this Agreement, no General Partner, other than the Managing General Partner, shall have any authority, right or power to bind the Partnership or to manage or control the business of the Partnership in any manner whatsoever. 3.3 POWERS OF THE MANAGING GENERAL PARTNER. Subject to the provisions of Article 6 vesting certain voting rights in the Limited Partners, in connection with such management and control, the Managing General Partner shall have the power and authority to do or cause to be done any and all acts, at the expense of the Partnership, deemed by the Managing General Partner to be necessary or appropriate to carry out the purposes of the Partnership. The power and authority of the Managing General Partner shall be liberally construed to encompass all acts and activities in which a partnership may engage. The power and authority of the Managing General Partner shall include, without limitation, the power and authority: (A) To engage in the Exchange Transaction and to acquire, own, lease, sublease, manage, hold, deal in, control or dispose of any interests or rights in real or personal property, including, without limitation, the powers to sell, exchange, mortgage, pledge, convey in trust, enter into joint ventures or partnerships respecting or otherwise hypothecate all or any portion of the Partnership Property, and to contribute all or any of the Partnership Property to an Operating Limited Partnership and to act as a limited partner thereof; (B) To create, by grant or otherwise, easements and servitudes; (C) To alter, improve, repair, raze, replace and rebuild Partnership Property; (D) To let or lease Partnership Property for any period, and for any purpose; (E) To apply proceeds of any sale, exchange, mortgage, pledge or other disposition of Partnership Property to payment of liabilities of the Partnership and to pay, collect, compromise, arbitrate or otherwise adjust any and all other claims or demands of or against the Partnership, or to hold 10 such proceeds against the payment of contingent liabilities, known or unknown; (F) To maintain or cause to be maintained records of all rights and interests acquired for or disposed of by the Partnership, all correspondence relating to the Partnership business and the original records (or copies on such media as the Managing General Partner deems appropriate) of all statements, bills and other instruments furnished the Partnership in connection with its business; (G) To maintain records and accounts of all operations and expenditures, make all filings and reports required under applicable rules and regulations of any governmental department, bureau or agency, any securities exchange and any automated quotation system of a registered securities association, and furnish the Partners and Assignees with all necessary United States federal, state or local income tax reporting information or such information with respect to any other jurisdiction; (H) To purchase and maintain, in its discretion and at the expense of the Partnership, liability, indemnity and any other insurance, including errors and omissions insurance, sufficient to protect the Partnership, the General Partners and any other Person from those liabilities and hazards which may be insured against in the conduct or management of the Partnership's business; (I) To make, execute, assign, acknowledge and file on behalf of the Partnership, any and all documents or instruments of any kind which the Managing General Partner may deem appropriate in carrying out the purposes and business of the Partnership, including, without limitation, powers of attorney, agreements of indemnification, sales contracts, deeds, options, loan obligations, mortgages, deeds of trust, notes, documents or instruments of any kind or character, and amendments thereto. Any person, firm or corporation dealing with the Managing General Partner shall not be required to determine or inquire into the authority and power of the Managing General Partner to bind the Partnership and to execute, acknowledge and deliver any and all documents in connection therewith; (J) To borrow money or to obtain credit in such amounts, on such terms and conditions, and at such rates as the Managing General Partner deems appropriate, from banks, other lending institutions and any other Person, including the Partners and Assignees, for any Partnership purpose, including, without limitation, any loan incurred for the purpose of making one or more distributions to any or all Partners and Assignees, including any distributions which are, 11 in whole or in part, a Return of Capital; and in connection with such loans to mortgage, pledge, assign or otherwise encumber or alienate any or all Partnership Property, including any income therefrom, to secure or provide repayment thereof. As between the Partnership and any lender, it shall be conclusively presumed that the proceeds of such loans are to be and will be used for the purposes authorized herein and that the Managing General Partner has the full power and authority to borrow such money and to obtain such credit; (K) To assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, lend money and otherwise use the Partnership's credit and secure any of the Partnership's obligations, contracts or liabilities by mortgage, pledge or other encumbrance of all or any part of its property, franchises and income; (L) To invest Partnership funds in debt or equity securities or other obligations of other issuers, including, but not limited to, securities or other obligations of other partnerships; provided, however, that the Managing General Partner shall not invest Partnership funds in such a manner that the Partnership will be considered to be holding itself out as being engaged primarily in the business of investing, reinvesting or trading in securities or will otherwise be deemed to be an investment company under the Investment Company Act of 1940, as amended; (M) To make any election on behalf of the Partnership as is or may be permitted under the Code or under the taxing statute or rule of any state, local, foreign or other jurisdiction, and to supervise the preparation and filing of all tax and information returns which the Partnership may be required to file; (N) To maintain the buildings, appurtenances and grounds of the Partnership Property in accordance with acceptable standards, including within such maintenance, without limitation thereof, interior and exterior cleaning, painting and decorating, plumbing, carpentry and such other normal maintenance and repair work as may be appropriate; (O) To collect all rents and other charges from lessees of Partnership Property and concessionaires, and otherwise due the Partnership, with respect to the Partnership Property. The Partnership authorizes the Managing General Partner to request, demand, collect, receive and receipt for all such rents and other charges and to institute legal proceedings in the name of the Partnership for the collection thereof and for the dispossession of any Person from Partnership Property and such expense may include the costs of counsel for any such matter; 12 (P) To cause to be disbursed (1) the aggregate amount required to be paid pursuant to any indebtedness of the Partnership, including therein amounts due under any mortgages or deeds of trust for interest, amortization of principal and for allocation to reserve or escrow funds; (2) the amount of rent payable by the terms of any lease under which the Partnership holds the Partnership Property, or any portion thereof, promptly when due; (3) the amount of all real estate taxes and other impositions levied by appropriate authorities; and (4) amounts otherwise due and payable as expenses of the Partnership authorized to be incurred under the terms of this Agreement; (Q) To employ and engage suitable agents, employees, advisers, consultants and counsel (including any custodian, investment adviser, accountant, attorney, corporate fiduciary, bank or other reputable financial institution, or any other agents, employees or Persons which may serve in such capacity for the Managing General Partner or any Related Person) to carry out any activities which the Managing General Partner is authorized or required to carry out or conduct under this Agreement, including, without limitation, a Person which may be engaged to undertake some or all of the general management, property management, financial accounting and record keeping, construction supervision and other duties of the Managing General Partner, to indemnify such Persons against liabilities incurred by them in acting in such capacities on behalf of the Partnership and to rely on the advice given by such Persons, it being agreed and understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (R) To enter into an agreement or agreements with real estate brokers or agents, investment banking firms, appraisers or others providing for the engagement of such Persons on an exclusive or nonexclusive basis to advise or represent the Partnership in the valuation, sale, lease or other dealings in the Partnership Property, it being understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (S) To hold Partnership Property in the name of one or more nominees, with or without disclosure of the fiduciary relationship; (T) To keep proprietary or trade secret information 13 confidential, and if deemed necessary by the Managing General Partner, to keep such information confidential from the Limited Partners for a reasonable period of time; (U) To pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or compromise upon such terms as it may determine and upon such evidence as it may deem sufficient, any obligation, suit, liability cause of action or claim, including taxes, either in favor of or against the Partnership; (V) To prosecute, protect and defend or cause to be protected and defended all patents, patent rights, trade names, trademarks, service marks and other marks, and all applications with respect thereto which may be held by the Partnership, and to take all reasonable and necessary actions to protect the secrecy of and the proprietary rights with respect to any secret know-how, secret processes or other proprietary information, and to prosecute and defend all rights of the Partnership in connection therewith; (W) To register, qualify or list, or cause to be registered, qualified, listed or reported, this Agreement or Units hereunder pursuant to the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any other securities laws of the United States, the securities laws of any state of the United States, the laws of any other jurisdiction, or with any securities exchange or pursuant to an automated quotation system of a registered securities association as the Managing General Partner deems appropriate; (X) To issue, purchase, repurchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, trade in, grant calls or options or warrants, grant appreciation rights, transfer or otherwise dispose of, pledge, use and otherwise deal in and with Units and shares, bonds, debentures and other securities, whether issued by the Partnership or issued by any other Person, whether on an exchange, over the counter, in private transactions or in other transactions, and whether for the Partnership or for any plan maintained or sponsored by the Partnership, including securities of the Partnership of a different class or series than the Units, whether debt or equity, redeemable or nonredeemable, convertible or nonconvertible, and including securities with different rights, preferences, privileges, allocations and tax consequences; Notwithstanding the foregoing, to establish and maintain for the General Partners and the directors, officers and employees of the Managing General Partner, Glenborough Corporation and its Affiliates, an option plan relating to Units on such terms and conditions as the Managing General 14 Partner shall in its reasonable discretion determine; provided, however, that without the prior approval of a Majority Interest (i) the total number of Units subject to option plus the total number of Units purchased on exercise of option shall not exceed ten percent (10%) of the total number of Units issued and outstanding at any given time; (ii) the option price shall never be less than one hundred percent (100%) of the fair market value of a Unit on the date of grant; and (iii) no option shall be exercisable after ten years from the date of grant; (Y) To establish and maintain, including the right to terminate, a distribution reinvestment plan whereby Partners may automatically reinvest in the purchase of Units, Cash Available for Distributions as the same may be distributed pursuant to Article 11 hereof, including offering and selling Units to Partners under such plan at a price not less than ninety-five percent (95%) of the fair market value of a Unit on the date of such reinvestment; (Z) To qualify to do business in any other state, territory, dependency or foreign country; (AA) To make donations, regardless of specific benefit to the Partnership, for the public welfare, to community or hospital funds, or for charitable, educational, scientific, civic, political or similar purposes; (BB) To pay pensions, and to establish, participate in and maintain as plan sponsor or otherwise, pension, profit sharing, bonus, purchase, option, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions for any or all of the employees of the Partnership, and any partner, shareholder, director, officer, employee or agent of a General Partner or any Affiliate, including plans, trusts and provisions which may provide for the ownership, acquisition, holding, or disposition of Units or any other securities of the Partnership; and to indemnify and purchase and maintain insurance on behalf of, any fiduciary of such retirement, incentive and benefit plans, trusts or other provisions, including, without limitation, health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance and other plans, trusts or provisions; (CC) To put into effect and carry out any plan of reorganization or arrangement and the orders of the court or judge entered in a proceeding for reorganization or arrangement under any applicable statute of the United States or of any state, local or other jurisdiction, and to undertake any proceeding and perform any act provided in the plan or directed by such orders, without further action by any Partner 15 or Assignee. Such power and authority may be exercised and such proceedings and acts may be undertaken, as may be directed by such orders, by the trustee or trustees of the Partnership appointed in the reorganization or arrangement proceeding (or a majority thereof), or if none is appointed and acting, by the Managing General Partner or a master or other representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the Partners and Assignees; (DD) To distribute money or Partnership Property to Partners and Assignees in accordance with this Agreement regardless of the source of such money or Partnership Property, including, without limitation, money borrowed by the Partnership or by the Managing General Partner on behalf of the Partnership; (EE) To possess and exercise any additional powers and rights of general partners in a limited partnership, including, without limitation, those granted under the Act and any other applicable laws, to the extent not inconsistent with this Agreement; (FF) To take any and all action, conduct all proceedings and execute all rights and privileges, contracts and agreements of any kind whatsoever, although not specifically mentioned in this Agreement, that the Managing General Partner may deem necessary or appropriate to conduct the business of the Partnership or to carry out the purposes of the Partnership. The expression of any power or authority of the Managing General Partner in this Agreement shall not limit or exclude any other power or authority which is not specifically or expressly set forth in this Agreement; and (GG) To determine for purposes of Subsections (X) and (Y) hereof the fair market value of a Unit; provided, however, that until such time as there shall be a public market (as hereinafter defined) for the Units, the Managing General Partner shall determine and fix such value only after first retaining and considering the opinion of one or more independent consultants experienced in valuing securities such as the Units and shall consider all other factors reasonably related to the valuation of the Units including, without limitation, current book value, recent arm's length purchases and sales including trades in the over-the-counter market and values of limited partnership interests of other comparable real estate limited partnerships. Once a public market has been established for the Units, fair market value shall be determined as applicable based on either (i) the average of the daily high and low sale prices of the Units on a national stock exchange ("Exchange") for the period of five (5) trading days ending on the valuation date; or (ii) the average of the 16 mean between the closing representative bid and asked prices for the Units on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System for the period of five (5) trading days ending on the valuation date. If there is no trading in the Units on the Exchange or closing representative bid and asked prices for the Units on the NASDAQ System for a substantial amount of time during any trading day in the five-day period, the fair market value of a Unit shall be determined by the Managing General Partner on the basis of such market quotations as it shall deem appropriate. The existence of a public market for the Units shall mean either that the Units shall have been listed for trading on an Exchange, or that trading information for the Units is reported on the NASDAQ System. 3.4 LIABILITY OF GENERAL PARTNERS. The General Partners shall be liable to the Partnership and the Limited Partners and Assignees for gross negligence or gross misconduct but neither the General Partners nor their Associates shall be liable to either the Partnership or the Limited Partners or to Persons who have acquired interests in the Units, whether as Assignees or otherwise, for errors in judgment or for any acts or omissions that do not constitute willful misconduct. If this Section 3.4 shall, for any reason and to any extent, be invalid or unenforceable, it is intended that this Section 3.4 shall be construed to exculpate the General Partners and their Associates to the fullest extent permitted by law. 3.5 SIMILAR ACTIVITIES OF GENERAL PARTNERS. The General Partners and their respective Associates may, directly or indirectly (including, without limitation, through a Related Person or other entity in which the General Partner or any such Related Person holds an ownership interest), engage in any and all aspects of the business of owning, holding, developing, controlling, acquiring, purchasing, managing, disposing of and otherwise dealing with real, personal or mixed property; act as a partner (limited or general), shareholder, director, officer, employee or agent of any entity (including GOCO and Glenborough Corporation) engaging in such business or activities; or engage in any other businesses and activities, whether the same be competitive with the Partnership, an Operating Limited Partnership or otherwise, for their own account and for the account of others, without having or incurring any obligation to offer any interest in such properties, businesses or activities to the Partnership or any Partner or Assignee and nothing herein contained shall be deemed to prevent any General Partner or any such Related Person from conducting such other business and activities. Neither the Partnership nor any Operating Limited Partnership, nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of a General Partner or any such Related Person. However, all records kept and maintained by the Managing General Partner for the Partnership pursuant to this Agreement shall be 17 maintained separately from those for other operations of the General Partners, including other partnerships for which a General Partner is a general partner. 3.6 INDEMNIFICATION OF GENERAL PARTNERS. (A) The General Partners and each of their respective Associates (individually an "Indemnitee") shall, to the fullest extent permitted by law, be indemnified and held harmless by the Partnership from and against all losses, claims, damages, liabilities (joint and several), expenses (including, without limitation, attorneys' fees and expenses, and any expenses of establishing a right to indemnification under this Section 3.6), judgments, fines, settlements and other amounts (collectively "Liability") arising from or incurred in connection with any claim, demand, action, suit or proceeding (including, but not limited to, claims, demands, actions, suits and proceedings by, in the name of or on behalf of, the Partnership), whether civil, criminal, administrative or investigative and whether threatened, pending or completed (collectively "Proceeding") in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of: (i) its status at any time as a General Partner or Associate of a General Partner; (ii) its management of the Partnership; and/or (iii) any act performed or omitted to be performed by it at any time in connection with the business, property or affairs of the Partnership whether or not such Indemnitee continues to be a General Partner or an Associate of a General Partner at the time such Liability is paid or incurred, if: (a) such Liability was not the result of gross negligence or gross misconduct by the Indemnitee, and the Indemnitee determined, in good faith, that the course of conduct which caused the Liability was in the best interests of the Partnership; or (b) a court of competent jurisdiction determines upon application that, despite the fact that the requirements of clause (a) are not satisfied, in view of all the circumstances, the Indemnitee is fairly and reasonably entitled to indemnification for such Liabilities as such court may deem proper. (B) The termination of a Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not determine in good faith that the course of conduct which caused the Liability was in the best interests of the Partnership. (C) Any Liability for which the Partnership and the Indemnitee are jointly liable shall, if the Indemnitee is entitled to indemnification under this Section 3.6, be satisfied first from the assets of the Partnership. The indemnification provided by this Section 3.6 shall be recoverable out of the assets of the Partnership, including any insurance proceeds, and shall not be recoverable out of any other assets of the Limited Partners. 18 (D) Expenses (including attorneys' fees and expenses) incurred in defending any Proceeding shall be paid by the Partnership in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification as authorized by this Section 3.6. (E) The indemnification provided by this Section 3.6 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, vote of the Partners, as a matter of law or otherwise both as to action in the Indemnitee's capacity as a General Partner or Associate of a General Partner and to action in another capacity, shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee. (F) The Partnership shall, to the extent commercially reasonable, purchase and maintain insurance on behalf of the Indemnitees and such other Persons as the Managing General Partner shall determine against any Liability which may be asserted against or expense which may be incurred by such persons in connection with Partnership activities (including, without limitation, any Proceeding) whether or not the Partnership would have the power to indemnify such persons against such Liability under the provisions of this Agreement. (G) For purposes of this Section 3.6, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by an Indemnitee of its duties to the Partnership also imposes duties on, or otherwise involves services by, an Indemnitee to such plan or participants or beneficiaries of such plan. Excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed a Liability and action taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by an Indemnitee to be in the interests of the participants and beneficiaries of such plan shall be deemed to be for a purpose which is in the best interests of the Partnership. Any payments to an Indemnitee shall be solely from assets of the Partnership and shall not be paid from employee benefit plan assets. (H) An Indemnitee shall not be denied indemnification in whole or in part under this Section 3.6 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies. (I) Notwithstanding the foregoing, an Indemnitee shall not be entitled to indemnification hereunder for any Liability imposed in a Proceeding arising from or out of a violation of state or federal 19 securities laws associated with the offer and sale of Units. Indemnification will be allowed for settlements and related expenses of Proceedings alleging securities law violations, and for expenses incurred in successfully defending such Proceedings, providing that a court either (i) approves the settlement and finds that indemnification of the settlement and related costs should be made; or (ii) approves indemnification of litigation costs if a successful defense is made. (J) If any provision of this Section 3.6, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Section 3.6 and the application thereof shall not be affected thereby, it being the intent of this Section 3.6 to indemnify and hold harmless the Indemnitees to the fullest extent permitted by applicable law. 3.7 OTHER MATTERS CONCERNING GENERAL PARTNERS. (A) Each of the General Partners may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (B) Each of the General Partners may consult with and employ counsel, accountants, appraisers, management consultants, investment bankers and other consultants, advisers and Persons selected by it (who may serve as such for and be employed by the Partnership or any Related Person), and any opinion of such Person as to matters which the General Partner believes to be within that Person's professional or expert competence shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by the General Partner hereunder in good faith and in accordance with such opinion. (C) Each of the General Partners may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents, including, without limitation, any Related Person, and a General Partner shall not be responsible for any misconduct, negligence, or willful act on the part of any agent appointed with due care by any General Partner. (D) Any and all fees, commissions, compensation and other consideration received by a General Partner or a partner, shareholder, director, officer, agent or employee of a General Partner permitted hereunder shall be the exclusive property of the recipient, in which the Partnership shall have no right or claim, and the participation by any such Person in any agreement permitted hereunder shall not constitute a breach by such Person of any duty that it may owe the Partnership or the Limited Partners or Assignees under this Agreement or by operation of law. 20 3.8 AGREEMENTS WITH A GENERAL PARTNER OR A RELATED PERSON. (A) In addition to agreements, arrangements and transactions provided for in or contemplated by this Agreement, a General Partner and any Related Person may, directly or indirectly, deal with the Partnership, including, without limitation, making loans to (but not borrowing from) the Partnership, in connection with carrying out the business of the Partnership or otherwise, as an independent contractor or as an agent for others, and may receive from such others or the Partnership, profits, compensation, commissions or other amounts which the Managing General Partner in good faith believes to be reasonable without having to account to the Partnership therefor, if the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the Partners and such agreement or transaction is specifically authorized, approved or ratified by a Majority Interest. Compliance with the provisions of this Section 3.8 (A) shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any such agreement or transaction. (B) The satisfaction of the following condition shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any agreement or transaction between a General Partner or a Related Person and another Person based upon the assertion of a breach of duty owed to the Partnership by a General Partner or a Related Person in entering into such agreement or transaction: the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the Partners and such agreement or transaction is specifically authorized, approved or ratified by a Majority Interest. 3.9 CONVEYANCES. The Managing General Partner has the express authority to convey title to any Partnership Property by a conveyance executed by the Managing General Partner alone on behalf of the Partnership. ARTICLE 4 COMPENSATION OF GENERAL PARTNERS 4.1 COMPENSATION OF GENERAL PARTNERS. Except for options which may be granted to the General Partners pursuant to an option plan, no General Partner shall receive from the Partnership any compensation for his or its services in the capacity of General Partner; provided, however, that nothing contained herein shall preclude a General Partner in his or its capacity as a general partner of an Operating Limited Partnership from being compensated as such as provided in its limited partnership agreement. The Partnership, however, shall pay all expenses, disbursements and advances reasonably incurred by the General Partners and their 21 Affiliates in connection with the organization of the Partnership and the conduct of Partnership business, including, without limitation, office expenses, secretarial expenses and expenses for entertainment, travel and similar items, including amounts paid to any Person retained to perform services for the Partnership. The Partnership shall promptly reimburse the General Partners and their Affiliates for any such items paid by the General Partners or their Affiliates. The General Partners and their Affiliates shall also receive a reasonable reimbursement for their general and administrative costs allocable to the management and operation of the Partnership, as determined by the Managing General Partner in its discretion; provided, however, that such costs shall be reasonable in amount and necessary to the functions of the Partnership. Such costs shall include salaries and compensation of legal and leasing personnel, costs of software acquisition and costs incurred in connection with servicing Partnership notes receivable, but shall exclude salaries and compensation of the officers and directors of any General Partner. ARTICLE 5 THE LIMITED PARTNERS, ASSIGNEES AND TRANSFERREES 5.1 LIMITED LIABILITY. No Limited Partner or Assignee (unless such Limited Partner or Assignee is a General Partner or otherwise participates in the control of the business of the Partnership) shall be personally liable for any of the debts of the Partnership or for any Net Losses beyond the amount of the Capital Contribution made or agreed to be made to the Partnership by the Limited Partner or Assignee and any undistributed Net Income allocated to the Limited Partner or Assignee. However, to the extent required by law, each Limited Partner or Assignee receiving any actual or constructive distribution may be liable to return such distribution if and to the extent that, immediately after giving effect to the distribution, all liabilities of the Partnership, other than liabilities to Partners or Assignees on account of their interest in the Partnership and liabilities as to which recourse of creditors is limited to specific property of the Partnership, exceed the fair value of the Partnership Property; provided, however, that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is so limited shall be included in the Partnership Property for purposes of this sentence only to the extent that the fair value of such Partnership Property exceeds such liability. Any Limited Partner returning all or any part of a distribution actually received by an Assignee or successor of the Limited Partner shall be subrogated to the Partnership's right to seek a return to the Partnership of the distribution from the Assignee or such successor. In no event shall any Limited Partner or Assignee be obligated under any circumstances to make any Capital Contribution to the Partnership for any purpose whatsoever, other than Capital Contributions described in Articles 8 and 9. 22 5.2 RESTRICTIONS ON LIMITED PARTNERS AND ASSIGNEES. (A) No Limited Partner or Assignee shall participate as such in the management and control of the business of the Partnership, transact any business for the Partnership, or attempt to do so, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person employed or engaged to transact any such business by or on behalf of the Managing General Partner or the Partnership. The transaction of any such business by a Limited Partner or Assignee employed or engaged to do so by or on behalf of the Managing General Partner or the Partnership shall not be in his, her or its capacity as Limited Partner or Assignee and shall not affect, impair or eliminate the limitations on the liability of the Limited Partner or Assignee under this Agreement. (B) No Limited Partner or Assignee shall have the power to represent, sign for or bind the Managing General Partner, any other General Partner or the Partnership, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person given such power by the Managing General Partner. 5.3 OUTSIDE ACTIVITIES. A Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership. Neither the Partnership nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of any other Limited Partner or Assignee. 5.4 NO WITHDRAWAL OR DISSOLUTION. No Limited Partner shall at any time withdraw from the Partnership, except as provided in this Agreement. No Limited Partner shall have the right to have the Partnership dissolved or the right to a Return of Capital from the Partnership, except as provided in this Agreement. The legal incompetency, bankruptcy, insolvency, termination, dissolution, withdrawal or death of a Limited Partner shall not cause a dissolution of the Partnership. 5.5 ASSIGNEES. The creation of Assignees pursuant to Section 13.2 does not dissolve the Partnership. An Assignee may become a Substituted Limited Partner as provided in Section 14.1. Until an Assignee becomes a Substituted Limited Partner, the Assignee has no right to notice of or to vote at any meeting of Partners or upon any matters upon which Limited Partners may vote, to require any information or account of Partnership transactions or to inspect Partnership books, and is otherwise subject to the limitations under the Act on the rights of an Assignee who has not become a Substituted Limited Partner. An Assignee has the rights and obligations appurtenant to a Unit to share in the Net Income and Net Losses of the Partnership and to receive distributions. 23 5.6 TRANSFEREES. An assignment of Limited Partners' Units does not dissolve the Partnership or entitle the transferee to become or to exercise any rights of a Limited Partner. The transferee has the right to become a Substituted Limited Partner pursuant to an assignment as provided in Section 14.1. A Limited Partner remains a Limited Partner upon transfer of all or part of the Limited Partners' Units until the transferee becomes a Substituted Limited Partner pursuant to Section 14.1. A transferee who does not become a Substituted Limited Partner has no right to notice of or to vote at any meeting of Partners or upon any matters upon which Limited Partners may vote, to require any information or account of Partnership transactions or to inspect the Partnership books, and is otherwise subject to the limitations under the Act on the rights of a transferee or Assignee who has not become a Substituted Limited Partner. Any distribution or payment to the Partner or Assignee of record or the personal representative of such Partner or Assignee shall acquit the Partnership of liability to the extent of such payment to any person who may have an interest in such payment by reason of an assignment by the Partner or Assignee or the successors or assignees of the Partner or Assignee, or by reason of the death of such Partner or Assignee or otherwise. ARTICLE 6 MEETINGS AND VOTING; AMENDMENTS 6.1 MEETINGS. Meetings of the Partners may be called by any of the General Partners or by Limited Partners holding more than ten percent (10%) of the Limited Partners' Units for any matters on which the Limited Partners are entitled to vote pursuant to Sections 6.9 or 6.11. Any Limited Partners entitled to call a meeting of the Partners who request that a meeting be called shall deliver to the Managing General Partner a written request for such a meeting indicating the specific matters to be considered at the meeting and the proposed date of the meeting (which shall not be less than ten (10) nor more than sixty (60) days after receipt by the Managing General Partner of such request), and specifying the number of Units held by such Limited Partners. Upon receipt of such a request, or upon the request of a General Partner, the Managing General Partner forthwith shall cause notice to be given to the Limited Partners entitled to vote at such meeting. If such notice is not given within twenty (20) days after receipt of such request, the Partners entitled to call the meeting may give the notice. 6.2 NOTICE OF A MEETING. Written notice of a meeting called pursuant to Section 6.1 shall be given to each Limited Partner entitled to vote at the meeting, not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice shall state the place, date and hour of the meeting and the general nature of the business to be transacted, and no other business may 24 be transacted. The notice shall be given either personally or by mail or other means of written communication, addressed to the Limited Partners at their respective addresses appearing on the books of the Partnership or, if no address appears on the books of the Partnership, at the principal place of business of the Partnership. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit or certificate of mailing of any notice in accordance with the provisions of this Article 6, executed by the Managing General Partner, Transfer Agent, registrar of Units or mailing organization shall be prima facie evidence of the giving of notice. If any notice addressed to any Limited Partner at the address of the Limited Partner appearing on the books of the Partnership is returned to the Partnership by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver it, said notice and any subsequent notices shall be deemed to have been duly given without further mailing if they are available for the affected Limited Partner at the principal place of business of the Partnership for a period of one year from the date of the giving of the notice to all other Limited Partners. 6.3 RECORD DATE. For purposes of determining the Limited Partners entitled to notice of and to vote at a meeting of the Limited Partners or to give consents without a meeting as provided in Section 6.8, the Managing General Partner may set a Record Date, or, if a meeting is called or consents are requested without a meeting by the other General Partner(s) or by Limited Partners holding more than ten percent (10%) of the Limited Partner Units, such Partners may set a Record Date. The Record Date for any meeting shall not be less than ten (10) or more than sixty (60) days before the date of such meeting. If no Record Date is set as herein provided, the same shall be determined in accordance with the Act. 6.4 ADJOURNMENT. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting, and a new Record Date need not be fixed, if the time and place thereof are announced at the meeting at which the adjournment is taken, unless such adjournment shall be for more than forty-five (45) days or a new Record Date is fixed. At the adjourned meeting the Partnership may transact any business which might have been transacted at the original meeting. If the adjournment is for more than forty-five (45) days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this Article 6. 6.5 WAIVER OF NOTICE; CONSENT TO MEETING. The transactions of any meeting of Limited Partners, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, 25 each of the Persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers, consents, and approvals shall be filed with the Partnership records or made a part of the minutes of the meeting. Attendance of a Person at a meeting shall constitute a waiver of notice of the meeting, except when the Person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened; provided, however, that attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be included in the notice of the meeting but no so included, if the objection is expressly made at the meeting. 6.6 QUORUM. A Majority Interest, represented in person or by proxy, shall constitute a quorum at a meeting of Partners. The Limited Partners present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough Limited Partners to leave less than a quorum, if any action taken (other than adjournment) is approved by the requisite percentage of interests of Limited Partners specified in this Agreement. In the absence of a quorum, any meeting of Partners may be adjourned from time to time by the vote of a majority of the Limited Partners' Units represented either in person or by proxy, but no other business may be transacted except as provided in Section 6.1 6.7 CONDUCT OF MEETING. Each Limited Partner entitled to vote at a meeting or to consent to an action shall be entitled to one vote for each Unit held by such Limited Partner, which vote may be cast in person or by written proxy. The Managing General Partner shall have full power and authority concerning the manner of conducting any meeting of Partners, including, without limitation, the determination of Persons entitled to vote at the meeting, the existence of a quorum, the satisfaction of the requirements of Section 6.10, the conduct of voting, the validity and effect of any proxies, and the determination of any controversies, votes, or challenges arising in connection with or during the meeting. The Managing General Partner shall designate a Person to serve as chairman of the meeting and shall further designate a Person to take the minutes of the meeting, in either case including, without limitation, a director or officer of the Managing General Partner. All minutes shall be kept with the records of the Partnership maintained by the Managing General Partner. 6.8 ACTION WITHOUT A MEETING. Any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Limited Partners holding not less than the minimum number of Units that would be necessary to authorize or take such action at a meeting at which all the Limited Partners entitled to vote 26 thereon were present and voted. Prompt notice of the taking of action without a meeting shall be given to the Limited Partners who have not consented in writing. If consent to the taking of any action by the Limited Partners without a meeting is requested, the Limited Partners shall be given notice of the matter to be voted upon in the same manner as described in Sections 6.1 and 6.2. In the event any General Partner or Limited Partners holding at least ten percent (10%) of the Limited Partners' Units request a meeting for the purpose of discussing or voting on such matter, the notice of a meeting shall be given as described in Sections 6.1 and 6.2 and no action shall be taken until the meeting is held. Unless delayed in accordance with the provisions of the preceding sentence, any action taken without a meeting will be effective fifteen (15) days after the holders of the required minimum number of Units have signed the consent; however, the action will be effective immediately if all General Partners and Limited Partners holding at least ninety percent (90%) of the Limited Partner Units have executed the consent. 6.9 VOTING RIGHTS. Subject to Sections 6.10 and 6.12, the Limited Partners shall have the right to vote on only the matters specified below (including, however, without limitation, those matters on which limited partners are given the right to vote under the Act) and no other matters: (A) The following actions may be taken by the Managing General Partner only with the affirmative vote of a Majority Interest: (1) The sale, exchange, lease or other transfer (other than encumbrances) of all or substantially all of the assets of the Partnership in a single transaction or in multiple interrelated transactions, except in the liquidation and winding up of the business of the Partnership upon its dissolution. For purposes of this subsection, "substantially all of the assets of the Partnership" shall mean ninety percent (90%) of the asset value of the Partnership Property, as determined in accordance with generally-accepted accounting principles, at the end of the most recently completed fiscal quarter of the Partnership; (2) The dissolution of the Partnership, other than pursuant to Sections 16.1(A), (B), (C) and (E); (3) An election to continue the business of the Partnership other than after there is no remaining or surviving General Partner; (4) An amendment to this Agreement, including, without limitation, an amendment extending the term of this Agreement, except for amendments described in Sections 6.11 and 6.13; 27 (5) Any matter actually submitted to the Limited Partners pursuant to Section 3.8; and (6) Voting on or consenting as the Limited Partner to a sale, exchange, lease or other transfer of all or substantially all of the assets of an Operating Limited Partnership when such vote or consent is required under the terms of the partnership agreement of such Operating Limited Partnership. (B) A General Partner may be removed only with the affirmative vote of a Majority Interest. (C) Except under circumstances described in clause (D), a new General Partner may be admitted with the affirmative vote of a Majority Interest and with the separate concurrence of the other General Partner(s). (D) If there is no remaining or surviving General Partner, a new General Partner may be admitted or an election to continue the business of the Partnership may be made only upon the affirmative vote of all Limited Partners. 6.10 EXERCISE OF VOTING RIGHTS. The voting rights set forth in Section 6.9 (A) shall be exercisable by the Limited Partners unless the Partnership shall have received the written opinion of independent counsel for a Majority Interest to the effect that the exercise of such right or the action proposed to be taken with respect to any particular matter: (A) shall cause the Limited Partners to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to subject the Limited Partners or Assignees to unlimited liability therefor; (B) will jeopardize the status of the Partnership as a partnership under applicable tax laws and regulations; or (C) is otherwise impermissible under the state statutes then governing the rights, duties and liabilities of the Partnership and the Partners and Assignees. Where the Managing General Partner concludes that the exercise of a voting right set forth in Section 6.9(A) could result, with respect to any particular action, in any of the foregoing events, the Managing General Partner shall recommend to the Limited Partners that independent counsel be appointed to consider the matter prior to the exercise of such voting right. 6.11 AMENDMENTS BY THE MANAGING GENERAL PARTNER. Subject to Section 6.12, the Managing General Partner may, without prior notice to or consent of any Partner or Assignee, amend any provision of this Agreement: (A) to cure any ambiguity, omission, defect or inconsistency; (B) if in its opinion such amendment does not have a materially adverse effect upon the Limited Partners and Assignees or the Partnership, as the case may be; or (C) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership or the General Partners or 28 the partners, directors or officers of a General Partner from being in any manner subject to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed by the Department of Labor; or (D) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership from being taxable as a corporation under the Code. A copy of such amendment shall thereafter be furnished promptly to the Limited Partners and Assignees. In the event an amendment shall have been approved pursuant to this Section 6.11, the Managing General Partner shall execute such amendment, certificate and other documents as may be reasonably required for the purpose of effectuating the same; provided, however, that nothing in this Article 6 shall affect the authority of the Managing General Partner to admit Additional Limited Partners or Substituted Limited Partners. 6.12 VOTING BY GENERAL PARTNERS AND AFFILIATES. Notwithstanding the foregoing, with respect to Sections 3.3(X), 4.1 and this Section 6.12, on proposals to amend such Sections, all Limited Partners' Units held by the General Partners and their respective Affiliates shall be voted for, against or abstained in the same proportion as other Limited Partners' Units are voted for, against or abstained on such matters. 6.13 PROHIBITED AMENDMENTS. Except with the unanimous consent of all Partners, no amendment shall reduce the percentage of votes of the Limited Partners as required herein for actions requiring such a vote, or change the form of the Partnership to a general partnership. ARTICLE 7 ORIGINAL LIMITED PARTNER 7.1 ADMISSION. Effective as of the Closing Date, and upon execution of a Request and Power, Glenborough Limited, a California limited partnership, shall become the Original Limited Partner. 7.2 CAPITAL CONTRIBUTIONS. The Original Limited Partner shall contribute to the capital of the Partnership as provided in Article 8 hereof. ARTICLE 8 CAPITAL CONTRIBUTIONS AND INITIAL ISSUANCE OF UNITS 8.1 CASH CAPITAL CONTRIBUTIONS. The initial capital of the Partnership shall consist of One Thousand Dollars ($1,000), which the General Partners and the Initial Limited Partner have 29 heretofore contributed in cash to the capital of the Partnership as follows: GENERAL PARTNERS Glenborough Realty Corporation................................... $ 50 Robert Batinovich................................................ $450 INITIAL LIMITED PARTNER Robert Batinovich................................................ $500 Upon completion of the Exchange Transaction, these cash contributions shall be refunded to the General Partners and the Initial Limited Partner. 8.2 CONTRIBUTION BY PARTNERS. On the Closing Date, the Partners shall contribute to the Partnership Property, including the Exchange Assets, as follows: (A) The Original Limited Partner shall, in accordance with the Exchange Agreement, contribute the Exchange Assets. (B) The General Partners shall each exchange sufficient Units received by them under Section 8.3 hereof as Members of the Original Limited Partner (or furnished to them by such Members) for General Partner Interests such that such Units that are originally classified as General Partner Interests shall constitute the following percentages of the Partnership's Original Units (as defined in Section 8.3) as of the Closing Date: Glenborough Realty Corporation, 0.10% and Robert Batinovich 0.90%. (C) For purposes of Capital Contributions on the Closing Date, the value of the Exchange Assets (less the initial issue value of the Units contributed by the General Partners under subsection (B) hereof), shall be deemed to equal ninety-nine percent (99%) of the Partnership net assets. 8.3 DISTRIBUTION OF ORIGINAL UNITS. (A) Effective as of the Closing Date, the Partnership shall issue to the Original Limited Partner that number of Units equal to the number of units of limited partnership interest of the Original Limited Partner that are then outstanding and held by the Members ("Original Units") which shall constitute all the then outstanding Units of the Partnership. Thereafter, interests of Limited Partners in the Partnership shall be represented by and expressed in terms of Units. (B) After the exchange by the General Partners provided for in Section 8.2 (B), the Original Units shall be held one percent 30 (1%) by the General Partners (in the percentages shown in that Section) and ninety-nine percent (99%) by the Original Limited Partner. (C) Contemporaneously with the above, the Original Limited Partner shall assign and transfer to its Members such Member's proportionate share of the Original Limited Partner's Original Units. Such assignment and transfer shall, however, be at all times subject to the terms and conditions of the limited partnership agreement, as amended, of the Original Limited Partner and the Exchange Agreement and all agreements contained therein. To effect such assignment and delivery, the Original Limited Partner will deliver the certificates representing the Original Units to the Transfer Agent together with a list containing the name, address, and if available, the tax identification number of each such Member, including a General Partner if applicable, and the whole number of Original Units assigned and transferred to each such Member. Immediately upon such transfer and delivery of the Certificates and lists, each affected Member shall, except for Units which are distributed to General Partners and become General Partner Interests, become a Substituted Limited Partner with respect to such Member's Units in the place and stead of the Original Limited Partner. 8.4 GENERAL PARTNER INTERESTS. The Original Units issued or transferred to the Managing General Partner and Robert Batinovich as General Partners, that were then contributed by them for their General Partner Interests shall be designated as General Partner Interests. Any other Units held by the General Partners shall be held by them as Limited Partner Units. If at any time the number of Units classified as General Partner Interests shall represent more than one percent (1%) of all Units the outstanding, the General Partners shall be empowered to reclassify a portion of the Units classified as General Partner Interests to Limited Partners' Units in order to reduce the number of Units classified as General Partner Interests to one percent (1%) of all Units. 8.5 NONASSESSABILITY OF PARTNERS. Units shall not be assessable, and no General Partner and no Limited Partner shall be required to make any additional Capital Contribution. Capital Contributions made after the transfer of the Exchange Assets pursuant to Article 8 shall be made as provided in Article 9. 8.6 DISTRIBUTION OF CAPITAL. A Partner or Assignee shall be entitled to a distribution which constitutes a Return of Capital from time to time throughout the duration of the Partnership in such amounts and at such times as the Managing General Partner, in its sole discretion, deems appropriate. Such distributions shall be made only if the conditions specified in Section 11.1 have been met or as provided in Section 8.1 with respect to the initial $1,000 cash contribution. 31 8.7 NO INTEREST ON CAPITAL CONTRIBUTION. Partners and Assignees shall not receive interest on or with respect to all or any part of their Capital Contributions. 8.8 CREDITOR'S INTEREST IN THE PARTNERSHIP. No creditor who makes a loan to the Partnership shall have or acquire at any time as a result of making the loan, any direct or indirect interest in the profits, capital or property of the Partnership other than as a creditor. 8.9 NATURE OF INTERESTS. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and none of the Partners shall have any direct ownership of such property. 