Exhibit 10.4

 

PROPERTY MANAGEMENT AND SERVICES AGREEMENT

 

BETWEEN

 

GLENBOROUGH PROPERTIES, L.P.

a California Limited Partnership

 

AND

 

RANCON INCOME FUND I,

a California Limited Partnership

--------------------------------------------------------------------------------

PROPERTY MANAGEMENT AND SERVICES AGREEMENT

 

This Property Management and Services Agreement (“Agreement”), dated as of July
    , 2004, is made and entered into by and between Glenborough Properties,
L.P., a California limited partnership (“Glenborough”), and Rancon Income Fund
I, a California limited partnership (“Rancon”).

 

RECITALS

 

A.        The parties intend by this Agreement to provide the terms and
conditions whereby Glenborough will provide for Rancon (i) property management
and construction services (collectively, “Management”) for the properties owned,
operated or managed, in whole or in part, by Rancon, described in Exhibit “A”
attached hereto (“Property”); (ii) asset and partnership services which the
general partners of Rancon are obligated to perform for or render to Rancon
(“Administration”); and (iii) leasing, sale & finance, development and
dissolution consulting services concerning the Property (collectively,
“Consulting”). Collectively, the Management, Administration and Consulting
services may be referred to as the “Services”. Rancon acknowledges that the
Services to be rendered by Glenborough under this Agreement that may require a
real estate license will be performed by Glenborough, which is a partnership
authorized to perform such acts by and through a general partner that holds a
real estate license.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth in this Agreement, the parties agree as follows:

 

ARTICLE I

 

ENGAGEMENT

 

1.1        Engagement. Rancon hereby engages Glenborough to perform or contract
for the Services (defined in more detail below).

 

1.2        Independent Contractor/ Employees.

 

1.2.1        Glenborough is hereby engaged by Rancon as an independent
contractor.

 

1.2.2        Glenborough shall have in its employ at all times a sufficient
number of employees to enable Glenborough to professionally perform the Services
in accordance with an annual Business Plan and this Agreement. All matters
pertaining to the employment and supervision of such employees shall be the sole
and exclusive responsibility of Glenborough. All persons employed by Glenborough
in connection with the services to be rendered hereunder shall be Glenborough’s
employees. Rancon shall have no responsibilities or liabilities with respect to
Glenborough’s employees, except as otherwise described herein.

 

ARTICLE II

 

TERM/TERMINATION

 

2.1        Term of Agreement. The term of this Agreement (“Term”) shall be two
(2) years, commencing on January 1, 2005 (“Commencement Date”) and ending at
11:59 p.m., December 31, 2006; provided, however, that the Term shall be
automatically extended for up to a maximum of five (5) additional consecutive
one (1) year periods of time, without further act by any party hereto, unless,
not later than one hundred twenty (120) days prior to the last day of the Term,
or any one year extension thereof, a party to this Agreement gives the other
party written notice of termination of this Agreement and, in such event, this
Agreement shall terminate at the end of the then current Term, or extension
thereof.

 

Manage.RanconAgmt (RIFI) 7-04   1

--------------------------------------------------------------------------------

2.2        Termination .

 

2.2.1.        Termination by Rancon For Cause. Rancon shall have the right to
terminate this Agreement at any time with cause. For purposes of this Section
2.2.1, “cause” shall mean the occurrence of any one or more of the following
events: (a) cessation on the part of Glenborough to do business or, if required
by law, to qualify to do business; (b) failure of Glenborough to deal with and
account for Rancon funds in a commercially reasonable and honest manner; (c) the
occurrence of any default in the performance of any material covenant or
agreement of Glenborough contained herein, if such default continues for a
period of thirty (30) days after written notice thereof is given by Rancon to
Glenborough; provided however, that if a default is curable only within a period
of time longer than thirty (30) days, then “cause” shall not have occurred
hereunder unless Glenborough fails to commence to cure the default with due
diligence within the thirty (30) day period or thereafter fails to complete the
cure with due diligence within a reasonable period of time; (d) the performance
by Glenborough of any act with respect to the Property which is materially
detrimental to Rancon and outside the scope of Glenborough’s rights or
obligations hereunder, unless authorized by Rancon. An event of cause described
in subsections (a), (b) or (d) above, shall give Rancon the right to terminate
this Agreement effective immediately upon thirty (30) days written notice to
Glenborough, provided Glenborough does not, within such notice period, qualify
to do business or recommence business or correct any failure to deal with the
accounts as described so as to result in no economic detriment to Rancon. An
event of cause described in subsection (c) above shall give Rancon the right to
terminate this Agreement effective immediately upon the Rancon’s written notice
of termination to Glenborough after Glenborough’s failure to cure the default.

 

2.2.2.        Termination by Glenborough. Glenborough shall have the right to
terminate this Agreement in accordance with this Section 2.2.2 in the event
Rancon fails to pay Glenborough any fee or reimbursement provided for in, or to
perform any material Rancon obligation under, this Agreement. Glenborough shall
give written notice to Rancon of Rancon’s failure to pay any fee or
reimbursement or to perform any material obligation under this Agreement. Within
fifteen (15) days thereafter, Rancon shall either pay Glenborough the requisite
fee or reimbursement or perform the obligation in question, as appropriate, or
shall provide Glenborough with written notice that Rancon disputes that the fee,
reimbursement or performance is due Glenborough, giving the Rancon’s reason.
Failure of Rancon to provide Glenborough with the fee, reimbursement or
performance or to provide the notice as specified herein shall permit
Glenborough to effect immediate termination of this Agreement upon Glenborough’s
written notice to Rancon of such termination.

 

2.3        Final Accounting. Upon termination of this Agreement, Glenborough
shall deliver to Rancon the following with respect to the Services:

 

2.3.1        A final accounting, reflecting the balances of Rancon’s assets,
liabilities, capital, income and expense accounts as of the date of termination,
to be delivered within thirty (30) days after such termination.

