-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GkiNHtB3aCyOGVQhjMmz9l63Mlyqg1n7E/VBgqhAa9b68RTShghlbJeM0p+nU3dI ArtBkgTsisPvhLyQa5IOaw== 0000912057-94-001234.txt : 19940404 0000912057-94-001234.hdr.sgml : 19940404 ACCESSION NUMBER: 0000912057-94-001234 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOLL REAL ESTATE GROUP INC CENTRAL INDEX KEY: 0000840216 STANDARD INDUSTRIAL CLASSIFICATION: 1531 IRS NUMBER: 020426634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-17189 FILM NUMBER: 94519893 BUSINESS ADDRESS: STREET 1: 4343 VON KARMAN AVENUE STREET 2: NULL CITY: NEWPORT BEACH STATE: CA ZIP: 92660- BUSINESS PHONE: 7148333030 MAIL ADDRESS: STREET 1: 4343 VON KARMAN AVENUE CITY: NEWPORT BEACH STATE: CA ZIP: 92660- FORMER COMPANY: FORMER CONFORMED NAME: BOLSA CHICA CO/ DATE OF NAME CHANGE: 19921229 FORMER COMPANY: FORMER CONFORMED NAME: HENLEY GROUP INC/DE/ DATE OF NAME CHANGE: 19910415 FORMER COMPANY: FORMER CONFORMED NAME: HENLEY NEWCO INC DATE OF NAME CHANGE: 19900109 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-17189 KOLL REAL ESTATE GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 02-0426634 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4343 VON KARMAN AVENUE NEWPORT BEACH, CALIFORNIA 92660 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 833-3030 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: CLASS A COMMON STOCK, PAR VALUE $.05 PER SHARE (TITLE OF CLASS) SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE (TITLE OF CLASS) 12% SENIOR SUBORDINATED PAY-IN-KIND DEBENTURES DUE MARCH 15, 2002 (TITLE OF CLASS) 12% SUBORDINATED PAY-IN-KIND DEBENTURES DUE MARCH 15, 2002 (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___ INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF MARCH 1, 1993 WAS $13,339,445. THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF MARCH 1, 1993 WAS 43,319,703. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1994 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS ANNUAL REPORT ON FORM 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Koll Real Estate Group, Inc., a Delaware corporation, formerly known as The Bolsa Chica Company (from July 16, 1992 to September 30, 1993) and as Henley Properties Inc. (from December 1989 to July 16, 1992), is a real estate development company with properties principally in Southern California, as well as New Hampshire. The principal activity of Koll Real Estate Group, Inc. and its consolidated subsidiaries (the "Company") has been to obtain zoning and other entitlements for land it owns and to improve the land principally for residential development. Once the land is entitled, the Company may sell unimproved land to other developers or investors; sell improved land to home builders; or participate in joint ventures with other developers, investors or home builders to finance and construct infrastructure and homes. With the acquisition of the domestic real estate development business of The Koll Company on September 30, 1993, the Company's principal activities have been expanded to include providing commercial, industrial, retail and residential real estate development services to third parties, including feasibility studies, entitlement coordination, project planning, construction management, financing, marketing, acquisition, disposition and asset management services on a national basis, through its current offices throughout California, and in Seattle, Dallas and Denver. The Company intends to consider additional real estate acquisition opportunities; however, over the next two years the Company's principal objective is to maintain adequate liquidity to fully support the Bolsa Chica project entitlement efforts. The Company's executive offices are located at 4343 Von Karman Avenue, Newport Beach, California 92660 (telephone: (714) 833-3030). PRINCIPAL PROPERTIES The following sections describe the Company's principal properties. BOLSA CHICA. The Bolsa Chica property is the principal property in the Company's portfolio. The Company owns approximately 1,200 acres of the 1,700 acres of undeveloped Bolsa Chica land located on the Pacific Ocean in northwestern Orange County, California. Bolsa Chica is bordered on the north and east by residential development, to the south by open space and residential development, and to the west by the Pacific Coast Highway and the Bolsa Chica State Beach. Bolsa Chica is one of the last large undeveloped coastal properties in Southern California, approximately 35 miles south of downtown Los Angeles. In 1986, the California State Coastal Commission certified a local coastal program/land use plan for the Bolsa Chica property, which was subject to the satisfaction of certain conditions, including presentation of favorable economic, environmental and physical feasibility studies. The proposed development of the Bolsa Chica property as a marina/residential development provoked substantial controversy and highlighted public awareness of an earlier lawsuit related to the potential impact of development on the environmentally sensitive wetland areas, among other issues. In order to achieve a public consensus on the plans for Bolsa Chica's development and to expedite development of the property, in November 1988 the Company helped organize the Bolsa Chica Planning Coalition (the "Coalition"), consisting of representatives of the Company, city, county and state officials, and the Amigos de Bolsa Chica, a local environmental organization which had previously opposed the project and was a party to the earlier lawsuit. The objective of the Coalition was to consider alternative land use plans for Bolsa Chica. In 1989, the Coalition reached an agreement in principle on a concept plan permitting the development of an oceanfront residential community featuring protected wetlands (the "Coalition Plan"). The parties to the litigation also dismissed the litigation which had halted development of Bolsa Chica. In November 1991, in accordance with the Coalition Plan, the Company announced its plan to develop a master planned community of approximately 4,900 homes at Bolsa Chica, including approximately 4,300 units on the Company's land. The planned community at Bolsa Chica is expected to offer a broad mix of home choices, including single-family homes, townhomes and condominiums at a wide range of prices. In September 1992, environmental impact documents for the Bolsa Chica project's master planned community were released by the City of Huntington Beach, California, and the U.S. Army Corps of Engineers for a ninety-day public comment period which concluded in December 1992. In March 1993, the Company 1 transferred local processing of the Coalition Plan to the County of Orange in order to integrate the Bolsa Chica regional park and wetlands restoration with the rest of the land use planning. Given the extent of comments received from the public, including a variety of state and federal agencies, the County of Orange recirculated a revised draft of the environmental impact report in December 1993, for public omment which concluded on February 18, 1994. The revised draft contains an in-depth analysis of an alternative plan which includes 3,500 homes, in addition to the in-depth analysis of the Coalition Plan. Despite efforts to date in the Bolsa Chica entitlement process, the Company has not yet obtained any of the final approvals from local, state or federal governmental entities that are required for development of the project. Due to a number of factors beyond the Company's control, including possible objections to the Coalition Plan by various environmental and so-called public interest groups that may be made in legislative, administrative or judicial forums, such approvals could be delayed substantially. Subject to these and other uncertainties inherent in the entitlement process, the Company's goal is to obtain all material governmental approvals in the first half of 1995 and to begin infrastructure construction in the second half of 1995, depending on economic and market conditions. Realization of the Company's investment in Bolsa Chica will also depend upon various economic factors, including the demand for residential housing in the Southern California market and the availability of credit to the Company and to the housing industry. EAGLE CREST. In the City of Escondido in San Diego County, approximately 30 miles north of downtown San Diego, the Company is developing an 860-acre, gated community consisting of 580 residential lots surrounding an 18-hole championship golf course. The golf course opened during May 1993. Construction of the remaining infrastructure and the permanent clubhouse has been deferred until the residential market for trade-up homes improves and financing for such infrastructure construction becomes available. FAIRBANKS HIGHLANDS. This property consists of approximately 390 acres near the communities of Fairbanks Ranch and Rancho Santa Fe in the northern part of the City of San Diego. The property is located within an area designated by the City of San Diego as the "Future Urbanizing Area." The City of San Diego recently approved a "Framework Plan" which generally defines land use, locations and densities for the Future Urbanizing Area, subject to voter approval. The Framework Plan could allow development of significantly greater density (up to 800 residential units) on the Company's Fairbanks Highlands property if ultimately approved by the voters in June 1994, along with approximately 12,000 acres to be developed by neighboring landowners. WENTWORTH BY THE SEA. This project is currently being managed, at the direction of the Company, by a local real estate management and development company, with the objective of developing 130 new residential and vacation homes in New Hampshire, approximately 60 miles north of Boston. The project currently includes an 18-hole golf course, a 170-slip marina, 21 single-family detached condominium homes built by the previous owner and related commercial development. The Company began marketing the 21 existing homes in September 1993, and since then four homes have been sold and nine additional homes are in escrow. The Company is continuing to hold discussions with a community group interested in purchasing and restoring the original Wentworth Hotel, which closed in 1981. OTHER PROPERTIES. The Company owns various other commercial and industrial properties in Southern California, including land zoned for commercial/industrial use in Coronado, Rancho Murrieta and Signal Hill, California. All of these properties are currently held for sale, subject to market conditions. PROPERTY DISPOSITIONS. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description of the Company's property dispositions during 1992 and 1993. ENVIRONMENTAL AND REGULATORY MATTERS Before the Company can develop a property, it must obtain a variety of discretionary approvals from local and state governments, as well as the federal government in certain circumstances, with respect to such matters as zoning, subdivision, grading, architecture and environmental matters. The entitlement approval process is often a lengthy and complex procedure requiring, among other things, the submission of development plans and reports and presentations at public hearings. Because of the provisional nature of these approvals and the concerns of various environmental and public interest groups, the approval process can be 2 delayed by withdrawals or modifications of preliminary approvals and by litigation and appeals challenging development rights. Accordingly, the ability of the Company to develop properties and realize income from such projects could be delayed or prevented due to difficulties in obtaining necessary governmental approvals. As more fully described above, the Company is in the process of seeking the necessary local, state and federal approvals and permits to begin development of its Bolsa Chica property. The Company reached an agreement in 1989 on the Coalition Plan, and the Company's goal is to obtain the necessary approvals in the first half of 1995. Nevertheless, the approval process for the Bolsa Chica property remains subject to the uncertainties described above, and there is no assurance that such approvals will ultimately be obtained or will not be substantially delayed. Failure to obtain such approvals would have, and a substantial delay in obtaining such approvals could have, a material adverse effect on the Company. The Company has expended and will continue to expend significant financial and managerial resources to comply with environmental regulations and local permitting requirements. Although the Company believes that its operations are in general compliance with applicable environmental regulations, certain risks of unknown costs and liabilities are inherent in developing and owning real estate. However, the Company does not believe that such costs will have a material adverse effect on its business or financial condition, including current environmental litigation discussed in Part I, Item 3 -- "Legal Proceedings" and the potential remediation expenditures required in connection with certain indemnity obligations discussed below in "Corporate Indemnification Matters." CORPORATE INDEMNIFICATION MATTERS The Company and its predecessors have, through a variety of transactions effected since 1986, disposed of several assets and businesses, many of which are unrelated to the Company's current operations. By operation of law or contractual indemnity provisions, the Company has retained liabilities relating to certain of these assets and businesses, including certain tax liabilities. See Note 9 "Income Taxes -- Tax Sharing Agreements" in Notes to Financial Statements on pages F-20 to F-21 of this Annual Report. Many of such liabilities are supported by insurance or by indemnities from certain of the Company's predecessor and currently or previously affiliated companies. The Company believes its balance sheet reflects adequate reserves for these matters. Abex Inc. ("Abex") and the Company have agreed that, following the Company's 1992 merger with The Henley Group, Inc., each company will be responsible for environmental liabilities relating to its existing, past and future assets and businesses and will indemnify the other in respect thereof. The United States Environmental Protection Agency ("EPA") has designated Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party ("PRP") with respect to an area of the Upper Peninsula of Michigan (the "Torch Lake Site") under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor in interest to one of the companies that conducted mining operations in the Torch Lake area and an affiliate of Allied-Signal Inc., a predecessor of the Company. The Company has not been named as a PRP at the site. However, Allied-Signal has, through UOP, asserted a contractual indemnification claim against the Company for claims that may be asserted against UOP by EPA or other parties with respect to the site. EPA has proposed a cleanup plan which would involve covering certain real property both contiguous and non-contiguous to Torch Lake with soil and vegetation in order to address alleged risks posed by copper tailings and slag at an estimated cost of approximately $7.2 million. EPA estimates that it has spent in excess of $2 million to date in performing studies of the site. Under CERCLA, EPA could assert claims against the Torch Lake PRPs, including UOP, to recover the cost of these studies, the cost of all remedial action required at the site, and natural resources damages. An earlier settlement in principle with EPA staff pursuant to which UOP would pay $1.7 million in exchange for a release similar to those normally granted by EPA in such circumstances was rejected by certain other governmental authorities in July 1993. Settlement negotiations between the Company, on behalf of UOP, and EPA resumed shortly thereafter and are ongoing. EMPLOYEES As of March 1, 1994, the Company and its subsidiaries had approximately 92 employees. 3 EXECUTIVE OFFICERS OF THE COMPANY Certain of the executive officers of the Company are also executive officers of The Koll Company ("Koll") and its affiliates. Accordingly, they will devote less than all of their working time to the businesses of the Company. Set forth below is information with respect to each executive officer.
