-----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, Eub5Lknbtguuz4Z4FyjV4nelcRySozilzP3CyaoLQJOIbhxMZlc5zUkFUZNRPgfG 6QZZiRi7Z+y9jqZ5xKHKjQ== 0000950150-96-000334.txt : 19960503 0000950150-96-000334.hdr.sgml : 19960503 ACCESSION NUMBER: 0000950150-96-000334 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960502 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DE ANZA PROPERTIES XII LTD CENTRAL INDEX KEY: 0000351509 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 953601367 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-40295 FILM NUMBER: 96555146 BUSINESS ADDRESS: STREET 1: 9171 WILSHIRE BLVD STE 627 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3105501111 MAIL ADDRESS: STREET 1: 9171 WILSHIRE BLVD STREET 2: SUITE 600 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DE ANZA PROPERTIES XII LTD CENTRAL INDEX KEY: 0000351509 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 953601367 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 9171 WILSHIRE BLVD STE 627 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3105501111 MAIL ADDRESS: STREET 1: 9171 WILSHIRE BLVD STREET 2: SUITE 600 CITY: BEVERLY HILLS STATE: CA ZIP: 90210 SC 14D9 1 SCHEDULE 14D-9 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 14D-9 Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 (Amendment No. __) De Anza Properties - XII, Ltd. De Anza Properties - XII, Ltd. (Name of Subject Company) De Anza Corporation (Name of Persons Filing Statement)
Units of Limited Partnership Interest (Title of Class of Securities) NONE ((CUSIP) Number of Class of Securities) Herbert M. Gelfand with copies to: De Anza Corporation Michael J. Connell 9171 Wilshire Blvd. Rena L. O'Malley Suite 627 Morrison & Foerster LLP Beverly Hills, California 90210 555 West Fifth Street (310) 550-1111 Los Angeles, CA 90013-1024 (Name, address, and telephone number of person (213) 892-5200 authorized to receive notice and communications on behalf of the person(s) filing statement)
2 ITEM 1. SECURITY AND SUBJECT COMPANY. The subject company is De Anza Properties-XII, Ltd., a California limited partnership (the "Partnership"). The title of the class of equity securities to which this Statement relates is units of limited partnership interest ("Units") of the Partnership. The address of the principal executive offices of the Partnership is 9171 Wilshire Boulevard, Suite 627, Beverly Hills, California 90210. ITEM 2. TENDER OFFER OF THE BIDDER. This Statement relates to the offer (the "Offer") by Moraga Gold, LLC, a newly-formed California limited liability company (the "Bidder"), to purchase for cash up to 5,680 Units at $305 per Unit as disclosed in the Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") dated April 18, 1996 filed by the Bidder with the Securities and Exchange Commission. According to the Schedule 14D-1, the principal place of business of the Bidder is located at 1640 School Street, Suite 100, Moraga, California 94556. ITEM 3. IDENTITY OF BACKGROUND. (a) This Statement is being filed by the Partnership and De Anza Corporation, a California corporation (the "Operating General Partner"). The address of the principal executive offices of the Operating General Partner is 9171 Wilshire Boulevard, Suite 627, Beverly Hills, California 90210. The name and business address of the Partnership are set forth in Item 1 above. (b)(1) The Partnership is a limited partnership and has no executive officers or directors. Except as described below, to the best knowledge of the Partnership, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Partnership on the one hand and its general partners including the Operating General Partner or the directors and executive officers of the Operating General Partner or affiliates thereof on the other hand, with respect to the Offer. Terra Vista Management, Inc., a California corporation (the "Manager"), manages and operates Warner Oaks Apartments, the Partnership's sole substantial remaining property ("Warner Oaks"), pursuant to a Management Agreement dated as of August 18, 1994 entered into by the Partnership with the Manager (the "Management Agreement") and also manages two spaces in a mobile home park at San Luis Bay (together with Warner Oaks the "Properties"). The President and sole stockholder of the Manager is Michael D. Gelfand, who is also President and a member of the Board of Directors of the Operating General Partner, and the son of Herbert M. Gelfand (who is Chairman of the Board and sole shareholder, through his family trust, of the Operating General Partner and a general partner of the Partnership). The Management Agreement continues from year-to-year. However, either party may, without penalty or obligation to the other party, by providing sixty (60) days' written notice to the other, terminate the Management Agreement with or without cause at any time. 2 3 The Management Agreement may be immediately canceled in the event of violation of any of the provisions of the Management Agreement, or by the Partnership in the event a petition in bankruptcy is filed by or against the Manager which is not dismissed within ninety (90) days following the date of such filing. The Partnership has retained the Manager and an affiliate of the Operating General Partner to provide accounting, data processing and investor and other services to the Partnership. The Manager and the Operating General Partner's affiliate are reimbursed on an allocated basis for their costs and expenses for providing these services (directly