 

2.3.2        All monies of Rancon and all tenant security deposits held by
Glenborough with respect to Rancon’s assets, to be delivered within fifteen (15)
days after such termination.

 

2.3.3        All records, contracts, leases, tenant correspondence files,
receipts for deposits, unpaid bills and other papers or documents which pertain
to Rancon and Rancon’s assets, to be delivered within fifteen (15) days after
such termination. Upon such termination, Rancon will assume responsibility for
payment of all approved or authorized unpaid bills.

 

2.4        Obligation to Vacate. Upon termination of this Agreement, Glenborough
shall promptly vacate any office space provided by Rancon for the location of
Glenborough’s personnel and property.

 

Manage.RanconAgmt (RIFI) 7-04   2

--------------------------------------------------------------------------------

ARTICLE III

 

GLENBOROUGH’S SERVICES

 

3.1        General Provisions.

 

3.1.1        Performance Standards. Unless otherwise expressly stated to the
contrary, Glenborough is only obligated to perform Services in accordance with
sound and professional real estate and asset management and brokerage practices
and techniques, consistent with professional standards prevailing in the region
where the Property is located. Glenborough’s agreement to perform any of the
Services does not constitute, and is not intended to be, a representation,
warranty or guarantee by Glenborough that the contemplated Services will occur,
but only that Glenborough will exercise professional efforts to accomplish such
Services. Glenborough is not, in the performance of the Services, guaranteeing
or warranting the performance of other persons who may render Services, e.g., a
design professional(s), a service contractor(s) or construction contractors or
suppliers. In no event shall Glenborough be obligated to take any act, or omit
to take an act, that it deems in good faith to be illegal or which might result
in injury to any person.

 

3.1.2        Conformance with Business Plan. Glenborough shall perform the
Services in an efficient and satisfactory manner in conformance with the
Business Plan (described below) and this Agreement. Glenborough shall undertake
all activities reasonably necessary to implement the approved Business Plan,
subject to any express limitations on Glenborough’s authority set forth in such
approved Business Plan, or otherwise in this Agreement.

 

3.2        Business Plan.

 

3.2.1        Glenborough shall, in cooperation with Rancon, prepare and submit
for Rancon’s approval, an annual business plan for Management, Administration
and Consulting services (the “Business Plan”). The Business Plan shall include a
detailed budget of projected income and expenses, a capital expenditure budget,
leasing projections and guidelines, as well as a plan of the Administration and
Consulting services to be provided to Rancon. Rancon shall have a reasonable
period of time after Glenborough’s delivery to Rancon of the proposed Business
Plan to approve or disapprove such Business Plan, which approval or disapproval
may not be unreasonably withheld or delayed. If Rancon disapproves the Plan,
Rancon shall specify in reasonable detail the reasons for such disapproval.
Glenborough shall promptly revise the Business Plan as may be necessary to
address the reasons for the disapproval and shall resubmit the Business Plan to
Rancon for approval. All references to the Business Plan hereinafter used in
this Agreement shall mean the approved Business Plan. Should the year for which
an approved Business Plan expire before a Business Plan for the next year is
approved, Glenborough shall continue to provide the Services under the last
approved Business Plan, as reasonably applicable, until a new Business Plan is
approved or this Agreement terminates.

 

3.2.2        Glenborough shall use diligent and reasonable efforts to ensure
that the actual costs of the Services do not exceed the operating budget which
is a part of the approved Business Plan (the “Operating Budget”), in total.
Subject to the provisions hereof, Glenborough shall have the authority, without
Rancon’s prior written consent, to expend sums up to and including $50,000 and
undertake such activities as are expressly authorized in the Business Plan or in
this Agreement.

 

3.2.3        Glenborough shall inform Rancon of any major anticipated increases
or decreases in costs, expenses, income or capital expenditures that were not
reflected in the Business Plan. Glenborough shall cooperate with Rancon to
prepare reasonable periodic forecasts of operations for the balance of the
current year.

 

Manage.RanconAgmt (RIFI) 7-04   3

--------------------------------------------------------------------------------

3.3        The Services.

 

3.3.1        Management Services include the following:

 

(a)        Property Management Services: typical onsite operations, including
but not limited to, negotiation, execution and administration of all contracts
with third parties related to the Services (“Service Contracts”); employ and
provide personnel; plan, coordinate and manage Property repairs and maintenance;
manage inventories and supplies necessary to operate the Property; coordinate
and manage tenant relations; collect and process rent and other income; process
and pay invoices; develop annual budgets for each property; typical on-site
accounting and expense reconciliations; produce accounting reports on a monthly
basis and compare against approved operating budgets; make reasonable efforts to
collect current certificates of insurance from tenants; administer leases;
monitor tenant improvement budgets; and produce a Monthly Report (as defined in
Section 4.3) for each Property.

 

(b)        Construction Services: evaluate, recommend and plan capital projects;
prepare and monitor capital project budgets; budget and coordinate tenant
improvements; interview and select architects and execute architectural services
contracts; coordinate the preparation of space plans and tenant improvement
construction drawings; interview and select contractors and other service
providers; review, execute and administer construction and design contracts; and
provide oversight of construction projects.

 

3.3.2        Administration Services include the following: consolidate
individual Property operating budgets; develop annual Business Plans and
strategic plans; provide discounted cash flow analysis and Argus “10 year”
projections; analyze asset values; provide pro-forma analysis for leasing;
procure insurance; manage insurance claims; evaluate and administer ad valorem
taxes; coordinate annual valuations of Rancon and the Property; monitor and
administer existing loans and lines of credit; prepare capital budgets; manage
unimproved land and oversee the Waterman landfill property; oversee
environmental monitoring and regulatory obligations; prepare consolidated
Monthly Reports for Rancon; prepare financial statements; manage cash flow;
conduct bank reconciliations; coordinate Rancon audits, SEC reporting and income
tax returns.