8.10 ONE PERCENT INTEREST OF GENERAL PARTNERS. Notwith- standing anything to the contrary that may be expressed or implied herein, the interests of all of the General Partners, taken together, in each material item of Partnership income, gain, loss, deduction or Tax Credits, as provided by Section 10.1, will be equal to at least one percent (1%) of each such item at all times during the existence of the Partnership. In determining the General Partners' interests in such items, Limited Partner Units owned by the General Partners shall not be taken into account. The General Partners or their successors-in-interest shall designate or acquire additional General Partner Interests to satisfy this one percent (1%) General Partners' interest requirement as provided in Section 9.1 and 15.1. ARTICLE 9 ISSUANCE OF ADDITIONAL UNITS 9.1 SALE OF ADDITIONAL UNITS. For any purpose deemed by the Managing General Partner to be in the best interests of the Partnership, the Managing General Partner is authorized to cause to be issued additional Units from time to time to any Person (which may include Partners and Assignees) and to admit such Persons as Additional Limited Partners in the Partnership. The Managing General Partner shall have sole and complete discretion in determining the consideration and terms and conditions with respect to any future issuance of Units. The Managing General Partner shall do all things necessary to comply with the Act and is authorized and directed to do all things it deems necessary or advisable in connection with any such future issuance. 9.2 GENERAL PARTNER INTERESTS. Notwithstanding the sale of additional Units under Section 9.1, the General Partners shall at all times be deemed to own as General Partner Interests (in the respective percentages set forth in Section 8.2 (B)) at least a one percent (1%) interest in each item of Partnership income, gain, 32 loss, deduction or Tax Credits. No further contribution or consideration shall be required of the General Partners to maintain their minimum one percent (1%) General Partner Interest. 9.3 PREEMPTIVE RIGHTS. No Partner or Assignee shall have any preemptive, preferential, or other rights with respect to the issuance of additional Units. ARTICLE 10 ALLOCATION OF NET INCOME, NET LOSS AND TAX CREDITS 10.1 GENERAL ALLOCATION. (A) Net Income and Net Loss for each month shall be determined by the Partnership and allocated among the Partners and Assignees in accordance with their Allocable Shares. (B) For federal, state or other tax purposes, all items of income, gain, loss or deduction and all Tax Credits (including any such items arising from a joint venture or a partnership in which the Partnership has an interest) shall be determined using the accounting method designated by the Managing General Partner and shall be allocated to the Partners and Assignees in accordance with their Allocable Shares, subject to the provisions and adjustments described in this subsection. In the case of the transfer of Units by sale or exchange or upon death of a Partner during any year in which an election under Section 754 of the Code is in effect, the income or loss allocable to the holder of the Unit so transferred shall be adjusted in accordance with Section 754, related sections of the Code and applicable Treasury Regulations promulgated thereunder. If the Partnership is deemed to have been terminated and reformulated pursuant to Section 708 of the Code, depreciation, depletion, gain or loss shall be allocated among the Partners and Assignees so as to take account of the variation between the basis of property deemed contributed to the Partnership by each Partner or Assignee at the time of its reformulation and the fair market value of such property at the time of such contribution pursuant to Section 704(c) of the Code. Depreciation, depletion, gain or loss (including the tax consequences of any basis reduction made by a contributing Partner under Code Sections 108, 483 and 1274) with respect to property contributed to the Partnership shall be allocated among the Partners and Assignees to the extent required under Section 704(c) of the Code and Treasury Regulations promulgated under Code Section 704(b) and (c) so as to take into account, for tax purposes, the difference between the basis of such property and its initial Book Value. The Managing General Partner is authorized to adopt such methods of allocating such items, consistent with applicable law and Regulations to make all Units as fungible as possible for tax purposes to any purchaser thereof. At the request of the Managing General Partner, the Partners and Assignees agree to furnish such information as may be reasonably 33 necessary in the opinion of the Managing General Partner to effect the aforementioned Section 754 and Section 704(c) adjustments. The Managing General Partner will adopt the following conventions in effecting any Section 754 or Section 704(c) adjustments for Partners or Assignees who do not supply information. If a Partner or Assignee does not supply information as to the purchase price, date and nature of transfer of a transferred Unit, the conventions shall be: (1) The transfer shall be deemed to have been a purchase which occurred ten trading days before it is recorded on the books of the Transfer Agent; (2) The purchase price shall be deemed to be the lowest quoted trading price of any Unit during the month in which the transfer occurs or is deemed to have occurred. The Managing General Partner may change any of the foregoing conventions at any time if it deems it desirable to do so in its discretion. 10.2 ALLOCATION ON TRANSFER. (A) The Partnership shall use the monthly convention specified in the Conference Committee Report to Section 72 of the Tax Reform Act of 1984 in determining allocations on transfer. Under this convention, Unit transfers after the 15th day of a month shall be treated as occurring immediately after the close of business of the last day of the month, and Unit transfers during the first fifteen (15) days of a month shall be treated as occurring immediately before the opening of business of the first day of the month. (B) If the Allocable Share of a General Partner changes during a month for any reason, other than upon a transfer under Section 10.2(A) its Allocable Share for the month shall be determined in the manner for transfer of Units specified in Section 10.2(A). ARTICLE 11 CASH DISTRIBUTIONS 11.1 TIME AND AMOUNT OF CASH DISTRIBUTIONS. (A) As of the close of each fiscal quarter and each fiscal year, and at any other time the Managing General Partner deems appropriate, the Cash Available for Distribution shall be calculated and, if the Managing General Partner deems appropriate in its sole discretion, all or any portion thereof shall be distributed to the Partners and Assignees of record on the Record Date set for the distribution, and each Partner and Assignee shall 34 receive his Allocable Share thereof. (B) As provided herein, the General Partners will also be the General Partners of each of the Operating Limited Partnerships. During any period of time that the Partnership may hold an indirect interest in any Secondary Operating Limited Partnership, the General Partners, in their capacity as General Partners of the Partnership and as general partners of any Primary Operating Limited Partnership shall be entitled to receive distributions only from the Partnership and the Primary Operating Limited Partnerships and to the extent that the General Partners, in their capacity as general partners of any Secondary Operating Limited Partnership, receive any distributions from any such Secondary Operating Limited Partnership, the amounts so received shall be credited first against any amounts to which they may otherwise be entitled as a general partner of any Primary Operating Limited Partnership (with the amount so credited being added to the amount distributed to the limited partner(s) of such Primary Operating Limited Partnership) and then to the amounts distributed to the General Partners of the Partnership (with the amount so credited being added to the amount distributed to the Limited Partners of the Partnership). (C) Notwithstanding the provisions of Section 11.1(A), any distribution shall be made only if: (1) All liabilities of the Partnership, except liabilities to the General Partners and to Limited Partners and Assignees on account of the Capital Contribution and liabilities as to which recourse of creditors is limited to specified property, have been paid or after such distribution, there will remain Partnership Property with a fair value sufficient to pay such liabilities, provided that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is limited shall be included in Partnership Property for purposes of this subsection only to the extent that the fair value of such Partnership Property exceeds such liability; (2) The Managing General Partner determines in good faith that such distributions may be made without materially affecting the ability of the Partnership to pay obligations (including contingent liabilities) of the Partnership as they fall due; and (3) Such distribution may be made without violating any provision of the Act. (D) Nothing in this Agreement or this Section shall serve as a limitation on the Managing General Partner's right to retain or use the Partnership's assets or its revenues as, in the opinion of the Managing General Partner, may be required to satisfy the anticipated present and future cash needs of the Partnership, 35 whether for operations, liabilities, expansion, improvements, acquisition or otherwise. 11.2 DISTRIBUTIONS OF PARTNERSHIP PROPERTY. In its sole discretion, the Managing General Partner may distribute to Partners and Assignees, Partnership Property other than Cash Available for Distribution. In its sole discretion, the Managing General Partner may distribute to Partners and Assignees additional Units or securities of the Partnership which have been authorized and issued pursuant to the terms of this Agreement. ARTICLE 12 ACCOUNTING AND REPORTS 12.1 FISCAL YEAR. The fiscal year of the Partnership shall end on December 31 of each year, unless the Managing General Partner determines that it is in the best interest of the Partnership and its Partners to utilize a different fiscal year and the permission of the Internal Revenue Service has been obtained. 12.2 REPORTS. (A) As soon as practicable, but in no event later than ninety (90) days, after the close of the calendar year, the Managing General Partner shall prepare or cause to be prepared and furnish to each Person who was a Partner or Assignee of record during the Partnership's fiscal year, the information reasonably necessary for the preparation of such Person's United States federal income tax return and any state or local income or other tax returns required of such Person as a result of the operations of the Partnership. The Partners and Assignees agree to furnish the Managing General Partner with such information as may be necessary or helpful in preparing the tax returns or other filings of the Partnership. (B) As soon as practicable, but in no event later than one hundred twenty (120) days after the close of each fiscal year, the Managing General Partner shall mail or deliver to each Partner and each Assignee of record an annual report containing financial statements of the Partnership for the fiscal year, including a balance sheet and statements of operations, changes in Partners' equity and changes in financial position at the end of or for the most recent fiscal year. Such statements are to be prepared in accordance with generally-accepted accounting principles and shall include the opinion of a firm of independent public accountants selected by the Managing General Partner, and are to be accompanied by a supplementary summary (except as disclosed in the financial statements), by classification of the total fees and compensation, including any overhead reimbursement and indemnification, paid by the Partnership, directly or indirectly, to the General Partners. (C) If and to the extent required by the Act or applicable 36 state or federal securities laws, as soon as practicable, but in no event later than sixty (60) days after the close of each fiscal quarter, except the last fiscal quarter of each fiscal year, the Managing General Partner shall mail or otherwise furnish to each Partner and Assignee of record a quarterly report for the fiscal quarter containing such financial and other information (which may be condensed, including statements of operations for such fiscal quarter and since the end of the last fiscal year, a balance sheet at the end of such period and a certificate of the Managing General Partner to the effect that such financial statements were prepared without audit from the books and records of the Partnership) as the Managing General Partner deems appropriate. 12.3 TAX ELECTIONS. The Managing General Partner shall, in its sole discretion, and as it deems in the best interests of the Partnership or the Partners and Assignees, determine whether to make any available election and how to make any necessary allocation for federal, state, local or other income tax purposes. 12.4 BOOKS AND RECORDS. The Managing General Partner shall maintain all records necessary for documenting and reporting the business and affairs of the Partnership. The Managing General Partner shall maintain at the office of the Partnership specified in Section 2.4: (A) a current list of the full name and last-known business or residence address of each Partner and Assignee set forth in alphabetical order together with the contribution and the share in profits and losses of each Partner and Assignee; (B) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been executed; (C) copies of the Partnership's federal, state and local income tax or information returns and reports, if any, for the six most recent taxable years or for such shorter time as the Partnership has been in existence; (D) the original Agreement and all amendments thereto; (E) copies of the financial statements of the Partnership for the six most recent fiscal years or for such shorter time as the Partnership has been in existence; and (F) the Partnership's books and records for at least the current and past three fiscal years or for such shorter time as the Partnership has been in existence. Any records maintained by the Partnership in the regular course of its business, including the record of the holders of Units, books of account, and records of Partnership proceedings may be kept on, or be in the form of punch cards, magnetic media, photographs, micrographics, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable period of time. Except for information kept confidential by the Managing General Partner pursuant to the power described in Section 3.3(T), all books, financial records, reports and accounts shall be open to inspection by any Partner or duly authorized representative of the Partner on reasonable notice during normal business hours, for any purpose reasonably related to the Partner's interest as a Partner, 37 and the Partner or the representatives at the expense of the Partner shall have the further right to make copies or excerpts therefrom; provided, however, that a copy of the information described in clauses (A),(B),(C) and (D) of the second sentence of this Section 12.4 shall be promptly delivered by the Managing General Partner, at the expense of the Partnership, to any Partner requesting such information. The Partner and the Partner's representatives shall not divulge to any Person any confidential or proprietary data, information or property or any trade secrets of the Partnership. 12.5 BANK ACCOUNTS. The Partnership shall establish and maintain accounts in financial institutions (including, without limitation, national or state banks, trust companies, or savings and loan institutions) in such amounts as the Managing General Partner may deem necessary from time to time. Partnership funds shall not be commingled with the funds of, or used as a compensating balance on behalf of, any General Partner or any other Person. Checks shall be drawn on and withdrawals of funds shall be made from any such accounts for Partnership purposes and shall be signed by the Person or Persons designated by the Managing General Partner. Temporary surplus funds of the Partnership may be invested in commercial paper, time deposits, short-term government obligations or other investments as shall be determined by the Managing General Partner. ARTICLE 13 TRANSFER OF UNITS; CERTIFICATES 13.1 TRANSFER OF GENERAL PARTNER INTERESTS. (A) The term "transfer" when used in this Article with respect to a Unit includes a sale, assignment, gift, exchange, or any other disposition. (B) General Partner Interests are nontransferable except as provided in Article 8 and Section 15.1. All Limited Partners hereby consent to any transfer pursuant thereto. 13.2 TRANSFER OF LIMITED PARTNERS' UNITS. (A) Except as provided in Section 8.3 (c), Units held by Limited Partners may be transferred on the books of the Partnership only by assignment of the Units, satisfactory in form and substance to the Partnership ("Assignment"), by the transferee's completing and delivering to the Partnership (or its Transfer Agent) a Request and Power and by delivery of the Certificate representing the Units and no transfer of Units will be recorded or otherwise recognized by the Partnership and no Certificate will be issued to the proposed transferee unless the transferee has signed and delivered a Request and Power to the Partnership. 38 (B) Each distribution of Cash Available for Distribution or other Partnership Property or securities of the Partnership in respect of Units shall be paid by the Partnership directly or through any Person or agent, only to the Partners and Assignees of record as of the Record Date set for the distribution. Such payment shall constitute full payment and satisfaction of the Partnership's liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise. (C) A transferee who has completed and delivered a Request and Power shall be deemed: (1) to have agreed to comply with and be bound by this Agreement and to execute any document that the Managing General Partner may reasonably require to be executed in connection with the Assignment and admission as a Substituted Limited Partner pursuant to Article 14; and (2) to have appointed the Managing General Partner attorney-in-fact on the terms and conditions set forth in Article 17. (D) Upon receipt of delivery to it of an Assignment and Request and Power with respect to a transfer of a Unit or Units in accordance with this Section 13.2, the Managing General Partner shall take all appropriate steps pursuant to Section 14.1 to reflect the termination of the transferor's interest in the Partnership as a Limited Partner and the admission of the transferee as a Substituted Limited Partner with respect to the Units. 13.3 NEW CERTIFICATES. The Partnership may issue or cause to be issued a new Certificate if the Certificate is alleged to have been lost, stolen or destroyed. The Partnership may require the owner or holder of the lost, stolen or destroyed Certificate, or the owner's or holder's legal representative, to give the Partnership a bond or other adequate security sufficient to indemnify it and its successors against any claim that may be made against it or its successors, including any expense or liability on account of the alleged loss, theft or destruction or the issuance of a new Certificate. 13.4 MAINTENANCE OF TRANSFER RECORDS. The Partnership or its Transfer Agent will maintain records reflecting the name of each Assignee and Limited Partner and any subsequent transfers of Units and admission of Substituted and Additional Limited Partners pursuant to Articles 7, 8, 9 and 14 hereof. 13.5 LEGENDS. The Partnership may cause to be imposed, imprinted or stamped on any Certificate one or more legends or restrictions on transfer which the Managing General Partner, in its sole discretion, believes may be necessary or advisable to comply with federal or state securities laws or other applicable laws, rules, regulations or agreements restricting the transferability of the Certificates. 39 ARTICLE 14 ADMISSION OF SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS 14.1 ADMISSION OF SUBSTITUTED LIMITED PARTNERS. A Limited Partner shall have the power to give the transferee of such Person's Units the right to become a Substituted Limited Partner in the manner permitted in this Agreement. An Assignee of a Unit may apply to become a Substituted Limited Partner with respect to such Unit in the manner set forth in Section 13.2. All other transferees shall apply to become Substituted Limited Partners with respect to Units transferred to such Person by executing and delivering a Request and Power at the time of such transfer as provided in Section 13.2. Upon receipt by the Partnership of a completed and executed Request and Power, and such other documents as may be required pursuant to Section 8.3, the name of the transferee shall be added to the list of Limited Partners maintained by the Partnership, whereupon such transferee shall become a Substituted Limited Partner. 14.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS. A Person other than a General Partner (acting in its capacity as a General Partner), the Original Limited Partner or a Substituted Limited Partner who makes a contribution to the capital of the Partnership may, with the approval of the Managing General Partner, be admitted to the Partnership as an Additional Limited Partner upon furnishing to the Managing General Partner: (A) an acceptance in form satisfactory to the Managing General Partner of all the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Article 17; and (B) such other documents or instruments as may be required in order to effect admission as a Limited Partner. Upon receipt of such documents, the Partnership shall add the name of such Person to the list of Partners maintained by the Partnership, whereupon such Person shall become an additional Limited Partner. ARTICLE 15 REMOVAL, RESIGNATION OR WITHDRAWAL OF GENERAL PARTNER 15.1 REMOVAL OF GENERAL PARTNER. A General Partner may be removed from office as provided in Section 6.9. Such removal shall take effect sixty (60) days from the date of the vote of the Partners. At such time, the assets, books and records of the Partnership shall be surrendered to the remaining or successor General Partner(s), provided that the remaining or successor General Partner(s) shall: (A) hold or have acquired sufficient General Partner Interests (which may be obtained from the removed General Partner) so that the General Partner(s) who will continue to serve as General Partner(s) hold and have designated, in the aggregate, at least a one percent (1%) interest in the Partnership as General Partner(s); and (B) have complied with the provisions of 40 Section 15.4. If such removal dissolves the Partnership, then the Partnership shall be reconstituted and its business shall be continued with any remaining and successor General Partner(s) as the General Partner(s) thereof, and they shall have the exclusive right to possess Partnership Property to continue the business of the Partnership. Removal of a General Partner shall not preclude the rights of the removed General Partner to compensation pursuant to Article 4 accrued as of the date the removal takes effect. 15.2 WITHDRAWAL. A General Partner may withdraw, resign or retire on ninety (90) days' advance written notice to the Partners. A General Partner shall cease to be a General Partner on the effective date of its or his withdrawal, resignation or retirement. 15.3 DISSOLUTION OR BANKRUPTCY OF GENERAL PARTNER. A General Partner shall cease to be a General Partner upon the happening of any of the following events: (A) The dissolution of the General Partner or, if the General Partner is an individual, the death of the General Partner or the entry by a court of competent jurisdiction of an order adjudicating the General Partner incompetent to manage his person or estate; (B) The General Partner: (1) makes a general assignment for the benefit of creditors; (2) commences a voluntary case under the federal bankruptcy law; (3) files a petition or answer seeking for the General Partner any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation; (4) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in any proceeding of the nature described in clause (3); or (5) seeks, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties; (C) An order for relief against the General Partner is entered under Chapter 7 or 11 of the federal bankruptcy law; (D) Sixty (60) days after the commencement of any proceeding against the General Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, if the proceeding has not been dismissed; (E) Sixty (60) days after the appointment without the General Partner's consent or acquiescence of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties, if the appointment is not vacated or stayed, or sixty (60) days after the expiration of any such stay, if the appointment is not vacated; or 41 (F) Upon the General Partner ceasing to be a general partner of an Operating Limited Partnership for any reason other than the dissolution of that partnership provided that there is no longer an Affiliate of a General Partner serving as a general partner of such Operating Limited Partnership. 15.4 LIABILITY AND RIGHTS. A General Partner shall be discharged from, and the Partnership or any Person or Persons continuing the business of the Partnership in the event it has been dissolved, shall assume and pay, as they mature, all Partnership obligations and liabilities that exist on the date of such General Partner's removal from the Partnership or on the date on which it or he ceases to be a General Partner under Sections 15.2 or 15.3, and shall hold such General Partner harmless from any action or claim arising or alleged to arise from obligations and liabilities accruing after such date; provided, however, that nothing in this Section 15.4 shall relieve or discharge, nor shall the Partnership indemnify or hold harmless, such General Partner from any individual obligation or liability of such General Partner (as distinguished from a Partnership obligation or liability) to the Partnership or third parties. On the date of removal of a General Partner or the date on which it ceases to be a General Partner under Sections 15.2 or 15.3, or as soon thereafter as possible, the Partnership or any Person or Persons continuing the business of the Partnership shall file an amendment to the Certificate of Limited Partnership reflecting the removal of the General Partner or the fact that the General Partner has ceased to be a General Partner. The Partnership or any such Person or Persons continuing the business of the Partnership shall promptly notify all creditors of the Partnership as of such date: (A) of the removal of such General Partner and the resulting dissolution of the Partnership (if the Partnership has dissolved) or of the General Partner ceasing to be a General Partner pursuant to Sections 15.2 or 15.3, as the case may be; (B) that such General Partner shall not be personally liable for the Partnership's obligations and liabilities after such date; and (C) if applicable, of the assumption of all the Partnership's obligations and liabilities by the Partnership or such Person or Persons continuing the business of the Partnership. The Partnership or such Person or Persons continuing the business of the Partnership (if the Partnership has dissolved) shall use its or their best efforts to procure and execute an agreement from creditors of the Partnership discharging such General Partner from liability to such creditors as of the date the General Partner is removed or ceases to be a General Partner. Such General Partner shall have the same rights to inspect and make copies or excerpts of the books and records of the Partnership as is provided to Partners pursuant to Section 12.4 until all amounts due such General Partner as of the date the General Partner is removed or ceases to be a General Partner pursuant to Section 3.6 and Article 4 have been paid. The General Partner shall be a creditor of the Partnership as to all such amounts owed to it or him by the Partnership. Any Units held by a General Partner after it or he 42 has been removed, or it or he ceases to be a General Partner, shall be held as Limited Partners' Units and such General Partner shall be entitled to all the rights and shall be subject to all the obligations of a Limited Partner. 15.5 SUCCESSOR AND PREDECESSOR GENERAL PARTNERS. Unless a General Partner has been dissolved because of bankruptcy, insolvency, liquidation or ceases to be a General Partner because of death, disability, incapacity or incompetency or unless a General Partner has been removed as General Partner, upon dissolution of a General Partner, any Person continuing the business of the General Partner so affected shall immediately become a General Partner of the Partnership (and shall become Managing General Partner if the General Partner so affected was the Managing General Partner) without any action or vote of any Person. If any dissolution of a General Partner causes a dissolution of the Partnership, then the Partnership shall be reformed and reconstituted and its business continued as provided in this Section and Article 16. If it is necessary or advisable to reform and reconstitute the Partnership and to continue its business, the remaining and successor General Partners shall elect to reform and reconstitute the Partnership and to continue its business. When any Person ceases to be a General Partner under this Agreement or a partner, shareholder, director, officer, employee or agent of a General Partner, that Person shall continue to have the benefit of any provisions of this Agreement providing for indemnity, exculpation or insurance which protected such Person as a General Partner or a partner, shareholder, director, officer, employee or agent of a General Partner, or which limited or defined the liability of such Person. ARTICLE 16 DISSOLUTION, WINDING UP AND LIQUIDATION 16.1 DISSOLUTION. The Partnership shall be dissolved at the expiration of the term of the Partnership set forth in Section 2.5; provided, however, that the Partnership shall be dissolved prior thereto without breach of this Agreement upon occurrence of one of the following: (A) The removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of a General Partner; provided, however, that unless applicable law shall under the circumstances require a dissolution notwithstanding an agreement to the contrary, the Partnership shall not be dissolved but shall be continued or, if dissolved, the business of the Partnership shall be continued by any remaining or successor General Partner(s) upon the vote of a Majority Interest. If no General Partner(s) remain or succeed or if the remaining or successor General Partner(s) do not have the power under California law to elect to continue or not 43 to continue the business of the Partnership or they elect not to continue the business, then, upon the affirmative vote of all Limited Partners and the admission of one or more new General Partner(s), the Partnership shall not be dissolved, but shall be continued or, if dissolved, the business of the Partnership shall be continued; (B) The Partnership becomes insolvent or bankrupt; (C) The sale or other disposition of substantially all assets of the Partnership and the cessation of active business; (D) The passage of ninety (90) days after the affirmative vote pursuant to Section 6.9 of a Majority Interest to dissolve the Partnership; or (E) The occurrence of any event which makes it unlawful for the business of the Partnership to be continued. Admission of a General Partner shall not cause the dissolution of the Partnership. 16.2 AUTHORITY TO WIND UP. If dissolution occurs for any reason other than the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, the Managing General Partner shall have the authority to wind up the business and affairs of the Partnership. If dissolution occurs by reason of the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, and if the business of the Partnership is not continued pursuant to Articles 15 or 16, the remaining General Partner(s) shall have the authority to wind up the business and affairs of the Partnership or, if no General Partner remains or survives, any Person designated by a decree of court or designated by vote of a Majority Interest shall wind up the affairs of the Partnership. 16.3 ACCOUNTING. Upon dissolution (if the business of the Partnership is not continued), and again upon the termination of the Partnership after the winding up of the affairs of the Partnership is complete, an accounting of the Partnership shall be made and its financial statements shall be examined by the independent public accountants of the Partnership, and a report thereon shall be furnished to the General Partner(s) or legal representatives thereof and to all Limited Partners and Assignees. 16.4 WINDING UP AND LIQUIDATION. Upon dissolution of the Partnership, if the Partnership or the business of the Partnership is not otherwise continued hereunder, it shall be wound up and liquidated. The Book Value of any assets not sold shall be 44 adjusted to their fair market value and any Net Income or Net Loss shall be allocated to the Capital Accounts as if the Partnership recognized Net Income or Net Loss equal to such adjustment. After such allocations, the assets of the Partnerships shall be paid or distributed in the following order of priority: (A) To creditors, in the order of priority as provided by law, except to secured creditors the obligations to whom will be assumed or otherwise transferred on liquidation of the Partnership assets; (B) Those amounts deemed necessary by the Persons winding up the affairs of the Partnership for any contingent liabilities or obligations of the Partnership shall be set aside as a reserve for contingent liabilities to be distributed at such time and in such manner hereunder as the Persons winding up the affairs of the Partnership shall determine in their sole discretion; (C) To the General Partner(s) with respect to payments due to them pursuant to Section 3.6 and Article 4; (D) To each General Partner, Limited Partner and Assignee the amount of their respective Capital Accounts. 16.5 CLAIM OF LIMITED PARTNERS AND ASSIGNEES. No Limited Partner or Assignee shall have the right or power to demand or receive property other than cash, whether as a Return of Capital, a distribution, a payment on liquidation or otherwise. The Limited Partners and Assignees shall look solely to the assets of the Partnership for the payment of income allocated to the Limited Partners or Assignees and the return of the Capital Contributions of the Limited Partners, and if the assets of the Partnership remaining after payment or discharge of the debts and liabilities of the Partnership are insufficient to pay all or part of such income or Capital Contributions, no Limited Partner or Assignee shall have any recourse against any General Partner, the Partnership or any other Limited Partner or Assignee. 16.6 NO RESTORATION OF NEGATIVE CAPITAL ACCOUNTS. Neither the Partnership nor any General or Limited Partner shall have the right to require any Partner to restore a deficit balance in such Partner's Capital Account. ARTICLE 17 POWER OF ATTORNEY 17.1 POWER OF ATTORNEY. The Original Limited Partner and any General Partner which is not the Managing General Partner by executing or becoming bound by this Agreement, each person who shall become a Substituted Limited Partner pursuant to the provisions of Section 8.3 (c) and each Person who executes a 45 Request and Power shall, by such signature or execution and/or the operation of such provisions, irrevocably constitute and appoint the Managing General Partner of the Partnership, and its successors as Managing General Partner, the true and lawful attorneys and agents for such Person and in such Person's name, place, and stead for such Person's use and benefit to sign, certify and acknowledge, swear to, and, to the extent necessary, to file and record: (1) this Agreement, the Certificate of Limited Partnership and all amendments thereto; (2) any other instrument which may be required to be filed by the Partnership under the laws of any state or by any governmental agency which the Managing General Partner deems advisable to file, including, but not limited to, certificates of fictitious name statements, certificates or applications with respect to leases from the federal government or a state government, and amendments to or cancellation of this Agreement or the Certificate of Limited Partnership; (3) all certificates and other instruments (including, at the option of the Managing General Partner, this Agreement) and all amendments thereof which the Managing General Partner deems appropriate or necessary to qualify, or continue the qualification of, the Partnership as a limited partnership (or a partnership in which the Limited Partner has limited liability) in all jurisdictions in which the Partnership may conduct business or own any property; and (4) instruments relating to the admission of Additional or Substituted Limited Partners. Each such Person by such signature and/or the operation of such provisions shall also authorize the Managing General Partner to take any further action which it shall consider necessary or appropriate in connection with any of the foregoing, thereby giving the Managing General Partner full power and authority to do and perform each and every act and thing whatsoever requisite, necessary or appropriate to be done in connection with the foregoing as fully as such Person might or could do if personally present, and thereby ratifying and confirming all that said Managing General Partner shall lawfully do or cause to be done by virtue thereof. The foregoing grant of authority (A) shall be a Power of Attorney coupled with an interest, is irrevocable, and shall survive the signing Person's death or incapacity, if such signing Person is an individual, or termination of existence, if such signing Person is a corporation, partnership or other entity; and (B) shall survive the delivery of an assignment by the signing Person of the whole or a portion of his interest in the Partnership. Such power of attorney shall not supersede any other part of this Agreement nor shall it be used to deprive such Person of any of such Person's rights under this Agreement or to deprive the Limited Partner of his rights as the Limited Partner. It is intended only to provide a simplified system for execution of documents and the conduct of the business of the Partnership. 17.2 ADDITIONAL DOCUMENTS. Each Person who has given the Managing General Partner a power of attorney pursuant to this Article 17 hereby agrees to execute and deliver to the Managing General Partner within five (5) days after receipt of the Managing 46 General Partner's written request therefor, such other and further statements of interest and holdings, designations, powers of attorney and other instruments that the Managing General Partner deems necessary to comply with any laws, rules or regulations relating to the business or proposed business of the Partnership. ARTICLE 18 MISCELLANEOUS 18.1 NOTICES. All notices or other communications required or permitted to be given pursuant to this Agreement shall, in the case of notices or communications required or permitted to be given to the Limited Partner or his Assignee, be in writing, and shall be considered as properly given or made if personally delivered or if mailed by United States first class mail, postage prepaid, or if sent by prepaid telegram, and addressed to the Limited Partner's or Assignee's address for notices as it appears on the records of the Partnership, and, in the case of notices or communications required or permitted to be given to the General Partners or the Partnership, shall be in writing and shall be considered as properly given or made if personally delivered, or if sent by prepaid telegram, or if mailed by United States certified or registered mail, postage prepaid, and addressed to the Managing General Partner at the principal place of business of the Partnership as specified in Section 2.4. Any Limited Partner or Assignee may change the address for notices, by giving notice of such change to the Partnership, and the Managing General Partner may change the address for notices to the General Partners or the Partnership by giving notice of such change to the Limited Partner and his Assignee. Commencing on the tenth (10th) day after giving of such notice, such newly-designated address shall be such Partner's or Assignee's or the Partnership's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Any notice or other communication shall be deemed to have been given as of the date on which it is personally delivered or, if mailed or telegraphed to a General Partner which is not received by the General Partner within ten (10) days after the date of its mailing or transmission shall be deemed to have been given as of the date actually received by the General Partner. 18.2 CHOICE OF LAW. This Agreement and all rights and liabilities of the parties hereto with reference to the Partnership shall be subject to and governed by the internal laws (and not the law pertaining to choice or conflict of laws) of the State of California. 18.3 ARTICLE AND SECTION HEADINGS. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 47 18.4 SOLE AGREEMENT. This Agreement and the exhibits hereto constitute the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings pertaining thereto. 18.5 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts with the same effect as if all parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement. Each party shall become bound by the Agreement immediately upon affixing his or her signature hereto, independently of the signature of any other party. 18.6 REMEDIES CUMULATIVE. The remedies of the parties under this Agreement are cumulative and shall not exclude any other remedies to which any Person may be lawfully entitled. 18.7 WAIVER. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition. 18.8 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto irrevocably waives during the term of the Partnership any right that he may have to maintain any action for partition with respect to the Partnership Property. 18.9 ASSIGNABILITY. Subject to the restrictions on transferability contained herein, each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 18.10 GENDER AND NUMBER. Whenever the context requires, the gender of all words used hereby shall include the masculine, feminine and neuter, the singular of all words shall include the singular and plural, and the plural of all words shall include the singular and plural. Unless the context requires otherwise, any reference to a General Partner shall include all General Partners and any reference to the General Partners shall mean any General Partner. 18.11 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby, but rather shall be enforced to the maximum extent permissible under applicable law. IN WITNESS WHEREOF, the undersigned have executed this 48 Agreement as of the day and year first above written. GENERAL PARTNERS: GLENBOROUGH REALTY CORPORATION By /s/ Robert Batinovich ---------------------------- Title ------------------------- /s/ Robert Batinovich ----------------------------- Robert Batinovich INITIAL LIMITED PARTNER: /s/ Robert Batinovich ----------------------------- Robert Batinovich 49 EX-10.41 3 LIMITED PARTNERSHIP AGREEMENT GPA WEST, L.P. TABLE OF CONTENTS
Page ---- Article 1 Definitions............................................................................1 1.1 Definitions...................................................................1 1.2 Accounting Terms and Determinations...........................................7 Article 2 The Limited Partnership................................................................8 2.1 Formation of the Partnership..................................................8 2.2 Partnership Name..............................................................8 2.3 Business and Purpose..........................................................8 2.4 Principal Office..............................................................8 2.5 Term..........................................................................9 2.6 Execution of Documents........................................................9 Article 3 The General Partners...................................................................9 3.1 General.......................................................................9 3.2 Management Power..............................................................9 3.3 Powers of the Managing General Partner.......................................10 3.4 Liability of General Partners................................................16 3.5 Similar Activities of General Partners.......................................16 3.6 Indemnification of General Partners..........................................17 3.7 Other Matters Concerning General Partners.....................................................................19 3.8 Agreements With a General Partner or a Related Person...............................................................20 3.9 Conveyances..................................................................20 Article 4 Compensation of General Partners......................................................20 4.1 Compensation of Managing General Partner..............................................................20 4.2 Property Management Fee......................................................21 4.3 Incentive Fee................................................................21 4.4 Transaction Fee..............................................................23 4.5 Refinancing Fee..............................................................24 4.6 No Repayment.................................................................24 4.7 Accrual Upon Change in Managing General Partner..............................................................25 4.8 Joint Ventures...............................................................25 4.9 Change in Compensation.......................................................25 4.10 Fringe Benefits..............................................................25 4.11 Expenses of General Partner..................................................25 4.12 Commissions on Certain Sales.................................................26 Article 5 The Limited Partners, Assignees and Transferrees..........................................................................26 5.1 Limited Liability............................................................26 5.2 Restrictions on Limited Partners and Assignees................................................................27 5.3 Outside Activities...........................................................27 5.4 No Withdrawal or Dissolution.................................................27 5.5 Assignees....................................................................28 5.6 Transferees..................................................................28 Article 6 Approval by Limited Partner; Amendments...............................................28 6.1 Approval by Limited Partner..................................................28 6.2 Rights Conditional ..........................................................29 6.3 Amendments by the Managing General Partner..............................................................30 6.4 Prohibited Amendments........................................................30 Article 7 Capital Contributions and Initial Issuance of Interests.................................................................30 7.1 Cash Capital Contributions...................................................30 7.2 Contribution by Partners.....................................................31 7.3 Distribution of Interests....................................................31 7.4 General Partner Interests....................................................32 7.5 Distribution of Capital......................................................32 7.6 No Interest on Capital Contribution..........................................32 7.7 Creditor's Interest in the Partnership.......................................32 7.8 Nature of Interests..........................................................32 7.9 One Percent Interest of General Partners and Additional Capital Contributions................................................................32 Article 8 Allocation of Net Income, Net Loss and Tax Credits...........................................................................33 8.1 General Allocation...........................................................33 8.2 Allocation on Transfer.......................................................33 Article 9 Cash Distributions....................................................................34 9.1 Time and Amount of Cash Distributions........................................34 9.2 Distributions of Partnership Property........................................34 Article 10 Accounting and Reports................................................................35 10.1 Fiscal Year..................................................................35 10.2 Reports......................................................................35 10.3 Tax Elections................................................................36 10.4 Books and Records............................................................36 10.5 Bank Accounts................................................................37 Article 11 Transfer of Interests.................................................................37 11.1 Transfer of Interests........................................................37 Article 12 Admission of Substituted and Additional Limited Partners......................................................................37 12.1 Admission of Substituted Limited Partners.....................................................................37 12.2 Admission of Additional Limited Partners.....................................................................38 Article 13 Removal, Resignation or Withdrawal of Limited Partners......................................................................38 13.1 Removal of General Partner...................................................38 13.2 Withdrawal...................................................................38 13.3 Dissolution or Bankruptcy of General Partner..............................................................39 13.4 Liability and Rights.........................................................39 13.5 Successor and Predecessor General Partners.............................................................40 Article 14 Dissolution, Winding Up and Liquidation...............................................41 14.1 Dissolution..................................................................41 14.2 Authority to Wind Up.........................................................42 14.3 Accounting...................................................................42 14.4 Winding Up and Liquidation...................................................42 14.5 Claim of Limited Partners and Assignees......................................43 14.6 No Restoration of Negative Capital Accounts.....................................................................43 Article 15 Miscellaneous.........................................................................43 15.1 Notices......................................................................43 15.2 Choice of Law................................................................44 15.3 Article and Section Headings.................................................44 15.4 Sole Agreement...............................................................44 15.5 Execution in Counterparts....................................................44 15.6 Remedies Cumulative..........................................................44 15.7 Waiver.......................................................................44 15.8 Waiver of Action for Partition...............................................44 15.9 Assignability................................................................44 15.10 Gender and Number............................................................45 15.11 Severability.................................................................45 15.12 Additional Documents.........................................................45 Signatures..................................................................................................45 & 46