NAME AND TITLE AGE* BUSINESS EXPERIENCE - ------------------------------ ---- ------------------------------------------ Donald M. Koll 61 Chairman of the Board of the Company since Chairman of the Board March 1993. Managing Director-President and a director of the Company from 1990 to 1992. Chairman of the Board and Chief Executive Officer of Koll (general contracting and international real estate development) and Chairman of the Board of Koll Management Services, Inc. ("KMS") (real estate management) since prior to 1989. Ray Wirta 50 Vice Chairman of the Board and Chief Vice Chairman of the Board and Executive Officer of the Company since Chief Executive Officer March 1993. Vice Chairman of the Board and Chief Executive Officer of KMS and President and Chief Operating Officer of Koll since prior to 1989. Richard M. Ortwein 52 President of the Company since October President 1993. President, Southern California Division of Koll since prior to 1989. Executive Vice President of KMS from 1991 to 1993, and director of KMS from 1992 to March 1994. Raymond J. Pacini 38 Secretary of the Company since December Executive Vice President, 1993; Executive Vice President since March Chief Financial Officer, 1993; Vice President, Chief Financial Treasurer and Secretary Officer and Treasurer of the Company since 1992. Managing Director of the Company from 1990 to 1992. Director of Financial Reporting for The Henley Group, Inc. during 1989. Executive Vice President and Chief Financial Officer of KMS from March to November 1993. - ------------------------ * Ages as of April 1, 1994
ITEM 2. PROPERTIES The Company's principal executive offices are located in Newport Beach, California. The Company and each of its subsidiaries believe that their properties are generally well maintained, in good condition and adequate for their present and proposed uses. The inability to renew any short-term real property lease would not be expected to have a material adverse effect on the Company's results of operations. 4 The principal properties of the Company and its subsidiaries, which are owned in fee unless otherwise indicated, are as follows:
PROPERTY LOCATION ACRES PRESENT OR PLANNED USE - ----------------------- -------------------- ----- ----------------------- Newport Beach* Newport Beach, CA -- Headquarters Bolsa Chica Huntington Beach, CA 1,200 Oceanfront residential community Eagle Crest Escondido, CA 860 Golf/residential community Fairbanks Highlands San Diego, CA 390 Residential community Wentworth By The Sea New Castle & Rye, NH 275 Resort/residential community/golf/marina Michigan Land Upper Peninsula, MI 3,900 Resort/residential lots Grand Caribe Isle** Coronado, CA 5 Commercial land Rancho Murrieta Murrieta, CA 20 Commercial/industrial Business Park land Signal Hill Signal Hill, CA 2 Commercial/industrial land - ------------------------ * Leased ** Ground lease
ITEM 3. LEGAL PROCEEDINGS The owners of undeveloped real property located in San Diego County sued Signal Landmark, a subsidiary of the Company ("Signal"), in San Diego Superior Court, in May 1990, alleging that Signal had deposited contaminated soils on their property and was liable under theories of nuisance, negligence, trespass and strict liability. The plaintiffs sought general damages in the amount of approximately $40 million and, additionally, punitive damages in an unspecified amount, plus prejudgment interest and costs. On August 5, 1991, the plaintiffs filed a complaint in federal court against Signal, the Company and several other parties asserting claims under CERCLA seeking essentially the same relief sought in the state action. In April 1992, a jury awarded the plaintiffs damages in the amount of $2.5 million following a trial in the state action. Signal appealed the verdict in the state action and posted a bond and cash collateral of $3.75 million in August 1992. On March 5, 1993, Signal reached an agreement in principle with the plaintiffs in such litigation to settle both the federal and state actions. On July 2, 1993, the Federal Court for The Southern District of California approved the settlement under the terms of which funds from such cash collateral account were disbursed approximately as follows: 1) $1.3 million deposited in trust for remediation expenditures, 2) $1.3 million disbursed to the plaintiffs, and 3) $1.1 million returned to Signal. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following tables set forth information with respect to bid quotations for the Class A Common Stock of the Company for the periods indicated as reported by NASDAQ. These quotations are interdealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
HIGH LOW --------- --------- 1993 First Quarter............................................................ $ .343 $ .188 Second Quarter........................................................... .313 .125 Third Quarter............................................................ .219 .063 Fourth Quarter........................................................... .969 .125 1992 First Quarter............................................................ $ 1.250 $ .625 Second Quarter........................................................... 1.000 .250 Third Quarter............................................................ .375 .094 Fourth Quarter........................................................... .282 .094
The number of holders of record of the Company's Class A Common Stock as of March 1, 1994 was approximately 28,000. The Company has not paid any cash dividends on its Class A Common Stock to date, nor does the Company currently intend to pay regular cash dividends on the Class A Common Stock. Such dividend policy is and will continue to be subject to prohibitions on the declaration or payment of dividends contained in debt agreements of the Company. See Note 7 -- Notes to Financial Statements on pages F-17 to F-18 of this Annual Report, which Note is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data with respect to the Company and its subsidiaries are set forth on pages F-1 to F-2 of this Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is set forth on pages F-3 to F-6 of this Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements, schedules and supplementary data of the Company and its subsidiaries, listed under Item 14, are submitted as a separate section of this Annual Report, commencing on page F-7. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS. The information appearing under the caption "Election of Directors" of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders is incorporated herein by reference in this Annual Report. EXECUTIVE OFFICERS. Information with respect to executive officers appears under the caption "Executive Officers of the Company" in Item 1 of this Annual Report. 6 ITEM 11. EXECUTIVE COMPENSATION Information in answer to this Item appears under the caption "Compensation of Directors and Executive Officers" of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, and is incorporated herein by reference in this Annual Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in answer to this Item appears under the captions "Voting Securities and Principal Holders Thereof" and "Election of Directors" of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, and is incorporated herein by reference in this Annual Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in answer to this Item appears under the captions "Certain Transactions" and "Compensation of Directors and Executive Officers" of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, and is incorporated herein by reference in this Annual Report. PART IV ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements: The following financial statements and supplementary data of the Company are included in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:
PAGE ---- Selected Financial Data................................................. F-1 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... F-3 Independent Auditors' Report -- Deloitte & Touche....................... F-7 Independent Auditors' Report -- Kenneth Leventhal & Company............. F-8 Balance Sheets as of December 31, 1992 and 1993......................... F-9 Statements of Operations for the Years Ended December 31, 1991, 1992 and 1993................................................................... F-10 Statements of Cash Flows for the Years Ended December 31, 1991, 1992 and 1993................................................................... F-11 Statements of Changes in Stockholders' Equity for the Three Years Ended December 31, 1993...................................................... F-12 Notes to Financial Statements........................................... F-13
(2) Financial Statement Schedules: All schedules have been omitted since they are not applicable, not required, or the information is included in the financial statements or notes thereto. (3) Listing of Exhibits: 3.01 Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.01 to the Registrant's Annual Report on Form 10-K for 1992. 3.02 Amended By-Laws of the Registrant, incorporated by reference to Exhibit 3.02 to the Registrant's Annual Report on Form 10-K for 1992. 4.01 Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.01). 4.02 Amended By-Laws of the Registrant (filed as Exhibit 3.02). 4.03 Second Amended and Restated Credit Agreement between the Registrant and Bank of America National Trust and Savings Association dated as of July 16, 1992, incorporated by reference to Exhibit 4.03 to the Registrant's Annual Report on Form 10-K for 1992. 4.04 1992 Restatement of Credit Agreement (the "Credit Agreement") dated as of July 16, 1992 among Great Island Trust Partnership, Wentworth By The Sea, Inc., and The First
7 National Bank of Boston, for itself and as agent (the "Agent"), and Wentworth Holdings, Inc., and Wentworth Holdings II, Inc., incorporated by reference to Exhibit 4.04 to the Registrant's Annual Report on Form 10-K for 1992. 4.04A 1992 Amendment No. 1 to the Credit Agreement dated as of December 30, 1992, incorporated by reference to Exhibit 4.04A to the Registrant's Annual Report on Form 10-K for 1992. 4.05 1992 Restatement of Guarantee Agreement between the Registrant and the Agent dated as of July 16, 1992, incorporated by reference to Exhibit 4.05 to the Registrant's Annual Report on Form 10-K for 1992. 4.06 Additional Guarantee Agreement dated as of July 16, 1992 between the Registrant and the Agent, incorporated by reference to Exhibit 4.06 to the Registrant's Annual Report on Form 10-K for 1992. 4.07 Indenture dated as of July 15, 1992 for 12% Senior Subordinated Pay-In-Kind Debentures Due March 15, 2002 ("Senior Subordinated Debentures"), issued by the Registrant in the aggregate principal amount of $127,550,000, incorporated by reference to Exhibit 4.08 to the Registrant's Annual Report on Form 10-K for 1992. 4.08 Indenture dated as of July 15, 1992 for 12% Subordinated Pay-In-Kind Debentures Due March 15, 2002, ("Subordinated Debentures"), issued by the Registrant in the aggregate principal amount of $75,688,000, incorporated by reference to Exhibit 4.09 to the Registrant's Annual Report on Form 10-K for 1992. 4.09 Form of Senior Subordinated Debentures (included in Exhibit 4.07). 4.10 Form of Subordinated Debentures (included in Exhibit 4.08). 10.01 Tax Sharing Agreement dated as of December 18, 1989, between the Registrant and The Henley Group, Inc. ("Henley Group") incorporated by reference to Exhibit 10.03 to the Registrant's Annual Report on Form 10-K for 1989. 10.02 Tax Sharing Agreement dated as of December 15, 1988, between Wheelabrator Technologies, Inc. (formerly The Wheelabrator Group, Inc.) ("WTI") and the Registrant ("WTI Tax Sharing Agreement"), incorporated by reference to Exhibit 10.02 to Amendment No. 3 on Form 8 to the Registrant's Registration Statement on Form 10. 10.02A Amendment No. 1 to WTI Tax Sharing Agreement dated February 14, 1994.* 10.03 1988 Stock Plan for Executive Employees of the Registrant and its Subsidiaries, incorporated by reference to Exhibit 10.12 to Amendment No. 3 on Form 8 to the Registrant's Registration Statement on Form 10. 10.03A 1993 Stock Option/Stock Issuance Plan.* 10.04 Restricted Stock Plan for Non-Employee Directors of the Registrant, incorporated by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form 10. 10.05 Deferred Compensation Plan for Non-Employee Directors of the Registrant, incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form 10. 10.06 Retirement Plan for Non-Employee Directors of the Registrant, incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form 10. 10.07 Retirement Plan of the Registrant, incorporated by reference to Exhibit 10.16 to Amendment No. 3 on Form 8 to the Registrant's Registration Statement on Form 10. 10.07A Amendment to Retirement Plan of the Registrant dated December 8, 1993*. 10.08 Koll Company 401(k) Plus Plan and Trust Agreement dated July 1, 1989 under which the Registrant elected to participate as an employer effective as of October 1, 1993*.