 

Rancon shall remain responsible for completing any Rancon partnership
administrative tasks not covered by this Agreement.

 

3.3.3        Consulting Services include the following:

 

(a)        Leasing Services: Promptly following notice of any impending vacancy,
Glenborough shall use diligent efforts to secure a replacement tenant on a
commercially reasonable and competitive basis. Glenborough may, at its
discretion, secure the services of one or more third party leasing agents to act
on behalf of Rancon, and shall make every reasonable effort to procure and keep
desirable tenants for the Property, at the expense of Rancon. All leases shall
be prepared in the name of Rancon and shall be executed by Glenborough as
attorney in fact for Rancon.

 

(1)        New Leases: provide regular market assessments; coordinate the
development of comprehensive leasing and marketing plans; hire and terminate
listing brokers for the Property; coordinate listing brokers and tenant brokers;
provide leasing benchmarks and analysis of new deals; negotiate, document and
execute leases; coordinate and implement the development of space plans; and
produce related monthly reports and participate in meetings.

 

(2)        Lease Renewals and Expansions: coordinate tenant lease renewals and
expansions; develop leasing parameters based on asset strategy recommendations;

 

Manage.RanconAgmt (RIFI) 7-04   4

--------------------------------------------------------------------------------

individual deal analysis; negotiate, document and execute lease modifications;
coordinate and implement the development of space plans; and produce related
monthly reports and participate in meetings.

 

(b)        Sale and Finance Services

 

(1)        Sales: asset valuation analysis; recommend and set a disposition
plan; engage and monitor a listing broker and the broker’s marketing plan and
materials; evaluate offers and negotiate in accordance with the disposition
plan; coordinate due diligence requests; retain counsel and negotiate and
prepare a purchase and sale agreement; and manage post closing issues.

 

(2)        Finance: utilize existing banking relationships; obtain and evaluate
loan options and make recommendation to Rancon; and assist in the loan
documentation process.

 

(c)        Development Services: report results of market research and
econometric forecasting; provide site review, analysis and approval; provide
land use evaluations; initiate title and environmental review and provide
on-going services related to these matters; oversee design review and planning;
review and approve schematic designs; review and approve mechanical, plumbing
and engineering design work; review and approve specifications and warranties;
interview and select general contractors; review, negotiate and execute
construction related contracts (including hiring third party consultants for
construction monitoring, warranty and close-out services); review all Planning
Committee submittals; review civil design work; review and approve design and
exterior and interior finishes; review and approve change orders and/or changes
in the scope of projects; coordinate and manage contractors; review punch lists
and coordinate completion; coordinate and manage the processing of payments,
lien waivers and other related documentation; and approve and make, construction
financing draws .

 

(d)        Dissolution Services: plan, coordinate and manage transition process;
provide post-closing services related to SEC and tax filings; coordinate record
retention plan; and provide other “wind-up” services.

 

3.4        Authorized Activities. Subject to any conditions and/or limitations
specified in this Agreement or the Business Plan, but otherwise applying an
expansive interpretation, Glenborough shall be permitted to undertake the
activities listed below without obtaining the written consent of Rancon. In
other instances, Glenborough shall be required to obtain Rancon’s written
consent before undertaking any activity in connection with Management,
Administration and Consulting services. Rancon may amend the following list in
its reasonable discretion.

 

3.4.1        Enter into, renew and maintain contracts for utilities and all
Service Contracts.

 

3.4.2        Collect rent, expense reimbursement and other income generated from
the Property and other assets of Rancon.

 

3.4.3        Keep records and develop a record-keeping system.

 

3.4.4        Open bank accounts, make deposits therein, and issue checks
thereon.

 

3.4.5        Pay bills and loan or mortgage payments.

 

3.4.6        Obtain and verify bills for real estate and personal property taxes
and improvement assessments and appeal assessments on behalf of Rancon or
delegate to and retain a third party to do so.

 

3.4.7        Arrange or contract for day-to-day maintenance and repair of the
Property.

 

3.4.8        Provide office space and facilities for field property management
and maintenance personnel and those positions permitted pursuant Rancon
Agreement.

 

Manage.RanconAgmt (RIFI) 7-04   5

--------------------------------------------------------------------------------

3.4.9        Purchase office supplies and equipment.

 

3.4.10        Purchase supplies, equipment and services necessary to maintain
the Property in good condition and repair.

 

3.4.11        Comply with federal, state and local laws, rules, orders and
ordinances including filing of reports.

 

3.4.12        Locate tenants to fill vacancies through advertising, real estate
brokers or rental agencies.

 

3.4.13        Select tenants that, in Glenborough’s best judgment, are
appropriate to fit in with existing tenants and check their financial
qualifications for indications of likely continuous, problem-free rental income.

 

3.4.14        Handle tenant complaints.

 

3.4.15        Prepare and execute leases and lease modification documents.

 

3.4.16        Prepare rental units for new tenant occupancy.

 

3.4.17        Develop and execute a program of property improvements,
alterations and modernization.

 

3.4.18        Hire on behalf of Glenborough and supervise personnel to staff and
maintain the Property.

 

3.4.19        Receive estimates, negotiate and execute contracts with outside
maintenance providers and independent contractors.

 

3.4.20        Commence suits for rent or for use and occupancy of the Property
(or any portion thereof) or commence suits for recovery of possession of the
Property (or any portion thereof) and where and to the extent provided by law,
terminate leases and lock out tenants.