LIMITED PARTNERSHIP AGREEMENT OF GPA WEST, L.P. This Limited Partnership Agreement (the "Agreement"), dated as of ____________, 1994, is made and entered into by GLENBOROUGH REALTY CORPORATION, a California corporation and ROBERT BATINOVICH, an individual, as General Partners, and GOCO REALTY FUND I, a California limited partnership, as the Limited Partner, and all other parties who shall become partners of this limited partnership as hereinafter provided. In consideration of the mutual covenants and promises herein, the parties hereby form a limited partnership under the California Revised Limited Partnership Act upon the following terms and conditions: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. When used in this Agreement, the following terms shall have the meanings set forth below, except as otherwise specifically modified: "ACT" means the California Revised Limited Partnership Act, as amended from time to time. "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as an additional Limited Partner pursuant to Article 12 hereof. "AFFILIATE" means any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question. "ALLOCABLE SHARE" of a General Partner is his or its percentage interest as set forth in Section 8.2(B) comprising an aggregate of one percent (1%) and of the Limited Partners or Assignees, at any particular time, an aggregate of 99%. The "Allocable Share" of a Limited Partner or Assignee, at any particular time, means the percentage which the number of Interests held by such Limited Partner or assigned to such Assignee is of the total number of Interests outstanding multiplied by 99%. If at any time, the aggregate of all General Partner Interests represents more than 1% of all Interests, the Allocable Share of all General Partners shall be the percentage interest represented by the ratio between all such Interests which are represented by General Partner Interests and all Interests, and the Allocable Share of all Limited Partners and Assignees shall be the percentage interest represented by the ratio between all Interests held by Limited Partners and Assignees and all Interests. "ASSIGNEE" means a Person to whom one or more Interests have been assigned by a Partner but who has not become a Substituted Limited Partner. "ASSOCIATE means any shareholder, director, officer, employee or agent of any General Partner and any employee or agent of the Partnership. "BOOK DEPRECIATION" means the depreciation, cost recovery or amortization of nondepletable assets that would be allowable to the Partnership for federal income tax purposes if its tax basis in such assets were equal to the Book Value of such assets. "BOOK GAIN" OR "BOOK LOSS" means the gain or loss that would be recognized by the Partnership for federal income tax purposes as a result of sales or exchanges of its assets if its tax basis in such assets were equal to the Book Value of such assets. "BOOK VALUE" means (a) as to property contributed to the Partnership, its agreed value; (b) as to property acquired in any other manner, its value as reflected on the books of the Partnership as of the date it is acquired by the Partnership; and (c) as to property owned by the Partnership at the time of any repurchase or issuance of Interests for money or other property, its fair market value at that time, all adjusted for Book Depreciation. "CAPITAL ACCOUNT" means the account (maintained on a per- Interest basis in the case of Interestholders) which shall be credited with the Interestholder's or General Partner's distributive share of (a) cash contributed to the Partnership; (b) the Book Value of contributed property; (c) Net Income; (d) the amount of Partnership liabilities assumed by such Interestholder or General Partner or that are secured by any Partnership Property distributed to such Interestholder or General Partner, and (e) increases in the basis of Partnership Property attributable to investment credit recapture; and which shall be debited with the Interestholder's or General Partner's distributive share of (v) cash distributions (w) the Book Value of distributed property; (x) Net Loss; (y) the amount of liabilities of a Interestholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Interestholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Interestholder or General Partner to the Partnership; and (z) decreases in 2 the basis of the Partnership Property for any credits allowed under the Code. A Limited Partner's Capital Account shall be the aggregate Capital Account attributable to the Interests held by such Limited Partner. In the case of transfer by an existing Partner of a Partnership interest, the transferee will succeed to the Capital Account relating to the Partnership interest transferred. Upon the repurchase of Interests or upon the issuance of additional Interests for money or other property (other than a de minimis amount) the Capital Accounts of each Interestholder outstanding prior to the repurchase or issuance and the Capital Accounts of the General Partners shall be adjusted to reflect a revaluation of the Partnership Property on the Partnership books to its fair market value and the Capital Accounts of all Partners shall be adjusted simultaneously to reflect such adjustment as if the Partnership recognized Net Income or Net Loss equal to the amount of such adjustment. It is intended by this provision to comply with Treasury Regulations Section 1.704-1(b) and Code Section 704(c). "CAPITAL CONTRIBUTION" means the individual total amount contributed by each Partner to the capital of the Partnership as provided in Article 7 hereof. "CASH AVAILABLE FOR DISTRIBUTION" means cash held by the Partnership in excess of (a) cash required for all expenses, liabilities and obligations of the Partnership (whether for expense items, capital expenditures, improvements, retirement of indebtedness or otherwise); and (b) reserves as established in the sole discretion of the Managing General Partner for Partnership capital expenditures, improvements, retirement of indebtedness, operations, or contingencies, known or unknown, liquidated or unliquidated, including, but not limited to, liabilities which may be incurred in litigation and liabilities undertaken pursuant to the indemnification provisions of this Agreement. "CERTIFICATE OF LIMITED PARTNERSHIP" means the certificate of limited partnership filed pursuant to the Act or any successor statute, as the same may be amended from time to time. "CLOSING DATE" means that date selected by the General Partners for the contribution of the Exchange Assets to the Partnership. "CODE" means the Internal Revenue Code of 1986 or any successor statute, as amended from time to time. "EXCHANGE AGREEMENT" means the agreement between the Limited Partner and the Partnership whereby the Exchange Assets are transferred to the Partnership in exchange for 990 Interests. 3 "EXCHANGE ASSETS" means the specific Projects contributed to the Partnership pursuant to the Exchange Agreement. "EXCHANGE TRANSACTION" means the transaction whereby the Partnership will exchange Interests for Exchange Assets. "EXCHANGE VALUE" means the value assigned to the Exchange Assets for purposes of the Exchange Transaction. "GENERAL PARTNERS" means the Persons named hereinabove as general partners in their capacity as general partners of the Partnership, and any successor or additional general partners. "General Partner" means one of the General Partners. "GENERAL PARTNER INTERESTS" means Interests designated as such pursuant to Sections 7.4 or 7.9. "GOCO" means GOCO Realty Fund I, a California limited partnership. "INTEREST" means a unit of interest in the Partnership acquired or issued pursuant to Article 7. "INTERESTS" means all of such units of interest. "INTERESTHOLDER" means any Person who, for tax purposes, is to be treated as a Limited Partner whether such Person is a Limited Partner or an Assignee. "LIMITED PARTNER" means GOCO, and any successor limited partner who has become a Substituted Limited Partner and any Additional Limited Partner. "LIMITED PARTNERS" means all limited partners if, at any time, there is more than one limited partner. "LIMITED PARTNER INTERESTS" means Interests held or owned by any Person or Persons as Limited Partner(s). "MAJORITY INTEREST" means the Limited Partners of record holding more than fifty percent (50%) of the Interests held by all Limited Partners of record. "MANAGING GENERAL PARTNER" means the Person so designated pursuant to Section 3.2. "NET INCOME" OR "NET LOSS" means the Partnership's taxable income or loss (as an entity) under Code Section 703 computed with the following adjustments: 4 (a) Tax-exempt income described in Code Section 705(a)(1)(B) shall be included and any expenditures not deductible in computing taxable income shall be deductible. (b) The only deduction for depreciation, cost recovery or amortization shall be Book Depreciation. (c) Book Gain or Book Loss shall be used instead of taxable gain or loss. "NET OPERATING CASH FLOW" means net income or loss as determined under generally accepted accounting principles with the following adjustments: (a) There shall be added depreciation expense and amortization expense related to capitalized loan fees, leasing commissions and debt discount; (b) There shall be deducted any gain from the sale or other disposition of non-inventory real estate which was acquired as a part of the Exchange Transaction and there shall be added any loss from the sale or other disposition of any non-inventory real estate that was acquired in the Exchange Transaction; (c) There shall be deducted any income or gain from investments in joint ventures or partnerships which are accounted for on the equity method and there shall be added any losses from such partnerships or joint ventures; (d) There shall be added any cash received from distributions from a partnership or joint venture to the extent that the aggregate distributions for such partnership or joint venture exceeds the cost of the investment in such partnership or joint venture; (e) There shall be added cash received from the sale of an interest in a partnership or joint venture to the extent that such cash when added to any cash distributions received from such partnership or joint venture exceeds the cost of the investment in such partnership or joint venture; (f) Adjustment shall be made to account for any gain arising from the sale of non-inventory real property which was not acquired as a part of the Exchange Transaction utilizing the installment method. "PARTNER" means a General Partner or a Limited Partner; and "Partners" means the General Partners and all Limited Partners. 5 "PARTNERSHIP" means the limited partnership created by this Agreement and any successor partnership thereto continuing the business of the Partnership which is a reformation or reconstitution of the partnership governed by this Agreement. "PARTNERSHIP CAPITAL" means the total of all the Partners' Capital Accounts at any given time. "PARTNERSHIP PROPERTY" means the Exchange Assets and any and all other property, real or personal, now or hereafter owned by the Partnership or an Operating Limited Partnership or in or to which the Partnership or an Operating Limited Partnership has any interest, right or claim and shall include any interest in any Operating Limited Partnership received by the Partnership in exchange for Partnership Property. "PERSON" means an individual, partnership (general or limited and whether domestic or foreign), joint venture, estate, association, corporation, trust company, trust or other entity. "PRIMARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership in which the Partnership holds a direct interest as the sole limited partner. "PROJECTS" means the real estate projects owned by the Partnership and all Operating Limited Partnerships. "RECORD DATE" means the date established by the Partnership for determining (a) the identity of Partners entitled to notice of or to vote at any meeting of Partners or entitled to vote by ballot or give consent to Partnership action in writing without a meeting, or entitled to exercise rights in respect of any other lawful action of Partners, or (b) the identity of Partners and Assignees entitled to receive any report or distribution. "RELATED PERSON" means Glenborough Corporation, the Limited Partner, a General Partner; or any partner, officer, director of Affiliate of any of the foregoing. "REQUEST AND POWER" means a request for admission as a Substituted or Additional Limited Partner, an agreement to be bound by the terms of this Agreement, a power of attorney and the provision of such other information as the Partnership shall request in such forms as are approved by the Partnership. "RETURN OF CAPITAL" means any distribution to the Partners to the extent that such distribution reduces the Partnership Capital. A distribution reduces the Partnership 6 Capital to the extent that it exceeds the following amount: the sum of the Net Income of the Partnership since its formation, reduced by (but not below zero) the sum of the Net Losses of the Partnership since its formation and the sum of all prior distributions. "SECONDARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership that is not a Primary Operating Limited Partnership. "SUBSTITUTED LIMITED PARTNER" means a Person admitted to the Partnership as a limited partner pursuant to Article 12 hereof. "TAX CREDITS" means all credits against income, franchise or similar taxes, including, without limitation, investment tax credits and credits allowable to Partners or Assignees under federal, state or other taxing statutes. "UNITS" means Units of interest in Glenborough Partners, a California limited partnership, as defined in the Limited Partnership Agreement of Glenborough Partners, a California limited partnership, dated as of December 30, 1993, for so long a period of time as Glenborough Partners, a California limited partnership, is the holder of a majority of the limited partnership interests in the Limited Partner. Except as otherwise defined herein, the capitalized terms used herein shall have the meaning given thereto in such Limited Partnership Agreement. 1.2 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein shall be interpreted, and all accounting and tax determinations hereunder shall be made, in accordance with the following: (a) For financial reporting purposes, the Partnership shall adhere to generally-accepted accounting principles; (b) For purposes of determining Partner Capital Accounts, the Partnership shall adhere to the provisions of Treasury Regulations Section 1.704-1(b); (c) For purposes of determining Partner and Assignee distributable shares of taxable income and loss, the Partnership shall adhere to the provisions of Code Sections 704(b) and (c) and the regulations promulgated thereunder. 7 ARTICLE 2 THE LIMITED PARTNERSHIP 2.1 FORMATION OF THE PARTNERSHIP. The General Partners and the Limited Partner hereby agree to form, and by execution of this Agreement do hereby enter into, a limited partnership under the Act, which Act shall, except as set forth in this Agreement, govern the rights and liabilities of the parties hereto. 2.2 PARTNERSHIP NAME. The name of the Partnership is "GPA West, L.P." The Partnership shall conduct business under such name or such other name or names as the Managing General Partner may from time to time deem necessary, appropriate or advisable. The Managing General Partner in its sole discretion may change the name of the Partnership at any time and from time to time. The General Partners and, if necessary, the Limited Partner, shall promptly execute and the Managing General Partner shall file and record with proper offices in each jurisdiction in which the Partnership does or elects to do business, and publish such certificates or other statements or instruments as are required by the Act, fictitious or assumed name acts, or any other similar statute in effect in such jurisdiction, in order to conduct validly the Partnership business therein as a limited partnership. 2.3 BUSINESS AND PURPOSE. The business and purpose of the Partnership shall be to engage in the Exchange Transaction and any lawful act or activity in which a partnership may engage, including, without limitation, to engage generally in any and all phases of the business of owning, holding, managing, developing, controlling, acquiring, purchasing, disposing of or otherwise dealing in or with any interests or rights in any real or personal property, directly or through one or more Operating Limited Partnerships or other entities or arrangements. Without limiting the generality of the foregoing, the Partnership may perform such other acts incidental and supplementary to the foregoing as the Managing General Partner determines to be necessary, appropriate or advisable. 2.4 PRINCIPAL OFFICE. The office of the Partnership within California for purposes of Section 15614(a) of the Act shall be at 400 South El Camino Real, Eleventh Floor, San Mateo, California 94402. The Managing General Partner may change such office and establish other places of business for the Partnership (within or without the State of California) as it may, from time to time, deem necessary or appropriate; provided, however, that the Managing General Partner shall give the Partners and Assignees notice in writing of any change of address of the office of the Partnership and, in connection therewith, shall amend the Certificate of Limited Partnership in accordance with the Act. The Managing General Partner may select one or more Persons in California to act as agent for service of process on behalf of the Partnership, 8 including, without limitation, a General Partner or a Related Person. 2.5 TERM. The Partnership shall commence on the date the Certificate of Limited Partnership is filed in the office of the Secretary of State of California in accordance with the provisions of the Act and shall continue until January 31, 2037, unless extended by amendment of this Agreement or unless the Partnership is dissolved prior to that date pursuant to Article 14. 2.6 EXECUTION OF DOCUMENTS. The Managing General Partner (or, if required, all the General Partners) shall execute, acknowledge, file, record or deliver all Certificates of Limited Partnership, amended certificates, instruments or other documents and counterparts thereof and make all filings and recordings and perform all other acts as shall be necessary to comply with the laws of the State of California for the formation of the Partnership, thereafter for the continued good standing of the Partnership, and, when appropriate, for the termination of the Partnership. The Managing General Partner (or, if required, all the General Partners) shall also execute such certificates, amended certificates and other documents conforming hereto and perform such recording, publishing and other acts as may be appropriate to comply with the requirements of law for the formation, reformation, qualification and/or operation of a limited partnership in all jurisdictions where the Partnership may wish to do business, if deemed necessary by the Managing General Partner. Such certificates, instruments, documents and counterparts may be signed by the Managing General Partner on behalf of any or all of the Limited Partners acting pursuant to the powers of attorney from the Limited Partners. ARTICLE 3 THE GENERAL PARTNERS 3.1 GENERAL. The General Partners shall devote such time and attention to the business of the Partnership as may be reasonably necessary to carry out their duties hereunder in the conduct of such business, but any General Partner and its partners, shareholders, officers, directors, employees and agents shall have the right to be otherwise employed by an entity or entities other than the Partnership, including, without limitation, Affiliates of the Partnership, on a part-time or full-time basis. Nothing contained herein shall prevent a General Partner or any partner, shareholder, officer, director, employee or agent of a General Partner from becoming an Assignee or a Substituted or Additional Limited Partner, whereupon such Person shall be entitled to all rights, shall be subject to all obligations and shall be deemed, as to such Units, an Assignee or a Limited Partner, as applicable. 3.2 MANAGEMENT POWER. The Managing General Partner shall 9 have full, exclusive and complete discretion in the management and control of the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business of the Partnership, shall act as tax matters partner for the Partnership, and may take such actions as it deems necessary or appropriate to accomplish the purposes of the Partnership as set forth herein. The Managing General Partner shall be Glenborough Realty Corporation and any successor to the Managing General Partner which becomes the Managing General Partner of the Partnership pursuant to Article 13. If there is no successor which becomes a Managing General Partner pursuant to Article 13, then Robert Batinovich shall become Managing General Partner until a meeting of the Partners can be convened to elect a Person to serve as a General Partner and as Managing General Partner hereunder. Except as may otherwise be set forth in this Agreement, no General Partner, other than the Managing General Partner, shall have any authority, right or power to bind the Partnership or to manage or control the business of the Partnership in any manner whatsoever. 3.3 POWERS OF THE MANAGING GENERAL PARTNER. Subject to the provisions of Article 6 vesting certain approval rights in the Limited Partners, in connection with such management and control, the Managing General Partner shall have the power and authority to do or cause to be done any and all acts, at the expense of the Partnership, deemed by the Managing General Partner to be necessary or appropriate to carry out the purposes of the Partnership. The power and authority of the Managing General Partner shall be liberally construed to encompass all acts and activities in which a partnership may engage. The power and authority of the Managing General Partner shall include, without limitation, the power and authority: (A) To engage in the Exchange Transaction and to acquire, own, lease, sublease, manage, hold, deal in, control or dispose of any interests or rights in real or personal property, including, without limitation, the powers to sell, exchange, mortgage, pledge, convey in trust, enter into joint ventures or partnerships respecting or otherwise hypothecate all or any portion of the Partnership Property; (B) To create, by grant or otherwise, easements and servitudes; (C) To alter, improve, repair, raze, replace and rebuild Partnership Property; (D) To let or lease Partnership Property for any period, and for any purpose; (E) To apply proceeds of any sale, exchange, mortgage, pledge or other disposition of Partnership Property to payment of liabilities of the Partnership and to pay, collect, 10 compromise, arbitrate or otherwise adjust any and all other claims or demands of or against the Partnership, or to hold such proceeds against the payment of contingent liabilities, known or unknown; (F) To maintain or cause to be maintained records of all rights and interests acquired for or disposed of by the Partnership, all correspondence relating to the Partnership business and the original records (or copies on such media as the Managing General Partner deems appropriate) of all statements, bills and other instruments furnished the Partnership in connection with its business; (G) To maintain records and accounts of all operations and expenditures, make all filings and reports required under applicable rules and regulations of any governmental department, bureau or agency, any securities exchange and any automated quotation system of a registered securities association, and furnish the Partners and Assignees with all necessary United States federal, state or local income tax reporting information or such information with respect to any other jurisdiction; (H) To purchase and maintain, in its discretion and at the expense of the Partnership, liability, indemnity and any other insurance, including errors and omissions insurance, sufficient to protect the Partnership, the General Partners and any other Person from those liabilities and hazards which may be insured against in the conduct or management of the Partnership's business; (I) To make, execute, assign, acknowledge and file on behalf of the Partnership, any and all documents or instruments of any kind which the Managing General Partner may deem appropriate in carrying out the purposes and business of the Partnership, including, without limitation, powers of attorney, agreements of indemnification, sales contracts, deeds, options, loan obligations, mortgages, deeds of trust, notes, documents or instruments of any kind or character, and amendments thereto. Any person, firm or corporation dealing with the Managing General Partner shall not be required to determine or inquire into the authority and power of the Managing General Partner to bind the Partnership and to execute, acknowledge and deliver any and all documents in connection therewith; (J) To borrow money or to obtain credit in such amounts, on such terms and conditions, and at such rates as the Managing General Partner deems appropriate, from banks, other lending institutions and any other Person, including the Partners and Assignees, for any Partnership purpose, including, without limitation, any loan incurred 11 for the purpose of making one or more distributions to any or all Partners and Assignees, including any distributions which are, in whole or in part, a Return of Capital; and in connection with such loans to mortgage, pledge, assign or otherwise encumber or alienate any or all Partnership Property, including any income therefrom, to secure or provide repayment thereof. As between the Partnership and any lender, it shall be conclusively presumed that the proceeds of such loans are to be and will be used for the purposes authorized herein and that the Managing General Partner has the full power and authority to borrow such money and to obtain such credit; (K) To assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, lend money and otherwise use the Partnership's credit and secure any of the Partnership's obligations, contracts or liabilities by mortgage, pledge or other encumbrance of all or any part of its property, franchises and income; (L) To invest Partnership funds in debt or equity securities or other obligations of other issuers, including, but not limited to, securities or other obligations of other partnerships; provided, however, that the Managing General Partner shall not invest Partnership funds in such a manner that the Partnership will be considered to be holding itself out as being engaged primarily in the business of investing, reinvesting or trading in securities or will otherwise be deemed to be an investment company under the Investment Company Act of 1940, as amended; (M) To make any election on behalf of the Partnership as is or may be permitted under the Code or under the taxing statute or rule of any state, local, foreign or other jurisdiction, and to supervise the preparation and filing of all tax and information returns which the Partnership may be required to file; (N) To maintain the buildings, appurtenances and grounds of the Partnership Property in accordance with acceptable standards, including within such maintenance, without limitation thereof, interior and exterior cleaning, painting and decorating, plumbing, carpentry and such other normal maintenance and repair work as may be appropriate; (O) To collect all rents and other charges from lessees of Partnership Property and concessionaires, and otherwise due the Partnership, with respect to the Partnership Property. The Partnership authorizes the Managing General Partner to request, demand, collect, receive and receipt for all such rents and other charges and to institute legal proceedings in the name of the Partnership for the collection thereof and for 12 the dispossession of any Person from Partnership Property and such expense may include the costs of counsel for any such matter; (P) To cause to be disbursed (1) the aggregate amount required to be paid pursuant to any indebtedness of the Partnership, including therein amounts due under any mortgages or deeds of trust for interest, amortization of principal and for allocation to reserve or escrow funds; (2) the amount of rent payable by the terms of any lease under which the Partnership holds the Partnership Property, or any portion thereof, promptly when due; (3) the amount of all real estate taxes and other impositions levied by appropriate authorities; and (4) amounts otherwise due and payable as expenses of the Partnership authorized to be incurred under the terms of this Agreement; (Q) To employ and engage suitable agents, employees, advisers, consultants and counsel (including any custodian, investment adviser, accountant, attorney, corporate fiduciary, bank or other reputable financial institution, or any other agents, employees or Persons which may serve in such capacity for the Managing General Partner or any Related Person) to carry out any activities which the Managing General Partner is authorized or required to carry out or conduct under this Agreement, including, without limitation, a Person which may be engaged to undertake some or all of the general management, property management, financial accounting and record keeping, construction supervision and other duties of the Managing General Partner, to indemnify such Persons against liabilities incurred by them in acting in such capacities on behalf of the Partnership and to rely on the advice given by such Persons, it being agreed and understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (R) To enter into an agreement or agreements with real estate brokers or agents, investment banking firms, appraisers or others providing for the engagement of such Persons on an exclusive or nonexclusive basis to advise or represent the Partnership in the valuation, sale, lease or other dealings in the Partnership Property, it being understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (S) To hold Partnership Property in the name of one or more nominees, with or without disclosure of the fiduciary relationship; 13 (T) To keep proprietary or trade secret information confidential, and if deemed necessary by the Managing General Partner, to keep such information confidential from the Limited Partners for a reasonable period of time; (U) To pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or compromise upon such terms as it may determine and upon such evidence as it may deem sufficient, any obligation, suit, liability cause of action or claim, including taxes, either in favor of or against the Partnership; (V) To prosecute, protect and defend or cause to be protected and defended all patents, patent rights, trade names, trademarks, service marks and other marks, and all applications with respect thereto which may be held by the Partnership, and to take all reasonable and necessary actions to protect the secrecy of and the proprietary rights with respect to any secret know-how, secret processes or other proprietary information, and to prosecute and defend all rights of the Partnership in connection therewith; (W) To register, qualify or list, or cause to be registered, qualified, listed or reported, this Agreement or Units hereunder pursuant to the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any other securities laws of the United States, the securities laws of any state of the United States, the laws of any other jurisdiction, or with any securities exchange or pursuant to an automated quotation system of a registered securities association as the Managing General Partner deems appropriate; (X) To issue, purchase, repurchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, trade in, grant calls or options or warrants, grant appreciation rights, transfer or otherwise dispose of, pledge, use and otherwise deal in and with shares, bonds, debentures and other securities, whether issued by the Partnership or issued by any other Person, whether on an exchange, over the counter, in private transactions or in other transactions, and whether for the Partnership or for any plan maintained or sponsored by the Partnership, including securities of the Partnership of a different class or series than the Interests, whether debt or equity, redeemable or nonredeemable, convertible or nonconvertible, and including securities with different rights, preferences, privileges, allocations and tax consequences; (Y) To qualify to do business in any other state, territory, dependency or foreign country; (Z) To make donations, regardless of specific benefit to 14 the Partnership, for the public welfare, to community or hospital funds, or for charitable, educational, scientific, civic, political or similar purposes; (AA) To pay pensions, and to establish, participate in and maintain as plan sponsor or otherwise, pension, profit sharing, bonus, purchase, option, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions for any or all of the employees of the Partnership, and any partner, shareholder, director, officer, employee or agent of a General Partner or any Affiliate, including plans, trusts and provisions which may provide for the ownership, acquisition, holding, or disposition of Units or any other securities of the Partnership; and to indemnify and purchase and maintain insurance on behalf of, any fiduciary of such retirement, incentive and benefit plans, trusts or other provisions, including, without limitation, health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance and other plans, trusts or provisions; (BB) To put into effect and carry out any plan of reorganization or arrangement and the orders of the court or judge entered in a proceeding for reorganization or arrangement under any applicable statute of the United States or of any state, local or other jurisdiction, and to undertake any proceeding and perform any act provided in the plan or directed by such orders, without further action by any Partner or Assignee. Such power and authority may be exercised and such proceedings and acts may be undertaken, as may be directed by such orders, by the trustee or trustees of the Partnership appointed in the reorganization or arrangement proceeding (or a majority thereof), or if none is appointed and acting, by the Managing General Partner or a master or other representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the Partners and Assignees; (CC) To distribute money or Partnership Property to Partners and Assignees in accordance with this Agreement regardless of the source of such money or Partnership Property, including, without limitation, money borrowed by the Partnership or by the Managing General Partner on behalf of the Partnership; (DD) To possess and exercise any additional powers and rights of general partners in a limited partnership, including, without limitation, those granted under the Act and any other applicable laws, to the extent not inconsistent with this Agreement; (EE) To take any and all action, conduct all proceedings 15 and execute all rights and privileges, contracts and agreements of any kind whatsoever, although not specifically mentioned in this Agreement, that the Managing General Partner may deem necessary or appropriate to conduct the business of the Partnership or to carry out the purposes of the Partnership. The expression of any power or authority of the Managing General Partner in this Agreement shall not limit or exclude any other power or authority which is not specifically or expressly set forth in this Agreement; and 3.4 LIABILITY OF GENERAL PARTNERS. The General Partners shall be liable to the Partnership and the Limited Partners and Assignees for gross negligence or gross misconduct but neither the General Partners nor their Associates shall be liable to either the Partnership or the Limited Partner or to Persons who have acquired interests in the Interests, whether as Assignees or otherwise, for errors in judgment or for any acts or omissions that do not constitute willful misconduct. If this Section 3.4 shall, for any reason and to any extent, be invalid or unenforceable, it is intended that this Section 3.4 shall be construed to exculpate the General Partners and their Associates to the fullest extent permitted by law. 3.5 SIMILAR ACTIVITIES OF GENERAL PARTNERS. The General Partners and their respective Associates may, directly or indirectly (including, without limitation, through a Related Person or other entity in which the General Partner or any such Related Person holds an ownership interest), engage in any and all aspects of the business of owning, holding, developing, controlling, acquiring, purchasing, managing, disposing of and otherwise dealing with real, personal or mixed property; act as a partner (limited or general), shareholder, director, officer, employee or agent of any entity (including GOCO, Glenborough Partners and Glenborough Corporation) engaging in such business or activities; or engage in any other businesses and activities, whether the same be competitive with the Partnership, any Operating Limited Partnership (as defined in the Limited Partnership Agreement of Glenborough Partners), Glenborough Partners, the Limited Partner or otherwise, for their own account and for the account of others, without having or incurring any obligation to offer any interest in such properties, businesses or activities to the Partnership or any Partner or Assignee and nothing herein contained shall be deemed to prevent any General Partner or any such Related Person from conducting such other business and activities. Neither the Partnership, nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of a General Partner or any such Related Person. However, all records kept and maintained by the Managing General Partner for the Partnership pursuant to this Agreement shall be maintained separately from those for other operations of the General Partners, including other partnerships for which a General Partner is a general partner. 16 3.6 INDEMNIFICATION OF GENERAL PARTNERS. (A) The General Partners and each of their respective Associates (individually an "Indemnitee") shall, to the fullest extent permitted by law, be indemnified and held harmless by the Partnership from and against all losses, claims, damages, liabilities (joint and several), expenses (including, without limitation, attorneys' fees and expenses, and any expenses of establishing a right to indemnification under this Section 3.6), judgments, fines, settlements and other amounts (collectively "Liability") arising from or incurred in connection with any claim, demand, action, suit or proceeding (including, but not limited to, claims, demands, actions, suits and proceedings by, in the name of or on behalf of, the Partnership), whether civil, criminal, administrative or investigative and whether threatened, pending or completed (collectively "Proceeding") in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of: (i) its status at any time as a General Partner or Associate of a General Partner; (ii) its management of the Partnership; and/or (iii) any act performed or omitted to be performed by it at any time in connection with the business, property or affairs of the Partnership whether or not such Indemnitee continues to be a General Partner or an Associate of a General Partner at the time such Liability is paid or incurred, if: (a) such Liability was not the result of gross negligence or gross misconduct by the Indemnitee, and the Indemnitee determined, in good faith, that the course of conduct which caused the Liability was in the best interests of the Partnership; or (b) a court of competent jurisdiction determines upon application that, despite the fact that the requirements of clause (a) are not satisfied, in view of all the circumstances, the Indemnitee is fairly and reasonably entitled to indemnification for such Liabilities as such court may deem proper. (B) The termination of a Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not determine in good faith that the course of conduct which caused the Liability was in the best interests of the Partnership. (C) Any Liability for which the Partnership and the Indemnitee are jointly liable shall, if the Indemnitee is entitled to indemnification under this Section 3.6, be satisfied first from the assets of the Partnership. The indemnification provided by this Section 3.6 shall be recoverable out of the assets of the Partnership, including any insurance proceeds, and shall not be recoverable out of any other assets of the Limited Partners. (D) Expenses (including attorneys' fees and expenses) incurred in defending any Proceeding shall be paid by the Partnership in advance of the final disposition of such Proceeding 17 upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification as authorized by this Section 3.6. (E) The indemnification provided by this Section 3.6 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, vote of the Partners, as a matter of law or otherwise both as to action in the Indemnitee's capacity as a General Partner or Associate of a General Partner and to action in another capacity, shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee. (F) The Partnership shall, to the extent commercially reasonable, purchase and maintain insurance on behalf of the Indemnitees and such other Persons as the Managing General Partner shall determine against any Liability which may be asserted against or expense which may be incurred by such persons in connection with Partnership activities (including, without limitation, any Proceeding) whether or not the Partnership would have the power to indemnify such persons against such Liability under the provisions of this Agreement. (G) For purposes of this Section 3.6, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by an Indemnitee of its duties to the Partnership also imposes duties on, or otherwise involves services by, an Indemnitee to such plan or participants or beneficiaries of such plan. Excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed a Liability and action taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by an Indemnitee to be in the interests of the participants and beneficiaries of such plan shall be deemed to be for a purpose which is in the best interests of the Partnership. Any payments to an Indemnitee shall be solely from assets of the Partnership and shall not be paid from employee benefit plan assets. (H) An Indemnitee shall not be denied indemnification in whole or in part under this Section 3.6 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies. (I) Notwithstanding the foregoing, an Indemnitee shall not be entitled to indemnification hereunder for any Liability imposed in a Proceeding arising from or out of a violation of state or federal securities laws associated with the offer and sale of Units. Indemnification will be allowed for settlements and related expenses of Proceedings alleging securities law violations, and 18 for expenses incurred in successfully defending such Proceedings, providing that a court either (i) approves the settlement and finds that indemnification of the settlement and related costs should be made; or (ii) approves indemnification of litigation costs if a successful defense is made. (J) If any provision of this Section 3.6, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Section 3.6 and the application thereof shall not be affected thereby, it being the intent of this Section 3.6 to indemnify and hold harmless the Indemnitees to the fullest extent permitted by applicable law. 3.7 OTHER MATTERS CONCERNING GENERAL PARTNERS. (A) Each of the General Partners may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (B) Each of the General Partners may consult with and employ counsel, accountants, appraisers, management consultants, investment bankers and other consultants, advisers and Persons selected by it (who may serve as such for and be employed by the Partnership or any Related Person), and any opinion of such Person as to matters which the General Partner believes to be within that Person's professional or expert competence shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by the General Partner hereunder in good faith and in accordance with such opinion. (C) Each of the General Partners may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents, including, without limitation, any Related Person, and a General Partner shall not be responsible for any misconduct, negligence, or willful act on the part of any agent appointed with due care by any General Partner. (D) Any and all fees, commissions, compensation and other consideration received by a General Partner or a partner, shareholder, director, officer, agent or employee of a General Partner permitted hereunder shall be the exclusive property of the recipient, in which the Partnership shall have no right or claim, and the participation by any such Person in any agreement permitted hereunder shall not constitute a breach by such Person of any duty that it may owe the Partnership or the Limited Partners or Assignees under this Agreement or by operation of law. 19 3.8 AGREEMENTS WITH A GENERAL PARTNER OR A RELATED PERSON. (A) In addition to agreements, arrangements and transactions provided for in or contemplated by this Agreement, a General Partner and any Related Person may, directly or indirectly, deal with the Partnership, including, without limitation, making loans to (but not borrowing from) the Partnership, in connection with carrying out the business of the Partnership or otherwise, as an independent contractor or as an agent for others, and may receive from such others or the Partnership, profits, compensation, commissions or other amounts which the Managing General Partner in good faith believes to be reasonable without having to account to the Partnership therefor, if the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the partner of Glenborough Partners and such agreement or transaction is specifically authorized, approved or ratified by a majority of the Units held by the limited partners of Glenborough Partners. Compliance with the provisions of this Section 3.8 (A) shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any such agreement or transaction. (B) The satisfaction of the following condition shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any agreement or transaction between a General Partner or a Related Person and another Person based upon the assertion of a breach of duty owed to the Partnership by a General Partner or a Related Person in entering into such agreement or transaction: the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the partner of Glenborough Partners and such agreement or transaction is specifically authorized, approved or ratified by a majority of the Units held by the limited partners of Glenborough Partners. 3.9 CONVEYANCES. The Managing General Partner has the express authority to convey title to any Partnership Property by a conveyance executed by the Managing General Partner alone on behalf of the Partnership. ARTICLE 4 COMPENSATION OF GENERAL PARTNERS 4.1 COMPENSATION OF MANAGING GENERAL PARTNER. In consideration of the services rendered by the Managing General Partner in managing the business and affairs of the Partnership, the Partnership shall pay the Managing General Partner fees consisting of the amounts described in Sections 4.2 through 4.7, inclusive. The Managing General Partner may divide, allocate or pay the compensation it receives under this Agreement among its Associates and other Persons, or may assign to or subcontract with 20 other Persons (including Glenborough Corporation) any of its management duties hereunder together with some or all of such compensation, as it determines in its sole discretion. All compensation paid the Managing General Partner shall be paid in United States dollars. 4.2 PROPERTY MANAGEMENT FEE. The Managing General Partner shall be entitled to a fee (the "Property Management Fee") determined as follows: (A) With regard to any Partnership Property leased to multiple tenants, including apartments and condominiums (except as provided in subsection (C) hereof), a sum equal to five percent (5%) of the monthly Gross Receipts collected by the Partnership. For purposes of this Section 4.2, "Gross Receipts" shall mean all rentals and other charges due the Partnership from tenants of Partnership Property, including, without limitation, expense pass-through items such as real property taxes and insurance, and rentals or fees paid for parking. (B) With regard to any non-residential Partnership Property leased to a single tenant, a sum equal to three percent (3%) of the monthly Gross Receipts collected by the Partnership. (C) With regard to any Partnership Property consisting of single-family residences or scattered condominiums, a sum equal to ten percent (10%) of the monthly Gross Receipts collected by the Partnership. (D) The Property Management Fee shall be computed as of the end of each calendar month with respect to the gross receipts of such month and shall be paid to the Managing General Partner as soon as practicable thereafter. 4.3 INCENTIVE FEE. The Managing General Partner shall be entitled to a fee (the "Incentive Fee") determined as follows: (A) An amount equal to one-half of one percent (.5%) of the sum of the monthly weighted average of the fair market value ("Fair Market Value") of the real property (as real property is determined under California law) of the Partnership and the Book Value of all other Partnership Property as determined in accordance with this Section. (B) The Fair Market Value of the Partnership's real property shall be determined in accordance with the following and the provisions of Section 4.3 (D). (1) For the year 1994, with respect to that real property acquired in the Exchange Transaction, it shall be the value thereof established in the Exchange Agreement which, in turn, shall be the value thereof as 21 last determined by the Limited Partner pursuant to the provisions of Section 4.3 of the Amended and Restated Limited Partnership Agreement of the Limited Partner dated as of May 1, 1986, as amended ("Original Value"). (2) For the year 1995, with respect to that real property acquired in the Exchange Transaction, it shall be the Original Value thereof, as increased by the CPI Adjustment, as defined herein ("Adjusted Original Value"). (3) For 1996 and each even-numbered year thereafter, it shall be the appraised value of such real property, as of the end of each such year, as determined by independent appraisals ("Biennial Appraised Value"). (4) For 1997 and each odd-numbered year thereafter, it shall be the most recent Biennial Appraised Value as adjusted by the CPI Adjustment ("Adjusted Biennial Appraised Value"). (5) Where in any year, the Partnership should acquire additional real property, the aggregate prices paid therefor by the Partnership shall, subject to the provisions of subsection (E) hereof, be added to the Original Value, Adjusted Original Value, Biennial Appraised Value or Adjusted Biennial Appraised Value for such year, as appropriate, the sum of the two being hereafter referred to as the "Base Value". (C) The CPI Adjustment shall be the adjustment described in Section 4.3(D) and shall be determined by utilizing the Consumer Price Index for All Urban Consumers of All Items for the United States (base year 1982 - 1984 = 100), published by the United States Department of Labor, Bureau of Labor Statistics ("CPI Index"). For those years in which the CPI Adjustment is to be made, the beginning index ("Beginning Index") shall be the CPI Index for the month of December of the prior year and the extension index ("Extension Index") shall be the CPI Index for the month of December of that year. (D) If the Extension Index has increased over the Beginning Index, the Fair Market Value shall be determined by multiplying the Base Value of the real estate for such year by a fraction, the numerator of which is the Extension Index, and the denominator of which is the Beginning Index. In no case shall the Fair Market Value of real property for an odd-numbered year be less than the Base Value thereof for that year. If the CPI Index is changed so that the base year differs from that used for the Beginning Index, the CPI Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the CPI Index is discontinued or revised, 22 such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the CPI Index had not been discontinued or revised. (E) The Fair Market Value of the Partnership real property and the Book Value of all other Partnership Property shall be determined on a monthly weighted average basis to reflect the period of ownership of such Partnership Property for such year 22 The monthly weighted average for the first and last year of the Partnership shall be based on a denominator equal to the number of months of existence of the Partnership in such year. (F) The Incentive Fee shall be paid to the Managing General Partner on a monthly basis by taking one-twelfth (1/12th) of the Incentive Fee based on the most recent Fair Market Value determination hereunder; except that at the end of each year, the Incentive Fee for that year shall be recomputed as herein provided, and the Managing General Partner shall thereupon be entitled to the balance of the Incentive Fee. Any overpayment of the Incentive Fee shall be deducted from the next monthly payments of the Incentive Fee to fall due for the following year. (G) The Incentive Fee shall be paid to the Managing General Partner only to the extent that the combined Net Operating Cash Flow of the Partnership, the Limited Partner, and all other partnerships included within the definition of an Operating Limited Partnership as that term is defined in Section 1.1 of the Limited Partnership Agreement of Glenborough Partners during such year exceeds an amount equal to one dollar and fifty cents ($1.50) multiplied by the monthly weighted average number of the outstanding limited partnership Units. To the extent the Incentive Fee cannot be paid for any year it shall lapse. 4.4 TRANSACTION FEE. (A) The Managing General Partner shall be entitled to a fee upon the sale, exchange or purchase of any property of the Partnership equal to two percent (2%) of the sale proceeds or the purchase price (the "Transaction Fee"); provided, however, that no Transaction Fee shall be payable on such transactions with Affiliates or for sales in which the Managing General Partner participates in real estate commissions as set forth in Section 4.12 hereof. The sale proceeds or the purchase price of the property shall be the total of all consideration received or paid, as the case may be, including, but not limited to, all cash, the principal amount of any note or promise to pay, and the fair market value of any other property paid or transferred in connection with the sale or purchase. For purposes of this Section 4.4, an exchange shall be deemed one transaction. The principal amount of a note or promise to pay bearing no interest or interest at other than market rates shall be adjusted as provided in Section 4.4(B) 23 in computing the sale proceeds or the purchase price to reflect market interest rates. In addition, the entry into a lease of real property or improvements to real property (other than a lease of office space required for administration of the Partnership) by the Partnership, as lessee, shall be deemed a purchase and the present value of the lease payments over the term of the lease, excluding any option periods and any increases in payments which cannot be calculated at the time of the entry into the lease, discounted at the interest rate on five-year Treasury Notes, or comparable indices if five-year Treasury Notes are no longer customarily quoted ("Adjustment Index"), prevailing on the date of entry into the lease, shall be deemed the purchase price on which the Transaction Fee shall be computed. The exercise by the Partnership or any other Person of any option to purchase and the consummation of such purchase, whether or not related to any lease, shall be deemed a separate transaction for purposes of the application and computation of the Transaction Fee under this Section 4.4 (B) ADJUSTMENT METHOD. Except as may be otherwise specified, the principal amount of any note or promise to pay required to be adjusted under Section 4.4(A) shall be adjusted in accordance with the same principles used by the Partnership for financial reporting purposes and shall be based on the Adjustment Index, defined in Section 4.4(A) above. (C) PAYMENT. The Transaction Fee shall be paid as soon as practicable after consummation of the transaction with respect to which the fee is accrued. 4.5 REFINANCING FEE. The Managing General Partner shall be entitled to a fee ("Refinancing Fee") equal to one percent (1%) of the net loan refinancing proceeds received from third Persons on the refinancing of any Partnership Property, but only if the refinancing results in: (A) A new loan with a materially lower interest rate or better payment terms; or (B) Proceeds which are available for other Partnership purposes; or (C) Funds for the repayment of an existing loan that is due or will become due in the near future. The amount of net loan refinancing proceeds shall equal the principal amount of the loan less points, loan processing fees and other loan costs. The Refinancing Fee shall be paid to the Managing General Partner as soon as practicable after the loan refinancing proceeds have been made available to the Partnership. 4.6 NO REPAYMENT. The Managing General Partner shall not be required to return to the Partnership all or any part of any fee 24 properly computed and paid to it, notwithstanding any subsequent event. 4.7 ACCRUAL UPON CHANGE IN MANAGING GENERAL PARTNER. If the Managing General Partner ceases to serve in that capacity as of any day (the "Termination Date") for any reason, the Property Management Fee and the Incentive Fee shall be accrued on a prorata daily basis to and including the Termination Date. The Property Management Fee and the Incentive Fee payable to any new Managing General Partner shall accrue from and after the Termination Date. The Property Management Fee and the Incentive Fee shall be paid to the Managing General Partner at such time as it would otherwise be payable for the period in which the Termination Date occurs. 