8 10.09 Restated Environmental Matters Agreement dated as of July 28, 1989, among a predecessor to the Registrant, Allied-Signal, New Hampshire Oak, Fisher Scientific Group Inc. ("Fisher Group") and the Registrant, incorporated by reference to Exhibit 10(b) to the Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1989 as amended by the Assignment, Assumption and Indemnification Agreement dated as of December 21, 1989, among the Registrant, Henley Group, New Hampshire Oak, Fisher Group, WTI and Allied-Signal, incorporated by reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for 1989. 10.10 Environmental Expenditures Agreement dated as of July 28, 1989, among the Registrant, WTI, New Hampshire Oak and Fisher Group, incorporated by reference to Exhibit 10(b) to the Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1989 as amended by Assignment and Assumption Agreement dated as of January 1, 1990, among the Registrant, Henley Group, New Hampshire Oak, Fisher Group, WTI and Henley Holdings, Inc., incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for 1989. 10.11 Option Agreement dated December 30, 1992, among Wentworth Holdings Inc., NC Holding Company, WLP Holding Company and Wentworth Holdings II Inc., incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for 1992. 10.12 Transition Agreement dated as of July 16, 1992 ("Transition Agreement"), among Henley Group, the Registrant and Abex Inc., incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for 1992. 10.12A Amendment to Transition Agreement dated April 1, 1993.* 10.13 Tax Sharing Agreement dated as of June 10, 1992, between Henley Group and Abex Inc., incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for 1992. 10.14 Conditional Guarantee dated as of July 9, 1992, among Abex Inc., Henley Group, the Registrant and Allied-Signal, incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for 1992. 10.15 Reimbursement Agreement dated as of July 16, 1992, among Henley Group, the Registrant and Abex Inc., incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for 1992. 10.16 Pension Agreement dated as of July 16, 1992, among the Registrant, Henley Group and Abex Inc., incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for 1992. 10.17 Option Agreement dated as of July 16, 1992, between the Registrant and Abex Inc., incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for 1992. 10.17A Option Termination Agreement dated August 27, 1993 between the Registrant and Abex Inc., incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. 10.18 Asset Purchase Agreement ("Asset Agreement") dated as of September 30, 1993 between the Registrant and The Koll Company, incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. 10.18A Amendment No. 1 to the Asset Agreement dated as of December 29, 1993.* 10.19 Stock Purchase Agreement ("Stock Agreement") dated December 17, 1993 between the Registrant, certain of its subsidiaries and Libra Invest & Trade Ltd.*
9 10.19A Amendment No. 1 to the Stock Agreement dated as of February 15, 1994.* 10.20 Exchange Agreement dated December 17, 1993 between the Registrant and Libra Invest & Trade Ltd.* 10.21 Financing and Accounting Services Agreement dated as of September 30, 1993 between the Registrant and The Koll Company.* 10.22 Management Information Systems and Human Resources Services Agreement dated as of September 30, 1993 between the Registrant and Koll Management Services, Inc.* 10.23 License Agreement dated September 30, 1993 between the Registrant, The Koll Company and Mr. Donald M. Koll, incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. 10.24 Sublease Agreement dated September 30, 1993 between the Registrant and The Koll Company.* 21.01 Subsidiaries of the Registrant.*
- ------------------------ * Filed herewith. (b) Reports on Form 8-K: Report on Form 8-K dated December 17, 1993, reporting under Item 5 Other Events, regarding (i) the disposition of Lake Superior Land Company to Libra Invest & Trade Ltd. ("Libra"), and; (ii) the issuance of common stock to Libra in exchange for Libra's subordinated debentures of the Company. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 30, 1994 KOLL REAL ESTATE GROUP, INC. By: /s/ RAYMOND J. PACINI ------------------------------------ Raymond J. Pacini Executive Vice President -- Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE - ----------------------------------- --------------------------- -------------- /s/ DONALD M. KOLL Chairman of the Board March 30, 1994 - ----------------------------------- (Donald M. Koll) /s/ RAY WIRTA Vice Chairman of the Board March 30, 1994 - ----------------------------------- and Chief Executive (Ray Wirta) Officer (Principal Executive Officer) /s/ RAYMOND J. PACINI Executive Vice President March 30, 1994 - ----------------------------------- and Chief Financial (Raymond J. Pacini) Officer (Principal Financial Officer) /s/ HAROLD A. ELLIS, JR. Director March 30, 1994 - ----------------------------------- (Harold A. Ellis, Jr.) /s/ PAUL C. HEGNESS Director March 30, 1994 - ----------------------------------- (Paul C. Hegness) /s/ J. THOMAS TALBOT Director March 30, 1994 - ----------------------------------- (J. Thomas Talbot) /s/ MARCO F. VITULLI Director March 30, 1994 - ----------------------------------- (Marco F. Vitulli)
11 KOLL REAL ESTATE GROUP, INC. SELECTED FINANCIAL DATA The following selected financial data of Koll Real Estate Group, Inc. and its consolidated subsidiaries (the "Company") should be read in conjunction with the financial statements included elsewhere herein. The financial statements for the year ended December 31, 1989 do not necessarily reflect the results of operations of the Company had it been a separate, stand-alone company. For further discussion of the formation of the Company and the basis of presentation see the Notes to Financial Statements.
YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1989 1990 1991 1992 1993 --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Balance Sheet Data: Cash and cash equivalents and short-term investments (a).... $ 54.6 $ 22.1 $ 7.8 $ 41.6 $ 43.5 Total assets (a)............................................ 680.6 590.0 472.9 486.1 446.3 Senior bank debt (b)........................................ 75.0 95.3 82.4 65.4 7.0 Nonrecourse debt (b)........................................ 45.0 25.0 24.9 -- -- Subordinated debentures (b)................................. 144.0 161.5 184.7 165.1 134.9 Total stockholders' equity (c).............................. 148.9 208.0 101.3 149.6 163.5 Fully diluted shares outstanding at end of year............. 20.9 20.0 20.0 86.4 91.4 Book value per fully diluted share.......................... 7.12 10.40 5.07 1.73 1.79 Statement of Operations Data: Revenues (d),(e)............................................ 123.0 97.0 34.7 28.3 16.7 Income (loss) from continuing operations (e),(f)............ 4.9 62.6 (105.5) (41.9) (20.1) Net income (loss) (f)....................................... 6.4 64.7 (106.7) (38.4) 14.3 Per common share: Income (loss) from continuing operations (c),(e),(f)........ .23 3.05 (5.27) (1.44) (.24) Net income (loss) (f),(g)................................... .30 3.15 (5.33) (1.32) .17 Weighted average shares outstanding........................... 20.9 20.5 20.0 29.0 83.0
- ------------------------ (a) The decrease in total assets at December 31, 1990 is primarily due to asset sales and revaluations and the decrease in cash and cash equivalents, which primarily reflects the settlement of certain liabilities from available cash. The decrease in total assets at December 31, 1991 is primarily due to asset revaluations (Note 3) and the decrease in cash and cash equivalents, which primarily reflects principal repayments on senior bank debt. The increase in cash and cash equivalents and total assets at December 31, 1992 is primarily attributable to the 1992 merger with The Henley Group, Inc. (the "Merger")(Note 1), partially offset by the elimination of hotel assets from the Company's balance sheet in connection with the Long Beach Airport Marriott Hotel foreclosure. The decrease in total assets at December 31, 1993 is primarily due to the disposition of the Company's investment in Deltec Panamerica S.A. ("Deltec") and the sale of Lake Superior Land Company (Note 4). (b) The increase in senior bank debt at December 31, 1990 reflects the consolidation of Wentworth By the Sea, and the decrease in nonrecourse debt at December 31, 1990 is due to the sale of a trash-to-energy facility. The decrease in senior bank debt at December 31, 1991 is due to principal repayments on such debt. The decreases in debt at December 31, 1992 reflect the elimination of nonrecourse debt from the Company's balance sheet in connection with the hotel foreclosure and the reduction of subordinated debentures and principal repayments on senior bank debt in connection with the Merger (Notes 1 and 7). The decrease in debt at December 31, 1993 reflects principal repayments on senior bank debt (Note 7) and the exchange of subordinated debentures in connection with the sale of Lake Superior Land Company and issuance of 3.4 million shares of Class A Common Stock of the Company to Libra Invest & Trade Ltd. ("Libra") (Notes 4 and 7).