 

3.4.21        Hire and/or terminate management companies and other service
providers including, but not limited to, brokers, architects, design
professionals, engineers, general contractors and consultants for approved
services, and make modifications to the contracts with these service providers.

 

3.4.22        Delegate authority to sub-agents or employees.

 

3.4.23        Borrow any amount on behalf of Rancon or any General Partner(s)
from, or draw against, existing lines of credit, construction loans and/or other
credit facilities.

 

3.4.24        Implement approved plans to develop unimproved property including
the review, approval, execution and modification of related development
contracts and other documents (such as documents related to title, design,
schematics, specifications, mechanical, plumbing, engineering and warranties).

 

3.4.25        Undertake all other activities specifically authorized in this
Agreement.

 

3.5        Unauthorized Activities. The following activities, without
limitation, shall in no event be undertaken by Glenborough without first
obtaining the written consent of Rancon which consent may be obtained by General
Partner approval.

 

3.5.1        List for sale, sell or purchase real property.

 

3.5.2        Sell or purchase any Rancon asset (other than real property) with a
fair market value in excess of $50,000.

 

3.5.3        Consummate the financing, refinance or restructure any Rancon loan.

 

Manage.RanconAgmt (RIFI) 7-04   6

--------------------------------------------------------------------------------

3.5.4        Discontinue any loan payments or take any other action or omit to
take any action constituting a default under a loan document.

 

3.5.5        Pledge any Rancon asset as collateral.

 

3.5.6        Make, execute or deliver for Rancon any guaranty, indemnity bond or
surety bond.

 

3.5.7        Make, execute or deliver any general assignments for the benefit of
creditors.

 

3.5.8        Assign, transfer, pledge, compromise or release any Rancon claim
except for full payment or arbitrate or consent to the arbitration of any
disputes or controversies.

 

3.5.9        Do any act in contravention of this Agreement.

 

3.5.10        Do any act in contravention of the partnership agreement or
Certificate of Limited Partnership.

 

3.5.11        Do any act which would make it impossible to carry on Rancon
business.

 

3.5.12        Confess a judgment against Rancon.

 

3.5.13        Possess Rancon property or assign the rights of Rancon in assets.

 

3.6        Limited of Power of Attorney. To facilitate the performance of the
Services by Glenborough, Rancon hereby constitutes and appoints Glenborough as
Rancon’s true and lawful attorney-in-fact, in Rancon’s name, place and stead and
for Rancon’s use and benefit, to do those activities expressly authorized herein
and to prepare and file all applicable filings, statements and records. The
foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable and may be exercised by the attorney-in-fact in such
form and manner as the attorney-in-fact deems appropriate including, without
limitation, by signature or facsimile signature of the attorney-in-fact acting
for Rancon. Rancon shall execute on behalf of Rancon and deliver to Glenborough
within ten (10) days after the Commencement Date, a limited power of attorney in
recordable form including the foregoing powers and, without limitation, an
express power to open bank accounts and make deposits and withdrawals therefrom
in the name, and on behalf, of Rancon and to bring and prosecute on behalf of
Rancon tax appeals and obtain all information about Rancon and its assets from
taxing and other governmental authorities.

 

3.7        Services Contracts.

 

3.7.1        Glenborough is authorized to enter into any Service Contracts or
other contracts in connection with the Services to be provided hereunder as
attorney in fact for Rancon.

 

3.7.2        All contracts entered into in connection with the Services shall:
(a) be in the name of Rancon; (b) be assignable, at Rancon’s option, to Rancon’s
nominee; (c) include a provision for cancellation thereof by Rancon upon not
more than thirty (30) days written notice (any exception to this provision must
have the prior written consent of Rancon); and (d) if applicable, require that
all contractors provide evidence of insurance sufficient to meet the
requirements of Section 5.3.

 

3.8        Contracts With Related Parties. Glenborough may arrange for the
furnishing of the Services contemplated hereunder by any other person,
corporation, partnership, trust or other entity related to or affiliated with
Glenborough (hereinafter referred to as a “Related Party”), provided such
proposed related or affiliated party is professionally qualified and competent
and any fees charged by such Related Party shall be included herein and not in
addition to the fees and reimbursements contemplated hereunder. Unless the
context or language indicates otherwise, the use of the term “Glenborough” in
this Agreement shall be deemed to include any such Related Party performing
services hereunder.

 

3.9        Limitation of Glenborough’s Responsibility/Authority. In no event
shall Glenborough be obligated to advance any money to Rancon for payment of any
Rancon obligation. Any advances

 

Manage.RanconAgmt (RIFI) 7-04   7

--------------------------------------------------------------------------------

Glenborough voluntarily makes for the benefit of Rancon shall be valid debts of
Rancon. Glenborough shall not be authorized to acquire any asset on behalf of
Rancon, sell or otherwise dispose of any asset of Rancon, amend any Rancon
partnership agreement, refinance any asset of Rancon or otherwise take any
action unless such action has been specifically approved in the Business Plan or
otherwise.

 

ARTICLE IV

 

FINANCIAL MATTERS

 

4.1        Books of Account of Glenborough Services. Glenborough shall maintain
adequate and separate books and records in connection with the Services
(“Services Records”), the entries to which shall be supported by sufficient
documentation to ascertain that the entries are accurate. Such books and records
shall be maintained by Glenborough at Glenborough’s listed address, or at such
other reasonable location as Glenborough may designate in writing.