or through unrelated third parties) to the Partnership. The total of such reimbursements paid by the Partnership for the year ended December 31, 1995 was $104,365, representing 4.5% of total Partnership operating revenues. For the same period, salaries, professional fees and services amounted to $351,093, representing 15% of total Partnership operating revenues. Of that amount $190,819 (or 8.1% of total Partnership operating revenues) was paid for on-site leasing and maintenance staff at Warner Oaks. The Manager is entitled to receive compensation under the Management Agreement for its services of a sum equivalent to five percent (5%) of the aggregate gross receipts from the operation of Warner Oaks, excluding all receipts from utilities or from taxes of any kind or type. However, the Manager's compensation is subordinated to the receipt (on a noncumulative basis) by the limited partners of the Partnership of an annual cash distribution equal to seven percent (7%) of the adjusted aggregate capital contributions of the limited partners. No management fees were paid to the Manager by the Partnership for the year ended December 31, 1995 but the Manager or the Operating General Partner's affiliate have deferred management fees for that year of $113,748. Based upon current estimates of value of the Partnership's Properties, it is unlikely that the deferred management fees for 1995 or for any prior year will be paid. The Management Agreement is filed herewith as an exhibit and is incorporated herein by reference. (b)(2) To the best knowledge of the Partnership, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Partnership or its general partners or executive officers or directors of the Operating General Partner or affiliates thereof, on the one hand, and the Bidder or its executive officers, directors or affiliates, on the other hand. ITEM 4. THE SOLICITATION OR RECOMMENDATION. (a) The Operating General Partner has determined that the Offer is inadequate and not in the best interests of the limited partners and recommends that limited partners of the Partnership reject the Offer and not tender their Units pursuant to the Offer. (b) The reasons for the position taken by the Operating General Partner are as follows: 1. The Offer price does not reflect the value of the Partnership's underlying assets. In the Operating General Partner's view, the Properties of the Partnership are valuable assets despite the decline in California real estate generally. The Operating General Partner believes that 3 4 if the Properties were sold today (but not in a forced sale) each Unit would be worth approximately $522. The Operating General Partner believes an offer significantly below the $522 estimate is too low to be recommended by the Operating General Partner. In reaching this conclusion, the Operating General Partner did not take into account individual tax consequences, which may vary significantly among limited partners. The $522 estimate was not determined by any independent third party valuation expert. The Offer is also approximately 25% lower than the liquidation value of the underlying assets of the Partnership as of December 31, 1995 as estimated by the Bidder to be $405 per Unit. As set forth in the Bidder's materials mailed to each of the limited partners, the Bidder is making the Offer for investment purposes and with the intention of making a profit from the ownership of the Units. In establishing the purchase price of $305 per Unit, the Bidder was motivated to establish the lowest price which might be acceptable to limited partners consistent with the Bidder's objectives. In addition, limited partners who sell any Unit to the Bidder will not receive any distribution to be made by the Partnership with respect to that Unit once the Unit is sold. In determining the estimated liquidation value of $522 per Unit the Operating General Partner first calculated the estimated current net sales value of Warner Oaks, the Partnership's main remaining property. This was done by dividing Warner Oaks' estimated net operating income ("NOI") of $1,240,060 for 1996 by a capitalization rate. The NOI was determined by annualizing the Partnership's actual results of operations for the three months ending March 31, 1996, which amount was adjusted to account for (i) the portion of NOI for this period estimated by the Operating General Partner to be attributable to the operation of two spaces at San Luis Bay and the collection of notes receivable related to previous sales of spaces at San Luis Bay, (ii) certain Partnership expenses which a buyer of Warner Oaks would not take into account, and (iii) certain seasonal and year-end items. The Operating General Partner divided the NOI by an 8% capitalization rate (the "Cap Rate") and reduced this result by (i) $475,000 in estimated closing costs which would be incurred upon the sale of Warner Oaks, including broker's commission, title costs, surveys, legal fees and transfer taxes, and (ii) $4,254,211 of mortgage debt encumbering Warner Oaks as of March 31, 1996. The resulting estimated net sales value of Warner Oaks is approximately $10,770,789. The Operating General Partner believes that the Cap Rate utilized by it is within the range of capitalization rates currently employed in the marketplace and is the Cap Rate at which Warner Oaks would most likely sell today. Warner Oaks is a premium, gated apartment community catering to professionals and white-collar workers who work in the upscale, planned Warner Center