F-1 (c) The increase in equity at December 31, 1992 reflects the July 16, 1992 Merger, partially offset by the net loss for the year then ended. The increase in equity at December 31, 1993 primarily reflects net income for the year then ended. (d) The decrease in 1990 revenues was principally due to decreased residential sales as a result of the substantial completion and sale of the Coronado Cays, California project, partially offset by increases in land sales. The decrease in 1991 revenues was primarily due to a further decrease in residential sales at the Coronado Cays project, as well as a decrease in land sales and poor market conditions in the real estate industry. The decrease in 1992 revenues was principally due to the commencement of a foreclosure against the Company's Long Beach Airport Marriott Hotel in September 1992 and lower hotel operating revenues prior to that date. The decrease in 1993 revenues is principally due to a decrease in land sales and the absence of hotel revenues, partially offset by revenues from the Eagle Crest golf course which opened in May 1993 and development fees generated by the business acquired in September 1993 (Note 4). (e) Amounts have been reclassified to present Lake Superior Land Company and Deltec as discontinued operations. (f) Income from continuing operations, net income and earnings per common share for the year ended December 31, 1990 include approximately $104 million ($5.07 per share) from the sale of the Company's interests in two trash-to-energy facilities, partially offset by greater interest expense related to the Company's post 1989 capital structure, asset revaluations and costs related to personnel reductions. The loss from continuing operations, net loss and loss per common share for the year ended December 31, 1991 include approximately $65 million ($3.24 per share) of charges related to asset revaluations. The loss from continuing operations, net loss and loss per common share for the year ended December 31, 1992 reflect lower interest expense related to lower debt outstanding as a result of the July 16, 1992 Merger and concurrent prepayment of $15 million of senior bank debt, along with lower interest rates. The loss from continuing operations for the year ended December 31, 1993 reflects lower interest expense related to lower debt outstanding (Note 7), as well as $3 million received upon termination of a put option agreement with Abex Inc. and a $2 million insurance reimbursement related to costs incurred in 1992. Net income and net income per common share for 1993 reflect gains on the dispositions of Lake Superior Land Company and Deltec (Note 4) and an extraordinary gain on debt extinguishment (Notes 4 and 7). (g) The 1989 earnings per-share amount is based on the assumption that the shares outstanding as of December 31, 1989 were outstanding since January 1, 1989. On July 16, 1992, approximately 19.7 million shares of Class A Common Stock and 42.5 million shares of Series A Preferred Stock were issued in connection with the Merger. The Series A Preferred Stock is not included in the loss per share calculations for 1991 and 1992 since the effect is antidilutive. In December 1993, the Company issued 3.4 million shares of its Class A Common Stock in exchange for all of Libra's approximately $10.6 million in aggregate principal amount plus accrued interest of subordinated debentures issued by the Company (Note 4). The 1993 earnings per share calculation includes these newly issued shares, along with the Series A Preferred Stock and stock options outstanding.
F-2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The principal activity of the Company has been to obtain zoning and other entitlements for land it owns and to improve the land for residential development. Once the land is entitled, the Company may sell unimproved land to other developers or investors; sell improved land to home builders; or participate in joint ventures with other developers, investors or home builders to finance and construct infrastructure and homes. With the acquisition of the domestic real estate development business of The Koll Company on September 30, 1993, the Company's principal activities have been expanded to include providing commercial, industrial, retail and residential development services to third parties, including feasibility studies, entitlement coordination, project planning, construction management, financing, marketing, acquisition, disposition and asset management services on a national basis, through its current offices throughout California, and in Seattle, Dallas and Denver. The Company intends to consider additional real estate acquisition opportunities; however, over the next two years the Company's principal objective is to maintain adequate liquidity to fully support the Bolsa Chica project entitlement efforts. Real estate held for development or sale and land held for development (real estate properties) are carried at the lower of cost or estimated net realizable value (Note 2). The Company's real estate properties are subject to a number of uncertainties which can affect the future values of those assets. These uncertainties include delays in obtaining zoning and regulatory approvals, withdrawals or appeals of regulatory approvals and availability of adequate capital, financing and cash flow. In addition, future values may be adversely affected by heightened environmental scrutiny, limitations on the availability of water in Southern California, increases in property taxes, increases in the costs of labor and materials and other development risks, changes in general economic conditions, including higher mortgage interest rates, and other real estate risks such as the demand for housing generally and the supply of competitive products. Real estate properties do not constitute liquid assets and, at any given time, it may be difficult to sell a particular property for an appropriate price. The state of the nation's economy, and California's economy in particular, has had a negative impact on the real estate market generally, on the availability of potential purchasers for such properties and upon the availability of sources of financing for carrying and developing such properties. LIQUIDITY AND CAPITAL RESOURCES The principal assets remaining in the Company's portfolio are residential land which must be held over an extended period of time in order to be developed to a condition that, in management's opinion, will ultimately maximize the return to the Company. Consequently, the Company requires significant capital to finance its real estate development operations. Sales of the Company's non-strategic assets, such as its 44% interest in Deltec Panamerica S.A. ("Deltec"), the LaJolla, California office buildings and Lake Superior Land Company (Note 4) have been pursued as a source of capital. During 1993, the Company generated an aggregate of approximately $97 million through the Lake Superior Land Company financing, the disposition of the Company's investment in Deltec and the sale of its LaJolla office buildings, and utilized $58.4 million of such proceeds to reduce outstanding senior bank debt. At December 31, 1993 the Company's cash, cash equivalents and short-term investments aggregated $43.5 million. Historically, sources of capital have included bank lines of credit, specific property financings, asset sales and available internal funds. Although the Company reported income in 1993 as a result of gains on dispositions and extinguishment of debt, it reported losses in 1991 and 1992, and expects to report losses in the foreseeable future. While a significant portion of such losses is attributable to noncash interest expense on the Company's subordinated debentures, the Company's capital expenditures for project development are significant. In addition, the Company was notified in March 1994 that a Stipulation of Settlement has been entered into between a predecessor company and the Internal Revenue Service regarding the settlement of an alleged tax deficiency that is the subject of certain tax sharing agreements (Note 9). The Company has been informed by the other parties to these tax sharing agreements that it is being charged with a net obligation of approximately $21 million under this settlement, which the Company accrued for in December 1989. The Company is currently evaluating the scope of this claimed obligation under the settlement and potential sources of financing for such amount that the Company may ultimately be obligated to pay. However, there can be no assurance that any financing will F-3 be available, or that if available, it can be obtained on terms that are favorable to the Company and its stockholders. Given the limited availability of capital for real estate development under current conditions in the financial markets, the Company will be dependent primarily on cash and short-term investments on hand to fund project investments, and general and administrative costs during 1994 and 1995. However, if the Company is required to pay all or a significant portion of the $21 million claimed under the tax sharing agreements as discussed above, and any such amount is not financed, the Company will need to obtain other sources of financing or sell additional assets in order to meet projected cash requirements for the first quarter of 1995. In January 1993, Lake Superior Land Company, which was a wholly owned subsidiary of the Company at that time, sold $45 million of secured notes due May 1, 2012 to certain pension funds of the State of Michigan. The obligations under the note agreement are secured by all of the assets of Lake Superior Land Company, which principally consist of approximately 300,000 acres of timberlands and shorefront property on Lake Superior in Michigan and Wisconsin. Lake Superior Land Company dividended the proceeds to the Company, which used $21 million of the financing proceeds to make a principal prepayment in accordance with a term loan agreement with Bank of America. At December 31, 1993, the Company's only outstanding senior bank debt is due to the Bank of Boston in the principal amount of $7.0 million, under a term note due on July 31, 1995. The term note agreement with Bank of Boston requires additional principal prepayments to be made from the net proceeds from the sales of Wentworth and other assets. The term note agreement also requires additional principal repayments of $.2 million in the second half of 1994 and $.4 million in the first half of 1995, with any remaining balance due at maturity on July 31, 1995. Amounts outstanding under the term note bear interest at prime plus 1%. The term note agreement with Bank of Boston is secured by a first mortgage on the Wentworth property, stock pledge agreements of substantially all significant subsidiaries of the Company and first mortgages on certain other properties. The term note agreement contains certain restrictive covenants that prohibit the declaration or payment of dividends and limit, among other things, (i) the incurrence of indebtedness, (ii) the making of investments, loans and advances, (iii) the creation or incurrence of liens on existing and future assets of Wentworth or its subsidiaries, (iv) stock repurchases, and (v) project development spending in excess of certain planned levels. The term note agreement also contains various financial covenants and events of default customary for such agreements. FINANCIAL CONDITION DECEMBER 31, 1993 COMPARED WITH DECEMBER 31, 1992 Cash, cash equivalents and short-term investments aggregated $43.5 million at December 31, 1993 compared with $41.6 million at December 31, 1992. The change in cash and cash equivalents reflects the activity presented in the Statements of Cash Flows and described below. The $15.9 million decrease in real estate held for development or sale is primarily due to the November 1993 sale of the Company's office properties in LaJolla, California, as well as the placement into service in May 1993 of the Eagle Crest golf course and its related reclassification to operating properties. The $25.0 million decrease in other assets primarily reflects the sale of the Company's investment in Deltec, partially offset by the acquisition of the domestic real estate development business of The Koll Company (Note 4). The $9.5 million increase in accounts payable and accrued liabilities primarily reflects reclassification of approximately $21 million in taxes payable from other liabilities in 1993 (Notes 8 and 9), partially offset by the 1993 payments of $7.6 million in income taxes (Note 9) and $3.2 million to settle shareholder