4.8 JOINT VENTURES. References herein to any property acquired, owned or disposed of by the Partnership shall include the Partnership's interest from time to time in any underlying property held by any joint venture, partnership or other entity or form of ownership in which the Partnership has an interest ("Partnership's Share in Underlying Property"). Without limiting the generality of the foregoing, the Property Management Fee, Incentive Fee, Transaction Fee, and any other fee which may become payable to the Managing General Partner shall apply to and be based upon not only any wholly-owned property, but also the Partnership's Share in Underlying Property. There shall, however, be no duplication of fees as a consequence of this provision. 4.9 CHANGE IN COMPENSATION. With the approval of holders of the Units held by limited partners of Glenborough Partners in accordance with Section 3.8, the Managing General Partner may propose and effect any additional or substitute compensation plans or arrangements for compensation to be paid to it as Managing General Partner; provided, however, that in voting on such matters (as well as the amendment of this Section), the General Partners and Glenborough Partners and their respective Affiliates shall vote their interests for, against, or abstain in the same proportion as all other limited partners of Glenborough Partners vote for, against, or abstain on such matters and provided further, that there shall be no retroactive changes in the compensation paid to the Managing General Partner. 4.10 FRINGE BENEFITS. At the expense of the Partnership, any officer or employee of the Managing General Partner who performs services for the Managing General Partner in connection with the conduct of Partnership business shall be entitled to participate in any health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance or any other plans, trusts or provisions, or any other employee benefit plans or arrangements established by the Partnership, as if such officer or employee were an officer or employee of the Partnership. 4.11 EXPENSES OF GENERAL PARTNER. The Partnership shall pay 25 all expenses, disbursements and advances reasonably incurred by the General Partners and their Affiliates in connection with the organization of the Partnership and the conduct of Partnership business, including, without limitation, office expenses, secretarial expenses, software acquisition, data processing services and expenses for entertainment, travel and similar items, including amounts paid to any Person employed or retained to perform services for the Partnership. The Partnership shall promptly reimburse the General Partners and their Affiliates for any such items paid by the General Partners or their Affiliates. The General Partners and their Affiliates shall also receive a reasonable reimbursement for their general and administrative costs allocable to the management and operation of the Partnership, as determined by the Managing General Partner in its discretion; provided, however, that such costs shall be reasonable in amount and necessary to the functions of the Partnership. Such costs shall include salaries and compensation of legal and leasing personnel, and costs incurred in connection with servicing Partnership notes receivable, but shall exclude salaries and compensation of the officers and directors of any General Partner. 4.12 COMMISSIONS ON CERTAIN SALES. The Managing General Partner or an Affiliate thereof, shall be entitled to receive a commission upon the sale of single-family residences (but not including condominiums or residential units sold in bulk), where substantial services have been rendered in connection with such sale. Such commission shall be an amount equal to a maximum of four percent (4%) of the sale proceeds where no third Person is employed in connection with the sale of the Partnership Property and a minimum of two percent (2%) of the sale proceeds where a third Person or Persons are employed in connection with the sale of Partnership Property; provided, however, that in no event shall the total commission paid to all Persons in connection with the sale of such Partnership Property be less than four percent (4%) or more than seven percent (7%) of the sale proceeds (as that term is defined in Section 4.4(A)). ARTICLE 5 THE LIMITED PARTNERS, ASSIGNEES AND TRANSFERREES 5.1 LIMITED LIABILITY. No Limited Partner or Assignee (unless such Limited Partner or Assignee is a General Partner or otherwise participates in the control of the business of the Partnership) shall be personally liable for any of the debts of the Partnership or for any Net Losses beyond the amount of the Capital Contribution made or agreed to be made to the Partnership by the Limited Partner or Assignee and any undistributed Net Income allocated to the Limited Partner or Assignee. However, to the extent required by law, each Limited Partner or Assignee receiving any actual or constructive distribution may be liable to return such distribution if and to the extent that, immediately after 26 giving effect to the distribution, all liabilities of the Partnership, other than liabilities to Partners or Assignees on account of their interest in the Partnership and liabilities as to which recourse of creditors is limited to specific property of the Partnership, exceed the fair value of the Partnership Property; provided, however, that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is so limited shall be included in the Partnership Property for purposes of this sentence only to the extent that the fair value of such Partnership Property exceeds such liability. Any Limited Partner returning all or any part of a distribution actually received by an Assignee or successor of the Limited Partner shall be subrogated to the Partnership's right to seek a return to the Partnership of the distribution from the Assignee or such successor. In no event shall any Limited Partner or Assignee be obligated under any circumstances to make any Capital Contribution to the Partnership for any purpose whatsoever, other than Capital Contributions described in Article 7. 5.2 RESTRICTIONS ON LIMITED PARTNERS AND ASSIGNEES. (A) No Limited Partner or Assignee shall participate as such in the management and control of the business of the Partnership, transact any business for the Partnership, or attempt to do so, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person employed or engaged to transact any such business by or on behalf of the Managing General Partner or the Partnership. The transaction of any such business by a Limited Partner or Assignee employed or engaged to do so by or on behalf of the Managing General Partner or the Partnership shall not be in his, her or its capacity as Limited Partner or Assignee and shall not affect, impair or eliminate the limitations on the liability of the Limited Partner or Assignee under this Agreement. (B) No Limited Partner or Assignee shall have the power to represent, sign for or bind the Managing General Partner, any other General Partner or the Partnership, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person given such power by the Managing General Partner. 5.3 OUTSIDE ACTIVITIES. A Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership. Neither the Partnership nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of any other Limited Partner or Assignee. 5.4 NO WITHDRAWAL OR DISSOLUTION. No Limited Partner shall at any time withdraw from the Partnership, except as provided in 27 this Agreement. No Limited Partner shall have the right to have the Partnership dissolved or the right to a Return of Capital from the Partnership, except as provided in this Agreement. The legal incompetency, bankruptcy, insolvency, termination, dissolution, withdrawal or death of a Limited Partner shall not cause a dissolution of the Partnership. 5.5 ASSIGNEES. The creation of Assignees pursuant to Section 11.2 does not dissolve the Partnership. An Assignee may become a Substituted Limited Partner as provided in Section 12.1. Until an Assignee becomes a Substituted Limited Partner, the Assignee has no right to notice of or to vote at any meeting of Partners or upon any matters upon which Limited Partners may vote, to require any information or account of Partnership transactions or to inspect Partnership books, and is otherwise subject to the limitations under the Act on the rights of an Assignee who has not become a Substituted Limited Partner. An Assignee has the rights and obligations appurtenant to a Unit to share in the Net Income and Net Losses of the Partnership and to receive distributions. 5.6 TRANSFEREES. An assignment of a Limited Partner's Interests does not dissolve the Partnership or entitle the transferee to become or to exercise any rights of a Limited Partner. The transferee has the right to become a Substituted Limited Partner pursuant to an assignment as provided in Section 12.1. A Limited Partner remains a Limited Partner upon transfer of all or part of the Limited Partner's Interests until the transferee becomes a Substituted Limited Partner pursuant to Section 12.1. A transferee who does not become a Substituted Limited Partner has no right to notice of or to vote at any meeting of Partners or upon any matters upon which a Limited Partner may vote, to require any information or account of Partnership transactions or to inspect the Partnership books, and is otherwise subject to the limitations under the Act on the rights of a transferee or Assignee who has not become a Substituted Limited Partner. Any distribution or payment to the Partner or Assignee of record or the personal representative of such Partner or Assignee shall acquit the Partnership of liability to the extent of such payment to any person who may have an interest in such payment by reason of an assignment by the Partner or Assignee or the successors or assignees of the Partner or Assignee, or by reason of the death of such Partner or Assignee or otherwise. ARTICLE 6 APPROVAL BY LIMITED PARTNERS; AMENDMENTS 6.1 APPROVAL BY LIMITED PARTNER. Subject to Sections 6.2 and 6.3, the approval of a Majority Interest shall be required only for the matters specified below (including, however, without limitation, those matters on which limited partners are given the right to vote under the Act) and no other matters: 28 (A) The following actions may be taken by the Managing General Partner only with the affirmative vote of a Majority Interest: (1) the sale, exchange, lease or other transfer (other than encumbrances) of all or substantially all of the assets of the Partnership in a single transaction or in multiple interrelated transactions, except in the liquidation and winding up of the business of the Partnership upon its dissolution. For purposes of this subsection, "substantially all of the assets of the Partnership" shall mean ninety percent (90%) of the asset value of the Partnership Property, as determined in accordance with generally-accepted accounting principles, at the end of the most recently completed fiscal quarter of the Partnership; (2) the dissolution of the Partnership, other than pursuant to Sections 14.1(A), (B), (C) and (E); (3) an election to continue the business of the Partnership other than after there is no remaining or surviving General Partner; (4) an amendment to this Agreement, including, without limitation, an amendment extending the term of this Agreement, except for amendments described in Sections 6.3 and 6.4; (5) Any matter requiring approval of the holders of Units of Glenborough Partners pursuant to Section 3.8. (B) A General Partner may be removed only with the approval of a Majority Interest. (C) Except under circumstances described in clause (D), a new General Partner may be admitted with only the approval of a Majority Interest and with the separate concurrence of the other General Partner(s). (D) If there is no remaining or surviving General Partner, a new General Partner(s) may be admitted or an election to continue the business of the Partnership may be made only upon the approval of all the Limited Partners. 6.2 RIGHTS CONDITIONAL. The rights set forth in Section 6.1 (A) shall not be exercised unless the Partnership shall have received the written opinion of counsel for the Partnership to the effect that the exercise of such right or the action proposed to be taken with respect to any particular matter: (A) shall not cause the Limited Partner to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to subject the Limited Partner or Assignees to unlimited liability therefor; (B) will not jeopardize the status of 29 the Partnership as a partnership under applicable tax laws and regulations; or (C) is otherwise permissible under the state statutes then governing the rights, duties and liabilities of the Partnership and the Partners and Assignees. If counsel for the Partnership has indicated that it is unable or unwilling to deliver such an opinion, the Managing General Partner may take any action described in Section 6.1 (A) without the need for approval of the Limited Partner, provided that such action is not otherwise prohibited by this Agreement or by law. 6.3 AMENDMENTS BY THE MANAGING GENERAL PARTNER. Subject to Section 6.4, the Managing General Partner may, without prior notice to or consent of any Partner or Assignee, amend any provision of this Agreement: (A) to cure any ambiguity, omission, defect or inconsistency; (B) if in its opinion such amendment does not have a materially adverse effect upon the Limited Partners and Assignees or the Partnership, as the case may be; or (C) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership or the General Partners or the partners, directors or officers of a General Partner from being in any manner subject to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed by the Department of Labor; or (D) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership from being taxable as a corporation under the Code. A copy of such amendment shall thereafter be furnished promptly to the Limited Partner and Assignees. In the event an amendment shall have been approved pursuant to this Section 6.3, the Managing General Partner and, if necessary, the Limited Partner, shall execute such amendment, certificate and other documents as may be reasonably required for the purpose of effectuating the same. 6.4 PROHIBITED AMENDMENTS. Except with the unanimous consent of all Partners, no amendments shall modify the provisions regarding amendment of this Agreement or the liabilities of the Partners or change the form of Partnership to a general partnership. ARTICLE 7 CAPITAL CONTRIBUTIONS AND INITIAL ISSUANCE OF INTERESTS 7.1 CASH CAPITAL CONTRIBUTIONS. The initial capital of the Partnership shall consist of One Thousand Dollars ($1,000), which the Partners have heretofore contributed in cash to the capital of the Partnership as follows: 30 GENERAL PARTNERS Glenborough Realty Corporation.................................... $ 1 Robert Batinovich................................................. $ 9 LIMITED PARTNER Robert Batinovich................................................ $990 Upon completion of the Exchange Transaction, these cash contributions shall be refunded to the General Partners and the Limited Partner. 7.2 CONTRIBUTION BY PARTNERS. On the Closing Date, the Partners shall contribute to the Partnership Property, including the Exchange Assets, as follows: (A) The Limited Partner shall, in accordance with the Exchange Agreement, contribute the Exchange Assets at the Exchange Values. (B) The General Partners shall not be required to contribute to the Partnership; provided, however, that in consideration of services rendered, the General Partners shall, in the respective shares shown in Section 7.1, receive and hold a one percent (1%) interest in the Net Income and Net Loss of the Partnership, including a one percent (1%) interest in cash items of Partnership income, gain, loss, deduction or Tax Credits. (C) For purposes of this Section 7.2, the value of the Exchange Assets shall be deemed to equal one hundred percent (100%) of the Partnership's net assets as of the Closing Date. 7.3 DISTRIBUTION OF INTERESTS. (A) Effective as of the Closing Date and in consideration of the transfer provided in Section 7.2 (A), the Partnership shall issue to the Limited Partner 990 Interests. Thereafter, interests of the Limited Partner in the Partnership shall be represented and expressed in terms of Interests. (B) In consideration for services and to represent the General Partners' interest in the Partnership provided for in Section 7.2 (B), the Partnership shall issue 10 Interests to the General Partners in the proportions provided for in Section 7.1. (C) After the issuance of Interests provided for in 7.3 (A) and (B) above, Interests shall be held one percent by the General Partners and ninety-nine percent (99%) by the Limited Partner. 31 7.4 GENERAL PARTNER INTERESTS. The Interests issued to the Managing General Partner and Robert Batinovich as General Partners, shall be designated as General Partner Interests. 7.5 DISTRIBUTION OF CAPITAL. A Partner or Assignee shall be entitled to a distribution which constitutes a Return of Capital from time to time throughout the duration of the Partnership in such amounts and at such times as the Managing General Partner, in its sole discretion, deems appropriate. Such distributions shall be made only if the conditions specified in Section 9.1 have been met or as provided in Section 7.1 with respect to the initial $1,000 cash contribution. 7.6 NO INTEREST ON CAPITAL CONTRIBUTION. Partners and Assignees shall not receive interest on or with respect to all or any part of their Capital Contributions. 7.7 CREDITOR'S INTEREST IN THE PARTNERSHIP. No creditor who makes a loan to the Partnership shall have or acquire at any time as a result of making the loan, any direct or indirect interest in the profits, capital or property of the Partnership other than as a creditor. 7.8 NATURE OF INTERESTS. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and none of the Partners shall have any direct ownership of such property. 7.9 ONE PERCENT INTEREST OF GENERAL PARTNERS AND ADDITIONAL CAPITAL CONTRIBUTIONS. Notwithstanding anything to the contrary that may be expressed or implied herein, the interests of all of the General Partners, taken together, in each material item of Partnership income, gain, loss, deduction or Tax Credits, as provided by Section 8.1, will be equal to at least one percent (1%) of each such item at all times during the existence of the Partnership. In determining the General Partners' interests in such items, interests held by the General Partners as general partners of the Limited Partner or of any Operating Limited Partnership, as defined in the Limited Partnership Agreement of Glenborough Partners and Units owned by the General Partners shall not be taken into account. Additional Capital Contributions shall be made to the Partnership only with the approval of all Partners. If additional Capital Contributions are made, such Capital Contributions shall be made by each Partner in accordance with its Allocable Share; provided, however, that the General Partners shall, at all times, be deemed to own as General Partners (in the respective percentages set forth in Section 7.1, one percent (1%) of the outstanding interests in the Partnership and no further contribution or consideration shall be required of the General Partners for their General Partner interests. Additional Interests shall be issued to evidence such additional capital contributions 32 and to maintain the General Partners' interest as aforesaid. If property other than cash is contributed, the Managing General Partner shall determine the value of such property. ARTICLE 8 ALLOCATION OF NET INCOME, NET LOSS AND TAX CREDITS 8.1 GENERAL ALLOCATION. (A) Net Income and Net Loss for each month shall be determined by the Partnership and allocated among the Partners and Assignees in accordance with their Allocable Shares. (B) For federal, state or other tax purposes, all items of income, gain, loss or deduction and all Tax Credits (including any such items arising from a joint venture or a partnership in which the Partnership has an interest) shall be determined using the accounting method designated by the Managing General Partner and shall be allocated to the Partners and Assignees in accordance with their Allocable Shares, subject to the provisions and adjustments described in this subsection. If the Partnership is deemed to have been terminated and reformulated pursuant to Section 708 of the Code, depreciation, depletion, gain or loss shall be allocated among the Partners and Assignees so as to take account of the variation between the basis of property deemed contributed to the Partnership by each Partner or Assignee at the time of its reformulation and the fair market value of such property at the time of such contribution pursuant to Section 704(c) of the Code. Depreciation, depletion, gain or loss (including the tax consequences of any basis reduction made by a contributing Partner under Code Sections 108, 483 and 1274) with respect to property contributed to the Partnership shall be allocated among the Partners and Assignees to the extent required under Section 704(c) of the Code and Treasury Regulations promulgated under Code Section 704(b) and (c) so as to take into account, for tax purposes, the difference between the basis of such property and its initial Book Value. The Managing General Partner is authorized to adopt such methods of allocating such items, consistent with applicable law and Regulations. 8.2 ALLOCATION ON TRANSFER. The Partnership shall use the monthly convention specified in the Conference Committee Report to Section 72 of the Tax Reform Act of 1984 in determining allocations on transfer. Under this convention, Interest transfers after the 15th day of a month shall be treated as occurring immediately after the close of business of the last day of the month, and Interest transfers during the first fifteen (15) days of a month shall be treated as occurring immediately before the opening of business of the first day of the month. 33 ARTICLE 9 CASH DISTRIBUTIONS 9.1 TIME AND AMOUNT OF CASH DISTRIBUTIONS. (A) As of the close of each fiscal quarter and each fiscal year, and at any other time the Managing General Partner deems appropriate, the Cash Available for Distribution shall be calculated and, if the Managing General Partner deems appropriate in its sole discretion, all or any portion thereof shall be distributed to the Partners and Assignees of record on the Record Date set for the distribution, and each Partner and Assignee shall receive his Allocable Share thereof. (B) Notwithstanding the provisions of Section 9.1(A), any distribution shall be made only if: (1) All liabilities of the Partnership, except liabilities to the General Partners and to the Limited Partner and Assignees on account of the Capital Contribution and liabilities as to which recourse of creditors is limited to specified property, have been paid or after such distribution, there will remain Partnership Property with a fair value sufficient to pay such liabilities, provided that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is limited shall be included in Partnership Property for purposes of this subsection only to the extent that the fair value of such Partnership Property exceeds such liability; (2) The Managing General Partner determines in good faith that such distributions may be made without materially affecting the ability of the Partnership to pay obligations (including contingent liabilities) of the Partnership as they fall due; and (3) Such distribution may be made without violating any provision of the Act. (C) Nothing in this Agreement or this Section shall serve as a limitation on the Managing General Partner's right to retain or use the Partnership's assets or its revenues as, in the opinion of the Managing General Partner, may be required to satisfy the anticipated present and future cash needs of the Partnership, whether for operations, liabilities, expansion, improvements, acquisition or otherwise. 9.2 DISTRIBUTIONS OF PARTNERSHIP PROPERTY. In its sole discretion, the Managing General Partner may distribute to Partners and Assignees, Partnership Property other than Cash Available for Distribution. In its sole discretion, the Managing General Partner 34 may distribute to Partners and Assignees additional Interests or securities of the Partnership which have been authorized and issued pursuant to the terms of this Agreement. ARTICLE 10 ACCOUNTING AND REPORTS 10.1 FISCAL YEAR. The fiscal year of the Partnership shall end on December 31 of each year, unless the Managing General Partner determines that it is in the best interest of the Partnership and its Partners to utilize a different fiscal year and the permission of the Internal Revenue Service has been obtained. 10.2 REPORTS. (A) As soon as practicable, but in no event later than ninety (90) days, after the close of the calendar year, the Managing General Partner shall prepare or cause to be prepared and furnish to each Person who was a Partner or Assignee of record during the Partnership's fiscal year, the information reasonably necessary for the preparation of such Person's United States federal income tax return and any state or local income or other tax returns required of such Person as a result of the operations of the Partnership. The Partners and Assignees agree to furnish the Managing General Partner with such information as may be necessary or helpful in preparing the tax returns or other filings of the Partnership. (B) As soon as practicable, but in no event later than one hundred twenty (120) days after the close of each fiscal year, the Managing General Partner shall mail or deliver to each Partner and each Assignee of record an annual report containing financial statements of the Partnership (which may be consolidated with the financial statements of the Limited Partner) for the fiscal year, including a balance sheet and statements of operations, changes in Partners' equity and changes in financial position at the end of or for the most recent fiscal year. Such statements are to be prepared in accordance with generally-accepted accounting principles and shall include the opinion of a firm of independent public accountants selected by the Managing General Partner, and are to be accompanied by a supplementary summary (except as disclosed in the financial statements), by classification of the total fees and compensation, including any overhead reimbursement and indemnification, paid by the Partnership, directly or indirectly, to the General Partners. (C) If and to the extent required by the Act or applicable state or federal securities laws, as soon as practicable, but in no event later than sixty (60) days after the close of each fiscal quarter, except the last fiscal quarter of each fiscal year, the Managing General Partner shall mail or otherwise furnish to each Partner and Assignee of record a quarterly report for the fiscal 35 quarter containing such financial and other information (which may be condensed, including statements of operations for such fiscal quarter and since the end of the last fiscal year, a balance sheet at the end of such period and a certificate of the Managing General Partner to the effect that such financial statements were prepared without audit from the books and records of the Partnership) as the Managing General Partner deems appropriate. 10.3 TAX ELECTIONS. The Managing General Partner shall, in its sole discretion, and as it deems in the best interests of the Partnership or the Partners and Assignees, determine whether to make any available election and how to make any necessary allocation for federal, state, local or other income tax purposes. 10.4 BOOKS AND RECORDS. The Managing General Partner shall maintain all records necessary for documenting and reporting the business and affairs of the Partnership. The Managing General Partner shall maintain at the office of the Partnership specified in Section 2.4: (A) a current list of the full name and last-known business or residence address of each Partner and Assignee set forth in alphabetical order together with the contribution and the share in profits and losses of each Partner and Assignee; (B) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been executed; (C) copies of the Partnership's federal, state and local income tax or information returns and reports, if any, for the six most recent taxable years or for such shorter time as the Partnership has been in existence; (D) the original Agreement and all amendments thereto; (E) copies of the financial statements of the Partnership for the six most recent fiscal years or for such shorter time as the Partnership has been in existence; and (F) the Partnership's books and records for at least the current and past three fiscal years or for such shorter time as the Partnership has been in existence. Any records maintained by the Partnership in the regular course of its business, including the record of the holders of Interests, books of account, and records of Partnership proceedings may be kept on, or be in the form of punch cards, magnetic media, photographs, micrographics, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable period of time. Except for information kept confidential by the Managing General Partner pursuant to the power described in Section 3.3(T), all books, financial records, reports and accounts shall be open to inspection by any Partner or duly authorized representative of the Partner on reasonable notice during normal business hours, for any purpose reasonably related to the Partner's interest as a Partner, and the Partner or the representatives at the expense of the Partner shall have the further right to make copies or excerpts therefrom; provided, however, that a copy of the information described in clauses (A),(B),(C) and (D) of the second sentence of this Section 10.4 shall be promptly delivered by the Managing 36 General Partner, at the expense of the Partnership, to any Partner requesting such information. The Partner and the Partner's representatives shall not divulge to any Person any confidential or proprietary data, information or property or any trade secrets of the Partnership. 10.5 BANK ACCOUNTS. The Partnership shall establish and maintain accounts in financial institutions (including, without limitation, national or state banks, trust companies, or savings and loan institutions) in such amounts as the Managing General Partner may deem necessary from time to time. Partnership funds shall not be commingled with the funds of, or used as a compensating balance on behalf of, any General Partner or any other Person. Checks shall be drawn on and withdrawals of funds shall be made from any such accounts for Partnership purposes and shall be signed by the Person or Persons designated by the Managing General Partner. Temporary surplus funds of the Partnership may be invested in commercial paper, time deposits, short-term government obligations or other investments as shall be determined by the Managing General Partner. ARTICLE 11 TRANSFER OF INTERESTS 11.1 TRANSFER OF INTERESTS. (A) The term "transfer" when used in this Article with respect to a Unit includes a sale, assignment, gift, exchange, or any other disposition. (B) General Partner Interests are nontransferable without the consent of all Partners except as provided in Article 7 and Section 13.1. The Limited Partner hereby consents to any transfer pursuant thereto. (C) Interests held by Limited Partners are nontransferable without the consent of all Partners. ARTICLE 12 ADMISSION OF SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS 12.1 ADMISSION OF SUBSTITUTED LIMITED PARTNERS. A Limited Partner shall have the power to give the transferee of such Person's Interests the right to become a Substituted Limited Partner in the manner permitted in this Agreement. An Assignee or transferee of an Interest may apply to become a Substituted Limited Partner with respect to such Interest by executing and delivering a Request and Power in form approved by the Managing General Partner. Upon receipt by the Partnership of a completed and executed Request and Power, the name of the transferee shall be 37 added to the list of Limited Partners maintained by the Partnership, whereupon such transferee shall become a Substituted Limited Partner. 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS. A Person other than a General Partner (acting in its capacity as a General Partner), the Limited Partner or a substituted Limited Partner who makes a contribution to the capital of the Partnership in a manner permitted by the terms of this Agreement may, with the approval of the Managing General Partner, be admitted to the Partnership as an Additional Limited Partner upon furnishing to the Managing General Partner: (A) a Request and Power; and (B) such other documents or instruments as may be required in order to effect admission as a Limited Partner. Upon receipt of such documents, the Partnership shall add the name of such Person to the list of Partners maintained by the Partnership, whereupon such Person shall become an additional Limited Partner. ARTICLE 13 REMOVAL, RESIGNATION OR WITHDRAWAL OF GENERAL PARTNER 13.1 REMOVAL OF GENERAL PARTNER. A General Partner may be removed from office as provided in Section 6.1 and shall be removed if such General Partner is removed as general partner of the Limited Partner or Glenborough Partners. Such removal shall take effect sixty (60) days from the date of the action by the Limited Partner. At such time, the assets, books and records of the Partnership shall be surrendered to the remaining or successor General Partner(s), provided that the remaining or successor General Partner(s) shall: (A) hold or have acquired sufficient General Partner Interests (which shall be obtained from the removed General Partner) so that the General Partner(s) who will continue to serve as General Partner(s) hold and have designated, in the aggregate, at least a one percent (1%) interest in the Partnership as General Partner(s); and (B) have complied with the provisions of Section 13.4. If such removal dissolves the Partnership, then the Partnership shall be reconstituted and its business shall be continued with any remaining and successor General Partner(s) as the General Partner(s) thereof, and they shall have the exclusive right to possess Partnership Property to continue the business of the Partnership. Removal of a General Partner shall not prejudice the rights of the removed General Partner to compensation pursuant to Article 4 accrued as of the date the removal takes effect. The value of a removed General Partner's Interest shall be agreed to by all Partners. 13.2 WITHDRAWAL. A General Partner may withdraw, resign or retire on ninety (90) days' advance written notice to the Partners. A General Partner shall cease to be a General Partner on the effective date of its or his withdrawal, resignation or retirement. 38 13.3 DISSOLUTION OR BANKRUPTCY OF GENERAL PARTNER. A General Partner shall cease to be a General Partner upon the happening of any of the following events: (A) The dissolution of the General Partner or, if the General Partner is an individual, the death of the General Partner or the entry by a court of competent jurisdiction of an order adjudicating the General Partner incompetent to manage his person or estate; (B) The General Partner: (1) makes a general assignment for the benefit of creditors; (2) commences a voluntary case under the federal bankruptcy law; (3) files a petition or answer seeking for the General Partner any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation; (4) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in any proceeding of the nature described in clause (3); or (5) seeks, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties; (C) An order for relief against the General Partner is entered under Chapter 7 or 11 of the federal bankruptcy law; (D) Sixty (60) days after the commencement of any proceeding against the General Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, if the proceeding has not been dismissed; (E) Sixty (60) days after the appointment without the General Partner's consent or acquiescence of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties, if the appointment is not vacated or stayed, or sixty (60) days after the expiration of any such stay, if the appointment is not vacated; or (F) Upon the General Partner ceasing to be a general partner of either the Limited Partner or Glenborough Partners for any reason other than the dissolution of that partnership provided that there is no longer an Affiliate of a General Partner serving as a general partner of such partnership. 13.4 LIABILITY AND RIGHTS. A General Partner shall be discharged from, and the Partnership or any Person or Persons continuing the business of the Partnership in the event it has been dissolved, shall assume and pay, as they mature, all Partnership obligations and liabilities that exist on the date of such General Partner's removal from the Partnership or on the date on which it or he ceases to be a General Partner under Sections 13.2 or 13.3, and shall hold such General Partner harmless from any action or 39 claim arising or alleged to arise from obligations and liabilities accruing after such date; provided, however, that nothing in this Section 13.4 shall relieve or discharge, nor shall the Partnership indemnify or hold harmless, such General Partner from any individual obligation or liability of such General Partner (as distinguished from a Partnership obligation or liability) to the Partnership or third parties. On the date of removal of a General Partner or the date on which it ceases to be a General Partner under Sections 13.2 or 13.3, or as soon thereafter as possible, the Partnership or any Person or Persons continuing the business of the Partnership shall file an amendment to the Certificate of Limited Partnership reflecting the removal of the General Partner or the fact that the General Partner has ceased to be a General Partner. The Partnership or any such Person or Persons continuing the business of the Partnership shall promptly notify all creditors of the Partnership as of such date: (A) of the removal of such General Partner and the resulting dissolution of the Partnership (if the Partnership has dissolved) or of the General Partner ceasing to be a General Partner pursuant to Sections 13.2 or 13.3, as the case may be; (B) that such General Partner shall not be personally liable for the Partnership's obligations and liabilities after such date; and (C) if applicable, of the assumption of all the Partnership's obligations and liabilities by the Partnership or such Person or Persons continuing the business of the Partnership. The Partnership or such Person or Persons continuing the business of the Partnership (if the Partnership has dissolved) shall use its or their best efforts to procure and execute an agreement from creditors of the Partnership discharging such General Partner from liability to such creditors as of the date the General Partner is removed or ceases to be a General Partner. Such General Partner shall have the same rights to inspect and make copies or excerpts of the books and records of the Partnership as is provided to Partners pursuant to Section 10.4 until all amounts due such General Partner as of the date the General Partner is removed or ceases to be a General Partner pursuant to Section 3.6 and Article 4 have been paid. The General Partner shall be a creditor of the Partnership as to all such amounts owed to it or him by the Partnership. Any General Partner Interests held by a General Partner after it or he has been removed, or it or he ceases to be a General Partner, shall be transferred to such Person or Persons who remain as or succeed such General Partner as General Partner(s). 13.5 SUCCESSOR AND PREDECESSOR GENERAL PARTNERS. Unless a General Partner has been dissolved because of bankruptcy, insolvency, liquidation or ceases to be a General Partner because of death, disability, incapacity or incompetency or unless a General Partner has been removed as General Partner, upon dissolution of a General Partner, any Person continuing the business of the General Partner so affected shall immediately become a General Partner of the Partnership (and shall become Managing General Partner if the General Partner so affected was the 40 Managing General Partner) without any action or vote of any Person. If any dissolution of a General Partner causes a dissolution of the Partnership, then the Partnership shall be reformed and reconstituted and its business continued as provided in this Section and Article 14. If it is necessary or advisable to reform and reconstitute the Partnership and to continue its business, the remaining and successor General Partners shall elect to reform and reconstitute the Partnership and to continue its business. When any Person ceases to be a General Partner under this Agreement or a partner, shareholder, director, officer, employee or agent of a General Partner, that Person shall continue to have the benefit of any provisions of this Agreement providing for indemnity, exculpation or insurance which protected such Person as a General Partner or a partner, shareholder, director, officer, employee or agent of a General Partner, or which limited or defined the liability of such Person. ARTICLE 14 DISSOLUTION, WINDING UP AND LIQUIDATION 14.1 DISSOLUTION. The Partnership shall be dissolved at the expiration of the term of the Partnership set forth in Section 2.5; provided, however, that the Partnership shall be dissolved prior thereto without breach of this Agreement upon occurrence of one of the following: (A) The removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of a General Partner; provided, however, that unless applicable law shall under the circumstances require a dissolution notwithstanding an agreement to the contrary, the Partnership shall not be dissolved but shall be continued or, if dissolved, the business of the Partnership shall be continued by any remaining or successor General Partner(s) upon obtaining the approval of a Majority Interest. If no General Partner(s) remain or succeed or if the remaining or successor General Partner(s) do not have the power under California law to elect to continue or not to continue the business of the Partnership or they elect not to continue the business, then, upon approval of all the Limited Partners and the admission of one or more new General Partner(s), the Partnership shall not be dissolved, but shall be continued or, if dissolved, the business of the Partnership shall be continued; (B) The Partnership becomes insolvent or bankrupt; (C) The sale or other disposition of substantially all assets of the Partnership and the cessation of active business; (D) The passage of ninety (90) days after approval by a Majority Interest to dissolve the Partnership; or 41 (E) The occurrence of any event which makes it unlawful for the business of the Partnership to be continued. Admission of a General Partner shall not cause the dissolution of the Partnership. 14.2 AUTHORITY TO WIND UP. If dissolution occurs for any reason other than the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, the Managing General Partner shall have the authority to wind up the business and affairs of the Partnership. If dissolution occurs by reason of the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, and if the business of the Partnership is not continued pursuant to Articles 13 or 14, the remaining General Partner(s) shall have the authority to wind up the business and affairs of the Partnership or, if no General Partner remains or survives, any Person designated by a decree of court or designated by approval of a Majority Interest shall wind up the affairs of the Partnership. 14.3 ACCOUNTING. Upon dissolution (if the business of the Partnership is not continued), and again upon the termination of the Partnership after the winding up of the affairs of the Partnership is complete, an accounting of the Partnership shall be made and its financial statements shall be examined by the independent public accountants of the Partnership, and a report thereon shall be furnished to the General Partner(s) or legal representatives thereof and to all Limited Partners and Assignees. 14.4 WINDING UP AND LIQUIDATION. Upon dissolution of the Partnership, if the Partnership or the business of the Partnership is not otherwise continued hereunder, it shall be wound up and liquidated. The Book Value of any assets not sold shall be adjusted to their fair market value and any Net Income or Net Loss shall be allocated to the Capital Accounts as if the Partnership recognized Net Income or Net Loss equal to such adjustment. After such allocations, the assets of the Partnerships shall be paid or distributed in the following order of priority: (A) To creditors, in the order of priority as provided by law, except to secured creditors the obligations to whom will be assumed or otherwise transferred on liquidation of the Partnership assets; (B) Those amounts deemed necessary by the Persons winding up the affairs of the Partnership for any contingent liabilities or obligations of the Partnership shall be set aside as a reserve for contingent liabilities to be distributed at such time and in such manner hereunder as the Persons winding up the affairs of the 42 Partnership shall determine in their sole discretion; (C) To the General Partner(s) with respect to payments due to them pursuant to Section 3.6 and Article 4; (D) To each General Partner, Limited Partner and Assignee the amount of their respective Capital Accounts. 14.5 CLAIM OF LIMITED PARTNERS AND ASSIGNEES. No Limited Partner or Assignee shall have the right or power to demand or receive property other than cash, whether as a Return of Capital, a distribution, a payment on liquidation or otherwise. The Limited Partners and Assignees shall look solely to the assets of the Partnership for the payment of income allocated to the Limited Partners or Assignees and the return of the Capital Contributions of the Limited Partners, and if the assets of the Partnership remaining after payment or discharge of the debts and liabilities of the Partnership are insufficient to pay all or part of such income or Capital Contributions, no Limited Partner or Assignee shall have any recourse against any General Partner, the Partnership or any other Limited Partner or Assignee. 14.6 NO RESTORATION OF NEGATIVE CAPITAL ACCOUNTS. Neither the Partnership nor any General or Limited Partner shall have the right to require any Partner to restore a deficit balance in such Partner's Capital Account. ARTICLE 15 MISCELLANEOUS 15.1 NOTICES. All notices or other communications required or permitted to be given pursuant to this Agreement shall, in the case of notices or communications required or permitted to be given to the Limited Partner or his Assignee, be in writing, and shall be considered as properly given or made if personally delivered or if mailed by United States first class mail, postage prepaid, or if sent by prepaid telegram, and addressed to the Limited Partner's or Assignee's address for notices as it appears on the records of the Partnership, and, in the case of notices or communications required or permitted to be given to the General Partners or the Partnership, shall be in writing and shall be considered as properly given or made if personally delivered, or if sent by prepaid telegram, or if mailed by United States certified or registered mail, postage prepaid, and addressed to the Managing General Partner at the principal place of business of the Partnership as specified in Section 2.4. Any Limited Partner or Assignee may change the address for notices, by giving notice of such change to the Partnership, and the Managing General Partner may change the address for notices to the General Partners or the Partnership by giving notice of such change to the Limited Partner and his Assignee. Commencing on the tenth (10th) day after giving 43 of such notice, such newly-designated address shall be such Partner's or Assignee's or the Partnership's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Any notice or other communication shall be deemed to have been given as of the date on which it is personally delivered or, if mailed or telegraphed to a General Partner which is not received by the General Partner within ten (10) days after the date of its mailing or transmission shall be deemed to have been given as of the date actually received by the General Partner. 15.2 CHOICE OF LAW. This Agreement and all rights and liabilities of the parties hereto with reference to the Partnership shall be subject to and governed by the internal laws (and not the law pertaining to choice or conflict of laws) of the State of California. 15.3 ARTICLE AND SECTION HEADINGS. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 15.4 SOLE AGREEMENT. This Agreement and the exhibits hereto constitute the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings pertaining thereto. 15.5 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts with the same effect as if all parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement. Each party shall become bound by the Agreement immediately upon affixing his or her signature hereto, independently of the signature of any other party. 15.6 REMEDIES CUMULATIVE. The remedies of the parties under this Agreement are cumulative and shall not exclude any other remedies to which any Person may be lawfully entitled. 15.7 WAIVER. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition. 15.8 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto irrevocably waives during the term of the Partnership any right that he may have to maintain any action for partition with respect to the Partnership Property. 15.9 ASSIGNABILITY. Subject to the restrictions on transferability contained herein, each and all of the covenants, 44 terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 15.10 GENDER AND NUMBER. Whenever the context requires, the gender of all words used hereby shall include the masculine, feminine and neuter, the singular of all words shall include the singular and plural, and the plural of all words shall include the singular and plural. Unless the context requires otherwise, any reference to a General Partner shall include all General Partners and any reference to the General Partners shall mean any General Partner. 15.11 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby, but rather shall be enforced to the maximum extent permissible under applicable law. 15.12 ADDITIONAL DOCUMENTS. Each of the parties hereto agree to execute and deliver such other and further documents, including without limitation, designations, powers of attorney and other instruments, as the Managing General Partner may reasonably request. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. GENERAL PARTNERS: GLENBOROUGH REALTY CORPORATION, a California corporation By /s/ Robert Batinovich ----------------------------- Title -------------------------- /s/ Robert Batinovich ------------------------------- Robert Batinovich 45 LIMITED PARTNER: GOCO REALTY FUND I, a Califor- nia limited partnership By Glenborough Realty Corpor- ation, a California Corpora- tion, Its Managing Partner By /s/ Robert Batinovich ----------------------------- Robert Batinovich President 46 EX-10.42 4 LIMITED PARTNERSHIP AGREEMENT GPA INDUSTRIAL L.P. TABLE OF CONTENTS
Page ---- Article 1 Definitions............................................................................1 1.1 Definitions...................................................................1 1.2 Accounting Terms and Determinations...........................................7 Article 2 The Limited Partnership................................................................8 2.1 Formation of the Partnership..................................................8 2.2 Partnership Name..............................................................8 2.3 Business and Purpose..........................................................8 2.4 Principal Office..............................................................8 2.5 Term..........................................................................9 2.6 Execution of Documents........................................................9 Article 3 The General Partners...................................................................9 3.1 General.......................................................................9 3.2 Management Power..............................................................9 3.3 Powers of the Managing General Partner.......................................10 3.4 Liability of General Partners................................................16 3.5 Similar Activities of General Partners.......................................16 3.6 Indemnification of General Partners..........................................17 3.7 Other Matters Concerning General Partners.....................................................................19 3.8 Agreements With a General Partner or a Related Person...............................................................20 3.9 Conveyances..................................................................20 Article 4 Compensation of General Partners......................................................20 4.1 Compensation of Managing General Partner..............................................................20 4.2 Property Management Fee......................................................21 4.3 Incentive Fee................................................................21 4.4 Transaction Fee..............................................................23 4.5 Refinancing Fee..............................................................24 4.6 No Repayment.................................................................24 4.7 Accrual Upon Change in Managing General Partner..............................................................25 4.8 Joint Ventures...............................................................25 4.9 Change in Compensation.......................................................25 4.10 Fringe Benefits..............................................................25 4.11 Expenses of General Partner..................................................25 4.12 Commissions on Certain Sales.................................................26 Article 5 The Limited Partners, Assignees and Transferrees..........................................................................26 5.1 Limited Liability............................................................26 5.2 Restrictions on Limited Partners and Assignees................................................................27 5.3 Outside Activities...........................................................27 5.4 No Withdrawal or Dissolution.................................................27 5.5 Assignees....................................................................28 5.6 Transferees..................................................................28 Article 6 Approval by Limited Partner; Amendments...............................................28 6.1 Approval by Limited Partner..................................................28 6.2 Rights Conditional ..........................................................29 6.3 Amendments by the Managing General Partner..............................................................30 6.4 Prohibited Amendments........................................................30 Article 7 Capital Contributions and Initial Issuance of Interests.................................................................30 7.1 Cash Capital Contributions...................................................30 7.2 Contribution by Partners.....................................................31 7.3 Distribution of Interests....................................................31 7.4 General Partner Interests....................................................32 7.5 Distribution of Capital......................................................32 7.6 No Interest on Capital Contribution..........................................32 7.7 Creditor's Interest in the Partnership.......................................32 7.8 Nature of Interests..........................................................32 7.9 One Percent Interest of General Partners and Additional Capital Contributions................................................................32 Article 8 Allocation of Net Income, Net Loss and Tax Credits...........................................................................33 8.1 General Allocation...........................................................33 8.2 Allocation on Transfer.......................................................33 Article 9 Cash Distributions....................................................................34 9.1 Time and Amount of Cash Distributions........................................34 9.2 Distributions of Partnership Property........................................34 Article 10 Accounting and Reports................................................................35 10.1 Fiscal Year..................................................................35 10.2 Reports......................................................................35 10.3 Tax Elections................................................................36 10.4 Books and Records............................................................36 10.5 Bank Accounts................................................................37 Article 11 Transfer of Interests.................................................................37 11.1 Transfer of Interests........................................................37 Article 12 Admission of Substituted and Additional Limited Partners......................................................................37 12.1 Admission of Substituted Limited Partners.....................................................................37 12.2 Admission of Additional Limited Partners.....................................................................38 Article 13 Removal, Resignation or Withdrawal of Limited Partners......................................................................38 13.1 Removal of General Partner...................................................38 13.2 Withdrawal...................................................................38 13.3 Dissolution or Bankruptcy of General Partner..............................................................39 13.4 Liability and Rights.........................................................39 13.5 Successor and Predecessor General Partners.............................................................40 Article 14 Dissolution, Winding Up and Liquidation...............................................41 14.1 Dissolution..................................................................41 14.2 Authority to Wind Up.........................................................42 14.3 Accounting...................................................................42 14.4 Winding Up and Liquidation...................................................42 14.5 Claim of Limited Partners and Assignees......................................43 14.6 No Restoration of Negative Capital Accounts.....................................................................43 Article 15 Miscellaneous.........................................................................43 15.1 Notices......................................................................43 15.2 Choice of Law................................................................44 15.3 Article and Section Headings.................................................44 15.4 Sole Agreement...............................................................44 15.5 Execution in Counterparts....................................................44 15.6 Remedies Cumulative..........................................................44 15.7 Waiver.......................................................................44 15.8 Waiver of Action for Partition...............................................44 15.9 Assignability................................................................44 15.10 Gender and Number............................................................45 15.11 Severability.................................................................45 15.12 Additional Documents.........................................................45 Signatures..................................................................................................45 & 46