 

4.2        Partnership Books and Records. Glenborough shall prepare and maintain
on behalf of Rancon, and maintain available for Rancon’s inspection, the books
and records set forth in the Rancon partnership agreement (“Partnership
Records”). Without limitation, the Rancon books and records shall include: (a)
all bank statements, bank deposit slips and bank reconciliations; (b) detailed
cash receipts and disbursement records; (c) general ledger listing or list of
disbursements; (d) all invoices for capital expenditures and nonrecurring items;
(e) summaries of adjusting journal entries; (f) copies of paid bills; (g)
detailed trial balance; (h) all records relating to Rancon required by any
applicable laws; and (i) such other documents as are reasonable or appropriate.
In addition, Glenborough shall maintain for inspection in its offices (or such
other reasonable location as it may designate in writing to Rancon) supporting
documentation for payroll, payroll taxes and employee benefits. Rancon shall
have the right to conduct examinations of the Partnership Records by giving
seventy-two (72) hours prior written notice to Glenborough. Rancon also reserves
the right to perform reasonable additional audit tests relating to Glenborough’s
Services. Any and all such audits conducted by Rancon shall be at the sole
expense of Rancon and shall take place on a day or days other than weekends or
holidays.

 

4.3        Monthly Reports. Glenborough shall furnish reports (“Monthly
Reports”) of all transactions occurring in each calendar month. Monthly Reports
are to be received by Rancon no later than twenty (20) calendar days after the
end of each month.

 

4.4        Accounting Principles. All financial statements and reports required
by Rancon will be prepared on an accrual basis, and quarterly and annual
statements shall be prepared in accordance with generally accepted accounting
principles.

 

4.5        Rancon’s Records. All books, records, invoices and other documents
received or generated by Glenborough or its agents or employees on behalf of
Rancon pursuant to or in connection with this Agreement shall be the property of
Rancon.

 

4.6        Bank Accounts.

 

4.6.1        Rancon Accounts. Subject to Rancon’s approval, which approval shall
not be unreasonably withheld or delayed, Glenborough shall select all banks,
savings and loan associations or other financial institutions for any of the
following described accounts. All accounts shall be in the name of Rancon, shall
name Glenborough as agent for Rancon and need not be interest bearing accounts.
Glenborough shall give written notice to Rancon of the number and location of
all of Rancon’s accounts. If reasonable, Rancon may direct Glenborough to change
any depository arrangement with respect to any account.

 

(a)        Operating Account. Glenborough shall deposit all rents and other
funds collected in connection with the Services in a special Rancon account or
accounts (“Operating Account”). Glenborough shall pay out of the Operating
Account the Services expenses and any other payments

 

Manage.RanconAgmt (RIFI) 7-04   8

--------------------------------------------------------------------------------

authorized by the terms of this Agreement (including the fees and reimbursements
identified in Article VII).

 

(b)        Security Deposit Account. If required by applicable law, a separate
account will be opened by Glenborough for tenant security deposits. Glenborough
shall maintain detailed records with respect to such security deposits.

 

(c)        Capital Expenditure and Reserve Accounts. Rancon may require
Glenborough to establish an account into which all funds designated for capital
expenditures and operating reserves shall be deposited (“Reserve Accounts”).
Glenborough shall pay out of the Reserve Accounts those capital expenditures or
operating expenses which have been approved in the Business Plan or as
designated by Rancon. Glenborough shall maintain detailed records with respect
to the Reserve Accounts.

 

(d)        Special Purpose Accounts. If required by the terms of any mortgage or
loan document, a separate special purpose account (“Special Purpose Accounts”)
shall be established by Glenborough for such purposes as are designated in the
mortgage or loan documents.

 

(e)        Transfers Between Accounts. Excepting the Security Deposit Account
(if applicable), Glenborough may transfer funds between any of the accounts
established on behalf of Rancon. Glenborough shall maintain detailed records
with respect to any such transfer.

 

4.7        Costs Eligible for Payment From Operating Account. Glenborough shall,
without the necessity of obtaining Rancon’s further consent, pay directly from
the Operating Account all expenses directly related to the Services, subject to
the limitations and conditions set forth in this Agreement or the Business Plan.

 

4.8        Non-Reimbursable Costs. Except as otherwise specifically provided for
in this Agreement, the following expenses or costs incurred by or on behalf of
Glenborough in connection with the Services shall be at the sole cost and
expense of Glenborough and shall not be reimbursed by Rancon, unless Rancon has
consented in writing to such expense or cost, which consent may be given or
withheld in Rancon’s sole and absolute discretion:

 

4.8.1        Cost of gross salaries and wages, payroll taxes, insurance, workers
compensation and other benefits of Glenborough’s own office personnel.

 

4.8.2        Cost of entertainment except as related to the promotion or
marketing of the Property or to investor, broker and tenant relations.

 

4.8.3        Political or charitable contributions.

 

4.8.4        Corporate office employee training expenses and recruiting fees.

 

4.8.5        Costs attributable to losses arising from gross negligence, willful
misconduct, fraud or breach of this Agreement on the part of Glenborough,
Glenborough’s employees, officers or directors.

 

4.9        Allocation of Costs and Expenses. In each instance when Glenborough
incurs a cost or expense for Services which benefits both Rancon and an asset
owned by another entity, a portion of such cost or expense shall be charged to
the account of Rancon on a pro rata, equitable basis.