development in suburban Los Angeles. Because of these qualities, the Operating General Partner believes Warner Oaks would appeal to real estate investment trusts ("REITs"), among other potential buyers, and that current dividend yields of public apartment REITs of 7% to 8% allows these REITs to use an 8% Cap Rate and maintain their yield to investors. Irvine Apartment 4 5 Communities is a REIT whose properties are similarly upscale and also located in Southern California, and its recent yield was 7.1% To determine the estimated liquidation value of the Partnership's assets, the Operating General Partner added to the estimated net sales value of Warner Oaks, (i) $120,000 as an estimated condominium value of the two remaining spaces at San Luis Bay, (ii) $387,153 of notes receivable related to previous sales of condominium spaces at San Luis Bay, and (iii) $578,088 of other net current assets (before deferred management and condominium conversion fees) as of March 31, 1996. The resulting net estimated liquidation value of the Partnership's assets as of March 31, 1996 is approximately $11,921,030 or $522 per Unit. Based on these estimates, the general partners would not receive any distributions from sale and liquidation proceeds nor would any deferred management or condominium conversion fees be paid. 2. The Operating General Partner believes the Bidder intends to influence a sale of the Partnership's Properties. If, as a result of consummation of the Offer, the Bidder is in a position to significantly influence all Partnership decisions, the Bidder intends to vote the Units acquired in the Offer in accordance with its own investment objectives. That vote may be different from or in conflict with the interests of other limited partners who do not tender their Units. The Bidder appears to be purchasing Units with a view toward urging an earlier rather than a later sale date. 3. Risks. The Operating General Partner believes each limited partner should consider the risks of a continuing investment in the Partnership. In particular, limited partners should consider: o The Offer provides limited partners with the opportunity to tender their Units and realize their investment now at a definite price without having to wait for the Partnership to be terminated or liquidated at an indeterminate date in the future. o There is no assurance that the return to limited partners after a sale of Warner Oaks, whether as a whole or after conversion to condominiums (if feasible), will be greater than the price being offered now by the Bidder. o The Offer provides an opportunity to limited partners to liquidate their investment in the currently depressed Southern California real estate market without the usual transaction costs associated with market sales and without the difficulty of selling Units in an illiquid and limited trading market. The Operating General Partner urges all limited partners to carefully consider all the information contained herein and consult with their own advisors, tax, financial or otherwise, in evaluating the terms of the Offer before deciding whether to tender Units. In particular, the Operating General Partner has not taken into account the tax consequences to individual limited partners as a result of accepting or rejecting the Offer and those tax consequences could vary significantly for each limited partner based on such limited partner's unique tax situation or other circumstances. No independent 5 6 person has been retained to evaluate or render any opinion with respect to the fairness of the Offer price. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Neither the Partnership nor any person acting on its behalf intends to employ, retain or compensate any other person to make solicitations or recommendations to the limited partners of the Partnership in connection with the Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) To the best knowledge of the Partnership, no transactions in the Units have been effected during the past 60 days by the Partnership, by general partners of the Partnership, including by the Operating General Partner or any executive officer or director of the Operating General Partner, or any affiliates or subsidiaries of such persons. (b) To the best knowledge of the Partnership, the Operating General Partner, the officers and directors of the Operating General Partner and any other affiliate of the Operating General Partner do not presently intend to tender to the Bidder any Units currently held of record or beneficially owned by such Persons. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a) Except as described below, the Partnership is not engaged in any negotiation in response to the Offer which relates to or would result in: (1) An extraordinary transaction such as a merger or reorganization, involving the Partnership or any subsidiary of the Partnership; (2) A purchase, sale or transfer of a material amount of assets by the Partnership or any subsidiary of the Partnership; (3) A tender offer for or other acquisition of securities by or of the Partnership; or (4) Any material change in the present capitalization or dividend policy of the Partnership. (b) Except as described below, there are no transactions, board or partnership resolutions, agreements in principle, or signed contracts in response to the Offer, which relate to or would result in one or more of the matters referred to in this Item 7. The Operating General Partner intends to sell Warner Oaks in due course, but the