LIMITED PARTNERSHIP AGREEMENT OF GPA INDUSTRIAL, L.P. This Limited Partnership Agreement (the "Agreement"), dated as of , 1994, is made and entered into by GLENBOROUGH REALTY CORPORATION, a California corporation and ROBERT BATINOVICH, an individual, as General Partners, and GOCO REALTY FUND I, a California limited partnership, as the Limited Partner, and all other parties who shall become partners of this limited partnership as hereinafter provided. In consideration of the mutual covenants and promises herein, the parties hereby form a limited partnership under the California Revised Limited Partnership Act upon the following terms and conditions: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. When used in this Agreement, the following terms shall have the meanings set forth below, except as otherwise specifically modified: "ACT" means the California Revised Limited Partnership Act, as amended from time to time. "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as an additional Limited Partner pursuant to Article 12 hereof. "AFFILIATE" means any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question. "ALLOCABLE SHARE" of a General Partner is his or its percentage interest as set forth in Section 8.2(B) comprising an aggregate of one percent (1%) and of the Limited Partners or Assignees, at any particular time, an aggregate of 99%. The "Allocable Share" of a Limited Partner or Assignee, at any particular time, means the percentage which the number of Interests held by such Limited Partner or assigned to such Assignee is of the total number of Interests outstanding multiplied by 99%. If at any time, the aggregate of all General Partner Interests represents more than 1% of all Interests, the Allocable Share of all General Partners shall be the percentage interest represented by the ratio between all such Interests which are represented by General Partner Interests and all Interests, and the Allocable Share of all Limited Partners and Assignees shall be the percentage interest represented by the ratio between all Interests held by Limited Partners and Assignees and all Interests. "ASSIGNEE" means a Person to whom one or more Interests have been assigned by a Partner but who has not become a Substituted Limited Partner. "ASSOCIATE means any shareholder, director, officer, employee or agent of any General Partner and any employee or agent of the Partnership. "BOOK DEPRECIATION" means the depreciation, cost recovery or amortization of nondepletable assets that would be allowable to the Partnership for federal income tax purposes if its tax basis in such assets were equal to the Book Value of such assets. "BOOK GAIN" OR "BOOK LOSS" means the gain or loss that would be recognized by the Partnership for federal income tax purposes as a result of sales or exchanges of its assets if its tax basis in such assets were equal to the Book Value of such assets. "BOOK VALUE" means (a) as to property contributed to the Partnership, its agreed value; (b) as to property acquired in any other manner, its value as reflected on the books of the Partnership as of the date it is acquired by the Partnership; and (c) as to property owned by the Partnership at the time of any repurchase or issuance of Interests for money or other property, its fair market value at that time, all adjusted for Book Depreciation. "CAPITAL ACCOUNT" means the account (maintained on a per- Interest basis in the case of Interestholders) which shall be credited with the Interestholder's or General Partner's distributive share of (a) cash contributed to the Partnership; (b) the Book Value of contributed property; (c) Net Income; (d) the amount of Partnership liabilities assumed by such Interestholder or General Partner or that are secured by any Partnership Property distributed to such Interestholder or General Partner, and (e) increases in the basis of Partnership Property attributable to investment credit recapture; and which shall be debited with the Interestholder's or General Partner's distributive share of (v) cash distributions (w) the Book Value of distributed property; (x) Net Loss; (y) the amount of liabilities of a Interestholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Interestholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Interestholder or General Partner to the Partnership; and (z) decreases in 2 the basis of the Partnership Property for any credits allowed under the Code. A Limited Partner's Capital Account shall be the aggregate Capital Account attributable to the Interests held by such Limited Partner. In the case of transfer by an existing Partner of a Partnership interest, the transferee will succeed to the Capital Account relating to the Partnership interest transferred. Upon the repurchase of Interests or upon the issuance of additional Interests for money or other property (other than a de minimis amount) the Capital Accounts of each Interestholder outstanding prior to the repurchase or issuance and the Capital Accounts of the General Partners shall be adjusted to reflect a revaluation of the Partnership Property on the Partnership books to its fair market value and the Capital Accounts of all Partners shall be adjusted simultaneously to reflect such adjustment as if the Partnership recognized Net Income or Net Loss equal to the amount of such adjustment. It is intended by this provision to comply with Treasury Regulations Section 1.704-1(b) and Code Section 704(c). "CAPITAL CONTRIBUTION" means the individual total amount contributed by each Partner to the capital of the Partnership as provided in Article 7 hereof. "CASH AVAILABLE FOR DISTRIBUTION" means cash held by the Partnership in excess of (a) cash required for all expenses, liabilities and obligations of the Partnership (whether for expense items, capital expenditures, improvements, retirement of indebtedness or otherwise); and (b) reserves as established in the sole discretion of the Managing General Partner for Partnership capital expenditures, improvements, retirement of indebtedness, operations, or contingencies, known or unknown, liquidated or unliquidated, including, but not limited to, liabilities which may be incurred in litigation and liabilities undertaken pursuant to the indemnification provisions of this Agreement. "CERTIFICATE OF LIMITED PARTNERSHIP" means the certificate of limited partnership filed pursuant to the Act or any successor statute, as the same may be amended from time to time. "CLOSING DATE" means that date selected by the General Partners for the contribution of the Exchange Assets to the Partnership. "CODE" means the Internal Revenue Code of 1986 or any successor statute, as amended from time to time. "EXCHANGE AGREEMENT" means the agreement between the Limited Partner and the Partnership whereby the Exchange Assets are transferred to the Partnership in exchange for 990 Interests. 3 "EXCHANGE ASSETS" means the specific Projects contributed to the Partnership pursuant to the Exchange Agreement. "EXCHANGE TRANSACTION" means the transaction whereby the Partnership will exchange Interests for Exchange Assets. "EXCHANGE VALUE" means the value assigned to the Exchange Assets for purposes of the Exchange Transaction. "GENERAL PARTNERS" means the Persons named hereinabove as general partners in their capacity as general partners of the Partnership, and any successor or additional general partners. "General Partner" means one of the General Partners. "GENERAL PARTNER INTERESTS" means Interests designated as such pursuant to Sections 7.4 or 7.9. "GOCO" means GOCO Realty Fund I, a California limited partnership. "INTEREST" means a unit of interest in the Partnership acquired or issued pursuant to Article 7. "INTERESTS" means all of such units of interest. "INTERESTHOLDER" means any Person who, for tax purposes, is to be treated as a Limited Partner whether such Person is a Limited Partner or an Assignee. "LIMITED PARTNER" means GOCO, and any successor limited partner who has become a Substituted Limited Partner and any Additional Limited Partner. "LIMITED PARTNERS" means all limited partners if, at any time, there is more than one limited partner. "LIMITED PARTNER INTERESTS" means Interests held or owned by any Person or Persons as Limited Partner(s). "MAJORITY INTEREST" means the Limited Partners of record holding more than fifty percent (50%) of the Interests held by all Limited Partners of record. "MANAGING GENERAL PARTNER" means the Person so designated pursuant to Section 3.2. "NET INCOME" OR "NET LOSS" means the Partnership's taxable income or loss (as an entity) under Code Section 703 computed with the following adjustments: 4 (a) Tax-exempt income described in Code Section 705(a)(1)(B) shall be included and any expenditures not deductible in computing taxable income shall be deductible. (b) The only deduction for depreciation, cost recovery or amortization shall be Book Depreciation. (c) Book Gain or Book Loss shall be used instead of taxable gain or loss. "NET OPERATING CASH FLOW" means net income or loss as determined under generally accepted accounting principles with the following adjustments: (a) There shall be added depreciation expense and amortization expense related to capitalized loan fees, leasing commissions and debt discount; (b) There shall be deducted any gain from the sale or other disposition of non-inventory real estate which was acquired as a part of the Exchange Transaction and there shall be added any loss from the sale or other disposition of any non-inventory real estate that was acquired in the Exchange Transaction; (c) There shall be deducted any income or gain from investments in joint ventures or partnerships which are accounted for on the equity method and there shall be added any losses from such partnerships or joint ventures; (d) There shall be added any cash received from distributions from a partnership or joint venture to the extent that the aggregate distributions for such partnership or joint venture exceeds the cost of the investment in such partnership or joint venture; (e) There shall be added cash received from the sale of an interest in a partnership or joint venture to the extent that such cash when added to any cash distributions received from such partnership or joint venture exceeds the cost of the investment in such partnership or joint venture; (f) Adjustment shall be made to account for any gain arising from the sale of non-inventory real property which was not acquired as a part of the Exchange Transaction utilizing the installment method. "PARTNER" means a General Partner or a Limited Partner; and "Partners" means the General Partners and all Limited Partners. 5 "PARTNERSHIP" means the limited partnership created by this Agreement and any successor partnership thereto continuing the business of the Partnership which is a reformation or reconstitution of the partnership governed by this Agreement. "PARTNERSHIP CAPITAL" means the total of all the Partners' Capital Accounts at any given time. "PARTNERSHIP PROPERTY" means the Exchange Assets and any and all other property, real or personal, now or hereafter owned by the Partnership or an Operating Limited Partnership or in or to which the Partnership or an Operating Limited Partnership has any interest, right or claim and shall include any interest in any Operating Limited Partnership received by the Partnership in exchange for Partnership Property. "PERSON" means an individual, partnership (general or limited and whether domestic or foreign), joint venture, estate, association, corporation, trust company, trust or other entity. "PRIMARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership in which the Partnership holds a direct interest as the sole limited partner. "PROJECTS" means the real estate projects owned by the Partnership and all Operating Limited Partnerships. "RECORD DATE" means the date established by the Partnership for determining (a) the identity of Partners entitled to notice of or to vote at any meeting of Partners or entitled to vote by ballot or give consent to Partnership action in writing without a meeting, or entitled to exercise rights in respect of any other lawful action of Partners, or (b) the identity of Partners and Assignees entitled to receive any report or distribution. "RELATED PERSON" means Glenborough Corporation, the Limited Partner, a General Partner; or any partner, officer, director of Affiliate of any of the foregoing. "REQUEST AND POWER" means a request for admission as a Substituted or Additional Limited Partner, an agreement to be bound by the terms of this Agreement, a power of attorney and the provision of such other information as the Partnership shall request in such forms as are approved by the Partnership. "RETURN OF CAPITAL" means any distribution to the Partners to the extent that such distribution reduces the Partnership 6 Capital. A distribution reduces the Partnership Capital to the extent that it exceeds the following amount: the sum of the Net Income of the Partnership since its formation, reduced by (but not below zero) the sum of the Net Losses of the Partnership since its formation and the sum of all prior distributions. "SECONDARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership that is not a Primary Operating Limited Partnership. "SUBSTITUTED LIMITED PARTNER" means a Person admitted to the Partnership as a limited partner pursuant to Article 12 hereof. "TAX CREDITS" means all credits against income, franchise or similar taxes, including, without limitation, investment tax credits and credits allowable to Partners or Assignees under federal, state or other taxing statutes. "UNITS" means Units of interest in Glenborough Partners, a California limited partnership, as defined in the Limited Partnership Agreement of Glenborough Partners, a California limited partnership, dated as of December 30, 1993, for so long a period of time as Glenborough Partners, a California limited partnership, is the holder of a majority of the limited partnership interests in the Limited Partner. Except as otherwise defined herein, the capitalized terms used herein shall have the meaning given thereto in such Limited Partnership Agreement. 1.2 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein shall be interpreted, and all accounting and tax determinations hereunder shall be made, in accordance with the following: (a) For financial reporting purposes, the Partnership shall adhere to generally-accepted accounting principles; (b) For purposes of determining Partner Capital Accounts, the Partnership shall adhere to the provisions of Treasury Regulations Section 1.704-1(b); (c) For purposes of determining Partner and Assignee distributable shares of taxable income and loss, the Partnership shall adhere to the provisions of Code Sections 704(b) and (c) and the regulations promulgated thereunder. 7 ARTICLE 2 THE LIMITED PARTNERSHIP 2.1 FORMATION OF THE PARTNERSHIP. The General Partners and the Limited Partner hereby agree to form, and by execution of this Agreement do hereby enter into, a limited partnership under the Act, which Act shall, except as set forth in this Agreement, govern the rights and liabilities of the parties hereto. 2.2 PARTNERSHIP NAME. The name of the Partnership is "GPA Industrial, L.P." The Partnership shall conduct business under such name or such other name or names as the Managing General Partner may from time to time deem necessary, appropriate or advisable. The Managing General Partner in its sole discretion may change the name of the Partnership at any time and from time to time. The General Partners and, if necessary, the Limited Partner, shall promptly execute and the Managing General Partner shall file and record with proper offices in each jurisdiction in which the Partnership does or elects to do business, and publish such certificates or other statements or instruments as are required by the Act, fictitious or assumed name acts, or any other similar statute in effect in such jurisdiction, in order to conduct validly the Partnership business therein as a limited partnership. 2.3 BUSINESS AND PURPOSE. The business and purpose of the Partnership shall be to engage in the Exchange Transaction and any lawful act or activity in which a partnership may engage, including, without limitation, to engage generally in any and all phases of the business of owning, holding, managing, developing, controlling, acquiring, purchasing, disposing of or otherwise dealing in or with any interests or rights in any real or personal property, directly or through one or more Operating Limited Partnerships or other entities or arrangements. Without limiting the generality of the foregoing, the Partnership may perform such other acts incidental and supplementary to the foregoing as the Managing General Partner determines to be necessary, appropriate or advisable. 2.4 PRINCIPAL OFFICE. The office of the Partnership within California for purposes of Section 15614(a) of the Act shall be at 400 South El Camino Real, Eleventh Floor, San Mateo, California 94402. The Managing General Partner may change such office and establish other places of business for the Partnership (within or without the State of California) as it may, from time to time, deem necessary or appropriate; provided, however, that the Managing General Partner shall give the Partners and Assignees notice in writing of any change of address of the office of the Partnership and, in connection therewith, shall amend the Certificate of Limited Partnership in accordance with the Act. The Managing General Partner may select one or more Persons in California to act as agent for service of process on behalf of the Partnership, 8 including, without limitation, a General Partner or a Related Person. 2.5 TERM. The Partnership shall commence on the date the Certificate of Limited Partnership is filed in the office of the Secretary of State of California in accordance with the provisions of the Act and shall continue until January 31, 2037, unless extended by amendment of this Agreement or unless the Partnership is dissolved prior to that date pursuant to Article 14. 2.6 EXECUTION OF DOCUMENTS. The Managing General Partner (or, if required, all the General Partners) shall execute, acknowledge, file, record or deliver all Certificates of Limited Partnership, amended certificates, instruments or other documents and counterparts thereof and make all filings and recordings and perform all other acts as shall be necessary to comply with the laws of the State of California for the formation of the Partnership, thereafter for the continued good standing of the Partnership, and, when appropriate, for the termination of the Partnership. The Managing General Partner (or, if required, all the General Partners) shall also execute such certificates, amended certificates and other documents conforming hereto and perform such recording, publishing and other acts as may be appropriate to comply with the requirements of law for the formation, reformation, qualification and/or operation of a limited partnership in all jurisdictions where the Partnership may wish to do business, if deemed necessary by the Managing General Partner. Such certificates, instruments, documents and counterparts may be signed by the Managing General Partner on behalf of any or all of the Limited Partners acting pursuant to the powers of attorney from the Limited Partners. ARTICLE 3 THE GENERAL PARTNERS 3.1 GENERAL. The General Partners shall devote such time and attention to the business of the Partnership as may be reasonably necessary to carry out their duties hereunder in the conduct of such business, but any General Partner and its partners, shareholders, officers, directors, employees and agents shall have the right to be otherwise employed by an entity or entities other than the Partnership, including, without limitation, Affiliates of the Partnership, on a part-time or full-time basis. Nothing contained herein shall prevent a General Partner or any partner, shareholder, officer, director, employee or agent of a General Partner from becoming an Assignee or a Substituted or Additional Limited Partner, whereupon such Person shall be entitled to all rights, shall be subject to all obligations and shall be deemed, as to such Units, an Assignee or a Limited Partner, as applicable. 3.2 MANAGEMENT POWER. The Managing General Partner shall 9 have full, exclusive and complete discretion in the management and control of the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business of the Partnership, shall act as tax matters partner for the Partnership, and may take such actions as it deems necessary or appropriate to accomplish the purposes of the Partnership as set forth herein. The Managing General Partner shall be Robert Batinovich and any successor to the Managing General Partner which becomes the Managing General Partner of the Partnership pursuant to Article 13. If there is no successor which becomes a Managing General Partner pursuant to Article 13, then Glenborough Realty Corporation shall become Managing General Partner until a meeting of the Partners can be convened to elect a Person to serve as a General Partner and as Managing General Partner hereunder. Except as may otherwise be set forth in this Agreement, no General Partner, other than the Managing General Partner, shall have any authority, right or power to bind the Partnership or to manage or control the business of the Partnership in any manner whatsoever. 3.3 POWERS OF THE MANAGING GENERAL PARTNER. Subject to the provisions of Article 6 vesting certain approval rights in the Limited Partners, in connection with such management and control, the Managing General Partner shall have the power and authority to do or cause to be done any and all acts, at the expense of the Partnership, deemed by the Managing General Partner to be necessary or appropriate to carry out the purposes of the Partnership. The power and authority of the Managing General Partner shall be liberally construed to encompass all acts and activities in which a partnership may engage. The power and authority of the Managing General Partner shall include, without limitation, the power and authority: (A) To engage in the Exchange Transaction and to acquire, own, lease, sublease, manage, hold, deal in, control or dispose of any interests or rights in real or personal property, including, without limitation, the powers to sell, exchange, mortgage, pledge, convey in trust, enter into joint ventures or partnerships respecting or otherwise hypothecate all or any portion of the Partnership Property; (B) To create, by grant or otherwise, easements and servitudes; (C) To alter, improve, repair, raze, replace and rebuild Partnership Property; (D) To let or lease Partnership Property for any period, and for any purpose; (E) To apply proceeds of any sale, exchange, mortgage, pledge or other disposition of Partnership Property to payment of liabilities of the Partnership and to pay, collect, 10 compromise, arbitrate or otherwise adjust any and all other claims or demands of or against the Partnership, or to hold such proceeds against the payment of contingent liabilities, known or unknown; (F) To maintain or cause to be maintained records of all rights and interests acquired for or disposed of by the Partnership, all correspondence relating to the Partnership business and the original records (or copies on such media as the Managing General Partner deems appropriate) of all statements, bills and other instruments furnished the Partnership in connection with its business; (G) To maintain records and accounts of all operations and expenditures, make all filings and reports required under applicable rules and regulations of any governmental department, bureau or agency, any securities exchange and any automated quotation system of a registered securities association, and furnish the Partners and Assignees with all necessary United States federal, state or local income tax reporting information or such information with respect to any other jurisdiction; (H) To purchase and maintain, in its discretion and at the expense of the Partnership, liability, indemnity and any other insurance, including errors and omissions insurance, sufficient to protect the Partnership, the General Partners and any other Person from those liabilities and hazards which may be insured against in the conduct or management of the Partnership's business; (I) To make, execute, assign, acknowledge and file on behalf of the Partnership, any and all documents or instruments of any kind which the Managing General Partner may deem appropriate in carrying out the purposes and business of the Partnership, including, without limitation, powers of attorney, agreements of indemnification, sales contracts, deeds, options, loan obligations, mortgages, deeds of trust, notes, documents or instruments of any kind or character, and amendments thereto. Any person, firm or corporation dealing with the Managing General Partner shall not be required to determine or inquire into the authority and power of the Managing General Partner to bind the Partnership and to execute, acknowledge and deliver any and all documents in connection therewith; (J) To borrow money or to obtain credit in such amounts, on such terms and conditions, and at such rates as the Managing General Partner deems appropriate, from banks, other lending institutions and any other Person, including the Partners and Assignees, for any Partnership purpose, including, without limitation, any loan incurred for the 11 purpose of making one or more distributions to any or all Partners and Assignees, including any distributions which are, in whole or in part, a Return of Capital; and in connection with such loans to mortgage, pledge, assign or otherwise encumber or alienate any or all Partnership Property, including any income therefrom, to secure or provide repayment thereof. As between the Partnership and any lender, it shall be conclusively presumed that the proceeds of such loans are to be and will be used for the purposes authorized herein and that the Managing General Partner has the full power and authority to borrow such money and to obtain such credit; (K) To assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, lend money and otherwise use the Partnership's credit and secure any of the Partnership's obligations, contracts or liabilities by mortgage, pledge or other encumbrance of all or any part of its property, franchises and income; (L) To invest Partnership funds in debt or equity securities or other obligations of other issuers, including, but not limited to, securities or other obligations of other partnerships; provided, however, that the Managing General Partner shall not invest Partnership funds in such a manner that the Partnership will be considered to be holding itself out as being engaged primarily in the business of investing, reinvesting or trading in securities or will otherwise be deemed to be an investment company under the Investment Company Act of 1940, as amended; (M) To make any election on behalf of the Partnership as is or may be permitted under the Code or under the taxing statute or rule of any state, local, foreign or other jurisdiction, and to supervise the preparation and filing of all tax and information returns which the Partnership may be required to file; (N) To maintain the buildings, appurtenances and grounds of the Partnership Property in accordance with acceptable standards, including within such maintenance, without limitation thereof, interior and exterior cleaning, painting and decorating, plumbing, carpentry and such other normal maintenance and repair work as may be appropriate; (O) To collect all rents and other charges from lessees of Partnership Property and concessionaires, and otherwise due the Partnership, with respect to the Partnership Property. The Partnership authorizes the Managing General Partner to request, demand, collect, receive and receipt for all such rents and other charges and to institute legal proceedings in the name of the Partnership for the collection thereof and for 12 the dispossession of any Person from Partnership Property and such expense may include the costs of counsel for any such matter; (P) To cause to be disbursed (1) the aggregate amount required to be paid pursuant to any indebtedness of the Partnership, including therein amounts due under any mortgages or deeds of trust for interest, amortization of principal and for allocation to reserve or escrow funds; (2) the amount of rent payable by the terms of any lease under which the Partnership holds the Partnership Property, or any portion thereof, promptly when due; (3) the amount of all real estate taxes and other impositions levied by appropriate authorities; and (4) amounts otherwise due and payable as expenses of the Partnership authorized to be incurred under the terms of this Agreement; (Q) To employ and engage suitable agents, employees, advisers, consultants and counsel (including any custodian, investment adviser, accountant, attorney, corporate fiduciary, bank or other reputable financial institution, or any other agents, employees or Persons which may serve in such capacity for the Managing General Partner or any Related Person) to carry out any activities which the Managing General Partner is authorized or required to carry out or conduct under this Agreement, including, without limitation, a Person which may be engaged to undertake some or all of the general management, property management, financial accounting and record keeping, construction supervision and other duties of the Managing General Partner, to indemnify such Persons against liabilities incurred by them in acting in such capacities on behalf of the Partnership and to rely on the advice given by such Persons, it being agreed and understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (R) To enter into an agreement or agreements with real estate brokers or agents, investment banking firms, appraisers or others providing for the engagement of such Persons on an exclusive or nonexclusive basis to advise or represent the Partnership in the valuation, sale, lease or other dealings in the Partnership Property, it being understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (S) To hold Partnership Property in the name of one or more nominees, with or without disclosure of the fiduciary relationship; 13 (T) To keep proprietary or trade secret information confidential, and if deemed necessary by the Managing General Partner, to keep such information confidential from the Limited Partners for a reasonable period of time; (U) To pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or compromise upon such terms as it may determine and upon such evidence as it may deem sufficient, any obligation, suit, liability cause of action or claim, including taxes, either in favor of or against the Partnership; (V) To prosecute, protect and defend or cause to be protected and defended all patents, patent rights, trade names, trademarks, service marks and other marks, and all applications with respect thereto which may be held by the Partnership, and to take all reasonable and necessary actions to protect the secrecy of and the proprietary rights with respect to any secret know-how, secret processes or other proprietary information, and to prosecute and defend all rights of the Partnership in connection therewith; (W) To register, qualify or list, or cause to be registered, qualified, listed or reported, this Agreement or Units hereunder pursuant to the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any other securities laws of the United States, the securities laws of any state of the United States, the laws of any other jurisdiction, or with any securities exchange or pursuant to an automated quotation system of a registered securities association as the Managing General Partner deems appropriate; (X) To issue, purchase, repurchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, trade in, grant calls or options or warrants, grant appreciation rights, transfer or otherwise dispose of, pledge, use and otherwise deal in and with shares, bonds, debentures and other securities, whether issued by the Partnership or issued by any other Person, whether on an exchange, over the counter, in private transactions or in other transactions, and whether for the Partnership or for any plan maintained or sponsored by the Partnership, including securities of the Partnership of a different class or series than the Interests, whether debt or equity, redeemable or nonredeemable, convertible or nonconvertible, and including securities with different rights, preferences, privileges, allocations and tax consequences; (Y) To qualify to do business in any other state, territory, dependency or foreign country; (Z) To make donations, regardless of specific benefit to 14 the Partnership, for the public welfare, to community or hospital funds, or for charitable, educational, scientific, civic, political or similar purposes; (AA) To pay pensions, and to establish, participate in and maintain as plan sponsor or otherwise, pension, profit sharing, bonus, purchase, option, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions for any or all of the employees of the Partnership, and any partner, shareholder, director, officer, employee or agent of a General Partner or any Affiliate, including plans, trusts and provisions which may provide for the ownership, acquisition, holding, or disposition of Units or any other securities of the Partnership; and to indemnify and purchase and maintain insurance on behalf of, any fiduciary of such retirement, incentive and benefit plans, trusts or other provisions, including, without limitation, health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance and other plans, trusts or provisions; (BB) To put into effect and carry out any plan of reorganization or arrangement and the orders of the court or judge entered in a proceeding for reorganization or arrangement under any applicable statute of the United States or of any state, local or other jurisdiction, and to undertake any proceeding and perform any act provided in the plan or directed by such orders, without further action by any Partner or Assignee. Such power and authority may be exercised and such proceedings and acts may be undertaken, as may be directed by such orders, by the trustee or trustees of the Partnership appointed in the reorganization or arrangement proceeding (or a majority thereof), or if none is appointed and acting, by the Managing General Partner or a master or other representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the Partners and Assignees; (CC) To distribute money or Partnership Property to Partners and Assignees in accordance with this Agreement regardless of the source of such money or Partnership Property, including, without limitation, money borrowed by the Partnership or by the Managing General Partner on behalf of the Partnership; (DD) To possess and exercise any additional powers and rights of general partners in a limited partnership, including, without limitation, those granted under the Act and any other applicable laws, to the extent not inconsistent with this Agreement; (EE) To take any and all action, conduct all proceedings 15 and execute all rights and privileges, contracts and agreements of any kind whatsoever, although not specifically mentioned in this Agreement, that the Managing General Partner may deem necessary or appropriate to conduct the business of the Partnership or to carry out the purposes of the Partnership. The expression of any power or authority of the Managing General Partner in this Agreement shall not limit or exclude any other power or authority which is not specifically or expressly set forth in this Agreement; and 3.4 LIABILITY OF GENERAL PARTNERS. The General Partners shall be liable to the Partnership and the Limited Partners and Assignees for gross negligence or gross misconduct but neither the General Partners nor their Associates shall be liable to either the Partnership or the Limited Partner or to Persons who have acquired interests in the Interests, whether as Assignees or otherwise, for errors in judgment or for any acts or omissions that do not constitute willful misconduct. If this Section 3.4 shall, for any reason and to any extent, be invalid or unenforceable, it is intended that this Section 3.4 shall be construed to exculpate the General Partners and their Associates to the fullest extent permitted by law. 3.5 SIMILAR ACTIVITIES OF GENERAL PARTNERS. The General Partners and their respective Associates may, directly or indirectly (including, without limitation, through a Related Person or other entity in which the General Partner or any such Related Person holds an ownership interest), engage in any and all aspects of the business of owning, holding, developing, controlling, acquiring, purchasing, managing, disposing of and otherwise dealing with real, personal or mixed property; act as a partner (limited or general), shareholder, director, officer, employee or agent of any entity (including GOCO, Glenborough Partners and Glenborough Corporation) engaging in such business or activities; or engage in any other businesses and activities, whether the same be competitive with the Partnership, any Operating Limited Partnership (as defined in the Limited Partnership Agreement of Glenborough Partners), Glenborough Partners, the Limited Partner or otherwise, for their own account and for the account of others, without having or incurring any obligation to offer any interest in such properties, businesses or activities to the Partnership or any Partner or Assignee and nothing herein contained shall be deemed to prevent any General Partner or any such Related Person from conducting such other business and activities. Neither the Partnership, nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of a General Partner or any such Related Person. However, all records kept and maintained by the Managing General Partner for the Partnership pursuant to this Agreement shall be maintained separately from those for other operations of the General Partners, including other partnerships for which a General Partner is a general partner. 16 3.6 INDEMNIFICATION OF GENERAL PARTNERS. (A) The General Partners and each of their respective Associates (individually an "Indemnitee") shall, to the fullest extent permitted by law, be indemnified and held harmless by the Partnership from and against all losses, claims, damages, liabilities (joint and several), expenses (including, without limitation, attorneys' fees and expenses, and any expenses of establishing a right to indemnification under this Section 3.6), judgments, fines, settlements and other amounts (collectively "Liability") arising from or incurred in connection with any claim, demand, action, suit or proceeding (including, but not limited to, claims, demands, actions, suits and proceedings by, in the name of or on behalf of, the Partnership), whether civil, criminal, administrative or investigative and whether threatened, pending or completed (collectively "Proceeding") in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of: (i) its status at any time as a General Partner or Associate of a General Partner; (ii) its management of the Partnership; and/or (iii) any act performed or omitted to be performed by it at any time in connection with the business, property or affairs of the Partnership whether or not such Indemnitee continues to be a General Partner or an Associate of a General Partner at the time such Liability is paid or incurred, if: (a) such Liability was not the result of gross negligence or gross misconduct by the Indemnitee, and the Indemnitee determined, in good faith, that the course of conduct which caused the Liability was in the best interests of the Partnership; or (b) a court of competent jurisdiction determines upon application that, despite the fact that the requirements of clause (a) are not satisfied, in view of all the circumstances, the Indemnitee is fairly and reasonably entitled to indemnification for such Liabilities as such court may deem proper. (B) The termination of a Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not determine in good faith that the course of conduct which caused the Liability was in the best interests of the Partnership. (C) Any Liability for which the Partnership and the Indemnitee are jointly liable shall, if the Indemnitee is entitled to indemnification under this Section 3.6, be satisfied first from the assets of the Partnership. The indemnification provided by this Section 3.6 shall be recoverable out of the assets of the Partnership, including any insurance proceeds, and shall not be recoverable out of any other assets of the Limited Partners. (D) Expenses (including attorneys' fees and expenses) incurred in defending any Proceeding shall be paid by the Partnership in advance of the final disposition of such Proceeding 17 upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification as authorized by this Section 3.6. (E) The indemnification provided by this Section 3.6 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, vote of the Partners, as a matter of law or otherwise both as to action in the Indemnitee's capacity as a General Partner or Associate of a General Partner and to action in another capacity, shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee. (F) The Partnership shall, to the extent commercially reasonable, purchase and maintain insurance on behalf of the Indemnitees and such other Persons as the Managing General Partner shall determine against any Liability which may be asserted against or expense which may be incurred by such persons in connection with Partnership activities (including, without limitation, any Proceeding) whether or not the Partnership would have the power to indemnify such persons against such Liability under the provisions of this Agreement. (G) For purposes of this Section 3.6, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by an Indemnitee of its duties to the Partnership also imposes duties on, or otherwise involves services by, an Indemnitee to such plan or participants or beneficiaries of such plan. Excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed a Liability and action taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by an Indemnitee to be in the interests of the participants and beneficiaries of such plan shall be deemed to be for a purpose which is in the best interests of the Partnership. Any payments to an Indemnitee shall be solely from assets of the Partnership and shall not be paid from employee benefit plan assets. (H) An Indemnitee shall not be denied indemnification in whole or in part under this Section 3.6 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies. (I) Notwithstanding the foregoing, an Indemnitee shall not be entitled to indemnification hereunder for any Liability imposed in a Proceeding arising from or out of a violation of state or federal securities laws associated with the offer and sale of Units. Indemnification will be allowed for settlements and related expenses of Proceedings alleging securities law violations, and for 18 expenses incurred in successfully defending such Proceedings, providing that a court either (i) approves the settlement and finds that indemnification of the settlement and related costs should be made; or (ii) approves indemnification of litigation costs if a successful defense is made. (J) If any provision of this Section 3.6, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Section 3.6 and the application thereof shall not be affected thereby, it being the intent of this Section 3.6 to indemnify and hold harmless the Indemnitees to the fullest extent permitted by applicable law. 3.7 OTHER MATTERS CONCERNING GENERAL PARTNERS. (A) Each of the General Partners may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (B) Each of the General Partners may consult with and employ counsel, accountants, appraisers, management consultants, investment bankers and other consultants, advisers and Persons selected by it (who may serve as such for and be employed by the Partnership or any Related Person), and any opinion of such Person as to matters which the General Partner believes to be within that Person's professional or expert competence shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by the General Partner hereunder in good faith and in accordance with such opinion. (C) Each of the General Partners may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents, including, without limitation, any Related Person, and a General Partner shall not be responsible for any misconduct, negligence, or willful act on the part of any agent appointed with due care by any General Partner. (D) Any and all fees, commissions, compensation and other consideration received by a General Partner or a partner, shareholder, director, officer, agent or employee of a General Partner permitted hereunder shall be the exclusive property of the recipient, in which the Partnership shall have no right or claim, and the participation by any such Person in any agreement permitted hereunder shall not constitute a breach by such Person of any duty that it may owe the Partnership or the Limited Partners or Assignees under this Agreement or by operation of law. 19 3.8 AGREEMENTS WITH A GENERAL PARTNER OR A RELATED PERSON. (A) In addition to agreements, arrangements and transactions provided for in or contemplated by this Agreement, a General Partner and any Related Person may, directly or indirectly, deal with the Partnership, including, without limitation, making loans to (but not borrowing from) the Partnership, in connection with carrying out the business of the Partnership or otherwise, as an independent contractor or as an agent for others, and may receive from such others or the Partnership, profits, compensation, commissions or other amounts which the Managing General Partner in good faith believes to be reasonable without having to account to the Partnership therefor, if the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the partner of Glenborough Partners and such agreement or transaction is specifically authorized, approved or ratified by a majority of the Units held by the limited partners of Glenborough Partners. Compliance with the provisions of this Section 3.8 (A) shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any such agreement or transaction. (B) The satisfaction of the following condition shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any agreement or transaction between a General Partner or a Related Person and another Person based upon the assertion of a breach of duty owed to the Partnership by a General Partner or a Related Person in entering into such agreement or transaction: the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the partner of Glenborough Partners and such agreement or transaction is specifically authorized, approved or ratified by a majority of the Units held by the limited partners of Glenborough Partners. 3.9 CONVEYANCES. The Managing General Partner has the express authority to convey title to any Partnership Property by a conveyance executed by the Managing General Partner alone on behalf of the Partnership. ARTICLE 4 COMPENSATION OF GENERAL PARTNERS 4.1 COMPENSATION OF MANAGING GENERAL PARTNER. In consideration of the services rendered by the Managing General Partner in managing the business and affairs of the Partnership, the Partnership shall pay the Managing General Partner fees consisting of the amounts described in Sections 4.2 through 4.7, inclusive. The Managing General Partner may divide, allocate or pay the compensation it receives under this Agreement among its Associates and other Persons, or may assign to or subcontract with 20 other Persons (including Glenborough Corporation) any of its management duties hereunder together with some or all of such compensation, as it determines in its sole discretion. All compensation paid the Managing General Partner shall be paid in United States dollars. 4.2 PROPERTY MANAGEMENT FEE. The Managing General Partner shall be entitled to a fee (the "Property Management Fee") determined as follows: (A) With regard to any Partnership Property leased to multiple tenants, including apartments and condominiums (except as provided in subsection (C) hereof), a sum equal to five percent (5%) of the monthly Gross Receipts collected by the Partnership. For purposes of this Section 4.2, "Gross Receipts" shall mean all rentals and other charges due the Partnership from tenants of Partnership Property, including, without limitation, expense pass-through items such as real property taxes and insurance, and rentals or fees paid for parking. (B) With regard to any non-residential Partnership Property leased to a single tenant, a sum equal to three percent (3%) of the monthly Gross Receipts collected by the Partnership. (C) With regard to any Partnership Property consisting of single-family residences or scattered condominiums, a sum equal to ten percent (10%) of the monthly Gross Receipts collected by the Partnership. (D) The Property Management Fee shall be computed as of the end of each calendar month with respect to the gross receipts of such month and shall be paid to the Managing General Partner as soon as practicable thereafter. 