litigation related to the July 1992 merger with The Henley Group, Inc. (the "Merger") (Note 1). The $58.4 million decrease in senior bank debt reflects principal prepayments to Bank of America and Bank of Boston in connection with Lake Superior Land Company's financing, the disposition of the Company's investment in Deltec (Note 4) and the sale of the Company's office properties in LaJolla, California. F-4 The $30.2 million decrease in subordinated debentures reflects the exchange of approximately $42.4 million in aggregate face amount of senior subordinated debentures held by Libra Invest & Trade Ltd. ("Libra") for the Company's Lake Superior Land Company subsidiary, and the exchange of approximately $10.6 million in aggregate face amount of subordinated debentures held by Libra for approximately 3.4 million shares of the Company's Class A Common stock (Notes 4 and 7), offset by payments of interest through the issuance of additional pay-in-kind debentures on March 15 and September 15, 1993 and the accrual of interest since September 15, 1993. The $25.4 million increase in other liabilities is principally due to the adoption of FAS 109 (Note 9), as well as the tax effect of the extraordinary gain on extinguishment of debt, partially offset by the reclassification of approximately $21 million in taxes payable to accounts payable and accrued liabilities. DECEMBER 31, 1992 COMPARED WITH DECEMBER 31, 1991 Cash aggregated $41.6 million at December 31, 1992 compared with $7.8 million at December 31, 1991. The increase in cash principally reflects the Merger, along with the activity presented in the Statement of Cash Flows and described below. The Company received $58.3 million of cash in connection with the Merger, $15 million of which was used to repay senior bank debt on July 16, 1992 (Note 7). The $7.7 million decrease in real estate held for development or sale primarily reflects the sale of the Company's Ontario, California property for net cash proceeds of approximately $6.1 million and a $1.7 million note. The $35.2 million increase in other assets primarily reflects the Company's investment in Deltec as a result of the Merger (Note 1). On February 4, 1993, the Long Beach Airport Marriott Hotel (the "Hotel") was transferred to California Federal Bank ("CalFed") in a foreclosure sale. The foreclosure process was initiated as a result of the Hotel's inability to make its July 1992 interim interest payment deposits under a letter of credit reimbursement agreement with CalFed, which secured $25 million in principal amount of Industrial Revenue Bonds (the "Bonds") issued by the City of Long Beach on September 1, 1985 for construction of the Hotel. The Bonds and letter of credit were nonrecourse to an indirect subsidiary of the Company that previously owned the Hotel, and neither the Company nor any of its other subsidiaries was a party to, or a guarantor with respect to, these obligations. On September 15, 1992, the Company stipulated to the appointment of a receiver to control and manage the assets of the Hotel, and the receiver took control of the Hotel on September 16, 1992. Accordingly, the December 31, 1992 balance sheet reflects the elimination of $24.9 million in nonrecourse project debt of the Hotel, $.9 million of related Hotel liabilities, and a corresponding reduction in assets of $24.3 million, with the difference of $1.5 million reflected in other income in the 1992 statement of operations. The $30.7 million decrease in operating properties in 1992 principally reflects the elimination from the Company's balance sheet of the Hotel's assets as discussed above, along with the sale of the Company's Long Beach, California office building for approximately $6 million. The $8.4 million increase in accounts payable and accrued liabilities primarily reflects the classification of $7.6 million of obligations paid in January 1993 under the tax sharing agreement with a predecessor company, Wheelabrator Technologies Inc. ("WTI") (Note 9), as current at December 31, 1992. The $41.0 million increase in other liabilities primarily reflects liabilities received in connection with the Merger (Note 1), partially offset by the reclassification of certain tax liabilities as discussed above. The $17.0 million decrease in senior bank debt primarily reflects a $15.0 million principal prepayment in connection with the Merger (Note 7). The $19.6 million decrease in subordinated debentures reflects the $42.5 million book value reduction in connection with the Merger (Notes 1 and 7), partially offset by a $22.9 million increase related to pay-in-kind interest. The changes in stockholders' equity primarily reflect the issuance by the Company of preferred and common stock in connection with the Merger (Notes 2 and 13), partially offset by the net loss for the year. F-5 RESULTS OF OPERATIONS The nature of the Company's business is such that individual transactions often cause significant fluctuations in operating results from year to year. 1993 COMPARED WITH 1992 The $11.6 million decrease in revenues from $28.3 million in 1992 to $16.7 million in 1993 and the decrease in cost of sales from $26.5 million in 1992 to $16.3 million in 1993 were both principally related to the Company's 1992 sale of California properties in Ontario, Long Beach and Coronado, along with the February 1993 foreclosure sale of the Hotel, offset by the Company's sale in November 1993 of two office buildings located in LaJolla, California and revenues from golf operations and the domestic real estate development business acquired from The Koll Company (Note 4). The pro forma impact of this acquisition assuming it had occurred on January 1, 1993, would have been to increase the Company's revenues and income from continuing operations before income taxes and amortization of goodwill by $10.0 million and $2.4 million, respectively. The $1.8 million decrease in general and administrative expenses for 1993 as compared with 1992 was primarily attributed to reduced personnel and occupancy costs. The decrease in interest expense from $31.2 million in 1992 to $24.4 million in 1993 primarily reflects the reduction in outstanding subordinated debentures and senior bank debt in connection with the July 1992 Merger and the 1993 prepayments of senior bank debt (Note 7). The improvement in other expense (income), net from $2.9 million of expense for 1992 to $2.4 million of income for 1993 primarily reflects $3.0 million received in 1993 in connection with the termination of a put option agreement with Abex Inc. ("Abex"), a former subsidiary of The Henley Group, Inc., and a $2.0 million insurance reimbursement received in 1993 related to prior year environmental litigation costs. The Company adopted Financial Accounting Standard No. 109 "Accounting for Income Taxes," in the first quarter of 1993, resulting in an increase in its deferred tax liability of $36.0 million through a charge to income at the time of adoption (Notes 2 and 9). Under this new accounting standard, the Company also recognized $10.4 million of tax benefits on continuing operations for the year ended December 31, 1993. 1992 COMPARED WITH 1991 The decrease in revenues from $34.7 million in 1991 to $28.3 million in 1992 and the decrease in cost of sales from $28.8 million in 1991 to $26.5 million in 1992 were both principally due to the commencement of foreclosure proceedings against the Hotel in September 1992, and lower Hotel operating revenues prior to that date. The decrease in gross operating margin from $5.9 million in 1991 to $1.8 million in 1992 is primarily attributable to lower margins on asset sales and lower Hotel operating margins in 1992 discussed above. The $3.3 million decrease in interest expense from 1991 to 1992 is primarily due to the reduction in outstanding subordinated debentures and senior bank debt in connection with the Merger, as well as lower interest rates on the senior bank debt. The change in other expense (income), net from $65.5 million of expense for 1991 to $2.9 million of expense for 1992 primarily reflects approximately $65 million of charges in 1991 related to asset revaluations. 1991 COMPARED WITH 1990 The decrease in revenues from $97.0 million in 1990 to $34.7 million in 1991, the decrease in cost of sales from $78.9 million in 1990 to $28.8 million in 1991, and the decrease in gross operating margin from $18.1 million in 1990 to $5.9 million in 1991, principally reflect the $42 million sale in 1990 of a 90% interest in approximately 3,500 acres of land on the island of Hawaii, along with the substantial completion of residential sales at Coronado Cays in 1990. The change in other expense (income), net from $97.5 million of income for 1990 to $65.5 million of expense in 1991 primarily reflects the gain on sale of the Company's interest in two trash-to-energy facilities to WTI in 1990 and asset revaluations in 1991. F-6 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders of Koll Real Estate Group, Inc.: We have audited the accompanying balance sheets of Koll Real Estate Group, Inc. (formerly The Bolsa Chica Company) as of December 31, 1993 and 1992 and the related statements of operations, cash flows and changes in stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of the Company for the year ended December 31, 1991 were audited by other auditors whose report, dated February 3, 1992, expressed an unqualified opinion on those statements and included explanatory paragraphs that described the uncertainties associated with the Company's ability to continue as a going concern and the inherent uncertainty involved in the process of estimating the net realizable value of its real estate properties. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such 1993 and 1992 financial statements present fairly, in all material respects, the financial position of Koll Real Estate Group, Inc. at December 31, 1993 and 1992 and the results of its operations and its cash flows for the years ended December 31, 1993 and 1992 in conformity with generally accepted accounting principles. The Company carries its real estate properties at the lower of cost or estimated net realizable value. As discussed in Note 2, the estimation process is inherently uncertain and relies to a considerable extent on future events and market conditions. As discussed in Note 6, the development of the Company's Bolsa Chica project is dependent upon obtaining various governmental approvals and various economic factors. Accordingly, the amount ultimately realized from such project may differ materially from the current estimate of net realizable value. As discussed in Note 9, the Company changed its method of accounting for income taxes in 1993. Also as discussed in Note 9, the Company was notified in March 1994 that a Stipulation of Settlement has been entered into between a predecessor company and the Internal Revenue Service regarding the settlement of an alleged tax deficiency that is the subject of certain tax sharing agreements. The Company has been informed by the other parties to these tax sharing agreements that it is being charged with a net obligation of approximately $21 million under this settlement, which has been accrued in the Company's financial statements since December 1989. DELOITTE & TOUCHE San Diego, California February 15, 1994 (March 28, 1994 as to the last paragraph of Note 9) F-7 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders of Koll Real Estate Group, Inc.: We have audited the accompanying statements of operations, changes in stockholders' equity and cash flows of Koll Real Estate Group, Inc. (formerly The Bolsa Chica Company and Henley Properties Inc.) for the year ended December 31, 1991. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects the results of operations and cash flows of Koll Real Estate Group, Inc. for the year ended December 31, 1991 in conformity with generally accepted accounting principles. The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. The Company has suffered losses from operations and must obtain significant capital for financing its real estate development activities and scheduled repayments of debt obligations during 1992. The uncertainties associated with the Company's ability to obtain sufficient capital, restructure its debt agreements and return to profitable operations raise substantial doubt about the Company's ability to continue as a going concern. The Company has announced a recapitalization and merger plan to deal with these matters. The financial statements referred to above do not include any adjustments that might result from the outcome of these uncertainties. The Company carries its real estate held for development or sale and land held for development at the lower of cost or estimated net realizable value. As discussed in Note 2, the estimation process is inherently uncertain and relies to a considerable extent on future events and market conditions, the ability to achieve financing for its real estate development activities and the resolution of political, environmental and other related issues. Accordingly, ultimate realization of asset values may differ materially from amounts presently estimated. KENNETH LEVENTHAL & COMPANY Orange County, California February 3, 1992 F-8 KOLL REAL ESTATE GROUP, INC. BALANCE SHEETS