effects of the 1994 Northridge earthquake and a somewhat depressed market in the immediate area surrounding Warner Oaks suggest that a further delay in marketing for sale the property would be desirable and as yet no satisfactory offers have been received . Warner Oaks suffered moderate damage from the January 17, 1994 earthquake, the epicenter of which was approximately ten miles from the property. The Partnership completely repaired the earthquake damage to Warner Oaks and has experienced substantially increased occupancy rates. The Operating General Partner believes that the real estate market in Southern California is beginning to improve and this eventually will improve values in the earthquake affected area surrounding Warner Oaks. The Operating General Partner, therefore, is considering the possibility of a sale of Warner Oaks at the appropriate time. Further, 6 7 the Operating General Partner believes that an even greater value might be realized if Warner Oaks were marketed as condominiums rather than sold as a single apartment project. This alternative, although being considered by the Operating General Partner, has not yet been fully evaluated and the Operating General Partner believes that time should be taken to evaluate this alternative fully. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED. The general partners of the Partnership, including the Operating General Partner and certain officers and directors of the Operating General Partner and other affiliates of the Operating General Partner, beneficially own limited partnership Units and general partner interests in the Partnership. The total amount of Units owned by all general partners and the directors and key executive officers of the Operating General Partner is less than 1% of the outstanding Units. Pursuant to the terms of the Partnership's Partnership Agreement, in the event a general partner (including the Operating General Partner) is removed as a general partner by a vote of a majority in interest of the limited partners, such general partner shall automatically become a limited partner and if the vote of a majority in interest of the limited partners so requires, sell his interest to the limited partners who shall purchase such interest on behalf of the Partnership. If a removed general partner is required by the limited partners to sell his interest in the Partnership, the amount to be paid for such interest shall be computed as of the date of the consummation of the purchase and in accordance with Section 15 of the Partnership's Partnership Agreement. The affirmative vote of a majority in interest of the limited partners of the Partnership is required under the Partnership's Partnership Agreement to remove or replace any general partner (including the Operating General Partner) or to dissolve the Partnership. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a) Letter to Limited Partners dated May 2, 1996 (b) None. (c) Management Agreement dated as of August 18, 1994 by and between Terra Vista Management, Inc., a California corporation, and De Anza Properties-XII, Ltd., a California limited partnership.* __________________________________________ * Not included in copies mailed to limited partners. 7 8 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete, and correct. May 2, 1996 (Date) DE ANZA PROPERTIES-XII, LTD. By: DE ANZA CORPORATION Operating General Partner By: /s/Herbert M. Gelfand ------------------------------ Herbert M. Gelfand Chairman of the Board DE ANZA CORPORATION By: /s/Herbert M. Gelfand ----------------------------------- Herbert M. Gelfand Chairman of the Board 8 9 EXHIBIT INDEX 99.1 Letter to Limited Partners dated May 2, 1996. 99.2 Management Agreement dated as of August 18, 1994 by and between Terra Vista Management, Inc., a California corporation, and De Anza Properties-XII, Ltd., a California limited partnership. 9 EX-99.1 2 LETTER TO LIMITED PARTNERS DATED MAY 2, 1996 1 EXHIBIT 99.1 LOGO 9171 Wilshire Boulevard PROPERTIES - XII, LTD. Beverly Hills, California 90210 National: (800) 321-9638 May 2, 1996 California: (800) 421-2991 Dear Limited Partner: De Anza Properties-XII, Ltd. (the "Partnership") has been studying the unsolicited tender offer made by Moraga Gold, LLC (the "Bidder") to purchase units of limited partnership interest of the Partnership ("Units") for $305 per Unit. The Operating General Partner has completed its evaluation and has determined that the offer is inadequate, and not in the best interests of the Partnership or its limited partners. Accordingly, the Operating General Partner recommends that the limited partners reject the offer and urges you not to tender any of your limited partnership Units. None of the Operating General Partner or any of its officers, directors or affiliates intend to tender any Units. In arriving at its determination, the Operating General Partner carefully reviewed the offer with its advisors and management, and considered many factors including the business, financial condition and prospects of the Partnership. The Operating General Partner's conclusions and recommendations concerning the offer are based, in part, on the Operating General Partner's belief that: - The amount being offered by the Bidder does not reflect the value of the Partnership's underlying assets. According to the Bidder's materials, the Bidder believes a Unit has a current liquidating value of $405 based on a 10% capitalization rate. The offer is, therefore, approximately 25% lower than the Bidder's