4.3 INCENTIVE FEE. The Managing General Partner shall be entitled to a fee (the "Incentive Fee") determined as follows: (A) An amount equal to one-half of one percent (.5%) of the sum of the monthly weighted average of the fair market value ("Fair Market Value") of the real property (as real property is determined under California law) of the Partnership and the Book Value of all other Partnership Property as determined in accordance with this Section. (B) The Fair Market Value of the Partnership's real property shall be determined in accordance with the following and the provisions of Section 4.3 (D). (1) For the year 1994, with respect to that real property acquired in the Exchange Transaction, it shall be the value thereof established in the Exchange Agreement which, in turn, shall be the value thereof as 21 last determined by the Limited Partner pursuant to the provisions of Section 4.3 of the Amended and Restated Limited Partnership Agreement of the Limited Partner dated as of May 1, 1986, as amended ("Original Value"). (2) For the year 1995, with respect to that real property acquired in the Exchange Transaction, it shall be the Original Value thereof, as increased by the CPI Adjustment, as defined herein ("Adjusted Original Value"). (3) For 1996 and each even-numbered year thereafter, it shall be the appraised value of such real property, as of the end of each such year, as determined by independent appraisals ("Biennial Appraised Value"). (4) For 1997 and each odd-numbered year thereafter, it shall be the most recent Biennial Appraised Value as adjusted by the CPI Adjustment ("Adjusted Biennial Appraised Value"). (5) Where in any year, the Partnership should acquire additional real property, the aggregate prices paid therefor by the Partnership shall, subject to the provisions of subsection (E) hereof, be added to the Original Value, Adjusted Original Value, Biennial Appraised Value or Adjusted Biennial Appraised Value for such year, as appropriate, the sum of the two being hereafter referred to as the "Base Value". (C) The CPI Adjustment shall be the adjustment described in Section 4.3(D) and shall be determined by utilizing the Consumer Price Index for All Urban Consumers of All Items for the United States (base year 1982 - 1984 = 100), published by the United States Department of Labor, Bureau of Labor Statistics ("CPI Index"). For those years in which the CPI Adjustment is to be made, the beginning index ("Beginning Index") shall be the CPI Index for the month of December of the prior year and the extension index ("Extension Index") shall be the CPI Index for the month of December of that year. (D) If the Extension Index has increased over the Beginning Index, the Fair Market Value shall be determined by multiplying the Base Value of the real estate for such year by a fraction, the numerator of which is the Extension Index, and the denominator of which is the Beginning Index. In no case shall the Fair Market Value of real property for an odd-numbered year be less than the Base Value thereof for that year. If the CPI Index is changed so that the base year differs from that used for the Beginning Index, the CPI Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the CPI Index is discontinued or revised, 22 such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the CPI Index had not been discontinued or revised. (E) The Fair Market Value of the Partnership real property and the Book Value of all other Partnership Property shall be determined on a monthly weighted average basis to reflect the period of ownership of such Partnership Property for such year. The monthly weighted average for the first and last year of the Partnership shall be based on a denominator equal to the number of months of existence of the Partnership in such year. (F) The Incentive Fee shall be paid to the Managing General Partner on a monthly basis by taking one-twelfth (1/12th) of the Incentive Fee based on the most recent Fair Market Value determination hereunder; except that at the end of each year, the Incentive Fee for that year shall be recomputed as herein provided, and the Managing General Partner shall thereupon be entitled to the balance of the Incentive Fee. Any overpayment of the Incentive Fee shall be deducted from the next monthly payments of the Incentive Fee to fall due for the following year. (G) The Incentive Fee shall be paid to the Managing General Partner only to the extent that the combined Net Operating Cash Flow of the Partnership, the Limited Partner, and all other partnerships included within the definition of an Operating Limited Partnership as that term is defined in Section 1.1 of the Limited Partnership Agreement of Glenborough Partners during such year exceeds an amount equal to one dollar and fifty cents ($1.50) multiplied by the monthly weighted average number of the outstanding limited partnership Units. To the extent the Incentive Fee cannot be paid for any year it shall lapse. 4.4 TRANSACTION FEE. (A) The Managing General Partner shall be entitled to a fee upon the sale, exchange or purchase of any property of the Partnership equal to two percent (2%) of the sale proceeds or the purchase price (the "Transaction Fee"); provided, however, that no Transaction Fee shall be payable on such transactions with Affiliates or for sales in which the Managing General Partner participates in real estate commissions as set forth in Section 4.12 hereof. The sale proceeds or the purchase price of the property shall be the total of all consideration received or paid, as the case may be, including, but not limited to, all cash, the principal amount of any note or promise to pay, and the fair market value of any other property paid or transferred in connection with the sale or purchase. For purposes of this Section 4.4, an exchange shall be deemed one transaction. The principal amount of a note or promise to pay bearing no interest or interest at other than market rates shall be adjusted as provided in Section 4.4(B) 23 in computing the sale proceeds or the purchase price to reflect market interest rates. In addition, the entry into a lease of real property or improvements to real property (other than a lease of office space required for administration of the Partnership) by the Partnership, as lessee, shall be deemed a purchase and the present value of the lease payments over the term of the lease, excluding any option periods and any increases in payments which cannot be calculated at the time of the entry into the lease, discounted at the interest rate on five-year Treasury Notes, or comparable indices if five-year Treasury Notes are no longer customarily quoted ("Adjustment Index"), prevailing on the date of entry into the lease, shall be deemed the purchase price on which the Transaction Fee shall be computed. The exercise by the Partnership or any other Person of any option to purchase and the consummation of such purchase, whether or not related to any lease, shall be deemed a separate transaction for purposes of the application and computation of the Transaction Fee under this Section 4.4 (B) ADJUSTMENT METHOD. Except as may be otherwise specified, the principal amount of any note or promise to pay required to be adjusted under Section 4.4(A) shall be adjusted in accordance with the same principles used by the Partnership for financial reporting purposes and shall be based on the Adjustment Index, defined in Section 4.4(A) above. (C) PAYMENT. The Transaction Fee shall be paid as soon as practicable after consummation of the transaction with respect to which the fee is accrued. 4.5 REFINANCING FEE. The Managing General Partner shall be entitled to a fee ("Refinancing Fee") equal to one percent (1%) of the net loan refinancing proceeds received from third Persons on the refinancing of any Partnership Property, but only if the refinancing results in: (A) A new loan with a materially lower interest rate or better payment terms; or (B) Proceeds which are available for other Partnership purposes; or (C) Funds for the repayment of an existing loan that is due or will become due in the near future. The amount of net loan refinancing proceeds shall equal the principal amount of the loan less points, loan processing fees and other loan costs. The Refinancing Fee shall be paid to the Managing General Partner as soon as practicable after the loan refinancing proceeds have been made available to the Partnership. 4.6 NO REPAYMENT. The Managing General Partner shall not be required to return to the Partnership all or any part of any fee 24 properly computed and paid to it, notwithstanding any subsequent event. 4.7 ACCRUAL UPON CHANGE IN MANAGING GENERAL PARTNER. If the Managing General Partner ceases to serve in that capacity as of any day (the "Termination Date") for any reason, the Property Management Fee and the Incentive Fee shall be accrued on a prorata daily basis to and including the Termination Date. The Property Management Fee and the Incentive Fee payable to any new Managing General Partner shall accrue from and after the Termination Date. The Property Management Fee and the Incentive Fee shall be paid to the Managing General Partner at such time as it would otherwise be payable for the period in which the Termination Date occurs. 4.8 JOINT VENTURES. References herein to any property acquired, owned or disposed of by the Partnership shall include the Partnership's interest from time to time in any underlying property held by any joint venture, partnership or other entity or form of ownership in which the Partnership has an interest ("Partnership's Share in Underlying Property"). Without limiting the generality of the foregoing, the Property Management Fee, Incentive Fee, Transaction Fee, and any other fee which may become payable to the Managing General Partner shall apply to and be based upon not only any wholly-owned property, but also the Partnership's Share in Underlying Property. There shall, however, be no duplication of fees as a consequence of this provision. 4.9 CHANGE IN COMPENSATION. With the approval of holders of the Units held by limited partners of Glenborough Partners in accordance with Section 3.8, the Managing General Partner may propose and effect any additional or substitute compensation plans or arrangements for compensation to be paid to it as Managing General Partner; provided, however, that in voting on such matters (as well as the amendment of this Section), the General Partners and Glenborough Partners and their respective Affiliates shall vote their interests for, against, or abstain in the same proportion as all other limited partners of Glenborough Partners vote for, against, or abstain on such matters and provided further, that there shall be no retroactive changes in the compensation paid to the Managing General Partner. 4.10 FRINGE BENEFITS. At the expense of the Partnership, any officer or employee of the Managing General Partner who performs services for the Managing General Partner in connection with the conduct of Partnership business shall be entitled to participate in any health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance or any other plans, trusts or provisions, or any other employee benefit plans or arrangements established by the Partnership, as if such officer or employee were an officer or employee of the Partnership. 4.11 EXPENSES OF GENERAL PARTNER. The Partnership shall pay 25 all expenses, disbursements and advances reasonably incurred by the General Partners and their Affiliates in connection with the organization of the Partnership and the conduct of Partnership business, including, without limitation, office expenses, secretarial expenses, software acquisition, data processing services and expenses for entertainment, travel and similar items, including amounts paid to any Person employed or retained to perform services for the Partnership. The Partnership shall promptly reimburse the General Partners and their Affiliates for any such items paid by the General Partners or their Affiliates. The General Partners and their Affiliates shall also receive a reasonable reimbursement for their general and administrative costs allocable to the management and operation of the Partnership, as determined by the Managing General Partner in its discretion; provided, however, that such costs shall be reasonable in amount and necessary to the functions of the Partnership. Such costs shall include salaries and compensation of legal and leasing personnel, and costs incurred in connection with servicing Partnership notes receivable, but shall exclude salaries and compensation of the officers and directors of any General Partner. 4.12 COMMISSIONS ON CERTAIN SALES. The Managing General Partner or an Affiliate thereof, shall be entitled to receive a commission upon the sale of single-family residences (but not including condominiums or residential units sold in bulk), where substantial services have been rendered in connection with such sale. Such commission shall be an amount equal to a maximum of four percent (4%) of the sale proceeds where no third Person is employed in connection with the sale of the Partnership Property and a minimum of two percent (2%) of the sale proceeds where a third Person or Persons are employed in connection with the sale of Partnership Property; provided, however, that in no event shall the total commission paid to all Persons in connection with the sale of such Partnership Property be less than four percent (4%) or more than seven percent (7%) of the sale proceeds (as that term is defined in Section 4.4(A)). ARTICLE 5 THE LIMITED PARTNERS, ASSIGNEES AND TRANSFERREES 5.1 LIMITED LIABILITY. No Limited Partner or Assignee (unless such Limited Partner or Assignee is a General Partner or otherwise participates in the control of the business of the Partnership) shall be personally liable for any of the debts of the Partnership or for any Net Losses beyond the amount of the Capital Contribution made or agreed to be made to the Partnership by the Limited Partner or Assignee and any undistributed Net Income allocated to the Limited Partner or Assignee. However, to the extent required by law, each Limited Partner or Assignee receiving any actual or constructive distribution may be liable to return such distribution if and to the extent that, immediately after 26 giving effect to the distribution, all liabilities of the Partnership, other than liabilities to Partners or Assignees on account of their interest in the Partnership and liabilities as to which recourse of creditors is limited to specific property of the Partnership, exceed the fair value of the Partnership Property; provided, however, that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is so limited shall be included in the Partnership Property for purposes of this sentence only to the extent that the fair value of such Partnership Property exceeds such liability. Any Limited Partner returning all or any part of a distribution actually received by an Assignee or successor of the Limited Partner shall be subrogated to the Partnership's right to seek a return to the Partnership of the distribution from the Assignee or such successor. In no event shall any Limited Partner or Assignee be obligated under any circumstances to make any Capital Contribution to the Partnership for any purpose whatsoever, other than Capital Contributions described in Article 7. 5.2 RESTRICTIONS ON LIMITED PARTNERS AND ASSIGNEES. (A) No Limited Partner or Assignee shall participate as such in the management and control of the business of the Partnership, transact any business for the Partnership, or attempt to do so, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person employed or engaged to transact any such business by or on behalf of the Managing General Partner or the Partnership. The transaction of any such business by a Limited Partner or Assignee employed or engaged to do so by or on behalf of the Managing General Partner or the Partnership shall not be in his, her or its capacity as Limited Partner or Assignee and shall not affect, impair or eliminate the limitations on the liability of the Limited Partner or Assignee under this Agreement. (B) No Limited Partner or Assignee shall have the power to represent, sign for or bind the Managing General Partner, any other General Partner or the Partnership, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person given such power by the Managing General Partner. 5.3 OUTSIDE ACTIVITIES. A Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership. Neither the Partnership nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of any other Limited Partner or Assignee. 5.4 NO WITHDRAWAL OR DISSOLUTION. No Limited Partner shall at any time withdraw from the Partnership, except as provided in 27 this Agreement. No Limited Partner shall have the right to have the Partnership dissolved or the right to a Return of Capital from the Partnership, except as provided in this Agreement. The legal incompetency, bankruptcy, insolvency, termination, dissolution, withdrawal or death of a Limited Partner shall not cause a dissolution of the Partnership. 5.5 ASSIGNEES. The creation of Assignees pursuant to Section 11.2 does not dissolve the Partnership. An Assignee may become a Substituted Limited Partner as provided in Section 12.1. Until an Assignee becomes a Substituted Limited Partner, the Assignee has no right to notice of or to vote at any meeting of Partners or upon any matters upon which Limited Partners may vote, to require any information or account of Partnership transactions or to inspect Partnership books, and is otherwise subject to the limitations under the Act on the rights of an Assignee who has not become a Substituted Limited Partner. An Assignee has the rights and obligations appurtenant to a Unit to share in the Net Income and Net Losses of the Partnership and to receive distributions. 5.6 TRANSFEREES. An assignment of a Limited Partner's Interests does not dissolve the Partnership or entitle the transferee to become or to exercise any rights of a Limited Partner. The transferee has the right to become a Substituted Limited Partner pursuant to an assignment as provided in Section 12.1. A Limited Partner remains a Limited Partner upon transfer of all or part of the Limited Partner's Interests until the transferee becomes a Substituted Limited Partner pursuant to Section 12.1. A transferee who does not become a Substituted Limited Partner has no right to notice of or to vote at any meeting of Partners or upon any matters upon which a Limited Partner may vote, to require any information or account of Partnership transactions or to inspect the Partnership books, and is otherwise subject to the limitations under the Act on the rights of a transferee or Assignee who has not become a Substituted Limited Partner. Any distribution or payment to the Partner or Assignee of record or the personal representative of such Partner or Assignee shall acquit the Partnership of liability to the extent of such payment to any person who may have an interest in such payment by reason of an assignment by the Partner or Assignee or the successors or assignees of the Partner or Assignee, or by reason of the death of such Partner or Assignee or otherwise. ARTICLE 6 APPROVAL BY LIMITED PARTNERS; AMENDMENTS 6.1 APPROVAL BY LIMITED PARTNER. Subject to Sections 6.2 and 6.3, the approval of a Majority Interest shall be required only for the matters specified below (including, however, without limitation, those matters on which limited partners are given the right to vote under the Act) and no other matters: 28 (A) The following actions may be taken by the Managing General Partner only with the affirmative vote of a Majority Interest: (1) the sale, exchange, lease or other transfer (other than encumbrances) of all or substantially all of the assets of the Partnership in a single transaction or in multiple interrelated transactions, except in the liquidation and winding up of the business of the Partnership upon its dissolution. For purposes of this subsection, "substantially all of the assets of the Partnership" shall mean ninety percent (90%) of the asset value of the Partnership Property, as determined in accordance with generally-accepted accounting principles, at the end of the most recently completed fiscal quarter of the Partnership; (2) the dissolution of the Partnership, other than pursuant to Sections 14.1(A), (B), (C) and (E); (3) an election to continue the business of the Partnership other than after there is no remaining or surviving General Partner; (4) an amendment to this Agreement, including, without limitation, an amendment extending the term of this Agreement, except for amendments described in Sections 6.3 and 6.4; (5) Any matter requiring approval of the holders of Units of Glenborough Partners pursuant to Section 3.8. (B) A General Partner may be removed only with the approval of a Majority Interest. (C) Except under circumstances described in clause (D), a new General Partner may be admitted with only the approval of a Majority Interest and with the separate concurrence of the other General Partner(s). (D) If there is no remaining or surviving General Partner, a new General Partner(s) may be admitted or an election to continue the business of the Partnership may be made only upon the approval of all the Limited Partners. 6.2 RIGHTS CONDITIONAL. The rights set forth in Section 6.1 (A) shall not be exercised unless the Partnership shall have received the written opinion of counsel for the Partnership to the effect that the exercise of such right or the action proposed to be taken with respect to any particular matter: (A) shall not cause the Limited Partner to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to subject the Limited Partner or Assignees to unlimited liability therefor; (B) will not jeopardize the status of 29 the Partnership as a partnership under applicable tax laws and regulations; or (C) is otherwise permissible under the state statutes then governing the rights, duties and liabilities of the Partnership and the Partners and Assignees. If counsel for the Partnership has indicated that it is unable or unwilling to deliver such an opinion, the Managing General Partner may take any action described in Section 6.1 (A) without the need for approval of the Limited Partner, provided that such action is not otherwise prohibited by this Agreement or by law. 6.3 AMENDMENTS BY THE MANAGING GENERAL PARTNER. Subject to Section 6.4, the Managing General Partner may, without prior notice to or consent of any Partner or Assignee, amend any provision of this Agreement: (A) to cure any ambiguity, omission, defect or inconsistency; (B) if in its opinion such amendment does not have a materially adverse effect upon the Limited Partners and Assignees or the Partnership, as the case may be; or (C) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership or the General Partners or the partners, directors or officers of a General Partner from being in any manner subject to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed by the Department of Labor; or (D) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership from being taxable as a corporation under the Code. A copy of such amendment shall thereafter be furnished promptly to the Limited Partner and Assignees. In the event an amendment shall have been approved pursuant to this Section 6.3, the Managing General Partner and, if necessary, the Limited Partner, shall execute such amendment, certificate and other documents as may be reasonably required for the purpose of effectuating the same. 6.4 PROHIBITED AMENDMENTS. Except with the unanimous consent of all Partners, no amendments shall modify the provisions regarding amendment of this Agreement or the liabilities of the Partners or change the form of Partnership to a general partnership. ARTICLE 7 CAPITAL CONTRIBUTIONS AND INITIAL ISSUANCE OF INTERESTS 7.1 CASH CAPITAL CONTRIBUTIONS. The initial capital of the Partnership shall consist of One Thousand Dollars ($1,000), which the Partners have heretofore contributed in cash to the capital of the Partnership as follows: 30 GENERAL PARTNERS Glenborough Realty Corporation...... ............................. $ 1 Robert Batinovich................................................. $ 9 LIMITED PARTNER Robert Batinovich................................................ $990 Upon completion of the Exchange Transaction, these cash contributions shall be refunded to the General Partners and the Limited Partner. 7.2 CONTRIBUTION BY PARTNERS. On the Closing Date, the Partners shall contribute to the Partnership Property, including the Exchange Assets, as follows: (A) The Limited Partner shall, in accordance with the Exchange Agreement, contribute the Exchange Assets at the Exchange Values. (B) The General Partners shall not be required to contribute to the Partnership; provided, however, that in consideration of services rendered, the General Partners shall, in the respective shares shown in Section 7.1, receive and hold a one percent (1%) interest in the Net Income and Net Loss of the Partnership, including a one percent (1%) interest in cash items of Partnership income, gain, loss, deduction or Tax Credits. (C) For purposes of this Section 7.2, the value of the Exchange Assets shall be deemed to equal one hundred percent (100%) of the Partnership's net assets as of the Closing Date. 7.3 DISTRIBUTION OF INTERESTS. (A) Effective as of the Closing Date and in consideration of the transfer provided in Section 7.2 (A), the Partnership shall issue to the Limited Partner 990 Interests. Thereafter, interests of the Limited Partner in the Partnership shall be represented and expressed in terms of Interests. (B) In consideration for services and to represent the General Partners' interest in the Partnership provided for in Section 7.2 (B), the Partnership shall issue 10 Interests to the General Partners in the proportions provided for in Section 7.1. (C) After the issuance of Interests provided for in 7.3 (A) and (B) above, Interests shall be held one percent by the General Partners and ninety-nine percent (99%) by the Limited Partner. 31 7.4 GENERAL PARTNER INTERESTS. The Interests issued to the Managing General Partner and Robert Batinovich as General Partners, shall be designated as General Partner Interests. 7.5 DISTRIBUTION OF CAPITAL. A Partner or Assignee shall be entitled to a distribution which constitutes a Return of Capital from time to time throughout the duration of the Partnership in such amounts and at such times as the Managing General Partner, in its sole discretion, deems appropriate. Such distributions shall be made only if the conditions specified in Section 9.1 have been met or as provided in Section 7.1 with respect to the initial $1,000 cash contribution. 7.6 NO INTEREST ON CAPITAL CONTRIBUTION. Partners and Assignees shall not receive interest on or with respect to all or any part of their Capital Contributions. 7.7 CREDITOR'S INTEREST IN THE PARTNERSHIP. No creditor who makes a loan to the Partnership shall have or acquire at any time as a result of making the loan, any direct or indirect interest in the profits, capital or property of the Partnership other than as a creditor. 7.8 NATURE OF INTERESTS. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and none of the Partners shall have any direct ownership of such property. 7.9 ONE PERCENT INTEREST OF GENERAL PARTNERS AND ADDITIONAL CAPITAL CONTRIBUTIONS. Notwithstanding anything to the contrary that may be expressed or implied herein, the interests of all of the General Partners, taken together, in each material item of Partnership income, gain, loss, deduction or Tax Credits, as provided by Section 8.1, will be equal to at least one percent (1%) of each such item at all times during the existence of the Partnership. In determining the General Partners' interests in such items, interests held by the General Partners as general partners of the Limited Partner or of any Operating Limited Partnership, as defined in the Limited Partnership Agreement of Glenborough Partners and Units owned by the General Partners shall not be taken into account. Additional Capital Contributions shall be made to the Partnership only with the approval of all Partners. If additional Capital Contributions are made, such Capital Contributions shall be made by each Partner in accordance with its Allocable Share; provided, however, that the General Partners shall, at all times, be deemed to own as General Partners (in the respective percentages set forth in Section 7.1, one percent (1%) of the outstanding interests in the Partnership and no further contribution or consideration shall be required of the General Partners for their General Partner interests. Additional Interests shall be issued to evidence such additional capital contributions 32 and to maintain the General Partners' interest as aforesaid. If property other than cash is contributed, the Managing General Partner shall determine the value of such property. ARTICLE 8 ALLOCATION OF NET INCOME, NET LOSS AND TAX CREDITS 8.1 GENERAL ALLOCATION. (A) Net Income and Net Loss for each month shall be determined by the Partnership and allocated among the Partners and Assignees in accordance with their Allocable Shares. (B) For federal, state or other tax purposes, all items of income, gain, loss or deduction and all Tax Credits (including any such items arising from a joint venture or a partnership in which the Partnership has an interest) shall be determined using the accounting method designated by the Managing General Partner and shall be allocated to the Partners and Assignees in accordance with their Allocable Shares, subject to the provisions and adjustments described in this subsection. If the Partnership is deemed to have been terminated and reformulated pursuant to Section 708 of the Code, depreciation, depletion, gain or loss shall be allocated among the Partners and Assignees so as to take account of the variation between the basis of property deemed contributed to the Partnership by each Partner or Assignee at the time of its reformulation and the fair market value of such property at the time of such contribution pursuant to Section 704(c) of the Code. Depreciation, depletion, gain or loss (including the tax consequences of any basis reduction made by a contributing Partner under Code Sections 108, 483 and 1274) with respect to property contributed to the Partnership shall be allocated among the Partners and Assignees to the extent required under Section 704(c) of the Code and Treasury Regulations promulgated under Code Section 704(b) and (c) so as to take into account, for tax purposes, the difference between the basis of such property and its initial Book Value. The Managing General Partner is authorized to adopt such methods of allocating such items, consistent with applicable law and Regulations. 8.2 ALLOCATION ON TRANSFER. The Partnership shall use the monthly convention specified in the Conference Committee Report to Section 72 of the Tax Reform Act of 1984 in determining allocations on transfer. Under this convention, Interest transfers after the 15th day of a month shall be treated as occurring immediately after the close of business of the last day of the month, and Interest transfers during the first fifteen (15) days of a month shall be treated as occurring immediately before the opening of business of the first day of the month. 33 ARTICLE 9 CASH DISTRIBUTIONS 9.1 TIME AND AMOUNT OF CASH DISTRIBUTIONS. (A) As of the close of each fiscal quarter and each fiscal year, and at any other time the Managing General Partner deems appropriate, the Cash Available for Distribution shall be calculated and, if the Managing General Partner deems appropriate in its sole discretion, all or any portion thereof shall be distributed to the Partners and Assignees of record on the Record Date set for the distribution, and each Partner and Assignee shall receive his Allocable Share thereof. (B) Notwithstanding the provisions of Section 9.1(A), any distribution shall be made only if: (1) All liabilities of the Partnership, except liabilities to the General Partners and to the Limited Partner and Assignees on account of the Capital Contribution and liabilities as to which recourse of creditors is limited to specified property, have been paid or after such distribution, there will remain Partnership Property with a fair value sufficient to pay such liabilities, provided that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is limited shall be included in Partnership Property for purposes of this subsection only to the extent that the fair value of such Partnership Property exceeds such liability; (2) The Managing General Partner determines in good faith that such distributions may be made without materially affecting the ability of the Partnership to pay obligations (including contingent liabilities) of the Partnership as they fall due; and (3) Such distribution may be made without violating any provision of the Act. (C) Nothing in this Agreement or this Section shall serve as a limitation on the Managing General Partner's right to retain or use the Partnership's assets or its revenues as, in the opinion of the Managing General Partner, may be required to satisfy the anticipated present and future cash needs of the Partnership, whether for operations, liabilities, expansion, improvements, acquisition or otherwise. 9.2 DISTRIBUTIONS OF PARTNERSHIP PROPERTY. In its sole discretion, the Managing General Partner may distribute to Partners and Assignees, Partnership Property other than Cash Available for Distribution. In its sole discretion, the Managing General Partner 34 may distribute to Partners and Assignees additional Interests or securities of the Partnership which have been authorized and issued pursuant to the terms of this Agreement. ARTICLE 10 ACCOUNTING AND REPORTS 10.1 FISCAL YEAR. The fiscal year of the Partnership shall end on December 31 of each year, unless the Managing General Partner determines that it is in the best interest of the Partnership and its Partners to utilize a different fiscal year and the permission of the Internal Revenue Service has been obtained. 10.2 REPORTS. (A) As soon as practicable, but in no event later than ninety (90) days, after the close of the calendar year, the Managing General Partner shall prepare or cause to be prepared and furnish to each Person who was a Partner or Assignee of record during the Partnership's fiscal year, the information reasonably necessary for the preparation of such Person's United States federal income tax return and any state or local income or other tax returns required of such Person as a result of the operations of the Partnership. The Partners and Assignees agree to furnish the Managing General Partner with such information as may be necessary or helpful in preparing the tax returns or other filings of the Partnership. (B) As soon as practicable, but in no event later than one hundred twenty (120) days after the close of each fiscal year, the Managing General Partner shall mail or deliver to each Partner and each Assignee of record an annual report containing financial statements of the Partnership (which may be consolidated with the financial statements of the Limited Partner) for the fiscal year, including a balance sheet and statements of operations, changes in Partners' equity and changes in financial position at the end of or for the most recent fiscal year. Such statements are to be prepared in accordance with generally-accepted accounting principles and shall include the opinion of a firm of independent public accountants selected by the Managing General Partner, and are to be accompanied by a supplementary summary (except as disclosed in the financial statements), by classification of the total fees and compensation, including any overhead reimbursement and indemnification, paid by the Partnership, directly or indirectly, to the General Partners. (C) If and to the extent required by the Act or applicable state or federal securities laws, as soon as practicable, but in no event later than sixty (60) days after the close of each fiscal quarter, except the last fiscal quarter of each fiscal year, the Managing General Partner shall mail or otherwise furnish to each Partner and Assignee of record a quarterly report for the fiscal 35 quarter containing such financial and other information (which may be condensed, including statements of operations for such fiscal quarter and since the end of the last fiscal year, a balance sheet at the end of such period and a certificate of the Managing General Partner to the effect that such financial statements were prepared without audit from the books and records of the Partnership) as the Managing General Partner deems appropriate. 10.3 TAX ELECTIONS. The Managing General Partner shall, in its sole discretion, and as it deems in the best interests of the Partnership or the Partners and Assignees, determine whether to make any available election and how to make any necessary allocation for federal, state, local or other income tax purposes. 10.4 BOOKS AND RECORDS. The Managing General Partner shall maintain all records necessary for documenting and reporting the business and affairs of the Partnership. The Managing General Partner shall maintain at the office of the Partnership specified in Section 2.4: (A) a current list of the full name and last-known business or residence address of each Partner and Assignee set forth in alphabetical order together with the contribution and the share in profits and losses of each Partner and Assignee; (B) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been executed; (C) copies of the Partnership's federal, state and local income tax or information returns and reports, if any, for the six most recent taxable years or for such shorter time as the Partnership has been in existence; (D) the original Agreement and all amendments thereto; (E) copies of the financial statements of the Partnership for the six most recent fiscal years or for such shorter time as the Partnership has been in existence; and (F) the Partnership's books and records for at least the current and past three fiscal years or for such shorter time as the Partnership has been in existence. Any records maintained by the Partnership in the regular course of its business, including the record of the holders of Interests, books of account, and records of Partnership proceedings may be kept on, or be in the form of punch cards, magnetic media, photographs, micrographics, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable period of time. Except for information kept confidential by the Managing General Partner pursuant to the power described in Section 3.3(T), all books, financial records, reports and accounts shall be open to inspection by any Partner or duly authorized representative of the Partner on reasonable notice during normal business hours, for any purpose reasonably related to the Partner's interest as a Partner, and the Partner or the representatives at the expense of the Partner shall have the further right to make copies or excerpts therefrom; provided, however, that a copy of the information described in clauses (A),(B),(C) and (D) of the second sentence of this Section 10.4 shall be promptly delivered by the Managing 36 General Partner, at the expense of the Partnership, to any Partner requesting such information. The Partner and the Partner's representatives shall not divulge to any Person any confidential or proprietary data, information or property or any trade secrets of the Partnership. 10.5 BANK ACCOUNTS. The Partnership shall establish and maintain accounts in financial institutions (including, without limitation, national or state banks, trust companies, or savings and loan institutions) in such amounts as the Managing General Partner may deem necessary from time to time. Partnership funds shall not be commingled with the funds of, or used as a compensating balance on behalf of, any General Partner or any other Person. Checks shall be drawn on and withdrawals of funds shall be made from any such accounts for Partnership purposes and shall be signed by the Person or Persons designated by the Managing General Partner. Temporary surplus funds of the Partnership may be invested in commercial paper, time deposits, short-term government obligations or other investments as shall be determined by the Managing General Partner. ARTICLE 11 TRANSFER OF INTERESTS 11.1 TRANSFER OF INTERESTS. (A) The term "transfer" when used in this Article with respect to a Unit includes a sale, assignment, gift, exchange, or any other disposition. (B) General Partner Interests are nontransferable without the consent of all Partners except as provided in Article 7 and Section 13.1. The Limited Partner hereby consents to any transfer pursuant thereto. (C) Interests held by Limited Partners are nontransferable without the consent of all Partners. ARTICLE 12 ADMISSION OF SUBSTITUTED AND ADDITIONAL LIMITED PARTNERS 12.1 ADMISSION OF SUBSTITUTED LIMITED PARTNERS. A Limited Partner shall have the power to give the transferee of such Person's Interests the right to become a Substituted Limited Partner in the manner permitted in this Agreement. An Assignee or transferee of an Interest may apply to become a Substituted Limited Partner with respect to such Interest by executing and delivering a Request and Power in form approved by the Managing General Partner. Upon receipt by the Partnership of a completed and executed Request and Power, the name of the transferee shall be 37 added to the list of Limited Partners maintained by the Partnership, whereupon such transferee shall become a Substituted Limited Partner. 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS. A Person other than a General Partner (acting in its capacity as a General Partner), the Limited Partner or a substituted Limited Partner who makes a contribution to the capital of the Partnership in a manner permitted by the terms of this Agreement may, with the approval of the Managing General Partner, be admitted to the Partnership as an Additional Limited Partner upon furnishing to the Managing General Partner: (A) a Request and Power; and (B) such other documents or instruments as may be required in order to effect admission as a Limited Partner. Upon receipt of such documents, the Partnership shall add the name of such Person to the list of Partners maintained by the Partnership, whereupon such Person shall become an additional Limited Partner. ARTICLE 13 REMOVAL, RESIGNATION OR WITHDRAWAL OF GENERAL PARTNER 13.1 REMOVAL OF GENERAL PARTNER. A General Partner may be removed from office as provided in Section 6.1 and shall be removed if such General Partner is removed as general partner of the Limited Partner or Glenborough Partners. Such removal shall take effect sixty (60) days from the date of the action by the Limited Partner. At such time, the assets, books and records of the Partnership shall be surrendered to the remaining or successor General Partner(s), provided that the remaining or successor General Partner(s) shall: (A) hold or have acquired sufficient General Partner Interests (which shall be obtained from the removed General Partner) so that the General Partner(s) who will continue to serve as General Partner(s) hold and have designated, in the aggregate, at least a one percent (1%) interest in the Partnership as General Partner(s); and (B) have complied with the provisions of Section 13.4. If such removal dissolves the Partnership, then the Partnership shall be reconstituted and its business shall be continued with any remaining and successor General Partner(s) as the General Partner(s) thereof, and they shall have the exclusive right to possess Partnership Property to continue the business of the Partnership. Removal of a General Partner shall not prejudice the rights of the removed General Partner to compensation pursuant to Article 4 accrued as of the date the removal takes effect. The value of a removed General Partner's Interest shall be agreed to by all Partners. 13.2 WITHDRAWAL. A General Partner may withdraw, resign or retire on ninety (90) days' advance written notice to the Partners. A General Partner shall cease to be a General Partner on the effective date of its or his withdrawal, resignation or retirement. 38 13.3 DISSOLUTION OR BANKRUPTCY OF GENERAL PARTNER. A General Partner shall cease to be a General Partner upon the happening of any of the following events: (A) The dissolution of the General Partner or, if the General Partner is an individual, the death of the General Partner or the entry by a court of competent jurisdiction of an order adjudicating the General Partner incompetent to manage his person or estate; (B) The General Partner: (1) makes a general assignment for the benefit of creditors; (2) commences a voluntary case under the federal bankruptcy law; (3) files a petition or answer seeking for the General Partner any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation; (4) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in any proceeding of the nature described in clause (3); or (5) seeks, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties; (C) An order for relief against the General Partner is entered under Chapter 7 or 11 of the federal bankruptcy law; (D) Sixty (60) days after the commencement of any proceeding against the General Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, if the proceeding has not been dismissed; (E) Sixty (60) days after the appointment without the General Partner's consent or acquiescence of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties, if the appointment is not vacated or stayed, or sixty (60) days after the expiration of any such stay, if the appointment is not vacated; or (F) Upon the General Partner ceasing to be a general partner of either the Limited Partner or Glenborough Partners for any reason other than the dissolution of that partnership provided that there is no longer an Affiliate of a General Partner serving as a general partner of such partnership. 13.4 LIABILITY AND RIGHTS. A General Partner shall be discharged from, and the Partnership or any Person or Persons continuing the business of the Partnership in the event it has been dissolved, shall assume and pay, as they mature, all Partnership obligations and liabilities that exist on the date of such General Partner's removal from the Partnership or on the date on which it or he ceases to be a General Partner under Sections 13.2 or 13.3, and shall hold such General Partner harmless from any action or 39 claim arising or alleged to arise from obligations and liabilities accruing after such date; provided, however, that nothing in this Section 13.4 shall relieve or discharge, nor shall the Partnership indemnify or hold harmless, such General Partner from any individual obligation or liability of such General Partner (as distinguished from a Partnership obligation or liability) to the Partnership or third parties. On the date of removal of a General Partner or the date on which it ceases to be a General Partner under Sections 13.2 or 13.3, or as soon thereafter as possible, the Partnership or any Person or Persons continuing the business of the Partnership shall file an amendment to the Certificate of Limited Partnership reflecting the removal of the General Partner or the fact that the General Partner has ceased to be a General Partner. The Partnership or any such Person or Persons continuing the business of the Partnership shall promptly notify all creditors of the Partnership as of such date: (A) of the removal of such General Partner and the resulting dissolution of the Partnership (if the Partnership has dissolved) or of the General Partner ceasing to be a General Partner pursuant to Sections 13.2 or 13.3, as the case may be; (B) that such General Partner shall not be personally liable for the Partnership's obligations and liabilities after such date; and (C) if applicable, of the assumption of all the Partnership's obligations and liabilities by the Partnership or such Person or Persons continuing the business of the Partnership. The Partnership or such Person or Persons continuing the business of the Partnership (if the Partnership has dissolved) shall use its or their best efforts to procure and execute an agreement from creditors of the Partnership discharging such General Partner from liability to such creditors as of the date the General Partner is removed or ceases to be a General Partner. Such General Partner shall have the same rights to inspect and make copies or excerpts of the books and records of the Partnership as is provided to Partners pursuant to Section 10.4 until all amounts due such General Partner as of the date the General Partner is removed or ceases to be a General Partner pursuant to Section 3.6 and Article 4 have been paid. The General Partner shall be a creditor of the Partnership as to all such amounts owed to it or him by the Partnership. Any General Partner Interests held by a General Partner after it or he has been removed, or it or he ceases to be a General Partner, shall be transferred to such Person or Persons who remain as or succeed such General Partner as General Partner(s). 13.5 SUCCESSOR AND PREDECESSOR GENERAL PARTNERS. Unless a General Partner has been dissolved because of bankruptcy, insolvency, liquidation or ceases to be a General Partner because of death, disability, incapacity or incompetency or unless a General Partner has been removed as General Partner, upon dissolution of a General Partner, any Person continuing the business of the General Partner so affected shall immediately become a General Partner of the Partnership (and shall become Managing General Partner if the General Partner so affected was the 40 Managing General Partner) without any action or vote of any Person. If any dissolution of a General Partner causes a dissolution of the Partnership, then the Partnership shall be reformed and reconstituted and its business continued as provided in this Section and Article 14. If it is necessary or advisable to reform and reconstitute the Partnership and to continue its business, the remaining and successor General Partners shall elect to reform and reconstitute the Partnership and to continue its business. When any Person ceases to be a General Partner under this Agreement or a partner, shareholder, director, officer, employee or agent of a General Partner, that Person shall continue to have the benefit of any provisions of this Agreement providing for indemnity, exculpation or insurance which protected such Person as a General Partner or a partner, shareholder, director, officer, employee or agent of a General Partner, or which limited or defined the liability of such Person. ARTICLE 14 DISSOLUTION, WINDING UP AND LIQUIDATION 14.1 DISSOLUTION. The Partnership shall be dissolved at the expiration of the term of the Partnership set forth in Section 2.5; provided, however, that the Partnership shall be dissolved prior thereto without breach of this Agreement upon occurrence of one of the following: (A) The removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of a General Partner; provided, however, that unless applicable law shall under the circumstances require a dissolution notwithstanding an agreement to the contrary, the Partnership shall not be dissolved but shall be continued or, if dissolved, the business of the Partnership shall be continued by any remaining or successor General Partner(s) upon obtaining the approval of a Majority Interest. If no General Partner(s) remain or succeed or if the remaining or successor General Partner(s) do not have the power under California law to elect to continue or not to continue the business of the Partnership or they elect not to continue the business, then, upon approval of all the Limited Partners and the admission of one or more new General Partner(s), the Partnership shall not be dissolved, but shall be continued or, if dissolved, the business of the Partnership shall be continued; (B) The Partnership becomes insolvent or bankrupt; (C) The sale or other disposition of substantially all assets of the Partnership and the cessation of active business; (D) The passage of ninety (90) days after approval by a Majority Interest to dissolve the Partnership; or 41 (E) The occurrence of any event which makes it unlawful for the business of the Partnership to be continued. Admission of a General Partner shall not cause the dissolution of the Partnership. 14.2 AUTHORITY TO WIND UP. If dissolution occurs for any reason other than the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, the Managing General Partner shall have the authority to wind up the business and affairs of the Partnership. If dissolution occurs by reason of the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, and if the business of the Partnership is not continued pursuant to Articles 13 or 14, the remaining General Partner(s) shall have the authority to wind up the business and affairs of the Partnership or, if no General Partner remains or survives, any Person designated by a decree of court or designated by approval of a Majority Interest shall wind up the affairs of the Partnership. 14.3 ACCOUNTING. Upon dissolution (if the business of the Partnership is not continued), and again upon the termination of the Partnership after the winding up of the affairs of the Partnership is complete, an accounting of the Partnership shall be made and its financial statements shall be examined by the independent public accountants of the Partnership, and a report thereon shall be furnished to the General Partner(s) or legal representatives thereof and to all Limited Partners and Assignees. 14.4 WINDING UP AND LIQUIDATION. Upon dissolution of the Partnership, if the Partnership or the business of the Partnership is not otherwise continued hereunder, it shall be wound up and liquidated. The Book Value of any assets not sold shall be adjusted to their fair market value and any Net Income or Net Loss shall be allocated to the Capital Accounts as if the Partnership recognized Net Income or Net Loss equal to such adjustment. After such allocations, the assets of the Partnerships shall be paid or distributed in the following order of priority: (A) To creditors, in the order of priority as provided by law, except to secured creditors the obligations to whom will be assumed or otherwise transferred on liquidation of the Partnership assets; (B) Those amounts deemed necessary by the Persons winding up the affairs of the Partnership for any contingent liabilities or obligations of the Partnership shall be set aside as a reserve for contingent liabilities to be distributed at such time and in such manner hereunder as the Persons winding up the affairs of the 42 Partnership shall determine in their sole discretion; (C) To the General Partner(s) with respect to payments due to them pursuant to Section 3.6 and Article 4; (D) To each General Partner, Limited Partner and Assignee the amount of their respective Capital Accounts. 14.5 CLAIM OF LIMITED PARTNERS AND ASSIGNEES. No Limited Partner or Assignee shall have the right or power to demand or receive property other than cash, whether as a Return of Capital, a distribution, a payment on liquidation or otherwise. The Limited Partners and Assignees shall look solely to the assets of the Partnership for the payment of income allocated to the Limited Partners or Assignees and the return of the Capital Contributions of the Limited Partners, and if the assets of the Partnership remaining after payment or discharge of the debts and liabilities of the Partnership are insufficient to pay all or part of such income or Capital Contributions, no Limited Partner or Assignee shall have any recourse against any General Partner, the Partnership or any other Limited Partner or Assignee. 14.6 NO RESTORATION OF NEGATIVE CAPITAL ACCOUNTS. Neither the Partnership nor any General or Limited Partner shall have the right to require any Partner to restore a deficit balance in such Partner's Capital Account. ARTICLE 15 MISCELLANEOUS 15.1 NOTICES. All notices or other communications required or permitted to be given pursuant to this Agreement shall, in the case of notices or communications required or permitted to be given to the Limited Partner or his Assignee, be in writing, and shall be considered as properly given or made if personally delivered or if mailed by United States first class mail, postage prepaid, or if sent by prepaid telegram, and addressed to the Limited Partner's or Assignee's address for notices as it appears on the records of the Partnership, and, in the case of notices or communications required or permitted to be given to the General Partners or the Partnership, shall be in writing and shall be considered as properly given or made if personally delivered, or if sent by prepaid telegram, or if mailed by United States certified or registered mail, postage prepaid, and addressed to the Managing General Partner at the principal place of business of the Partnership as specified in Section 2.4. Any Limited Partner or Assignee may change the address for notices, by giving notice of such change to the Partnership, and the Managing General Partner may change the address for notices to the General Partners or the Partnership by giving notice of such change to the Limited Partner and his Assignee. Commencing on the tenth (10th) day after giving 43 of such notice, such newly-designated address shall be such Partner's or Assignee's or the Partnership's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Any notice or other communication shall be deemed to have been given as of the date on which it is personally delivered or, if mailed or telegraphed to a General Partner which is not received by the General Partner within ten (10) days after the date of its mailing or transmission shall be deemed to have been given as of the date actually received by the General Partner. 