DECEMBER 31, ------------------ 1992 1993 ------- ------- (IN MILLIONS) ASSETS Cash and cash equivalents................................... $ 41.6 $ 21.8 Short-term investments...................................... -- 21.7 Real estate held for development or sale.................... 64.5 48.6 Operating properties, net................................... 24.4 16.3 Land held for development................................... 308.6 315.9 Other assets................................................ 47.0 22.0 ------- ------- $ 486.1 $ 446.3 ------- ------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities.................. $ 21.3 $ 30.8 Senior bank debt.......................................... 65.4 7.0 Subordinated debentures................................... 165.1 134.9 Other liabilities......................................... 84.7 110.1 ------- ------- Total liabilities....................................... 336.5 282.8 ------- ------- Stockholders' equity: Series A (convertible redeemable nonvoting) Preferred Stock -- $.01 par value; 42,505,504 shares authorized and outstanding.............................................. .4 .4 Class A (voting) Common Stock -- $.05 par value; 625,000,000 shares authorized; 39,785,131 and 43,192,847 shares outstanding, respectively......................... 2.0 2.2 Class B (convertible nonvoting) Common Stock -- $.05 par value; 25,000,000 shares authorized and no shares outstanding.............................................. -- -- Capital in excess of par value............................ 228.7 230.0 Deferred proceeds from stock issuance..................... -- (1.5) Minimum pension liability................................. (1.1) (1.5) Accumulated deficit....................................... (80.4) (66.1) ------- ------- Total stockholders' equity.............................. 149.6 163.5 ------- ------- $ 486.1 $ 446.3 ------- ------- ------- -------
See the accompanying notes to financial statements. F-9 KOLL REAL ESTATE GROUP, INC. STATEMENTS OF OPERATIONS
For the Years Ended December 31, ------------------------------ 1991 1992 1993 -------- ------- ------- (in millions, except per share amounts) Revenues: Asset sales..................................... $ 15.8 $ 16.3 $ 11.1 Operations...................................... 18.9 12.0 5.6 -------- ------- ------- 34.7 28.3 16.7 -------- ------- ------- Costs of: Asset sales..................................... 12.1 15.5 11.1 Operations...................................... 16.7 11.0 5.2 -------- ------- ------- 28.8 26.5 16.3 -------- ------- ------- Gross operating margin............................ 5.9 1.8 .4 General and administrative expenses............... 11.4 10.7 8.9 Interest expense.................................. 34.5 31.2 24.4 Other expense (income), net....................... 65.5 2.9 (2.4) -------- ------- ------- Loss from continuing operations before income taxes............................................ (105.5) (43.0) (30.5) Provision (benefit) for income taxes.............. -- (1.1) (10.4) -------- ------- ------- Loss from continuing operations................... (105.5) (41.9) (20.1) Discontinued operations: Income from operations, net of income taxes of $.5, $1.5 and $3.1, respectively............... .8 3.5 5.8 Gains on dispositions, net of income taxes of $1.4........................................... -- -- 41.0 -------- ------- ------- Income (loss) before extraordinary gain and cumulative effect of accounting changes.......... (104.7) (38.4) 26.7 Extraordinary gain on extinguishment of debt, net of income taxes of $12.5......................... -- -- 23.6 Cumulative effect of accounting changes........... (2.0) -- (36.0) -------- ------- ------- Net income (loss)................................. $ (106.7) $ (38.4) $ 14.3 -------- ------- ------- Earnings (loss) per common share: Continuing operations........................... $ (5.27) $ (1.44) $ (0.24) Discontinued operations......................... 0.04 0.12 0.56 Extraordinary gain.............................. -- -- 0.28 Cumulative effect of accounting changes......... (0.10) -- (0.43) -------- ------- ------- Net income (loss) per common share................ $ (5.33) $ (1.32) $ 0.17 -------- ------- ------- -------- ------- -------
See the accompanying notes to financial statements. F-10 KOLL REAL ESTATE GROUP, INC. STATEMENTS OF CASH FLOWS
For the Years Ended December 31, ------------------------------ 1991 1992 1993 -------- ------- ------- (in millions) Cash flows from operating activities: Income (loss) before extraordinary gain and cumulative effect of accounting changes........ $ (104.7) $ (38.4) $ 26.7 Adjustments to reconcile to cash used by operating activities: Depreciation and amortization................. 3.7 2.7 1.2 Non-cash interest expense..................... 23.2 22.9 21.9 Non-cash asset revaluations................... 65.5 -- -- Gains on asset sales.......................... (4.2) (4.3) -- Gains on dispositions of discontinued operations................................... -- -- (41.0) Proceeds from asset sales, net................ 14.6 16.7 10.4 Investments in real estate held for development or sale.......................... (9.5) (3.1) (3.8) Investment in land held for development....... (6.7) (5.6) (7.3) Decrease (increase) in other assets........... 19.1 3.5 (10.0) Decrease in accounts payable, accrued and other liabilities............................ (.6) (9.9) (14.9) Other, net.................................... (1.8) (.2) (.2) -------- ------- ------- Cash used by operating activities........... (1.4) (15.7) (17.0) -------- ------- ------- Cash flows from investing activities: Purchase of short-term investments.............. -- -- (21.7) Sale of fixed assets............................ -- 8.2 -- Acquisition of real estate development business....................................... -- -- (9.8) Sale of equity investment....................... -- -- 43.7 -------- ------- ------- Cash provided by investing activities....... -- 8.2 12.2 -------- ------- ------- Cash flows from financing activities: Net proceeds from nonrecourse debt.............. -- -- 43.4 Proceeds from Merger............................ -- 58.3 -- Repayments of senior bank debt.................. (12.9) (17.0) (58.4) -------- ------- ------- Cash provided (used) by financing activities................................. (12.9) 41.3 (15.0) -------- ------- ------- Net increase (decrease) in cash and cash equivalents...................................... (14.3) 33.8 (19.8) Cash and cash equivalents -- beginning of year.... 22.1 7.8 41.6 -------- ------- ------- Cash and cash equivalents -- end of year.......... $ 7.8 $ 41.6 $ 21.8 -------- ------- ------- -------- ------- -------
See the accompanying notes to financial statements. F-11 KOLL REAL ESTATE GROUP, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DEFERRED PROCEEDS RETAINED CAPITAL IN MINIMUM FROM EARNINGS PREFERRED COMMON EXCESS OF PENSION STOCK (ACCUMULATED STOCK STOCK PAR VALUE LIABILITY ISSUANCE DEFICIT) TOTAL ------------ ---------- ---------- ----------- --------- ------------ --------- (IN MILLIONS) Balance, December 31, 1990..... -- 1.0 142.3 -- -- 64.7 208.0 Net loss..................... -- -- -- -- -- (106.7) (106.7) ------------ ---------- ---------- ----------- --------- ------------ --------- Balance, December 31, 1991..... -- 1.0 142.3 -- -- (42.0) 101.3 Net loss..................... -- -- -- -- -- (38.4) (38.4) Minimum pension liability.... -- -- -- (1.1) -- -- (1.1) Merger....................... .4 1.0 86.4 -- -- -- 87.8 ------------ ---------- ---------- ----------- --------- ------------ --------- Balance, December 31, 1992..... .4 2.0 228.7 (1.1) -- (80.4) 149.6 Net income................... -- -- -- -- -- 14.3 14.3 Minimum pension liability.... -- -- -- (.4) -- -- (.4) Deferred proceeds from stock issuance.................... -- .2 2.0 -- (2.2) -- -- Valuation adjustment to deferred proceeds from stock issuance.................... -- -- (.7) -- .7 -- -- ------------ ---------- ---------- ----------- --------- ------------ --------- Balance, December 31, 1993..... $.4 $2.2 $230.0 $(1.5) $(1.5) $(66.1) $163.5 ------------ ---------- ---------- ----------- --------- ------------ --------- ------------ ---------- ---------- ----------- --------- ------------ ---------
See the accompanying notes to financial statements. F-12 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 -- FORMATION AND BASIS OF PRESENTATION On December 31, 1989, The Henley Group, Inc. separated its business into two public companies through a distribution to its Class A and Class B common stockholders of all of the common stock of a newly formed Delaware corporation to which The Henley Group, Inc. had contributed its non-real estate development operations, assets and related liabilities. The new company was named The Henley Group, Inc. ("Henley Group") immediately following the distribution. The remaining company was renamed Henley Properties Inc. ("Henley Properties") and consisted of the real estate development business and assets of Henley Group. On July 16, 1992, a subsidiary of Henley Properties merged with and into Henley Group (the "Merger") and Henley Group became a wholly owned subsidiary of Henley Properties. Henley Properties, through its Henley Group subsidiary, received in the Merger net assets having a book value as of July 16, 1992 of approximately $45.3 million, consisting of approximately $103.6 million of assets, including $58.3 million of cash and a 44% interest in Deltec Panamerica S.A. ("Deltec"), and $58.3 million of liabilities. In connection with the Merger, Henley Properties was renamed The Bolsa Chica Company. On September 30, 1993, a subsidiary of The Bolsa Chica Company acquired the domestic real estate development business and related assets of The Koll Company (Note 4). In connection with this acquisition, The Bolsa Chica Company was renamed Koll Real Estate Group, Inc. (the "Company"). Immediately prior to the July 1992 Merger, Henley Group distributed to its stockholders among other consideration (the "Distribution"), in respect of each share of its outstanding common stock (the "Henley Group Common Stock"): (i) $6.00 aggregate principal amount of the 12% Senior Subordinated Pay-In-Kind Debentures due March 15, 2002 of the Company (the "Senior Subordinated Debentures"); and (ii) $1.50 aggregate principal amount of the 12% Subordinated Pay-In-Kind Debentures due March 15, 2002 of the Company (the "Subordinated Debentures", and, together with the Senior Subordinated Debentures, the "Debentures"). Approximately $159.4 million aggregate principal amount of the Debentures were distributed in the Distribution and approximately $43.8 million aggregate principal amount of the Debentures were retained by the Company's Henley Group subsidiary in the Merger. In the Merger, Henley Group stockholders also received, in respect of each share of Henley Group Common Stock, the following securities of the Company: (i) two shares of Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock"); and (ii) one share of Class A Common Stock (the "Class A Common Stock"). Certain prior-period amounts have been reclassified to conform with the current presentation. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. STATEMENTS OF CASH FLOWS For purposes of the Statements of Cash Flows, all highly liquid instruments purchased with a maturity of three months or less are considered to be cash equivalents. EARNINGS PER COMMON SHARE In connection with the Merger, on July 16, 1992, the Company issued approximately 19.7 million shares of its Class A Common Stock and 42.5 million shares of its Series A Preferred Stock. On December 17, 1993, the Company issued 3.4 million shares of its Class A Common Stock to Libra Invest & Trade Ltd. ("Libra") in exchange for all of Libra's approximately $10.6 million in aggregate principal amount of Subordinated Debentures plus accrued interest. The weighted average numbers of common shares outstanding for the years ended December 31, 1991, 1992, and 1993 were 20.0 million, 29.0 million, and 83.0 million, respectively. The Series A Preferred Stock is F-13 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) not included in the loss per share calculation for 1991 and 1992 because the effect is antidilutive. The 1993 earnings per share calculation includes the Series A Preferred Stock and the effect of 5.7 million shares of common and preferred stock granted under the 1988 Stock Option Plan (Note 14). SHORT-TERM INVESTMENTS The Company accounts for short-term investments at the lower of cost or market value. REAL ESTATE Real estate held for development or sale and land held for development (real estate properties) are carried at the lower of cost or estimated net realizable value. The estimation process involved in the determination of net realizable value is inherently uncertain since it requires estimates as to future events and market conditions. Such estimation process assumes the Company's ability to complete development and dispose of its real estate properties in the ordinary course of business based on management's present plans and intentions. Economic, market, environmental and political conditions may affect management's development and marketing plans. In addition, the implementation of such development and marketing plans could be affected by the availability of future financing for development and construction activities. Accordingly, the ultimate net realizable values of the Company's real estate properties are dependent upon future economic and market conditions, the availability of financing, and the resolution of political, environmental and other related issues. The cost of sales of multi-unit projects is computed using the relative sales value method. Direct construction costs are accumulated by phase, using the specific identification method; land and all other common costs are allocated between phases benefited, using area or unit methods. These methods do not differ significantly from the relative sales value method. Interest, carrying costs, indirect general and administrative costs that relate to several real estate projects and property taxes are capitalized to projects during their development period. No interest expense incurred during the years ended December 31, 1991, 1992, and 1993 was capitalized. Operating properties are generally depreciated using estimated lives that range principally from 5 to 30 years. For financial statement purposes, depreciation is computed utilizing the straight-line method. For tax purposes, depreciation is generally computed by accelerated methods based on allowable useful lives. Accumulated depreciation amounted to $12.6 million and $9.7 million at December 31, 1992 and 1993, respectively. The Company's rental operations consist primarily of the leasing of office and marina space and all of the Company's leases are classified as operating leases. Such leases are generally for periods of up to 5 years. INTANGIBLE ASSETS Goodwill, which represents the difference between the purchase price of a business acquired in 1993 (Note 4) and the related fair value of net assets acquired, is amortized on a straight-line basis over 15 years. Goodwill of $8.7 million as of December 31, 1993 is included in other assets. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," ("FAS 106") was implemented by the Company on the immediate recognition basis effective January 1, 1991 resulting in a $2 million charge to earnings. This standard requires that the cost of these benefits, which are primarily health care related, be recognized in the financial statements during each employee's active working career. The Company's previous practice was to charge these costs to expense as they were paid. As of December 31, 1993 the accrued unfunded costs totalled $1.5 million. F-14 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 supersedes both APB Opinion No. 11 and FAS No. 96, "Accounting for Income Taxes." With the adoption of FAS 109 in the first quarter of 1993, the Company changed to the liability method of accounting for income taxes, which resulted in an increase in its deferred tax liability of approximately $36 million, through a charge to income (Note 9). Also see Note 9 for a discussion of the tax sharing agreements with Abex Inc.("Abex") and Wheelabrator Technologies Inc. ("WTI"). RECOGNITION OF REVENUES Sales are recorded using the full accrual method when title to the real estate sold is passed to the buyer and the buyer has made an adequate financial commitment. When it is determined that the earning process is not complete, income is deferred using the installment, cost recovery or percentage of completion methods of accounting. NOTE 3 -- ASSET REVALUATIONS During the fourth quarter of 1991, the Company recorded approximately $65 million of charges for the revaluation of certain assets, including goodwill. Management believes that these revalued amounts better reflected market values based on real estate market conditions and the Company's plan to sell certain non-strategic assets. NOTE 4 -- ACQUISITIONS AND DISPOSITIONS On August 27, 1993 the Company disposed of its entire 44% interest in Deltec for $43.7 million in net cash proceeds, resulting in a gain of $1.9 million. Discontinued operations for the years ended December 31, 1992 and 1993 also includes $.9 million and $4.2 million of net income through the date of disposition. The Company used $23.8 million of the proceeds to make principal prepayments in accordance with term loan agreements with Bank of America and Bank of Boston. The Company also terminated its put option agreement with Abex (Note 10) on August 27, 1993 and received $3 million in cash from Abex which was used to prepay senior bank debt. On September 30, 1993, the Company acquired the domestic real estate development business and related assets of The Koll Company ("Koll"). The principal activity of the acquired business is to provide commercial, industrial, retail and residential real estate development services, including feasibility studies, entitlement coordination, project planning, construction management, financing, marketing, acquisition, disposition and asset management services throughout the nation. The acquired business generates income principally through fees and participating interests in equity partnerships. No real property was involved in the transaction. In connection with the acquisition, the Company paid $4.75 million in cash, approximately $1 million in reimbursement of investments in transferred development projects, and agreed to pay an earn-out over the next four and one-quarter years based on the future profitability of the business acquired. On December 29, 1993 the Company amended its agreement with Koll, under which the Company paid $4.25 million in cash to Koll in exchange for the immediate termination of the earn-out payments with retroactive effect to the initial date of the acquisition agreement. Under the earn-out, the Company was entitled to a 20% preferred return on its original $4.75 million investment, Koll was then entitled to a matching return subject to available profits, with all remaining profits split equally between the Company and Koll. In addition, on September 30, 1993, Koll and Mr. Donald M. Koll (an officer and director of the Company and owner of Koll) entered into covenants not to compete with the Company with respect to domestic real estate development, subject to certain limited exceptions. The Koll covenant is perpetual in duration while the covenant of Mr. Koll is limited to the five-year period following his ceasing to be either an officer, director or stockholder of the Company. In connection with the acquisition, the Company also paid F-15 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED) Koll $325,000 to terminate its June 11, 1990 management agreement in lieu of continuing to receive and pay for duplicative services during the 90-day notice period which would otherwise have been required under the management agreement. On September 30, 1993, the Company and Koll also entered into various other agreements regarding services they provide to one another (Note 11). On December 17, 1993, the Company completed a transaction with Libra whereby it exchanged the Company's Lake Superior Land Company subsidiary for (1) approximately $42.4 million in aggregate face amount of Senior Subordinated Debentures held by Libra; (2) net cash proceeds to be generated by Libra's periodic sale of up to approximately 3.4 million shares of the Company's Class A Common Stock held by Libra through a series of transactions to be effected in an orderly manner within a three-year period; and (3) the right of the Company to receive a contingent payment if the proceeds from any disposition by Libra of Lake Superior Land Company during the 15 year period following the closing of the transaction exceed a 20% preferred return on the negotiated value of Libra's investment. Accordingly, the financial information included in the statements of operations for all periods has been reclassified to present Lake Superior Land Company as a discontinued operation. Lake Superior Land Company owns and manages a commercial hardwood timber business on approximately 300,000 acres of forest lands and shoreline property on Lake Superior in Michigan and Wisconsin. Revenues related to the discontinued operation were $6.2 million and $8.9 million for the years ended December 31, 1991 and 1992, respectively and $10.6 million for 1993 through the date of the disposition. Net income from the discontinued operation for 1991 , 1992 and 1993 through the date of disposition was $.8 million, $2.6 million and $1.6 million, respectively. The accumulated deficit of Lake Superior Land Company at the date of the disposition was approximately $24.8 million. The Company also completed a separate transaction with Libra in December 1993, whereby the Company exchanged approximately 3.4 million newly issued shares of its Class A Common Stock for approximately $10.6 million in aggregate face amount of Subordinated Debentures held by Libra. In connection with these transactions, the Company recorded an after-tax gain of $39.1 million on the disposition of Lake Superior Land Company and an after-tax extraordinary gain on extinguishment of the Debentures of $23.6 million (Note 7). After these transactions, Libra and affiliates presently hold approximately 7.4 million shares, or 17%, of the Company's Class A Common Stock, including approximately 3.4 million shares which have been deposited in a custodial account for periodic sale in accordance with instructions from the Company, and approximately 11.9 million shares, or 28%, of the Company's preferred stock. In February 1994, the Company received $1 million in cash from Libra in exchange for the immediate termination of the contingent payment provision described above. NOTE 5 -- REAL ESTATE HELD FOR DEVELOPMENT OR SALE Real estate held for development or sale consists of the following at December 31 (in millions):
1992 1993 ----- ----- Residential............................. $51.4 $43.3 Commercial/industrial................... 13.1 5.3 ----- ----- $64.5 $48.6 ----- ----- ----- -----