own estimate of the Partnership's underlying assets. Also, the Operating General Partner's estimate is $522 per Unit. This is based on an 8% capitalization rate, which we believe more closely approximates the rate prevailing for similar properties in the vicinity of the Partnership's sole substantial remaining property, Warner Oaks Apartments (the "Property"). In addition, limited partners who sell any Unit to the Bidder will not receive any distribution to be made by the Partnership with respect to that Unit once the Unit is sold. - Despite improving conditions, both the market and the operation of the Property are still adversely affected by the effects of the 1994 Northridge earthquake. This suggests that a further delay in marketing the Property for sale would be advisable. The Bidder appears to be purchasing Units with a view toward urging an earlier rather than a later sale date. - While a current sale would most probably realize a substantially greater value than that offered by the Bidder, an even greater value might be realized if the Property were marketed as condominiums rather than sold as a single apartment project. The Operating General Partner believes that time should be taken to evaluate this alternative. The Bidder has implied that administrative costs for the Partnership are high and has encouraged a sale of the Property to avoid the costs. Of the administrative costs, reimbursements paid to affiliates of the Operating General Partner in 1995 amounted to $104,365, which represents only 4.5% of total Partnership operating revenues, and affiliates of the Operating General Partner received no management fees. Deferred management fees would be payable to the Operating General Partner only if the limited partners first receive a full return of their capital and their full priority return. Even if the Property is sold and a $522 per Unit value is realized no management fees would be payable to the Operating General Partner or its affiliates. Accordingly, to the extent that the Bidder implies that the Operating General Partner is motivated to hold the Property to get fees, there is no basis for that assertion. 2 Before deciding to reject the Bidder's offer, limited partners should consider the risks of a continued investment in the Partnership: - The offer from the Bidder provides limited partners with the opportunity to tender their Units and realize their investment now at a definite price without having to wait for the Partnership to be terminated or liquidated at an indeterminate date in the future. - There is no assurance that the return to limited partners after a sale of the Property, whether as a whole or after conversion to condominiums (if feasible), will be greater than the price being offered now by the Bidder. - The offer provides an opportunity to limited partners to liquidate their investment in the currently depressed Southern California real estate market without the usual transaction costs associated with market sales and without the difficulty of selling Units in an illiquid and limited trading market. The attached Schedule 14D-9, which has been filed with the Securities and Exchange Commission, expands upon the reasons for the Operating General Partner's determination concerning the Bidder's offer, and contains additional information relating to the Operating General Partner's recommendation and certain other actions taken by the Operating General Partner on behalf of the Partnership. We urge you to read the Schedule 14D-9 carefully. If you have any questions concerning these matters please call Investor Relations at (310) 777-2153. You can be assured that the Operating General Partner will continue to act in the manner in which the Operating General Partner believes to be in the best interest of the Partnership and its limited partners. Very truly yours, DE ANZA PROPERTIES-XII, LTD. By: DE ANZA CORPORATION, Operating General Partner By: [SIGNATURE] -------------------------- Herbert M. Gelfand Chairman of the Board EX-99.2 3 MANAGEMENT AGREEMENT DATED AS OF AUGUST 18, 1994 1 EXHIBIT 99.2 WARNER OAKS/TERRA VISTA MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (the "Agreement") is made as of the 18th day of August, 1994, by and between Terra Vista Management, Inc., a California corporation, (the "Manager"), and De Anza Properties - XII, Ltd., a California limited partnership, (the "Owner"), in Los Angeles, California, with reference to the following facts: A. Owner has acquired certain improved real property located in Woodland Hills, California, which is commonly known as Warner Oaks Apartments (hereinafter referred to as the "Property"). B. De Anza Assets, Inc., a California corporation, is the existing manager of the Property pursuant to a Management Agreement dated October 1, 1985, which was amended as of June 14, 1990, to reflect an amendment to Owner's partnership agreement. De Anza Assets, Inc. is wholly owned by De Anza Group, Inc., which is being sold. Accordingly, De Anza Assets has withdrawn as manager, which withdrawal has been accepted by Owner, and De Anza Assets has been replaced by Terra Vista Management, Inc. The parties desire to enter into this Management Agreement to reflect their obligations with respect to the ownership and operation of the Property. C. Owner desires that Manager maintain and operate the Property on its behalf, and Manager desires to undertake said functions. -1- 2 NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements set forth herein, the parties agree as follows: 1. Engagement. Owner hereby engages Manager as general manager of the Property to the extent and subject to the conditions set forth herein, and Manager hereby accepts such engagement. 