15.2 CHOICE OF LAW. This Agreement and all rights and liabilities of the parties hereto with reference to the Partnership shall be subject to and governed by the internal laws (and not the law pertaining to choice or conflict of laws) of the State of California. 15.3 ARTICLE AND SECTION HEADINGS. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 15.4 SOLE AGREEMENT. This Agreement and the exhibits hereto constitute the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings pertaining thereto. 15.5 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts with the same effect as if all parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement. Each party shall become bound by the Agreement immediately upon affixing his or her signature hereto, independently of the signature of any other party. 15.6 REMEDIES CUMULATIVE. The remedies of the parties under this Agreement are cumulative and shall not exclude any other remedies to which any Person may be lawfully entitled. 15.7 WAIVER. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition. 15.8 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto irrevocably waives during the term of the Partnership any right that he may have to maintain any action for partition with respect to the Partnership Property. 15.9 ASSIGNABILITY. Subject to the restrictions on transferability contained herein, each and all of the covenants, 44 terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 15.10 GENDER AND NUMBER. Whenever the context requires, the gender of all words used hereby shall include the masculine, feminine and neuter, the singular of all words shall include the singular and plural, and the plural of all words shall include the singular and plural. Unless the context requires otherwise, any reference to a General Partner shall include all General Partners and any reference to the General Partners shall mean any General Partner. 15.11 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby, but rather shall be enforced to the maximum extent permissible under applicable law. 15.12 ADDITIONAL DOCUMENTS. Each of the parties hereto agree to execute and deliver such other and further documents, including without limitation, designations, powers of attorney and other instruments, as the Managing General Partner may reasonably request. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. GENERAL PARTNERS: GLENBOROUGH REALTY CORPORATION, a California corporation By /s/ Robert Batinovich ----------------------------- Title -------------------------- /s/ Robert Batinovich ------------------------------- Robert Batinovich 45 LIMITED PARTNER: GOCO REALTY FUND I, a Califor- nia limited partnership By Glenborough Realty Corpor- ation, a California Corpora- tion, Its Managing Partner By /s/ Robert Batinovich ----------------------------- Robert Batinovich President 46 EX-10.43 5 LIMITED PARTNERSHIP AGREEMENT LIMITED PARTNERSHIP AGREEMENT OF GPA BOND, L.P. This Limited Partnership Agreement (the "Agreement"), dated as of December 22, 1994, is made and entered into by GLENBOROUGH REALTY CORPORATION, a California corporation, as General Partner, and GOCO REALTY FUND I, a California limited partnership, as the Limited Partner, and all other parties who shall become partners of this limited partnership as hereinafter provided. In consideration of the mutual covenants and promises herein, the parties hereby form a limited partnership under the California Revised Limited Partnership Act upon the following terms and conditions: ARTICLE I Definitions 1.1 DEFINITIONS. When used in this Agreement, the following terms shall have the meanings set forth below, except as otherwise specifically modified: "ACT" means the California Revised Limited Partnership Act, as amended from time to time. "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as an additional Limited Partner pursuant to Article 12 hereof. "AFFILIATE" means any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question. "ALLOCABLE SHARE" of a General Partner is his or its percentage interest as set forth in Section 8.2(B) comprising an aggregate of one percent (1%) and of the Limited Partners or Assignees, at any particular time, an aggregate of 99%. The "Allocable Share" of a Limited Partner or Assignee, at any particular time, means the percentage which the number of Interests held by such Limited Partner or assigned to such Assignee is of the total number of Interests outstanding multiplied by 99%. If at any time, the aggregate of all General Partner Interests represents more than 1% of all Interests, the Allocable Share of all General Partners shall be the percentage interest represented by the ratio between all such Interests which are represented by General Partner Interests and all Interests and the Allocable Share of all Limited Partners and Assignees shall be the percentage interest represented by the ratio between all Interests held by Limited Partners and Assignees and all Interests. "ASSIGNEE" means a Person to whom one or more Interests have been assigned by a Partner but who has not become a Substituted Limited Partner. "ASSOCIATE" means any shareholder, director, officer, employee or agent of any General Partner and any employee or agent of the Partnership. "BOOK DEPRECIATION" means the depreciation, cost recovery or amortization of nondepletable assets that would be allowable to the Partnership for federal income tax purposes if its tax basis in such assets were equal to the Book Value of such assets. "BOOK GAIN" or "BOOK LOSS" means the gain or loss that would be recognized by the Partnership for federal income tax purposes as a result of sales or exchanges of its assets if its tax basis in such assets were equal to the Book Value of such assets. "BOOK VALUE" means (a) as to property contributed to the Partnership, its agreed value; (b) as to property acquired in any other manner, its value as reflected on the books of the Partnership as of the date it is acquired by the Partnership; and (c) as to property owned by the Partnership at the time of any repurchase or issuance of Interests for money or other property, its fair market value at that time, all adjusted for Book Depreciation. "CAPITAL ACCOUNT" means the account (maintained on a per Interest basis in the case of Interestholders) which shall be credited with the Interestholder's or General Partner's distributive share of (a) cash contributed to the Partnership; (b) the Book Value of contributed property; (c) Net Income; (d) the amount of Partnership liabilities assumed by such Interestholder or General Partner or that are secured by any Partnership Property distributed to such Interestholder or General Partner, and (e) increases in the basis of Partnership Property attributable to investment credit recapture; and which shall be debited with the Interestholder's or General Partner's distributive share of (v) cash distributions (w) the Book Value of distributed property; (x) Net Loss; (y) the amount of liabilities of a Interestholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Interestholder or General Partner assumed by the Partnership or that are secured by any Partnership Property contributed by such Interestholder or General Partner to the Partnership; and (z) decreases in the basis of the Partnership Property for any credits allowed under the Code. A Limited Partner's Capital Account shall be the aggregate Capital Account 2 attributable to the Interests held by such Limited Partner. In the case of transfer by an existing Partner of a Partnership interest, the transferee will succeed to the Capital Account relating to the Partnership interest transferred. Upon the repurchase of Interests or upon the issuance of additional Interests for money or other property (other than a de minimis amount) the Capital Accounts of each Interestholder outstanding prior to the repurchase or issuance and the Capital Accounts of the General Partners shall be adjusted to reflect a revaluation of the Partnership Property on the Partnership books to its fair market value and the Capital Accounts of all Partners shall be adjusted simultaneously to reflect such adjustment as if the Partnership recognized Net Income or Net Loss equal to the amount of such adjustment. It is intended by this provision to comply with Treasury Regulations Section 1.704-l(b) and Code Section 704(c). "CAPITAL CONTRIBUTION" means the individual total amount contributed by each Partner to the capital of the Partnership as provided in Article 7 hereof. "CASH AVAILABLE FOR DISTRIBUTION" means cash held by the Partnership in excess of (a) cash required for all expenses, liabilities and obligations of the Partnership (whether for expense items, capital expenditures, improvements, retirement of indebtedness or otherwise); and (b) reserves as established in the sole discretion of the Managing General Partner for Partnership capital expenditures, improvements, retirement of indebtedness, operations, or contingencies, known or unknown, liquidated or unliquidated, including, but not limited to, liabilities which may be incurred in litigation and liabilities undertaken pursuant to the indemnification provisions of this Agreement. "CERTIFICATE OF LIMITED PARTNERSHIP" means the certificate of limited partnership filed pursuant to the Act or any successor statute, as the same may be amended from time to time. "CLOSING DATE" means that date selected by the General Partners for the contribution by Partners to the Partnership. "CODE" means the Internal Revenue Code of 1986 or any successor statute, as amended from time to time. "GENERAL PARTNER" means the Person named hereinabove as general partner in its capacity as general partner of the Partnership, and any successor or additional general partners. "GENERAL PARTNER INTERESTS" means Interests designated as such pursuant to Sections 7.4 or 7.9. 3 "GOCO" means GOCO Realty Fund I, a California limited partnership. "INTEREST" means a unit of interest in the Partnership acquired or issued pursuant to Article 7. "INTERESTS" means all of such units of interest. "INTERESTHOLDER" means any Person who, for tax purposes, is to be treated as a Limited Partner whether such Person is a Limited Partner or an Assignee. "LIMITED PARTNER" means GOCO, and any successor limited partner who has become a Substituted Limited Partner and any Additional Limited Partner. "LIMITED PARTNERS" means all limited partners if, at any time, there is more than one limited partner. "LIMITED PARTNER INTERESTS" means Interests held or owned by any Person or Persons as Limited Partner(s). "MAJORITY INTEREST" means the Limited Partners of record holding more than fifty percent (50%) of the Interests held by all Limited Partners of record. "MANAGING GENERAL PARTNER" means the Person so designated pursuant to Section 3.2. "NET INCOME" or "NET LOSS" means the Partnership's taxable income or loss (as an entity) under Code Section 703 computed with the following adjustments: (a) Tax-exempt income described in Code Section 705(a)(1)(B) shall be included and any expenditures not deductible in computing taxable income shall be deductible. (b) The only deduction for depreciation, cost recovery or amortization shall be Book Depreciation. (c) Book Gain or Book Loss shall be used instead of taxable gain or loss. "NET OPERATING CASH FLOW" means net income or loss as determined under generally accepted accounting principles with the following adjustments: (a) There shall be added depreciation expense and amortization expense related to capitalized loan fees, leasing commissions and debt discount; 4 (b) There shall be deducted any income or gain from investments in joint ventures or partnerships which are accounted for on the equity method and there shall be added any losses from such partnerships or joint ventures; (c) There shall be added any cash received from distributions from a partnership or joint venture to the extent that the aggregate distributions for such partnership or joint venture exceeds the cost of the investment in such partnership or joint venture; (d) There shall be added cash received from the sale of an interest in a partnership or joint venture to the extent that such cash when added to any cash distributions received from such partnership or joint venture exceeds the cost of the investment in such partnership or joint venture. "PARTNER" means a General Partner or a Limited Partner; and "Partners" means the General Partners and all Limited Partners. "PARTNERSHIP" means the limited partnership created by this Agreement and any successor partnership thereto continuing the business of the Partnership which is a reformation or reconstitution of the partnership governed by this Agreement. "PARTNERSHIP CAPITAL" means the total of all the Partners' Capital Accounts at any given time. "PARTNERSHIP PROPERTY" means any and all property, real or personal, now or hereafter owned by the Partnership or an Operating Limited Partnership or in or to which the Partnership or an Operating Limited Partnership has any interest, right or claim and shall include any interest in any Operating Limited Partnership received by the Partnership in exchange for Partnership Property. "PERSON" means an individual, partnership (general or limited and whether domestic or foreign), joint venture, estate, association, corporation, trust company, trust or other entity. "PRIMARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership in which the Partnership holds a direct interest as the sole limited partner. "PROJECTS" means the real estate projects owned by the Partnership and all Operating Limited Partnerships. "RECORD DATE" means the date established by the Partnership for determining (a) the identity of Partners entitled to notice of or to vote at any meeting of Partners or entitled to vote by ballot or give consent to Partnership action in writing without a meeting, or entitled to exercise rights in respect of any other 5 lawful action of Partners, or (b) the identity of Partners and Assignees entitled to receive any report or distribution. "RELATED PERSON" means Glenborough Corporation, the Limited Partner, a General Partner; or any partner, officer, director of Affiliate of any of the foregoing. "REQUEST AND POWER" means a request for admission as a Substituted or Additional Limited Partner, an agreement to be bound by the terms of this Agreement, a power of attorney and the provision of such other information as the Partnership shall request in such forms as are approved by the Partnership. "RETURN OF CAPITAL" means any distribution to the Partners to the extent that such distribution reduces the Partnership Capital. A distribution reduces the Partnership Capital to the extent that it exceeds the following amount: the sum of the Net Income of the Partnership since its formation, reduced by (but not below zero) the sum of the Net Losses of the Partnership since its formation and the sum of all prior distributions. "SECONDARY OPERATING LIMITED PARTNERSHIP" means an Operating Limited Partnership that is not a Primary Operating Limited Partnership. "SUBSTITUTED LIMITED PARTNER" means a Person admitted to the Partnership as a limited partner pursuant to Article 12 hereof. "TAX CREDITS" means all credits against income, franchise or similar taxes, including, without limitation, investment tax credits and credits allowable to Partners or Assignees under federal, state or other taxing statutes. "UNITS" means Units of interest in Glenborough Partners, a California limited partnership, as defined in the Limited Partnership Agreement of Glenborough Partners, a California limited partnership, dated as of December 30, 1993, for so long a period of time as Glenborough Partners, a California limited partnership, is the holder of a majority of the limited partnership interests in the Limited Partner. Except as otherwise defined herein, the capitalized terms used herein shall have the meaning given thereto in such Limited Partnership Agreement. 1.2 ACCOUNTING TERMS AND DETERMINATIONS. All accounting terms used herein shall be interpreted, and all accounting and tax determinations hereunder shall be made, in accordance with the following: (a) For financial reporting purposes, the Partnership shall adhere to generally-accepted accounting principles; 6 (b) For purposes of determining Partner Capital Accounts, the Partnership shall adhere to the provisions of Treasury Regulations Section 1.704-l(b); (c) For purposes of determining Partner and Assignee distributable shares of taxable income and loss, the Partnership shall adhere to the provisions of Code Sections 704(b) and (c) and the regulations promulgated thereunder. ARTICLE 2 The Limited Partnership 2.1 FORMATION OF THE PARTNERSHIP. The General Partner and the Limited Partner hereby agree to form, and by execution of this Agreement do hereby enter into, a limited partnership under the Act, which Act shall, except as set forth in this Agreement, govern the rights and liabilities of the parties hereto. 2.2 PARTNERSHIP NAME. The name of the Partnership is "GPA Bond, L.P." The Partnership shall conduct business under such name or such other name or names as the Managing General Partner may from time to time deem necessary, appropriate or advisable. The Managing General Partner in its sole discretion may change the name of the Partnership at any time and from time to time. The General Partners and, if necessary, the Limited Partner, shall promptly execute and the Managing General Partner shall file and record with proper offices in each jurisdiction in which the Partnership does or elects to do business, and publish such certificates or other statements or instruments as are required by the Act, fictitious or assumed name acts, or any other similar statute in effect in such jurisdiction, in order to conduct validly the Partnership business therein as a limited partnership. 2.3 BUSINESS AND PURPOSE. The business and purpose of the Partnership shall be to engage in any lawful act or activity in which a partnership may engage, including, without limitation, to engage generally in any and all phases of the business of owning, holding, managing, developing, controlling, acquiring, purchasing, disposing of or otherwise dealing in or with any interests or rights in any real or personal property, directly or through one or more Operating Limited Partnerships or other entities or arrangements. Without limiting the generality of the foregoing, the Partnership may perform such other acts incidental and supplementary to the foregoing as the Managing General Partner determines to be necessary, appropriate or advisable. 7 2.4 PRINCIPAL OFFICE. The office of the Partnership within California for purposes of Section 15614(a) of the Act shall be at 400 South El Camino Real, Eleventh Floor, San Mateo, California 94402. The Managing General Partner may change such office and establish other places of business for the Partnership (within or without the State of California) as it may, from time to time, deem necessary or appropriate; provided, however, that the Managing General Partner shall give the Partners and Assignees notice in writing of any change of address of the office of the Partnership and, in connection therewith, shall amend the Certificate of Limited Partnership in accordance with the Act. The Managing General Partner may select one or more Persons in California to act as agent for service of process on behalf of the Partnership, including, without limitation, a General Partner or a Related Person. 2.5 TERM. The Partnership shall commence on the date the Certificate of Limited Partnership is filed in the office of the Secretary of State of California in accordance with the provisions of the Act and shall continue until January 31, 2037, unless extended by amendment of this Agreement or unless the Partnership is dissolved prior to that date pursuant to Article 14. 2.6 EXECUTION OF DOCUMENTS. The Managing General Partner (or, if required, all the General Partners) shall execute, acknowledge, file, record or deliver all Certificates of Limited Partnership, amended certificates, instruments or other documents and counterparts thereof and make all filings and recordings and perform all other acts as shall be necessary to comply with the laws of the State of California for the formation of the Partnership, thereafter for the continued good standing of the Partnership, and, when appropriate, for the termination of the Partnership. The Managing General Partner (or, if required, all the General Partners) shall also execute such certificates, amended certificates and other documents conforming hereto and perform such recording, publishing and other acts as may be appropriate to comply with the requirements of law for the formation, reformation, qualification and/or operation of a limited partnership in all jurisdictions where the Partnership may wish to do business, if deemed necessary by the Managing General Partner. Such certificates, instruments, documents and counterparts may be signed by the Managing General Partner on behalf of any or all of the Limited Partners acting pursuant to the powers of attorney from the Limited Partners. 8 ARTICLE 3 The General Partner 3.1 GENERAL. The General Partner shall devote such time and attention to the business of the Partnership as may be reasonably necessary to carry out their duties hereunder in the conduct of such business, but any General Partner and its partners, shareholders, officers, directors, employees and agents shall have the right to be otherwise employed by an entity or entities other than the Partnership, including, without limitation, Affiliates of the Partnership, on a part-time or full-time basis. Nothing contained herein shall prevent a General Partner or any partner, shareholder, officer, director, employee or agent of a General Partner from becoming an Assignee or a Substituted or Additional Limited Partner, whereupon such Person shall be entitled to all rights, shall be subject to all obligations and shall be deemed, as to such Units, an Assignee or a Limited Partner, as applicable. 3.2 MANAGEMENT POWER. The Managing General Partner shall have full, exclusive and complete discretion in the management and control of the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business of the Partnership, shall act as tax matters partner for the Partnership and may take such actions as it deems necessary or appropriate to accomplish the purposes of the Partnership as set forth herein. As long a Glenborough Realty Corporation is the General Partner or one of the General Partners, the Managing General Partner shall be Glenborough Realty Corporation and any successor to the Managing General Partner which becomes the Managing General Partner of the Partnership pursuant to Article 13. Except as may otherwise be set forth in this Agreement, no General Partner other than the Managing General Partner, shall have any authority, right or power to bind the Partnership or to manage or control the business of the Partnership in any manner whatsoever. 3.3 POWERS OF THE MANAGING GENERAL PARTNER. Subject to the provisions of Article 6 vesting certain approval rights in the Limited Partners, in connection with such management and control, the Managing General Partner shall have the power and authority to do or cause to be done any and all acts, at the expense of the Partnership, deemed by the Managing General Partner to be necessary or appropriate to carry out the purposes of the Partnership. The power and authority of the Managing General Partner shall be liberally construed to encompass all acts and activities in which a partnership may engage. The power and authority of the Managing General Partner shall include, without limitation, the power and authority: 9 (A) To acquire, own, lease, sublease, manage, hold, deal in, control or dispose of any interests or rights in real or personal property, including, without limitation, the powers to sell, exchange, mortgage, pledge, convey in trust, enter into joint ventures or partnerships respecting or otherwise hypothecate all or any portion of the Partnership Property; (B) To create, by grant or otherwise, easements and servitudes; (C) To alter, improve, repair, raze, replace and rebuild Partnership Property; (D) To let or lease Partnership Property for any period, and for any purpose; (E) To apply proceeds of any sale, exchange, mortgage, pledge or other disposition of Partnership Property to payment of liabilities of the Partnership and to pay, collect, compromise, arbitrate or otherwise adjust any and all other claims or demands of or against the Partnership, or to hold such proceeds against the payment of contingent liabilities, known or unknown; (F) To maintain or cause to be maintained records of all rights and interests acquired for or disposed of by the Partnership, all correspondence relating to the Partnership business and the original records (or copies on such media as the Managing General Partner deems appropriate) of all statements, bills and other instruments furnished the Partnership in connection with its business; (G) To maintain records and accounts of all operations and expenditures, make all filings and reports required under applicable rules and regulations of any governmental department, bureau or agency, any securities exchange and any automated quotation system of a registered securities association, and furnish the Partners and Assignees with all necessary United States federal, state or local income tax reporting information or such information with respect to any other jurisdiction; (H) To purchase and maintain, in its discretion and at the expense of the Partnership, liability, indemnity and any other insurance, including errors and omissions insurance, sufficient to protect the Partnership, the General Partners and any other Person from those liabilities and hazards which may be insured against in the conduct or management of the Partnership's business; 10 (I) To make, execute, assign, acknowledge and file on behalf of the Partnership, any and all documents or instruments of any kind which the Managing General Partner may deem appropriate in carrying out the purposes and business of the Partnership, including, without limitation, powers of attorney, agreements of indemnification, sales contracts, deeds, options, loan obligations, mortgages, deeds of trust, notes, documents or instruments of any kind or character, and amendments thereto. Any person, firm or corporation dealing with the Managing General Partner shall not be required to determine or inquire into the authority and power of the Managing General Partner to bind the Partnership and to execute, acknowledge and deliver any and all documents in connection therewith; (J) To borrow money or to obtain credit in such amounts, on such terms and conditions, and at such rates as the Managing General Partner deems appropriate, from banks, other lending institutions and any other Person, including the Partners and Assignees, for any Partnership purpose, including, without limitation, any loan incurred for the purpose of making one or more distributions to any or all Partners and Assignees, including any distributions which are, in whole or in part, a Return of Capital; and in connection with such loans to mortgage, pledge, assign or otherwise encumber or alienate any or all Partnership Property, including any income therefrom, to secure or provide repayment thereof. As between the Partnership and any lender, it shall be conclusively presumed that the proceeds of such loans are to be and will be used for the purposes authorized herein and that the Managing General Partner has the full power and authority to borrow such money and to obtain such credit; (K) To assume obligations, enter into contracts, including contracts of guaranty or suretyship, incur liabilities, lend money and otherwise use the Partnership's credit and secure any of the Partnership's obligations, contracts or liabilities by mortgage, pledge or other encumbrance of all or any part of its property, franchises and income; (L) To invest Partnership funds in debt or equity securities or other obligations of other issuers, including, but not limited to, securities or other obligations of other partnerships; provided, however, that the Managing General Partner shall not invest Partnership funds in such a manner that the Partnership will be considered to be holding itself out as being engaged primarily in the business of investing, reinvesting or trading in securities or will otherwise be deemed to be an investment company under the Investment Company Act of 1940, as amended; 11 (M) To make any election on behalf of the Partnership as is or may be permitted under the Code or under the taxing statute or rule of any state, local, foreign or other jurisdiction, and to supervise the preparation and filing of all tax and information returns which the Partnership may be required to file; (N) To maintain the buildings, appurtenances and grounds of the Partnership Property in accordance with acceptable standards, including within such maintenance, without limitation thereof, interior and exterior cleaning, painting and decorating, plumbing, carpentry and such other normal maintenance and repair work as may be appropriate; (O) To collect all rents and other charges from lessees of Partnership Property and concessionaires, and otherwise due the Partnership, with respect to the Partnership Property. The Partnership authorizes the Managing General Partner to request, demand, collect, receive and receipt for all such rents and other charges and to institute legal proceedings in the name of the Partnership for the collection thereof and for the dispossession of any Person from Partnership Property and such expense may include the costs of counsel for any such matter; (P) To cause to be disbursed (1) the aggregate amount required to be paid pursuant to any indebtedness of the Partnership, including therein amounts due under any mortgages or deeds of trust for interest, amortization of principal and for allocation to reserve or escrow funds; (2) the amount of rent payable by the terms of any lease under which the Partnership holds the Partnership Property, or any portion thereof, promptly when due; (3) the amount of all real estate taxes and other impositions levied by appropriate authorities; and (4) amounts otherwise due and payable as expenses of the Partnership authorized to be incurred under the terms of this Agreement; (Q) To employ and engage suitable agents, employees, advisers, consultants and counsel (including any custodian, investment adviser, accountant, attorney, corporate fiduciary, bank or other reputable financial institution, or any other agents, employees or Persons which may serve in such capacity for the Managing General Partner or any Related Person) to carry out any activities which the Managing General Partner is authorized or required to carry out or conduct under this Agreement, including, without limitation, a Person which may be engaged to undertake some or all of the general management, property management, financial accounting and record keeping, construction supervision and other duties of the Managing General 12 Partner, to indemnify such Persons against liabilities incurred by them in acting in such capacities on behalf of the Partnership and to rely on the advice given by such Persons, it being agreed and understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (R) To enter into an agreement or agreements with real estate brokers or agents, investment banking firms, appraisers or others providing for the engagement of such Persons on an exclusive or nonexclusive basis to advise or represent the Partnership in the valuation, sale, lease or other dealings in the Partnership Property, it being understood that the Managing General Partner shall not be responsible for the acts and omissions of any such Persons and shall assume no obligations in connection therewith other than the obligation to use due care in the selection thereof; (S) To hold Partnership Property in the name of one or more nominees, with or without disclosure of the fiduciary relationship; (T) To keep proprietary or trade secret information confidential, and if deemed necessary by the Managing General Partner, to keep such information confidential from the Limited Partners for a reasonable period of time; (U) To pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or compromise upon such terms as it may determine and upon such evidence as it may deem sufficient, any obligation, suit, liability cause of action or claim, including taxes, either in favor of or against the Partnership; (V) To prosecute, protect and defend or cause to be protected and defended all patents, patent rights, trade names, trademarks, service marks and other marks, and all applications with respect thereto which may be held by the Partnership, and to take all reasonable and necessary actions to protect the secrecy of and the proprietary rights with respect to any secret know-how, secret processes or other proprietary information, and to prosecute and defend all rights of the Partnership in connection therewith; (W) To register, qualify or list, or cause to be registered, qualified, listed or reported, this Agreement or Units hereunder pursuant to the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, 13 any other securities laws of the United States, the securities laws of any state of the United States, the laws of any other jurisdiction, or with any securities exchange or pursuant to an automated quotation system of a registered securities association as the Managing General Partner deems appropriate; (X) To issue, purchase, repurchase, redeem, receive, take or otherwise acquire, own, hold, sell, lend, exchange, trade in, grant calls or options or warrants, grant appreciation rights, transfer or otherwise dispose of, pledge, use and otherwise deal in and with shares, bonds, debentures and other securities, whether issued by the Partnership or issued by any other Person, whether on an exchange, over the counter, in private transactions or in other transactions, and whether for the Partnership or for any plan maintained or sponsored by the Partnership, including securities of the Partnership of a different class or series than the Interests, whether debt or equity, redeemable or nonredeemable, convertible or nonconvertible, and including securities with different rights, preferences, privileges, allocations and tax consequences; (Y) To qualify to do business in any other state, territory, dependency or foreign country; (Z) To make donations, regardless of specific benefit to the Partnership, for the public welfare, to community or hospital funds, or for charitable, educational, scientific, civic, political or similar purposes; (AA) To pay pensions, and to establish, participate in and maintain as plan sponsor or otherwise, pension, profit sharing, bonus, purchase, option, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions for any or all of the employees of the Partnership, and any partner, shareholder, director, officer, employee or agent of a General Partner or any Affiliate, including plans, trusts and provisions which may provide for the ownership, acquisition, holding, or disposition of Units or any other securities of the Partnership; and to indemnify and purchase and maintain insurance on behalf of, any fiduciary of such retirement, incentive and benefit plans, trusts or other provisions, including, without limitation, health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance and other plans, trusts or provisions; (BB) To put into effect and carry out any plan of reorganization or arrangement and the orders of the court or judge entered in a proceeding for reorganization or arrangement under any applicable statute of the United 14 States or of any state, local or other jurisdiction, and to undertake any proceeding and perform any act provided in the plan or directed by such orders, without further action by any Partner or Assignee. Such power and authority may be exercised and such proceedings and acts may be undertaken, as may be directed by such orders, by the trustee or trustees of the Partnership appointed in the reorganization or arrangement proceeding (or a majority thereof), or if none is appointed and acting, by the Managing General Partner or a master or other representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the Partners and Assignees; (CC) To distribute money or Partnership Property to Partners and Assignees in accordance with this Agreement regardless of the source of such money or Partnership Property, including, without limitation, money borrowed by the Partnership or by the Managing General Partner on behalf of the Partnership; (DD) To possess and exercise any additional powers and rights of general partners in a limited partnership, including, without limitation, those granted under the Act and any other applicable laws, to the extent not inconsistent with this Agreement; (EE) To take any and all action, conduct all proceedings and execute all rights and privileges, contracts and agreements of any kind whatsoever, although not specifically mentioned in this Agreement, that the Managing General Partner may deem necessary or appropriate to conduct the business of the Partnership or to carry out the purposes of the Partnership. The expression of any power or authority of the Managing General Partner in this Agreement shall not limit or exclude any other power or authority which is not specifically or expressly set forth in this Agreement. 3.4 LIABILITY OF GENERAL PARTNER. The General Partner shall be liable to the Partnership and the Limited Partners and Assignees for gross negligence or gross misconduct but neither the General Partners nor their Associates shall be liable to either the Partnership or the Limited Partner or to Persons who have acquired interests in the Interests, whether as Assignees or otherwise, for errors in judgment or for any acts or omissions that do not constitute willful misconduct. If this Section 3.4 shall, for any reason and to any extent, be invalid or unenforceable, it is intended that this Section 3.4 shall be construed to exculpate the General Partners and their Associates to the fullest extent permitted by law. 15 3.5 SIMILAR ACTIVITIES OF GENERAL PARTNERS. The General Partners and their respective Associates may, directly or indirectly (including, without limitation, through a Related Person or other entity in which the General Partner or any such Related Person holds an ownership interest), engage in any and all aspects of the business of owning, holding, developing, controlling, acquiring, purchasing, managing, disposing of and otherwise dealing with real, personal or mixed property; act as a partner (limited or general), shareholder, director, officer, employee or agent of any entity (including GOCO, Glenborough Partners and Glenborough Corporation) engaging in such business or activities; or engage in any other businesses and activities, whether the same be competitive with the Partnership, any Operating Limited Partnership (as defined in the Limited Partnership Agreement of Glenborough Partners), Glenborough Partners, the Limited Partner or otherwise, for their own account and for the account of others, without having or incurring any obligation to offer any interest in such properties, businesses or activities to the Partnership or any Partner or Assignee and nothing herein contained shall be deemed to prevent any General Partner or any such Related Person from conducting such other business and activities. Neither the Partnership, nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of a General Partner or any such Related Person. However, all records kept and maintained by the Managing General Partner for the Partnership pursuant to this Agreement shall be maintained separately from those for other operations of the General Partners, including other partnerships for which a General Partner is a general partner. 3.6 INDEMNIFICATION OF GENERAL PARTNERS. (A) The General Partners and each of their respective Associates (individually an "Indemnitee") shall, to the fullest extent permitted by law, be indemnified and held harmless by the Partnership from and against all losses, claims, damages, liabilities (joint and several), expenses (including, without limitation, attorneys' fees and expenses, and any expenses of establishing a right to indemnification under this Section 3.6), judgments, fines, settlements and other amounts (collectively "Liability") arising from or incurred in connection with any claim, demand, action, suit or proceeding (including, but not limited to, claims, demands, actions, suits and proceedings by, in the name of or on behalf of, the Partnership), whether civil, criminal, administrative or investigative and whether threatened, pending or completed (collectively "Proceeding") in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of: (i) its status at any time as a General Partner or Associate of a General Partner; (ii) its management of the Partnership; and/or (iii) any act performed or omitted to be performed by it at any time in connection with the 16 business, property or affairs of the Partnership whether or not such Indemnitee continues to be a General Partner or an Associate of a General Partner at the time such Liability is paid or incurred, if: (a) such Liability was not the result of gross negligence or gross misconduct by the Indemnitee, and the Indemnitee determined, in good faith, that the course of conduct which caused the Liability was in the best interests of the Partnership; or (b) a court of competent jurisdiction determines upon application that, despite the fact that the requirements of clause (a) are not satisfied, in view of all the circumstances, the Indemnitee is fairly and reasonably entitled to indemnification for such Liabilities as such court may deem proper. (B) The termination of a Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not determine in good faith that the course of conduct which caused the Liability was in the best interests of the Partnership. (C) Any Liability for which the Partnership and the Indemnitee are jointly liable shall, if the Indemnitee is entitled to indemnification under this Section 3.6, be satisfied first from the assets of the Partnership. The indemnification provided by this Section 3.6 shall be recoverable out of the assets of the Partnership, including any insurance proceeds, and shall not be recoverable out of any other assets of the Limited Partners. (D) Expenses (including attorneys' fees and expenses) incurred in defending any Proceeding shall be paid by the Partnership in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification as authorized by this Section 3.6. (E) The indemnification provided by this Section 3.6 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, vote of the Partners, as a matter of law or otherwise both as to action in the Indemnitee's capacity as a General Partner or Associate of a General Partner and to action in another capacity, shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee. 17 (F) The Partnership shall, to the extent commercially reasonable, purchase and maintain insurance on behalf of the Indemnitees and such other Persons as the Managing General Partner shall determine against any Liability which may be asserted against or expense which may be incurred by such persons in connection with Partnership activities (including, without limitation, any Proceeding) whether or not the Partnership would have the power to indemnify such persons against such Liability under the provisions of this Agreement. (G) For purposes of this Section 3.6, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by an Indemnitee of its duties to the Partnership also imposes duties on, or otherwise involves services by, an Indemnitee to such plan or participants or beneficiaries of such plan. Excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall be deemed a Liability and action taken or omitted by an Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by an Indemnitee to be in the interests of the participants and beneficiaries of such plan shall be deemed to be for a purpose which is in the best interests of the Partnership. Any payments to an Indemnitee shall be solely from assets of the Partnership and shall not be paid from employee benefit plan assets. (H) An Indemnitee shall not be denied indemnification in whole or in part under this Section 3.6 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies. (I) Notwithstanding the foregoing, an Indemnitee shall not be entitled to indemnification hereunder for any Liability imposed in a Proceeding arising from or out of a violation of state or federal securities laws associated with the offer and sale of Units. Indemnification will be allowed for settlements and related expenses of Proceedings alleging securities law violations, and for expenses incurred in successfully defending such Proceedings, providing that a court either (i) approves the settlement and finds that indemnification of the settlement and related costs should be made; or (ii) approves indemnification of litigation costs if a successful defense is made. (J) If any provision of this Section 3.6, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Section 3.6 and the application thereof shall not be affected thereby, it being the intent of this Section 3.6 to indemnify and hold harmless the Indemnitees to the fullest extent permitted by applicable law. 18 3.7 OTHER MATTERS CONCERNING GENERAL PARTNERS. (A) Each of the General Partners may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (B) Each of the General Partners may consult with and employ counsel, accountants, appraisers, management consultants, investment bankers and other consultants, advisers and Persons selected by it (who may serve as such for and be employed by the Partnership or any Related Person), and any opinion of such Person as to matters which the General Partner believes to be within that Person's professional or expert competence shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by the General Partner hereunder in good faith and in accordance with such opinion. (C) Each of the General Partners may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents, including, without limitation, any Related Person, and a General Partner shall not be responsible for any misconduct, negligence, or willful act on the part of any agent appointed with due care by any General Partner. (D) Any and all fees commissions, compensation and other consideration received by a General Partner or a partner, shareholder, director, officer, agent or employee of a General Partner permitted hereunder shall be the exclusive property of the recipient, in which the Partnership shall have no right or claim, and the participation by any such Person in any agreement permitted hereunder shall not constitute a breach by such Person of any duty that it may owe the Partnership or the Limited Partners or Assignees under this Agreement or by operation of law. 3.8 AGREEMENTS WITH A GENERAL PARTNER OR A RELATED PERSON. (A) In addition to agreements, arrangements and transactions provided for in or contemplated by this Agreement, a General Partner and any Related Person may, directly or indirectly, deal with the Partnership, including, without limitation, making loans to (but not borrowing from) the Partnership in connection with carrying out the business of the Partnership or otherwise, as an independent contractor or as an agent for others, and may receive from such others or the Partnership, profits, compensation, commissions or other amounts which the Managing General Partner in good faith believes to be reasonable without having to account to the Partnership therefor, 19 if the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the partner of Glenborough Partners and such agreement or transaction is specifically authorized, approved or ratified by a majority of the Units held by the limited partners of Glenborough Partners. Compliance with the provisions of this Section 3.8 (A) shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any such agreement or transaction. (B) The satisfaction of the following condition shall be a complete defense to any claim of invalidity or for damages or other relief with respect to any agreement or transaction between a General Partner or a Related Person and another Person based upon the assertion of a breach of duty owed to the Partnership by a General Partner or a Related Person in entering into such agreement or transaction: the material facts as to the agreement or transaction and as to the relationship or interest of the General Partner or Related Person are disclosed or known to the partner of Glenborough Partners and such agreement or transaction is specifically authorized, approved or ratified by a majority of the Units held by the limited partners of Glenborough Partners. 3.9 CONVEYANCES. The Managing General Partner has the express authority to convey title to any Partnership Property by a conveyance executed by the Managing General Partner alone on behalf of the Partnership. ARTICLE 4 Compensation of General Partners 4.1 COMPENSATION OF MANAGING GENERAL PARTNER. In consideration of the services rendered by the Managing General Partner in managing the business and affairs of the Partnership, the Partnership shall pay the Managing General Partner fees consisting of the amounts described in Sections 4.2 through 4.7, inclusive. The Managing General Partner may divide, allocate or pay the compensation it receives under this Agreement among its Associates and other Persons, or may assign to or subcontract with other Persons (including Glenborough Corporation) any of its management duties hereunder together with some or all of such compensation, as it determines in its sole discretion. All compensation paid the Managing General Partner shall be paid in United States dollars. 4.2 PROPERTY MANAGEMENT FEE. The Managing General Partner shall be entitled to a fee (the "Property Management Fee") determined as follows: 20 (A) With regard to any Partnership Property leased to multiple tenants, including apartments and condominiums (except as provided in subsection (C) hereof), a sum equal to five percent (5%) of the monthly Gross Receipts collected by the Partnership. For purposes of this Section 4.2, "Gross Receipts" shall mean all rentals and other charges due the Partnership from tenants of Partnership Property, including, without limitation, expense passthrough items such as real property taxes and insurance, and rentals or fees paid for parking. (B) With regard to any non-residential Partnership Property leased to a single tenant, a sum equal to three percent (3%) of the monthly Gross Receipts collected by the Partnership. (C) With regard to any Partnership Property consisting of single-family residences or scattered condominiums, a sum equal to ten percent (10%) of the monthly Gross Receipts collected by the Partnership. (D) The Property Management Fee shall be computed as of the end of each calendar month with respect to the gross receipts of such month and shall be paid to the Managing General Partner as soon as practicable thereafter. 4.3 INCENTIVE FEE. The Managing General Partner shall be entitled to a fee (the "Incentive Fee") determined as follows: (A) An amount equal to one-half of one percent (.5%) of the sum of the monthly weighted average of the fair market value ("Fair Market Value") of the real property (as real property is determined under California law) of the Partnership and the Book Value of all other Partnership Property as determined in accordance with this Section. (B) The Fair Market Value of the Partnership's real property shall be determined in accordance with the following and the provisions of Section 4.3 (D). (1) For the year 1994, with respect to that real property acquired by the Partnership, it shall be the purchase price thereof ("Original Value"). (2) For the year 1995, with respect to that real property acquired by purchase during 1994, it shall be the Original Value thereof, as increased by the CPI Adjustment, as defined herein ("Adjusted Original Value"). (3) For 1996 and each even-numbered year thereafter, it shall be the appraised value of such real property, as of the end of each such year, as determined by independent appraisals ("Biennial Appraised Value"). 21 (4) For 1997 and each odd-numbered year thereafter, it shall be the most recent Biennial Appraised Value as adjusted by the CPI Adjustment ("Adjusted Biennial Appraised Value"). (5) Where in any year, the Partnership should acquire additional real property, the aggregate prices paid therefor by the Partnership shall, subject to the provisions of subsection (E) hereof, be added to the Original Value, Adjusted Original Value, Biennial Appraised Value or Adjusted Biennial Appraised Value for such year, as appropriate, the sum of the two being hereafter referred to as the "Base Value". (C) The CPI Adjustment shall be the adjustment described in Section 4.3(D) and shall be determined by utilizing the Consumer Price Index for All Urban Consumers of All Items for the United States (base year 1982 - 1984 = 100), published by the United States Department of Labor, Bureau of Labor Statistics ("CPI Index"). For those years in which the CPI Adjustment is to be made, the beginning index ("Beginning Index") shall be the CPI Index for the month of December of the prior year and the extension index ("Extension Index") shall be the CPI Index for the month of December of that year. (D) If the Extension Index has increased over the Beginning Index, the Fair Market Value shall be determined by multiplying the Base Value of the real estate for such year by a fraction, the numerator of which is the Extension Index, and the denominator of which is the Beginning Index. In no case shall the Fair Market Value of real property for an odd-numbered year be less than the Base Value thereof for that year. If the CPI Index is changed so that the base year differs from that used for the Beginning Index, the CPI Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the CPI Index is discontinued or revised, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the CPI Index had not been discontinued or revised. (E) The Fair Market Value of the Partnership real property and the Book Value of all other Partnership Property shall be determined on a monthly weighted average basis to reflect the period of ownership of such Partnership Property for such year. The monthly weighted average for the first and last year of the Partnership shall be based on a denominator equal to the number of months of existence of the Partnership in such year. (F) The Incentive Fee shall be paid to the Managing General Partner on a monthly basis by taking one-twelfth (1/12th) 22 of the Incentive Fee based on the most recent Fair Market Value determination hereunder; except that at the end of each year, the Incentive Fee for that year shall be recomputed as herein provided, and the Managing General Partner shall thereupon be entitled to the balance of the Incentive Fee. Any overpayment of the Incentive Fee shall be deducted from the next monthly payments of the Incentive Fee to fall due for the following year. (G) The Incentive Fee shall be paid to the Managing General Partner only to the extent that the combined Net Operating Cash Flow of the Partnership, the Limited Partner, and all other partnerships included within the definition of an Operating Limited Partnership as that term is defined in Section 1.1 of the Limited Partnership Agreement of Glenborough Partners during such year exceeds an amount equal to one dollar and fifty cents ($1.50) multiplied by the monthly weighted average number of the outstanding limited partnership Units. To the extent the Incentive Fee cannot be paid for any year it shall lapse. 