 

ARTICLE V

 

INSURANCE

 

5.1        Rancon’s Insurance. Glenborough, on behalf of Rancon, as an operating
expense, will obtain and keep in force adequate insurance against physical
damage and against liability for loss, damage or injury to property or persons
which might arise in connection with the business of Rancon or

 

Manage.RanconAgmt (RIFI) 7-04   9

--------------------------------------------------------------------------------

ownership or occupancy of the Property. The types and amounts of such insurance
shall be determined by Rancon in the exercise of its reasonable discretion based
upon recommendations by Glenborough. The insurance described in this Section 5.1
may be carried under a policy or policies covering other property managed by
Glenborough, provided that such policy or policies do not reduce the amount and
type of coverage required by Rancon pursuant to this Section. Rancon shall
indemnify, defend and hold Glenborough harmless from any and all claims,
demands, causes of action, losses, damages, fines, penalties, liabilities, costs
and expenses, including attorneys’ fees and court costs on account of any loss,
damage or injury covered by a Rancon policy, provided:

 

5.1.1        Glenborough promptly notifies Rancon and the insurance carrier
after Glenborough receives notice or becomes aware of any such loss, damage or
injury;

 

5.1.2        Glenborough and Glenborough’s employees, contractors and agents
take no action (such as admission of liability) which bars Rancon from obtaining
any protection afforded by any policy Rancon may hold or which prejudices Rancon
in its defense of a claim based on such loss, damage or injury; and

 

5.1.3        Such loss, damage or injury does not arise out of any gross
negligence, willful misconduct or breach of obligation under this Agreement by
Glenborough or its employees, officers or directors or out of any acts performed
by Glenborough or its employees, officers or directors outside the scope of its
authority under this Agreement.

 

Subject to the approval of the appropriate insurance carrier, Glenborough shall
assist Rancon in the defense of any claim, demand or suit arising out of any
such loss, damage or injury.

 

5.2        Glenborough’s Insurance. Glenborough shall maintain, at its expense,
insurance coverage in the following minimum amounts:

 

5.2.1        Workers’ Compensation — Statutory Amount;

 

5.2.2        Employer’s Liability (in those states where it is required) —
$100,000 minimum;

 

5.2.3        Commercial General Liability:

 

5.2.4        $1,000,000 per occurrence; and

 

5.2.5        Umbrella coverage of not less than $10,000,000; and

 

5.2.6        A fidelity bond or blanket fidelity insurance coverage covering
Glenborough and all of Glenborough’s employees in an aggregate amount of not
less than $2,000,000.

 

Glenborough shall furnish Rancon with certificates evidencing such coverage,
which shall include provisions to the effect that Rancon will be given at least
thirty (30) days prior written notice of cancellation of such policies. Each
insurance policy maintained by Rancon and Glenborough with respect to the
Property shall contain a waiver of subrogation clause so that no insurer shall
have any claim over or against Rancon or Glenborough, as the case may be, by way
of subrogation or otherwise with respect to any claims or losses that are
insured under such policy. Rancon and Glenborough hereby release each other from
all rights of recovery under or through subrogation or otherwise for any and all
losses and damages to the extent of such insurance coverage and agree that no
insurer shall have a right to recover any amounts paid with respect to any claim
against Rancon or Glenborough by subrogation, assignment, or otherwise.

 

5.3        Contractor’s and Subcontractors’ Insurance. Glenborough shall require
that all parties performing work on or with respect to the Property, including,
without limitation, contractors, subcontractors and service vendors, maintain
workers’ compensation (statutory amount), employer’s liability and commercial
general liability insurance coverage at such parties’ expense, in amounts
satisfactory to Glenborough. Glenborough shall endeavor to obtain and keep on
file a certificate of

 

Manage.RanconAgmt (RIFI) 7-04   10

--------------------------------------------------------------------------------

insurance which shows that each such party is so insured. Such insurance shall
include a waiver of subrogation in favor of Rancon and Glenborough.

 

The commercial general liability insurance policies of any contractor or
subcontractor shall be primary as respects any insurance of Rancon and the
Glenborough. All contractors and subcontractors shall also carry a contractor’s
equipment floater, or equivalent coverage, for all tools and equipment, whether
owned, rented or borrowed by contractor or subcontractor.

 

ARTICLE VI

 

INDEMNIFICATION AND COOPERATION

 

6.1    Glenborough Indemnification. Glenborough shall indemnify, defend and hold
Rancon and its General Partners (the “Rancon Indemnitiee”) harmless from and
against any and all claims, demands, causes of action, losses, damages, fines,
penalties, liabilities, costs and expenses, including attorneys’ fees and court
costs, sustained or incurred by or asserted against the Rancon Indemnitiee by
reason of or arising out of Glenborough’s negligence or willful misconduct with
respect to the duties and obligations set forth in this Agreement. Rancon
Indemnitee shall cooperate in the defense of such claim, but the right to
participate in the defense of such claim shall not limit Rancon Indemnitee’s
right to retain its own counsel in connection with the defense of such claim if
Rancon Indemnitee reasonably believes, in good faith, taking into account all
circumstances then existing, that it is necessary to obtain separate counsel.
The costs and expenses covered by the indemnities contained herein shall include
the costs and expenses of such counsel retained by Rancon Indemnitee.

 

6.2    Rancon Indemnification. Rancon shall indemnify, defend and hold
Glenborough and Glenborough’s officers, directors, shareholders, employees and
representatives (“Glenborough Indemnitees”), harmless from and against any and
all claims (including any claims made by limited partners or other investors of
Rancon), demands, causes of action, losses, damages, fines, penalties,
liabilities, costs and expenses, including attorneys’ fees and court costs,
sustained or incurred by or asserted against any of the Glenborough Indemnitees
by reason of or arising out of the negligence or willful misconduct of Rancon or
its General Partners. Glenborough Indemnitee shall cooperate in the defense of
such claim, but the right to participate in the defense of such claim shall not
limit Glenborough Indemnitee’s right to retain its own counsel in connection
with the defense of such claim if Glenborough Indemnitee reasonably believes, in
good faith, taking into account all circumstances then existing, that it is
necessary to obtain separate counsel. The costs and expenses covered by the
indemnities contained herein shall include the costs and expenses of such
counsel retained by Glenborough Indemnitee.

 

ARTICLE VII

 

COMPENSATION AND REIMBURSEMENT

 

7.1    Compensation and Reimbursement to Glenborough. In consideration of the
Services rendered by Glenborough hereunder, Rancon shall pay Glenborough, in
lawful money of the United States, fees in accordance with the terms set forth
below. Additionally, Rancon shall reimburse expenses incurred by Glenborough as
set forth below.