2. Term and Termination. This Agreement shall continue from year to year; provided, however, that Owner or Manager may, without penalty or obligation to the other party to this Agreement, by providing sixty (60) days' written notice to the other, terminate this Agreement with or without cause at any time. This Agreement may be immediately canceled in the event of the violation of any of the provisions hereof, or by Owner in the event a petition in bankruptcy is filed by or against Manager which is not dismissed within ninety (90) days following the date of such filing. 3. General Duties of Manager. Manager shall be directly responsible for the day-to-day management of the Property, subject to such general guidelines and instructions as the Owner may issue from time to time. Notwithstanding anything to the contrary contained herein, all final decisions respecting the management of the Property shall be made by Owner. Manager shall at all times do and perform all things reasonably necessary to effectuate the purposes and intentions embodied in this Agreement so that the Property is operated at all times in a manner consistent with prudent business practice and in -2- 3 accordance with any and all leases, subleases and contracts to which the Property is subject, and any and all other laws, statutes, ordinances and regulations of any governmental authority having jurisdiction over Owner, the Property or Manager. 4. Collection of Rent and Payment of Expenses. Manager shall collect on behalf of Owner all rents and all other charges of every kind or type whatsoever from all tenants or other occupants of the Property for services provided in connection with, or for the use of, the Property or any portion thereof, and shall deposit the same in depositories specifically approved by Owner. Out of the foregoing rents and other charges collected on behalf of Owner, Manager shall pay all expenses related to the operation and maintenance of the Property and each of its facilities as and when the same become due, all in accordance with specific instructions provided by Owner. There shall be included in the operating expenses of the Property borne by Owner the direct out-of-pocket expenses incurred by Manager or any of its affiliates (including payments to salaried employees and payments for services and supplies) in performing the bookkeeping, management, computer and public relations services for Owner necessary for operation of Owner and the Property which services, but for their performance by Manager or its affiliates, would be required to be performed for Owner by another person; provided, however, that such expenses to be borne by Owner shall not exceed the amount Owner would be required to pay nonaffiliated persons for comparable services which could reasonably be made available to Owner. -3- 4 Manager may, with Owner's prior approval, and, when so requested by Owner, shall, at Owner's expense, institute legal actions or proceedings to collect charges, rent or other income or compensation due to Owner with respect to the Property, or to oust persons unlawfully in possession of any portion of the same. All such actions or proceedings and any related counterclaim, crossclaims or other proceedings shall be at Owner's expense and may be brought in the name of Owner or Manager. 5. Employees. Manager shall have the exclusive right to discharge, supervise and fix the pay of such personnel as are necessary for the efficient maintenance and operation of the Property. However, such personnel shall be employed and paid by and shall be bonded to the satisfaction of Owner. 6. Repair and Maintenance of Property. Manager, at Owner's expense, shall make or attend to the making of ordinary and emergency repairs, maintenance, decorations and alterations at the Property. 7. Taxes and Insurance. Owner shall pay all taxes, personal and real, and assessments that are attributable to the Property. Manager shall obtain and keep in force, at Owner's expanse, such fire, comprehensive, liability and other insurance policies as are generally carried with respect to similar facilities in amounts sufficient to protect and maintain the Property and Owner's interest therein in a form, manner and amount, and with companies satisfactory to Owner. Owner and Manager shall be named as insured parties in all liability insurance policies relating to the Property. -4- 5 8. Accounting. Manager shall keep a detailed and complete set of books and records of all the income and disbursements of the Property in accordance with good accounting practice; and Manager shall, on a monthly basis, render to Owner each of the following: (a) A report on all vacancies; (b) A schedule showing all income received and disbursements made during the preceding month, together with the balance on hand, if any, at the end of said month; and (c) A schedule describing the monthly and annual budget for the Property, together with the amount expended in each category in the preceding month and for the year to date. 9. Books and Records. Manager shall keep adequate books and records in connection with all matters arising under the terms of this Agreement. During regular business hours, Manager shall allow Owner or any of its duly authorized representatives access to Manager's records and correspondence pertaining