4.4 TRANSACTION FEE. (A) The Managing General Partner shall be entitled to a fee upon the sale, exchange or purchase of any property of the Partnership equal to two percent (2%) of the sale proceeds or the purchase price (the "Transaction Fee"); provided, however, that no Transaction Fee shall be payable on such transactions with Affiliates or for sales in which the Managing General Partner participates in real estate commissions as set forth in Section 4.12 hereof. The sale proceeds or the purchase price of the property shall be the total of all consideration received or paid, as the case may be, including, but not limited tot all cash, the principal amount of any note or promise to pay, and the fair market value of any other property paid or transferred in connection with the sale or purchase. For purposes of this Section 4.4, an exchange shall be deemed one transaction. The principal amount of a note or promise to pay bearing no interest or interest at other than market rates shall be adjusted as provided in Section 4.4(B) in computing the sale proceeds or the purchase price to reflect market interest rates. In addition, the entry into a lease of real property or improvements to real property (other than a lease of office space required for administration of the Partnership) by the Partnership, as lessee, shall be deemed a purchase and the present value of the lease payments over the term of the lease, excluding any option periods and any increases in payments which cannot be calculated at the time of the entry into the lease, discounted at the interest rate on five-year Treasury Notes, or comparable indices if five-year Treasury Notes are no longer customarily quoted ("Adjustment Index"), prevailing on the date of entry into the lease, shall be deemed the purchase price on which the Transaction Fee shall be computed. The exercise by the Partnership or any other Person of any option to purchase and the consummation of such purchase, 23 whether or not related to any lease, shall be deemed a separate transaction for purposes of the application and computation of the Transaction Fee under this Section 4.4. (B) ADJUSTMENT METHOD. Except as may be otherwise specified, the principal amount of any note or promise to pay required to be adjusted under Section 4.4(A) shall be adjusted in accordance with the same principles used by the Partnership for financial reporting purposes and shall be based on the Adjustment Index, defined in Section 4.4(A) above. (C) PAYMENT. The Transaction Fee shall be paid as soon as practicable after consummation of the transaction with respect to which the fee is accrued. 4.5 REFINANCING FEE. The Managing General Partner shall be entitled to a fee ("Refinancing Fee") equal to one percent (1%) of the net loan refinancing proceeds received from third Persons on the refinancing of any Partnership Property, but only if the refinancing results in: (A) A new loan with a materially lower interest rate or better payment terms; or (B) Proceeds which are available for other Partnership purposes; or (C) Funds for the repayment of an existing loan that is due or will become due in the near future. The amount of net loan refinancing proceeds shall equal the principal amount of the loan less points, loan processing fees and other loan costs. The Refinancing Fee shall be paid to the Managing General Partner as soon as practicable after the loan refinancing proceeds have been made available to the Partnership. 4.6 NO REPAYMENT. The Managing General Partner shall not be required to return to the Partnership all or any part of any fee properly computed and paid to it, notwithstanding any subsequent event. 4.7 ACCRUAL UPON CHANGE IN MANAGING GENERAL PARTNER. If the Managing General Partner ceases to serve in that capacity as of any day (the "Termination Date") for any reason, the Property Management Fee and the Incentive Fee shall be accrued on a prorata daily basis to and including the Termination Date. The Property Management Fee and the Incentive Fee payable to any new Managing General Partner shall accrue from and after the Termination Date. The Property Management Fee and the Incentive Fee shall be paid to the Managing General Partner at such time as it would otherwise be payable for the period in which the Termination Date occurs. 24 4.8 JOINT VENTURES. References herein to any property acquired, owned or disposed of by the Partnership shall include the Partnership's interest from time to time in any underlying property held by any joint venture, partnership or other entity or form of ownership in which the Partnership has an interest ("Partnership's Share in Underlying Property"). Without limiting the generality of the foregoing, the Property Management Fee, Incentive Fee, Transaction Fee, and any other fee which may become payable to the Managing General Partner shall apply to and be based upon not only any wholly-owned property, but also the Partnership's Share in Underlying Property. There shall, however, be no duplication of fees as a consequence of this provision. 4.9 CHANGE IN COMPENSATION. With the approval of holders of the Units held by limited partners of Glenborough Partners in accordance with Section 3.8, the Managing General Partner may propose and effect any additional or substitute compensation plans or arrangements for compensation to be paid to it as Managing General Partner; provided, however, that in voting on such matters (as well as the amendment of this Section), the General Partners and Glenborough Partners and their respective Affiliates shall vote their interests for, against, or abstain in the same proportion as all other limited partners of Glenborough Partners vote for, against, or abstain on such matters and provided further, that there shall be no retroactive changes in the compensation paid to the Managing General Partner. 4.10 FRINGE BENEFITS. At the expense of the Partnership, any officer or employee of the Managing General Partner who performs services for the Managing General Partner in connection with the conduct of Partnership business shall be entitled to participate in any health insurance, medical and dental reimbursement, life insurance, accident insurance, disability insurance or any other plans, trusts or provisions, or any other employee benefit plans or arrangements established by the Partnership, as if such officer or employee were an officer or employee of the Partnership. 4.11 EXPENSES OF GENERAL PARTNER. The Partnership shall pay all expenses, disbursements and advances reasonably incurred by the General Partners and their Affiliates in connection with the organization of the Partnership and the conduct of Partnership business, including, without limitation, office expenses, secretarial expenses, software acquisition, data processing services and expenses for entertainment, travel and similar items, including amounts paid to any Person employed or retained to perform services for the Partnership. The Partnership shall promptly reimburse the General Partners and their Affiliates for any such items paid by the General Partners or their Affiliates. The General Partners and their Affiliates 25 shall also receive a reasonable reimbursement for their general and administrative costs allocable to the management and operation of the Partnership, as determined by the Managing General Partner in its discretion; provided, however, that such costs shall be reasonable in amount and necessary to the functions of the Partnership. Such costs shall include salaries and compensation of legal and leasing personnel, and costs incurred in connection with servicing Partnership notes receivable, but shall exclude salaries and compensation of the officers and directors of any General Partner. 4.12 COMMISSIONS ON CERTAIN SALES. The Managing General Partner or an Affiliate thereof, shall be entitled to receive a commission upon the sale of single-family residences (but not including condominiums or residential units sold in bulk), where substantial services have been rendered in connection with such sale. Such commission shall be an amount equal to a maximum of four percent (4%) of the sale proceeds where no third Person is employed in connection with the sale of the Partnership Property and a minimum of two percent (2%) of the sale proceeds where a third Person or Persons are employed in connection with the sale of Partnership Property; provided, however, that in no event shall the total commission paid to all Persons in connection with the sale of such Partnership Property be less than four percent (4%) or more than seven percent (7%) of the sale proceeds (as that term is defined in Section 4.4(A)). ARTICLE 5 The Limited Partners, Assignees and Transferrees 5.1 LIMITED LIABILITY. No Limited Partner or Assignee (unless such Limited Partner or Assignee is a General Partner or otherwise participates in the control of the business of the Partnership) shall be personally liable for any of the debts of the Partnership or for any Net Losses beyond the amount of the Capital Contribution made or agreed to be made to the Partnership by the Limited Partner or Assignee and any undistributed Net Income allocated to the Limited Partner or Assignee. However, to the extent required by law, each Limited Partner or Assignee receiving any actual or constructive distribution may be liable to return such distribution if and to the extent that, immediately after giving effect to the distribution, all liabilities of the Partnership, other than liabilities to Partners or Assignees on account of their interest in the Partnership and liabilities as to which recourse of creditors is limited to specific property of the Partnership, exceed the fair value of the Partnership Property; provided, however, that the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is so limited shall be included in the Partnership Property for purposes of this sentence only to the extent that the fair value of such 26 Partnership Property exceeds such liability. Any Limited Partner returning all or any part of a distribution actually received by an Assignee or successor of the Limited Partner shall be subrogated to the Partnership's right to seek a return to the Partnership of the distribution from the Assignee or such successor. In no event shall any Limited Partner or Assignee be obligated under any circumstances to make any Capital Contribution to the Partnership for any purpose whatsoever, other than Capital Contributions described in Article 7. 5.2 RESTRICTIONS ON LIMITED PARTNERS AND ASSIGNEES. (A) No Limited Partner or Assignee shall participate as such in the management and control of the business of the Partnership, transact any business for the Partnership, or attempt to do so, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person employed or engaged to transact any such business by or on behalf of the Managing General Partner or the Partnership. The transaction of any such business by a Limited Partner or Assignee employed or engaged to do so by or on behalf of the Managing General Partner or the Partnership shall not be in his, her or its capacity as Limited Partner or Assignee and shall not affect, impair or eliminate the limitations on the liability of the Limited Partner or Assignee under this Agreement. (B) No Limited Partner or Assignee shall have the power to represent, sign for or bind the Managing General Partner, any other General Partner or the Partnership, unless such Limited Partner or Assignee is also the Managing General Partner or a Related Person or other Person given such power by the Managing General Partner. 5.3 OUTSIDE ACTIVITIES. A Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership. Neither the Partnership nor any of the Partners or Assignees shall have any rights by virtue of this Agreement in any independent business ventures of any other Limited Partner or Assignee. 5.4 NO WITHDRAWAL OR DISSOLUTION. No Limited Partner shall at any time withdraw from the Partnership, except as provided in this Agreement. No Limited Partner shall have the right to have the Partnership dissolved or the right to a Return of Capital from the Partnership, except as provided in this Agreement. The legal incompetency, bankruptcy, insolvency, termination, dissolution, withdrawal or death of a Limited Partner shall not cause a dissolution of the Partnership. 27 5.5 ASSIGNEES. The creation of Assignees pursuant to Section 11.2 does not dissolve the Partnership. An Assignee may become a Substituted Limited Partner as provided in Section 12.1. Until an Assignee becomes a Substituted Limited Partner, the Assignee has no right to notice of or to vote at any meeting of Partners or upon any matters upon which Limited Partners may vote, to require any information or account of Partnership transactions or to inspect Partnership books, and is otherwise subject to the limitations under the Act on the rights of an Assignee who has not become a Substituted Limited Partner. An Assignee has the rights and obligations appurtenant to a Unit to share in the Net Income and Net Losses of the Partnership and to receive distributions. 5.6 TRANSFEREES. An assignment of a Limited Partner's Interests does not dissolve the Partnership or entitle the transferee to become or to exercise any rights of a Limited Partner. The transferee has the right to become a Substituted Limited Partner pursuant to an assignment as provided in Section 12.1. A Limited Partner remains a Limited Partner upon transfer of all or part of the Limited Partner's Interests until the transferee becomes a Substituted Limited Partner pursuant to Section 12.1. A transferee who does not become a Substituted Limited Partner has no right to notice of or to vote at any meeting of Partners or upon any matters upon which a Limited Partner may vote, to require any information or account of Partnership transactions or to inspect the Partnership books, and is otherwise subject to the limitations under the Act on the rights of a transferee or Assignee who has not become a Substituted Limited Partner. Any distribution or payment to the Partner or Assignee of record or the personal representative of such Partner or Assignee shall acquit the Partnership of liability to the extent of such payment to any person who may have an interest in such payment by reason of an assignment by the Partner or Assignee or the successors or assignees of the Partner or Assignee, or by reason of the death of such Partner or Assignee or otherwise. ARTICLE 6 Approval by Limited Partners; Amendments 6.1 APPROVAL BY LIMITED PARTNER. Subject to Sections 6.2 and 6.3, the approval of a Majority Interest shall be required only for the matters specified below (including, however, without limitation, those matters on which limited partners are given the right to vote under the Act) and no other matters: (A) The following actions may be taken by the Managing General Partner only with the affirmative vote of a Majority Interest: 28 (1) the sale, exchange, lease or other transfer (other than encumbrances) of all or substantially all of the assets of the Partnership in a single transaction or in multiple interrelated transactions, except in the liquidation and winding up of the business of the Partnership upon its dissolution. For purposes of this subsection, "substantially all of the assets of the Partnership" shall mean ninety percent (90%) of the asset value of the Partnership Property, as determined in accordance with generally-accepted accounting principles, at the end of the most recently completed fiscal quarter of the Partnership; (2) the dissolution of the Partnership, other than pursuant to Sections 14.1(A), (B), (C) and (E); (3) an election to continue the business of the Partnership other than after there is no remaining or surviving General Partner; (4) an amendment to this Agreement, including, without limitation, an amendment extending the term of this Agreement, except for amendments described in Sections 6.3 and 6.4; (5) Any matter requiring approval of the holders of Units of Glenborough Partners pursuant to Section 3.8. (B) A General Partner may be removed only with the approval of a Majority Interest. (C) Except under circumstances described in clause (D), a new General Partner may be admitted with only the approval of a Majority Interest and with the separate concurrence of the other General Partner(s). (D) If there is no remaining or surviving General Partner, a new General Partner(s) may be admitted or an election to continue the business of the Partnership may be made only upon the approval of all the Limited Partners. 6.2 RIGHTS CONDITIONAL. The rights set forth in Section 6.1 (A) shall not be exercised unless the Partnership shall have received the written opinion of counsel for the Partnership to the effect that the exercise of such right or the action proposed to be taken with respect to any particular matter: (A) shall not cause the Limited Partner to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to subject the Limited Partner or Assignees to unlimited liability therefor; (B) will not jeopardize the status of the Partnership as a partnership under 29 applicable tax laws and regulations; or (C) is otherwise permissible under the state statutes then governing the rights, duties and liabilities of the Partnership and the Partners and Assignees. If counsel for the Partnership has indicated that it is unable or unwilling to deliver such an opinion, the Managing General Partner may take any action described in Section 6.1 (A) without the need for approval of the Limited Partner, provided that such action is not otherwise prohibited by this Agreement or by law. 6.3 AMENDMENTS BY THE MANAGING GENERAL PARTNER. Subject to Section 6.4, the Managing General Partner may, without prior notice to or consent of any Partner or Assignee, amend any provision of this Agreement: (A) to cure any ambiguity, omission, defect or inconsistency; (B) if in its opinion such amendment does not have a materially adverse effect upon the Limited Partners and Assignees or the Partnership, as the case may be; or (C) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership or the General Partners or the partners, directors or officers of a General partner from being in any manner subject to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed by the Department of Labor; or (D) the amendment is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership from being taxable as a corporation under the Code. A copy of such amendment shall thereafter be furnished promptly to the Limited Partner and Assignees. In the event an amendment shall have been approved pursuant to this Section 6.3, the Managing General Partner and, if necessary, the Limited Partner, shall execute such amendment, certificate and other documents as may be reasonably required for the purpose of effectuating the same. 6.4 PROHIBITED AMENDMENTS. Except with the unanimous consent of all Partners, no amendments shall modify the provisions regarding amendment of this Agreement or the liabilities of the Partners or change the form of Partnership to a general partnership. ARTICLE 7 Capital Contributions and Initial Issuance of Interests 7.1 [Intentionally left blank.] 7.2 CONTRIBUTION BY PARTNERS. On the Closing Date, the Partners shall contribute to the Partnership Property as follows: (A) The Limited Partner shall contribute $315,000.00. 30 (B) The General Partners shall not be required to contribute to the Partnership; provided, however, that in consideration of services rendered, the General Partners shall, in the respective shares shown in Section 7.1, receive and hold a one percent (1%) interest in the Net Income and Net Loss of the Partnership, including a one percent (1%) interest in cash items of Partnership income, gain, loss, deduction or Tax Credits. 7.3 DISTRIBUTION OF INTERESTS. (A) Effective as of the Closing Date and in consideration of the transfer provided in Section 7.2 (A), the Partnership shall issue to the Limited Partner 990 Interests. Thereafter, interests of the Limited Partner in the Partnership shall be represented and expressed in terms of Interests. (B) In consideration for services and to represent the General Partners' interest in the Partnership provided for in Section 7.2 (B), the Partnership shall issue 10 Interests to the General Partners in the proportions provided for in Section 7.1. (C) After the issuance of Interests provided for in 7.3 (A) and (B) above, Interests shall be held one percent by the General Partners and ninety-nine percent (99%) by the Limited Partner. 7.4 GENERAL PARTNER INTERESTS. The Interests issued to the Managing General Partner and Robert Batinovich as General Partners, shall be designated as General Partner Interests. 7.5 DISTRIBUTION OF CAPITAL. A Partner or Assignee shall be entitled to a distribution which constitutes a Return of Capital from time to time throughout the duration of the Partnership in such amounts and at such times as the Managing General Partner, in its sole discretion, deems appropriate. Such distributions shall be made only if the conditions specified in Section 9.1 have been met or as provided in Section 7.1 with respect to the initial $1,000 cash contribution. 7.6 NO INTEREST ON CAPITAL CONTRIBUTION. Partners and Assignees shall not receive interest on or with respect to all or any part of their Capital Contributions. 7.7 CREDITOR'S INTEREST IN THE PARTNERSHIP. No creditor who makes a loan to the Partnership shall have or acquire at any time as a result of making the loan, any direct or indirect interest in the profits, capital or property of the Partnership other than as a creditor. 7.8 NATURE OF INTERESTS. All property owned by the Partnership, whether real or personal, tangible or intangible, 31 shall be deemed to be owned by the Partnership as an entity, and none of the Partners shall have any direct ownership of such property. 7.9 ONE PERCENT INTEREST OF GENERAL PARTNERS AND ADDITIONAL CAPITAL CONTRIBUTIONS. Notwithstanding anything to the contrary that may be expressed or implied herein, the interests of all of the General Partners, taken together, in each material item of Partnership income, gain, loss, deduction or Tax Credits, as provided by Section 8.1, will be equal to at least one percent (1%) of each such item at all times during the existence of the Partnership. In determining the General Partners' interests in such items, interests held by the General Partners as general partners of the Limited Partner or of any Operating Limited Partnership, as defined in the Limited Partnership Agreement of Glenborough Partners and Units owned by the General Partners shall not be taken into account. Additional Capital Contributions shall be made to the Partnership only with the approval of all Partners. If additional Capital Contributions are made, such Capital Contributions shall be made by each Partner in accordance with its Allocable Share; provided, however, that the General Partners shall, at all times, be deemed to own as General Partners (in the respective percentages set forth in Section 7.1, one percent (1%) of the outstanding interests in the Partnership and no further contribution or consideration shall be required of the General Partners for their General Partner interests. Additional Interests shall be issued to evidence such additional capital contributions and to maintain the General Partners' interest as aforesaid. If property other than cash is contributed, the Managing General Partner shall determine the value of such property. ARTICLE 8 Allocation of Net Income, Net Loss and Tax Credits 8.1 GENERAL ALLOCATION. (A) Net Income and Net Loss for each month shall be determined by the Partnership and allocated among the Partners and Assignees in accordance with their Allocable Shares. (B) For federal, state or other tax purposes, all items of income, gain, loss or deduction and all Tax Credits (including any such items arising from a joint venture or a partnership in which the Partnership has an interest) shall be determined using the accounting method designated by the Managing General Partner and shall be allocated to the Partners and Assignees in accordance with their Allocable Shares, subject to the provisions and adjustments described in this subsection. If the Partnership is deemed to have been terminated and reformulated pursuant to Section 708 of the Code, depreciation, depletion, gain or loss 32 shall be allocated among the Partners and Assignees so as to take account of the variation between the basis of property deemed contributed to the Partnership by each Partner or Assignee at the time of its reformulation and the fair market value of such property at the time of such contribution pursuant to Section 704(c) of the Code. Depreciation, depletion, gain or loss (including the tax consequences of any basis reduction made by a contributing Partner under Code Sections 108, 483 and 1274) with respect to property contributed to the Partnership shall be allocated among the Partners and Assignees to the extent required under Section 704(c) of the Code and Treasury Regulations promulgated under Code Section 704(b) and (c) so as to take into account, for tax purposes, the difference between the basis of such property and its initial Book Value. The Managing General Partner is authorized to adopt such methods of allocating such items, consistent with applicable law and Regulations. 8.2 ALLOCATION ON TRANSFER. The Partnership shall use the monthly convention specified in the Conference Committee Report to Section 72 of the Tax Reform Act of 1984 in determining allocations on transfer. Under this convention, Interest transfers after the 15th day of a month shall be treated as occurring immediately after the close of business of the last day of the month, and Interest transfers during the first fifteen (15) days of a month shall be treated as occurring immediately before the opening of business of the first day of the month. ARTICLE 9 Cash Distributions 9.1 TIME AND AMOUNT OF CASH DISTRIBUTIONS. (A) As of the close of each fiscal quarter and each fiscal year, and at any other time the Managing General Partner deems appropriate, the Cash Available for Distribution shall be calculated and, if the Managing General Partner deems appropriate in its sole discretion, all or any portion thereof shall be distributed to the Partners and Assignees of record on the Record Date set for the distribution, and each Partner and Assignee shall receive his Allocable Share thereof. (B) Notwithstanding the provisions of Section 9.1(A), any distribution shall be made only if: (1) All liabilities of the Partnership, except liabilities to the General Partners and to the Limited Partner and Assignees on account of the Capital Contribution and liabilities as to which recourse of creditors is limited to specified property, have been paid or after such distribution, there will remain Partnership Property with a fair value sufficient to pay such liabilities, provided that 33 the fair value of any Partnership Property that is subject to a liability as to which recourse of creditors is limited shall be included in Partnership Property for purposes of this subsection only to the extent that the fair value of such Partnership Property exceeds such liability; (2) The Managing General Partner determines in good faith that such distributions may be made without materially affecting the ability of the Partnership to pay obligations (including contingent liabilities) of the Partnership as they fall due; and (3) Such distribution may be made without violating any provision of the Act. (C) Nothing in this Agreement or this Section shall serve as a limitation on the Managing General Partner's right to retain or use the Partnership's assets or its revenues as, in the opinion of the Managing General Partner, may be required to satisfy the anticipated present and future cash needs of the Partnership, whether for operations, liabilities, expansion, improvements, acquisition or otherwise. 9.2 DISTRIBUTIONS OF PARTNERSHIP PROPERTY. In its sole discretion, the Managing General Partner may distribute to Partners and Assignees, Partnership Property other than Cash Available for Distribution. In its sole discretion, the Managing General Partner may distribute to Partners and Assignees additional Interests or securities of the Partnership which have been authorized and issued pursuant to the terms of this Agreement. ARTICLE 10 Accounting and Reports 10.1 FISCAL YEAR. The fiscal year of the Partnership shall end on December 31 of each year, unless the Managing General Partner determines that it is in the best interest of the Partnership and its Partners to utilize a different fiscal year and the permission of the Internal Revenue Service has been obtained. 10.2 REPORTS. (A) As soon as practicable, but in no event later than ninety (90) days, after the close of the calendar year, the Managing General Partner shall prepare or cause to be prepared and furnish to each Person who was a Partner or Assignee of record during the Partnership's fiscal year, the information reasonably necessary for the preparation of such Person's United States federal income tax return and any state or local income or 34 other tax returns required of such Person as a result of the operations of the Partnership. The Partners and Assignees agree to furnish the Managing General Partner with such information as may be necessary or helpful in preparing the tax returns or other filings of the Partnership. (B) As soon as practicable, but in no event later than one hundred twenty (120) days after the close of each fiscal year, the Managing General Partner shall mail or deliver to each Partner and each Assignee of record an annual report containing financial statements of the Partnership (which may be consolidated with the financial statements of the Limited Partner) for the fiscal year, including a balance sheet and statements of operations, changes in Partners' equity and changes in financial position at the end of or for the most recent fiscal year. Such statements are to be prepared in accordance with generally-accepted accounting principles and shall include the opinion of a firm of independent public accountants selected by the Managing General Partner, and are to be accompanied by a supplementary summary (except as disclosed in the financial statements), by classification of the total fees and compensation, including any overhead reimbursement and indemnification, paid by the Partnership, directly or indirectly, to the General Partners. (C) If and to the extent required by the Act or applicable state or federal securities laws, as soon as practicable, but in no event later than sixty (60) days after the close of each fiscal quarter, except the last fiscal quarter of each fiscal year, the Managing General Partner shall mail or otherwise furnish to each Partner and Assignee of record a quarterly report for the fiscal quarter containing such financial and other information (which may be condensed, including statements of operations for such fiscal quarter and since the end of the last fiscal year, a balance sheet at the end of such period and a certificate of the Managing General Partner to the effect that such financial statements were prepared without audit from the books and records of the Partnership) as the Managing General Partner deems appropriate. 10.3 TAX ELECTIONS. The Managing General Partner shall, in its sole discretion, and as it deems in the best interests of the Partnership or the Partners and Assignees, determine whether to make any available election and how to make any necessary allocation for federal, state, local or other income tax purposes. 10.4 BOOKS AND RECORDS. The Managing General Partner shall maintain all records necessary for documenting and reporting the business and affairs of the Partnership. The Managing General Partner shall maintain at the office of the Partnership specified in Section 2.4: (A) a current list of the 35 full name and last-known business or residence address of each Partner and Assignee set forth in alphabetical order together with the contribution and the share in profits and losses of each Partner and Assignee; (B) a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, together with executed copies of any powers of attorney pursuant to which any certificate has been executed; (C) copies of the Partnership's federal, state and local income tax or information returns and reports, if any, for the six most recent taxable years or for such shorter time as the Partnership has been in existence; (D) the original Agreement and all amendments thereto; (E) copies of the financial statements of the Partnership for the six most recent fiscal years or for such shorter time as the Partnership has been in existence; and (F) the Partnership's books and records for at least the current and past three fiscal years or for such shorter time as the Partnership has been in existence. Any records maintained by the Partnership in the regular course of its business, including the record of the holders of Interests, books of account, and records of Partnership proceedings may be kept on, or be in the form of punch cards, magnetic media, photographs, micrographics, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable period of time. Except for information kept confidential by the Managing General Partner pursuant to the power described in Section 3.3(T), all books, financial records, reports and accounts shall be open to inspection by any Partner or duly authorized representative of the Partner on reasonable notice during normal business hours, for any purpose reasonably related to the Partner's interest as a Partner, and the Partner or the representatives at the expense of the Partner shall have the further right to make copies or excerpts therefrom; provided, however, that a copy of the information described in clauses (A),(B),(C) and (D) of the second sentence of this Section 10.4 shall be promptly delivered by the Managing General Partner, at the expense of the Partnership, to any Partner requesting such information. The Partner and the Partner's representatives shall not divulge to any Person any confidential or proprietary data, information or property or any trade secrets of the Partnership. 10.5 BANK ACCOUNTS. The Partnership shall establish and maintain accounts in financial institutions (including, without limitation, national or state banks, trust companies, or savings and loan institutions) in such amounts as the Managing General Partner may deem necessary from time to time. Partnership funds shall not be commingled with the funds of, or used as a compensating balance on behalf of, any General Partner or any other Person. Checks shall be drawn on and withdrawals of funds shall be made from any such accounts for Partnership purposes and shall be signed by the Person or Persons designated by the Managing General Partner. Temporary surplus funds of the Partnership may be invested in commercial paper, time deposits, 36 short-term government obligations or other investments as shall be determined by the Managing General Partner. ARTICLE 11 Transfer of Interests 11.1 TRANSFER OF INTERESTS. (A) The term "transfer" when used in this Article with respect to a Unit includes a sale, assignment, gift, exchange, or any other disposition. (B) General Partner Interests are nontransferable without the consent of all Partners except as provided in Article 7 and Section 13.1. The Limited Partner hereby consents to any transfer pursuant thereto. (C) Interests held by Limited Partners are nontransferable without the consent of all Partners. ARTICLE 12 Admission of Substituted and Additional Limited Partners 12.1 ADMISSION OF SUBSTITUTED LIMITED PARTNERS. A Limited Partner shall have the power to give the transferee of such Person's Interests the right to become a Substituted Limited Partner in the manner permitted in this Agreement. An Assignee or transferee of an Interest may apply to become a Substituted Limited Partner with respect to such Interest by executing and delivering a Request and Power in form approved by the Managing General Partner. Upon receipt by the Partnership of a completed and executed Request and Power, the name of the transferee shall be added to the list of Limited Partners maintained by the Partnership, whereupon such transferee shall become a Substituted Limited Partner. 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS. A Person other than a General Partner (acting in its capacity as a General Partner), the Limited Partner or a substituted Limited Partner who makes a contribution to the capital of the Partnership in a manner permitted by the terms of this Agreement may, with the approval of the Managing General Partner, be admitted to the Partnership as an Additional Limited Partner upon furnishing to the Managing General Partner: (A) a Request and Power; and (B) such other documents or instruments as may be required in order to effect admission as a Limited Partner. Upon receipt of such documents, the Partnership shall add the name of such Person to the list of Partners maintained by the Partnership, whereupon such Person shall become an additional Limited Partner. 37 ARTICLE 13 Removal, Resignation or Withdrawal of General Partner 13.1 REMOVAL OF GENERAL PARTNER. A General Partner may be removed from office as provided in Section 6.1 and shall be removed if such General Partner is removed as general partner of the Limited Partner or Glenborough Partners. Such removal shall take effect sixty (60) days from the date of the action by the Limited Partner. At such time, the assets, books and records of the Partnership shall be surrendered to the remaining or successor General Partner(s), provided that the remaining or successor General Partner(s) shall: (A) hold or have acquired sufficient General Partner Interests (which shall be obtained from the removed General Partner) so that the General Partner(s) who will continue to serve as General Partner(s) hold and have designated, in the aggregate, at least a one percent (1%) interest in the Partnership as General Partner(s); and (B) have complied with the provisions of Section 13.4. If such removal dissolves the Partnership, then the Partnership shall be reconstituted and its business shall be continued with any remaining and successor General Partner(s) as the General Partner(s) thereof, and they shall have the exclusive right to possess Partnership Property to continue the business of the Partnership. Removal of a General Partner shall not prejudice the rights of the removed General Partner to compensation pursuant to Article 4 accrued as of the date the removal takes effect. The value of a removed General Partner's Interest shall be agreed to by all Partners. 13.2 WITHDRAWAL. A General Partner may withdraw, resign or retire on ninety (90) days' advance written notice to the Partners. A General Partner shall cease to be a General Partner on the effective date of its or his withdrawal, resignation or retirement. 13.3 DISSOLUTION OR BANKRUPTCY OF GENERAL PARTNER. A General Partner shall cease to be a General Partner upon the happening of any of the following events: (A) The dissolution of the General Partner or, if the General Partner is an individual, the death of the General Partner or the entry by a court of competent jurisdiction of an order adjudicating the General Partner incompetent to manage his person or estate; (B) The General Partner: (1) makes a general assignment for the benefit of creditors; (2) commences a voluntary case under the federal bankruptcy law; (3) files a petition or answer seeking for the General Partner any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation; (4) files an answer or other pleading admitting or failing to contest the material allegations of a 38 petition filed against the General Partner in any proceeding of the nature described in clause (3); or (5) seeks, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties; (C) An order for relief against the General Partner is entered under Chapter 7 or 11 of the federal bankruptcy law; (D) Sixty (60) days after the commencement of any proceeding against the General Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, if the proceeding has not been dismissed; (E) Sixty (60) days after the appointment without the General Partner's consent or acquiescence of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties, if the appointment is not vacated or stayed, or sixty (60) days after the expiration of any such stay, if the appointment is not vacated; or (F) Upon the General Partner ceasing to be a general partner of either the Limited Partner or Glenborough Partners for any reason other than the dissolution of that partnership provided that there is no longer an Affiliate of a General Partner serving as a general partner of such partnership. 13.4 LIABILITY AND RIGHTS. A General Partner shall be discharged from, and the Partnership or any Person or Persons continuing the business of the Partnership in the event it has been dissolved, shall assume and pay, as they mature, all Partnership obligations and liabilities that exist on the date of such General Partner's removal from the Partnership or on the date on which it or he ceases to be a General Partner under Sections 13.2 or 13.3, and shall hold such General Partner harmless from any action or claim arising or alleged to arise from obligations and liabilities accruing after such date; provided, however, that nothing in this Section 13.4 shall relieve or discharge, nor shall the Partnership indemnify or hold harmless, such General Partner from any individual obligation or liability of such General Partner (as distinguished from a Partnership obligation or liability) to the Partnership or third parties. On the date of removal of a General Partner or the date on which it ceases to be a General Partner under Sections 13.2 or 13.3, or as soon thereafter as possible, the Partnership or any Person or Persons continuing the business of the Partnership shall file an amendment to the Certificate of Limited Partnership reflecting the removal of the General Partner or the fact that the General Partner has ceased to be a General Partner. The Partnership or any such Person or Persons continuing the business of the Partnership shall promptly notify all creditors of the 39 Partnership as of such date: (A) of the removal of such General Partner and the resulting dissolution of the Partnership (if the Partnership has dissolved) or of the General Partner ceasing to be a General Partner pursuant to Sections 13.2 or 13.3, as the case may be; (B) that such General Partner shall not be personally liable for the Partnership's obligations and liabilities after such date; and (C) if applicable, of the assumption of all the Partnership's obligations and liabilities by the Partnership or such Person or Persons continuing the business of the Partnership. The Partnership or such Person or Persons continuing the business of the Partnership (if the Partnership has dissolved) shall use its or their best efforts to procure and execute an agreement from creditors of the Partnership discharging such General Partner from liability to such creditors as of the date the General Partner is removed or ceases to be a General Partner. Such General Partner shall have the same rights to inspect and make copies or excerpts of the books and records of the Partnership as is provided to Partners pursuant to Section 10.4 until all amounts due such General Partner as of the date the General Partner is removed or ceases to be a General Partner pursuant to Section 3.6 and Article 4 have been paid. The General Partner shall be a creditor of the Partnership as to all such amounts owed to it or him by the Partnership. Any General Partner Interests held by a General Partner after it or he has been removed, or it or he ceases to be a General Partner, shall be transferred to such Person or Persons who remain as or succeed such General Partner as General Partner(s). 13.5 SUCCESSOR AND PREDECESSOR GENERAL PARTNERS. Unless a General Partner has been dissolved because of bankruptcy, insolvency, liquidation or ceases to be a General Partner because of death, disability, incapacity or incompetency or unless a General Partner has been removed as General Partner, upon dissolution of a General Partner, any Person continuing the business of the General Partner so affected shall immediately become a General Partner of the Partnership (and shall become Managing General Partner if the General Partner so affected was the Managing General Partner) without any action or vote of any Person. If any dissolution of a General Partner causes a dissolution of the Partnership, then the Partnership shall be reformed and reconstituted and its business continued as provided in this Section and Article 14. If it is necessary or advisable to reform and reconstitute the Partnership and to continue its business, the remaining and successor General Partners shall elect to reform and reconstitute the Partnership and to continue its business. When any Person ceases to be a General Partner under this Agreement or a partner, shareholder, director, officer, employee or agent of a General Partner, that Person shall continue to have the benefit of any provisions of this Agreement providing for indemnity, exculpation or insurance which protected such Person as a General Partner or a partner, 40 shareholder, director, officer, employee or agent of a General Partner, or which limited or defined the liability of such Person. ARTICLE 14 Dissolution, Winding Up and Liquidation 14.1 DISSOLUTION. The Partnership shall be dissolved at the expiration of the term of the Partnership set forth in Section 2.5; provided, however, that the Partnership shall be dissolved prior thereto without breach of this Agreement upon occurrence of one of the following: (A) The removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of a General Partner; provided, however, that unless applicable law shall under the circumstances require a dissolution notwithstanding an agreement to the contrary, the Partnership shall not be dissolved but shall be continued or, if dissolved, the business of the Partnership shall be continued by any remaining or successor General Partner(s) upon obtaining the approval of a Majority Interest. If no General Partner(s) remain or succeed or if the remaining or successor General Partner(s) do not have the power under California law to elect to continue or not to continue the business of the Partnership or they elect not to continue the business, then, upon approval of all the Limited Partners and the admission of one or more new General Partner(s), the Partnership shall not be dissolved, but shall be continued or, if dissolved, the business of the Partnership shall be continued; (B) The Partnership becomes insolvent or bankrupt; (C) The sale or other disposition of substantially all assets of the Partnership and the cessation of active business; (D) The passage of ninety (90) days after approval by a Majority Interest to dissolve the Partnership; or (E) The occurrence of any event which makes it unlawful for the business of the Partnership to be continued. Admission of a General Partner shall not cause the dissolution of the Partnership. 14.2 AUTHORITY TO WIND UP. If dissolution occurs for any reason other than the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, the Managing General Partner shall have the authority to wind up the business and affairs of the Partnership. 41 If dissolution occurs by reason of the removal, resignation, retirement, withdrawal, bankruptcy, insolvency, dissolution, liquidation, death, disability, incapacity or incompetency of the Managing General Partner, and if the business of the Partnership is not continued pursuant to Articles 13 or 14, the remaining General Partner(s) shall have the authority to wind up the business and affairs of the Partnership or, if no General Partner remains or survives, any Person designated by a decree of court or designated by approval of a Majority Interest shall wind up the affairs of the Partnership. 14.3 ACCOUNTING. Upon dissolution (if the business of the Partnership is not continued), and again upon the termination of the Partnership after the winding up of the affairs of the Partnership is complete, an accounting of the Partnership shall be made and its financial statements shall be examined by the independent public accountants of the Partnership, and a report thereon shall be furnished to the General Partner(s) or legal representatives thereof and to all Limited Partners and Assignees. 14.4 WINDING UP AND LIQUIDATION. Upon dissolution of the Partnership, if the Partnership or the business of the Partnership is not otherwise continued hereunder, it shall be wound up and liquidated. The Book Value of any assets not sold shall be adjusted to their fair market value and any Net Income or Net Loss shall be allocated to the Capital Accounts as if the Partnership recognized Net Income or Net Loss equal to such adjustment. After such allocations, the assets of the Partnerships shall be paid or distributed in the following order of priority: (A) To creditors, in the order of priority as provided by law, except to secured creditors the obligations to whom will be assumed or otherwise transferred on liquidation of the Partnership assets; (B) Those amounts deemed necessary by the Persons winding up the affairs of the Partnership for any contingent liabilities or obligations of the Partnership shall be set aside as a reserve for contingent liabilities to be distributed at such time and in such manner hereunder as the Persons winding up the affairs of the Partnership shall determine in their sole discretion; (C) To the General Partner(s) with respect to payments due to them pursuant to Section 3.6 and Article 4; (D) To each General Partner, Limited Partner and Assignee the amount of their respective Capital Accounts. 42 14.5 CLAIM OF LIMITED PARTNERS AND ASSIGNEES. No Limited Partner or Assignee shall have the right or power to demand or receive property other than cash, whether as a Return of Capital, a distribution, a payment on liquidation or otherwise. The Limited Partners and Assignees shall look solely to the assets of the Partnership for the payment of income allocated to the Limited Partners or Assignees and the return of the Capital Contributions of the Limited Partners, and if the assets of the Partnership remaining after payment or discharge of the debts and liabilities of the Partnership are insufficient to pay all or part of such income or Capital Contributions, no Limited Partner or Assignee shall have any recourse against any General Partner, the Partnership or any other Limited Partner or Assignee. 14.6 NO RESTORATION OF NEGATIVE CAPITAL ACCOUNTS. Neither the Partnership nor any General or Limited Partner shall have the right to require any Partner to restore a deficit balance in such Partner's Capital Account. ARTICLE 15 Miscellaneous 15.1 NOTICES. All notices or other communications required or permitted to be given pursuant to this Agreement shall, in the case of notices or communications required or permitted to be given to the Limited Partner or his Assignee, be in writing, and shall be considered as properly given or made if personally delivered or if mailed by United States first class mail, postage prepaid, or if sent by prepaid telegram, and addressed to the Limited Partner's or Assignee's address for notices as it appears on the records of the Partnership, and, in the case of notices or communications required or permitted to be given to the General Partners or the Partnership, shall be in writing and shall be considered as properly given or made if personally delivered, or if sent by prepaid telegram, or if mailed by United States certified or registered mail, postage prepaid, and addressed to the Managing General Partner at the principal place of business of the Partnership as specified in Section 2.4. Any Limited Partner or Assignee may change the address for notices, by giving notice of such change to the Partnership, and the Managing General Partner may change the address for notices to the General Partners or the Partnership by giving notice of such change to the Limited Partner and his Assignee. Commencing on the tenth (10th) day after giving of such notice, such newly-designated address shall be such Partner's or Assignee's or the Partnership's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Any notice or other communication shall be deemed to have been given as of the date on which it is personally delivered or, if mailed or 43 telegraphed to a General Partner which is not received by the General Partner within ten (10) days after the date of its mailing or transmission shall be deemed to have been given as of the date actually received by the General Partner. 15.2 CHOICE OF LAW. This Agreement and all rights and liabilities of the parties hereto with reference to the Partnership shall be subject to and governed by the internal laws (and not the law pertaining to choice or conflict of laws) of the State of California. 15.3 ARTICLE AND SECTION HEADINGS. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 15.4 SOLE AGREEMENT. This Agreement and the exhibits hereto constitute the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings pertaining thereto. 15.5 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts with the same effect as if all parties had all signed the same document. All counterparts shall be construed together and shall constitute one agreement. Each party shall become bound by the Agreement immediately upon affixing his or her signature hereto, independently of the signature of any other party. 15.6 REMEDIES CUMULATIVE. The remedies of the parties under this Agreement are cumulative and shall not exclude any other remedies to which any Person may be lawfully entitled. 15.7 WAIVER. No failure by any party to insist upon the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement, or condition. 15.8 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto irrevocably waives during the term of the Partnership any right that he may have to maintain any action for partition with respect to the Partnership Property. 15.9 ASSIGNABILITY. Subject to the restrictions on transferability contained herein, each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto. 44 15.10 GENDER AND NUMBER. Whenever the context requires, the gender of all words used hereby shall include the masculine, feminine and neuter, the singular of all words shall include the singular and plural, and the plural of all words shall include the singular and plural. Unless the context requires otherwise, any reference to a General Partner shall include all General Partners and any reference to the General Partners shall mean any General Partner. 15.11 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby, but rather shall be enforced to the maximum extent permissible under applicable law. 15.12 ADDITIONAL DOCUMENTS. Each of the parties hereto agree to execute and deliver such other and further documents, including without limitation, designations, powers of attorney and other instruments, as the Managing General Partner may reasonably request. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. GENERAL PARTNER: GLENBOROUGH REALTY CORPORATION, a California corporation By: /s/ Robert Batinovich ---------------------------------- Title ---------------------------------- LIMITED PARTNER: GOCO REALTY FUND I, a California limited partnership By: Glenborough Realty Corporation, a California Corporation, Its Managing Partner By: /s/ Robert Batinovich ---------------------------- Title ---------------------------- 45 EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1994 DEC-31-1994 2604 0 15 0 4558 227 18121 (2901) 23185 641 17160 0 0 0 5289 23185 0 6098 0 0 5948 0 3178 0 0 (3028) 0 119954 0 117557 36.52 36.52
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