 

7.1.1    For Management Services, Rancon shall pay Glenborough, on a monthly
basis, in arrears, a Property Management Fee equal to 3% of Gross Rental Revenue
and a Construction Services Fee, due upon substantial completion of each
project, in accordance with the following schedule:

 

   

from zero to $25,000

 

no fee (if a permit is not required)

       

from $25,001 to $350,000

 

5% of total costs

       

from $350,001 to $750,000

 

2.5% of total costs

       

from $750,001 and above

 

1% of total costs

   

 

Manage.RanconAgmt (RIFI) 7-04   11

--------------------------------------------------------------------------------

“Gross Rental Revenue” shall refer to all income collected by Glenborough from
tenants of the Property and payable to or for the benefit of Rancon (including
without limitation rental or business interruption insurance collected in lieu
of rental income, expense pass-through items such as real property taxes and
insurance, and rentals or fees paid for parking), excluding, however: (i)
security deposits, until such deposits are applied as rental income upon
termination of a lease; (ii) rents paid in advance of the date such rents are
due, until the date on which such payments are due as rent; (iii) monies
collected for capital items which are paid for by tenants; (iv) interest on bank
accounts maintained with respect to the Property; (v) settlements or recoveries
in judicial proceedings representing other than compensation for lost rental;
and (vi) any income constituting debt service on a tenant improvement loan.

 

7.1.2    For Administration Services, Rancon shall pay Glenborough an Asset and
Partnership Services Fee of $75,000 per year, which fee is payable in advance,
quarterly, commencing on the Commencement Date. In addition, Rancon shall
reimburse the following costs paid by Glenborough: travel, data services and the
costs of legal services provided by Glenborough’s internal legal staff. The
costs of specific Rancon-related items provided by unaffiliated third parties
(for example, printing and postage for mass mailings) shall also be separately
reimbursed to Glenborough by Rancon

 

7.1.3    For Consulting Services, Rancon shall pay Glenborough the following
fees for each respective service.

 

(a)    Leasing Services

 

(1)    New Leases: the fee shall be an amount equal to a portion of the total
compensation package paid to Glenborough’s Leasing Director based upon an agreed
allocation of time committed to the Property by the Leasing Director. This fee
is payable monthly, in arrears.

 

(2)    Lease Renewals and Expansions: the fee shall be an amount equal to 2.5%
of the base rent due during the renewal period and/or attributable to the
expansion area during the term of the lease. The fee is payable upon full
execution of the applicable lease or lease modification.

 

(b)    Sale & Finance Services:

 

(1)    Sales and Other Transactions: Through December 31, 2005, upon the sale,
exchange or purchase by Rancon of any property or interest in any property,
Rancon shall pay Glenborough a Sales Fee of 2% on improved property and 4% on
unimproved property. A parcel of real property shall be deemed unimproved for
purposes of this section if it is not improved by a completed permanent
building. A Sales Fee shall be calculated on the gross sales price (if Rancon is
the seller) or purchase price (if Rancon is the buyer); provided, however, in no
event shall the fee under this provision when added to commissions paid by
Rancon to any and all persons employed in connection with the sale, exchange or
purchase of any property (whether by Rancon, Glenborough or third parties) in
connection with the sale, exchange or purchase of any property be more than six
percent (6%), for buildings and improved real property, or ten percent (10%) for
unimproved real property, of the sales price or purchase price, as the case may
be, and provided further that no Sales Fee shall be payable on such transactions
with a person related to or affiliated with Glenborough. The sale price or the
purchase price, as the case may be, shall be the total of all consideration
received or paid, 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, an exchange shall be deemed one transaction. In addition, the
entry into a long-term ground lease of thirty-five (35) years or more for all or
any portion of a property by Rancon, as lessor or lessee, shall be deemed a sale
or purchase and the present value of the lease payments over the term of the
lease, excluding any increases in payments which cannot be calculated at the
time of entry into the lease and excluding any option periods, discounted at the
interest rate on five year treasury notes, or other comparable indices if five
year treasury notes are no longer customarily quoted (“Discount Index”),
prevailing on the date of entry into

 

Manage.RanconAgmt (RIFI) 7-04   12

--------------------------------------------------------------------------------

the lease, shall be deemed the purchase price on which the Sales Fee shall be
computed. The exercise by Rancon 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
Sales Fee under this section. No Sales Fee shall be due on transactions that
commence after December 31, 2005 unless otherwise agreed in writing by Rancon
and Glenborough.

 

(2)    Finance Services: if Rancon requests Finance Services from Glenborough,
then, upon the financing or refinancing of a Property, or an interest therein,
Rancon shall pay Glenborough a Finance Fee equal to 1% of the gross loan amount.
The Finance Fee shall be payable to Glenborough, upon written approval of
Rancon, as soon as practicable after the loan refinancing proceeds have been
made available to Rancon.

 

(c)    Development Fee. Rancon shall pay Glenborough a Development Fee equal to
5% of the hard costs of the development project, excluding the cost of the land;
however, in no event shall the Development Fee and the general contractor’s fee
exceed 11.5%, in the aggregate, of the hard costs of the development project.
The Development Fee shall be paid in accordance with a scheduled to be set by
Rancon and Glenborough based on the scope of the development project.

 

(d)    Dissolution Services. Rancon shall pay Glenborough a Dissolution Fee in
the amount of $60,000, which fee is payable in advance on the date all assets
are sold or upon the transfer of the assets.