to any transaction arising out of this Agreement. At the close of each fiscal year of Owner, Manager shall allow the books and records which are the subject of this paragraph to be examined and audited by a certified public accountant selected by Owner. In the event of the termination of this Agreement, Manager shall turn over to Owner all records and correspondence as may be reasonably necessary to assist Owner to carry to completion any lease or other transaction and all contracts, records and documents directly pertaining to the Property. -5- 6 10. Compensation. Owner shall pay to Manager as compensation for its services under this Agreement a sum equivalent to 5% of the aggregate gross receipts from the operation of the Property excluding all receipts from utilities or from taxes of any kind or type (provided that this compensation is no less favorable to Owner than that which it would have to pay for comparable services which could reasonably be made available to it by non-affiliated parties) and, if thereafter that compensation is less than the compensation which would then have to be paid by Owner to non-affiliated parties performing comparable services, the Operating General Partner of Owner shall have the option under this Agreement (exercisable by three days written notice thereof to Manager) to raise the compensation to be paid to Manager hereunder to a level not in excess of that which would be payable by Owner for such comparable services. No increase in Manager's compensation under this provision shall exceed one percent of the annual gross receipts of the Property in any year. The foregoing compensation shall be payable at the beginning of each monthly accounting period and shall be calculated on the basis of the budgeted gross receipts (as determined by Owner) from the operation of the Property during that period. The total amount of compensation earned by Manager hereunder shall, as soon as possible after the end of each calendar year during the term of this Agreement, be calculated on the basis of the actual gross receipts from the operation of the Property during that year, and any additional compensation that is due to Manager (because the actual gross receipts exceeded the -6- 7 budgeted gross receipts) shall be paid to it by Owner at that time. Conversely, if Manager collected more compensation than it was entitled to receive during any such year (because the actual gross receipts were less than the budgeted gross receipts), Manager shall return the excess compensation to Owner (without interest thereon). Compensation received by Manager hereunder in any given calendar year shall be returned by Manager to Owner to the extent the limited partners of Owner have not received the Priority Return described in Section 10.1(a), as adjusted by the requirements of Section 12.3.1(a), of the Second Amended and Restated Certificate and Agreement of Limited Partnership of Owner (the "Certificate and Agreement") at the end of such year, provided, however, that, except to the extent of any reduction of the fee payable to Manager in accordance with the immediately preceding clause of this sentence, Manager shall not be obligated to provide its own funds to pay any return to Owner's limited partners described in Section 10.1(a) or 12.3.1(a) of the Certificate and Agreement, and in no event will the amount payable to Manager hereunder be reduced below zero. 11. Indemnification. Owner shall indemnify, defend and hold Manager harmless from any damages, costs, expenses or obligations incurred by Manager as a result of any actions or omissions of Manager within the scope of its authority as provided in this Agreement, or as a result of any other actions or obligations as Owner may specifically authorize Manager to perform, provided performance of such acts by Manager does not constitute fraud, bad faith or negligence. -7- 8 12. Miscellaneous. To the extent possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. However, if any provision hereof shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, and shall in no way affect the validity of the remainder of such provision, or of any of the remaining provisions of this Agreement. This Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California. This Agreement and the rights of Owner and Manager hereunder shall not be assignable by either of them. Manager may, however, subcontract the performance of its duties under this Agreement to one or more subsidiaries or affiliates of Manager or to one or more affiliated companies or unaffiliated companies suitable to Owner, but it shall remain responsible for such performance. The right of Manager to receive compensation may be assigned, pledged or hypothecated at any time without Owner's consent. This Agreement, and a notice regarding payment of deferred management fees, contain the entire agreement of Owner and Manager with respect to the subject matter hereof and may not be changed except by an instrument executed by both of them. (signatures on following page) -8- 9 IN WITNESS WHEREOF, the parties hereto have executed this Management Agreement as of the date first above written. OWNER: DE ANZA PROPERTIES - X a California limited partnership By /s/ HERBERT M. GELFAND ------------------------------- Herbert M. Gelfand Chairman of the Board MANAGER: TERRA VISTA MANAGEMENT, INC. a California corporation By: /s/ MICHAEL D. GELFAND -------------------------------- Michael D. Gelfand President -9- -----END PRIVACY-ENHANCED MESSAGE-----