 

7.1.4    Rancon shall reimburse Glenborough out of the Operating Account for the
costs of gross salaries and wages or pro rata share thereof, payroll taxes,
insurance, workers’ compensation, travel, all office expenses, and other fringe
benefits of those field property management and maintenance personnel of
Glenborough engaged with respect to the Property and personnel who provide
services customarily provided at the Property. If any field property management
or maintenance personnel of Glenborough are independent contractors of
Glenborough, then Rancon shall similarly reimburse Glenborough for those
independent contractors engaged with the respect to the Property who provide
such services. The employees’ salaries and costs of independent contractors of
Glenborough which constitute reimbursable operating expenses shall be allocated
between Rancon and all other entities benefiting from the services of such
employees on a pro rata, equitable basis.

 

7.2    Joint Ventures. References herein to the Property, or interest therein,
acquired, owned or disposed of by Rancon shall include Rancon’s interest from
time to time in any property held by any joint venture, partnership or other
entity or form of ownership in which Rancon has an interest (“Rancon’s Share in
Property”). Without limiting the generality of the foregoing, all of the fees
described in this Section 7 and any other fee which may become payable to
Glenborough under this Agreement, shall apply to and be based upon not only any
wholly owned Property, but also Rancon’s share in other property to the extent
of and in proportion to Rancon’s Share in Property.

 

ARTICLE VIII

 

MISCELLANEOUS

 

8.1    Section Headings. The section headings contained in this Agreement are
for convenience only and shall in no way enlarge or limit the scope or meaning
of the provisions of this Agreement.

 

8.2    Notice. Any notice in this Agreement permitted to be given, made or
accepted by either party to the other, must be in writing and may be given or
served by depositing the same in the United States mail, postpaid, certified,
return receipt requested, or by a recognized overnight carrier such as DHL or
Federal Express, addressed to the party to be notified, or by delivering same to
an officer or agent of such party. Notice deposited in the United States mail
shall be deemed given three (3) days after it is deposited. Notice given in any
other manner shall be effective when received at the address of the addressee.
For purposes hereof, the addresses of the parties, until changed by written
notice to the other

 

Manage.RanconAgmt (RIFI) 7-04   13

--------------------------------------------------------------------------------

party, shall be, for Rancon: Daniel L. Stephenson, Rancon Financial Corporation,
27720 Jefferson Ave., Temecula, CA 92590; and for Glenborough: Glenborough
Properties, L.P., 400 South El Camino Real, San Mateo, CA 94402-1708, attention
Andrew Batinovich.

 

8.3    Assignment. Excepting assignment of this Agreement to a related party by
Glenborough, none of the rights, interests, duties or obligations created by
this Agreement may be assigned, transferred or delegated in whole or in part by
either party without first obtaining the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed. Any
purported assignment, transfer, or delegation in contravention of the foregoing
shall be void.

 

8.4    Entire Agreement. This Agreement (including exhibits or signed addenda
hereto) contains the entire agreement between Rancon and Glenborough, and no
oral statements or prior written agreement or matter not specifically
incorporated herein shall be of any force or effect. No variation, modification
or changes hereof shall be binding on either party hereto unless set forth in a
document executed by both parties or a duly authorized agent, officer, or
representative thereof.

 

8.5    Time is of the Essence. Time is of the essence in all aspects of the
performance of the obligations hereunder.

 

8.6    Governing Laws and Venue. The laws of the state of California and, when
applicable, the United States, shall govern the validity, enforcement, and
interpretation of this Agreement.

 

8.7    Litigation Costs. If any legal action or other proceeding of any kind is
brought for the enforcement or interpretation of this Agreement, or because of a
default, misrepresentation, or any other dispute in connection with any
provision of this Agreement or the Property, the prevailing party shall be
entitled to recover all fees and other costs incurred in such action or
proceeding, in addition to any other relief to which it may be entitled.

 

8.8    Waiver. No failure by Rancon or Glenborough to insist on the strict
performance of any obligation, covenant, agreement, term or condition of this
Agreement, or to exercise any right or remedy available upon a breach of this
Agreement, shall constitute a waiver, and no breach shall be waive

 

8.9    No Partnership; Several Liability. Nothing herein contained shall
constitute or be construed to be or create a partnership or joint venture
between Rancon and Glenborough and Glenborough is and shall remain an
independent contractor in connection herewith.

 

8.10    Consents and Approvals. All consents or approvals to be given under this
Agreement shall be in writing and shall not be unreasonably withheld or delayed,
unless otherwise specified.

 

8.11    Representations. Glenborough represents and warrants that it is fully
qualified and licensed, to the extent required by law, to perform the Services
and all obligations assumed by Glenborough hereunder. Glenborough agrees to
comply with all such laws now or hereafter in effect.

 

8.12    No Third Parties Benefited. This Agreement is made and entered into for
the sole protection and benefit of Rancon and Glenborough. No other persons or
entities will have any right of action under this Agreement or any right to any
funds payable hereunder.

 

8.13    Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which, together, shall constitute
one and the same instrument.

 

8.14    Exhibits. The following exhibits are attached to this Agreement:

 

Exhibit A – Property Description

 

Manage.RanconAgmt (RIFI) 7-04   14

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, effective as of the date first above written.

 

RANCON INCOME FUND I,

a California limited partnership

By:

 

RANCON INCOME PARTNERS I, L.P.,

   

General Partner

By:

 

RANCON FINANCIAL CORPORATION

   

General Partner

   

    By:

 

/s/ Daniel L. Stephenson

--------------------------------------------------------------------------------

       

DANIEL L. STEPHENSON, President

 

GLENBOROUGH PROPERTIES, L.P.,

a California limited partnership

By:

  

Glenborough Realty Trust Incorporated

    

a Maryland corporation

    

Its General Partner

By:

  

/s/ Sandra L. Boyle

--------------------------------------------------------------------------------

Its:

  

EVP

--------------------------------------------------------------------------------

 

Manage.RanconAgmt (RIFI) 7-04   15