The decrease in real estate held for development or sale during 1993 relates primarily to the sale of the Company's LaJolla, California office property for $10.0 million in cash, as well as the placement into service of the Eagle Crest golf course and its related reclassification to operating properties. NOTE 6 -- LAND HELD FOR DEVELOPMENT Land held for development consists of approximately 1,200 acres known as Bolsa Chica located in Orange County, California, surrounded by the City of Huntington Beach and approximately 35 miles south of downtown Los Angeles ("Bolsa Chica"). The Company is currently seeking approvals from local, state and federal governmental entities for a 4,900 unit (approximately 4,300 units on Company-owned land) F-16 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6 -- LAND HELD FOR DEVELOPMENT (CONTINUED) residential project on this site. A revised environmental impact report was released for public comments in December 1993 for a 60-day period ending February 18, 1994. The County of Orange requested that this document contain an in-depth analysis of an alternative plan which includes 3,500 homes, in addition to the in-depth analysis of the Company's plan. Due to a number of factors beyond the Company's control, including possible objections of various environmental and so-called public interest groups that may be made in legislative, administrative or judicial forums, the required approvals could be delayed substantially. Subject to these and other uncertainties inherent in the entitlement process, the Company's goal is to obtain all material governmental approvals in the first half of 1995 and to begin construction in the second half of 1995, depending on economic and market conditions. Realization of the Company's investment in Bolsa Chica will also depend upon various economic factors, including the demand for residential housing in the Southern California market and the availability of credit to the Company and to the housing industry. NOTE 7 -- DEBT SENIOR BANK DEBT TERM LOAN During 1993, the Company retired the entire balance of senior bank debt owed to Bank of America with proceeds from the January 1993 Lake Superior Land Company financing, the August Deltec disposition and termination of the Abex put option agreement (see Note 4), and the November sale of two office buildings located in La Jolla, California. TERM NOTE On July 16, 1992, in connection with the Merger, the Company entered into a $13.8 million term note agreement due on July 31, 1995 with the Bank of Boston, principally secured by resort and residential property in New Hampshire ("Wentworth"). Approximately $6.4 million of the proceeds from the August 1993 Deltec disposition and termination of the Abex put option agreement (Note 4) were used to make principal prepayments to Bank of Boston. The term note agreement with Bank of Boston requires additional principal prepayments to be made from the net proceeds from the sale of Wentworth and other assets. The term note agreement also requires additional principal repayments of $.2 million in the second half of 1994 and $.4 million in the first half of 1995, with any remaining balance due at maturity on July 31, 1995. Amounts outstanding under the term note bear interest at prime plus 1%. The term note agreement with Bank of Boston is secured by a first mortgage on the Wentworth property, stock pledge agreements of substantially all significant subsidiaries of the Company and first mortgages on certain other properties. The term note agreement contains certain restrictive covenants that prohibit the declaration or payment of dividends and limit, among other things, (i) the incurrence of indebtedness, (ii) the making of investments, loans and advances, (iii) the creation or incurrence of liens on existing and future assets of Wentworth or its subsidiaries, (iv) stock repurchases, and (v) project development spending in excess of certain planned levels. The term note agreement also contains various financial covenants and events of default customary for such agreements. SUBORDINATED DEBENTURES The Debentures were comprised of the following as of December 31 (in millions):
1992 1993 ------- ------- Senior Subordinated Debentures.......... $ 135.2 $ 109.4 Subordinated Debentures................. 33.8 27.4 ------- ------- Total face amount..................... 169.0 136.8 Less unamortized discount............... (9.8) (6.7) Plus accrued interest................... 5.9 4.8 ------- ------- $ 165.1 $ 134.9 ------- ------- ------- -------
F-17 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- DEBT (CONTINUED) The Debentures give the Company the right to pay interest in-kind, in cash or, subject to certain conditions, in the Company's common stock. It is currently anticipated that interest on the Debentures will be paid in-kind. The Debentures, which are due March 15, 2002, do not require any sinking fund payments and may be redeemed by the Company at any time in cash only, or at maturity in cash or stock, subject to certain conditions. The Debentures prohibit the payment of any dividends or other distributions on the Company's equity securities. As a result of the Distribution and the Merger on July 16, 1992 (Note 1), approximately $159.4 million aggregate principal amount of the Debentures were distributed to stockholders of Henley Group and approximately $43.8 million aggregate principal amount of the Debentures were retained by Henley Group, which is now a wholly owned subsidiary of the Company. As a result of the transactions with Libra (Note 4) in which approximately $42.4 million in aggregate principal amount of Senior Subordinated Debentures and $10.6 million in aggregate principal amount of Subordinated Debentures held by Libra were retired, the Company recorded on extraordinary gain of $36.1 million, less an applicable income tax provision of $12.5 million, in the accompanying consolidated financial statements. At December 31, 1993 the estimated fair value of the Company's Debentures was within a range of approximately $40 million to $60 million. The fair value of the Debentures is estimated based on the negotiated values in the Libra transactions (lower end of range) and current quotes from certain bond traders making a market in the Debentures (upper end of range). However, due to the low trading volume and illiquid market for the Debentures, current quotes from bond traders may not be meaningful indications of value. The carrying amount for all other debt of the Company approximates market primarily as a result of floating interest rates. INTEREST The Company made cash payments of interest of $10.6 million, $7.4 million and $2.5 million for the years ended December 31, 1991, 1992 and 1993, respectively. NOTE 8 -- OTHER LIABILITIES Other liabilities were comprised of the following as of December 31 (in millions):
1992 1993 ----- ------ Deferred taxes payable (Note 9)......... $-- $ 45.1 Other tax liabilities (Note 9).......... 32.7 14.5 Accrued pensions and benefits........... 12.7 12.0 Accrued indemnity obligations........... 29.3 29.4 Other reserves.......................... 10.0 9.1 ----- ------ $84.7 $110.1 ----- ------ ----- ------
NOTE 9 -- INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 requires a change from the deferred method of accounting for income taxes under APB Opinion No. 11 to the asset and liability method of accounting for income taxes. Under FAS 109, deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect in the years in which these differences are expected to reverse. At January 1, 1993, the Company recorded the cumulative effect of this change in accounting for income taxes as a $36 million charge to earnings in the consolidated statement of operations. F-18 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- INCOME TAXES (CONTINUED) The tax effects of items that gave rise to significant portions of the deferred tax accounts as of December 31, 1993 are as follows: Deferred tax assets: Real estate held for development or sale and operating properties, principally due to asset revaluations and interest capitalized for tax purposes....................................... $ 21.3 Accruals not deductible until paid.............. 14.5 Net operating loss carryforwards................ 37.1 Other........................................... 1.5 Valuation allowance............................. (13.9) ------- $ 60.5 ------- ------- Deferred tax liabilities: Land held for development, principally due to accounting for a prior business combination.... $ 101.6 Other........................................... 4.0 ------- $ 105.6 ------- -------
At December 31, 1993, the Company had available tax net operating loss carryforwards of approximately $106 million which expire in the years 2003 through 2008 if not utilized. The Internal Revenue Code (the "Code") imposes an annual limitation on the use of loss carryforwards upon the occurrence of an "ownership change" (as defined in Section 382 of the Code). Such an ownership change occurred in connection with the Merger. As a result, approximately $25 million of the Company's net operating loss carryforwards will generally be limited to the extent that Henley Properties and its subsidiaries recognize certain gains in the five-year period following the ownership change (ending July 16, 1997). The following is a summary of the income tax provision (benefit) on continuing operations for the years ended December 31 (in millions):
1991 1992 1993 ---- ------ ------- Income Tax Provision: Current..................... $.0 $ (1.1) $ (2.9) Deferred.................... -- -- (7.5) ---- ------ ------- $.0 $ (1.1) $ (10.4) ---- ------ ------- ---- ------ -------
Cash payments for federal, state and local income taxes were approximately $1.6 million, $1.3 million and $7.8 million for the years ended December 31, 1991, 1992 and 1993, respectively. Tax refunds received in 1993 were approximately $5.1 million. F-19 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- INCOME TAXES (CONTINUED) The principal items accounting for the difference in taxes on income computed at the statutory rate and as recorded are as follows for the years ended December 31 (in millions):
1991 1992 1993 ------- ------- ------- Provision for income taxes at statutory rate...... $ (36.5) $ (14.6) $ (10.7) State income taxes, net........................... .2 .2 (.6) Nondeductible expenses............................ 10.2 2.0 -- Nonbenefitable book losses........................ 17.6 7.5 -- Excess of book over tax basis of assets sold during the year.................................. 6.8 2.6 -- Effect of tax rate increase....................... -- -- .9 All other items, net.............................. 1.7 1.2 -- ------- ------- ------- $ .0 $ (1.1) $ (10.4) ------- ------- ------- ------- ------- -------
TAX SHARING AGREEMENTS Henley Group and Abex, a former subsidiary of Henley Group whose stock was distributed to stockholders of Henley Group, entered into a tax sharing agreement in 1992 prior to the Distribution to provide for the payment of taxes for periods during which Henley Group and Abex were included in the same consolidated group for federal income tax purposes, the allocation of responsibility for the filing of tax returns, the cooperation of the parties in realizing certain tax benefits, the conduct of tax audits and various related matters. 1989-1992 INCOME TAXES. The Company is generally charged with responsibility for all of its federal, state, local or foreign income taxes for this period and, pursuant to the tax sharing agreement with Abex, all such taxes attributable to Henley Group and their consolidated subsidiaries, including any additional liability resulting from adjustments on audit (and any interest or penalties payable with respect thereto), except that Abex is generally charged with responsibility for all such taxes attributable to it and its subsidiaries for 1990-1992. In addition, under a separate tax sharing agreement between Henley Group and a former subsidiary of Henley Group, Fisher Scientific International Inc. ("Fisher"), Fisher is generally charged with responsibility for its own income tax liabilities for this period. PRE-1989 INCOME TAXES. Under tax sharing agreements with WTI and Abex, the parties are charged with sharing responsibility for paying any increase in the federal, state or local income tax liabilities (including any interest or penalties payable with respect thereto) for any consolidated, combined or unitary tax group which included WTI, Henley Group or any of their subsidiaries for tax periods ending on or before December 31, 1988. WTI is charged with responsibility for paying the first $51 million of such increased taxes, interest and penalties, plus any amounts payable with respect to such liabilities by certain former affiliates of WTI under their tax sharing agreements with WTI. Should the amounts payable exceed $51 million, the Company is charged with responsibility for paying the next $25 million, plus amounts payable with respect to liabilities which are attributable to certain of the Company's subsidiaries. Liabilities in excess of amounts payable by WTI and the Company, as described above, will generally be assumed by Abex (the "Abex Indemnification"). In the first quarter of 1993, the Company paid approximately $7.6 million related to the tax sharing agreements. Of this amount, approximately $4.5 million will be applied against the Company's $25 million limitation (as discussed above). The remaining $3.1 million relates to liabilities which are attributable to certain of the Company's subsidiaries. Therefore the Company's potential liability for additional payments under these tax sharing agreements is approximately $21 million, which has been accrued in the Company's financial statements since December 1989 and is included in accounts payable and accrued liabilities as of December 31, 1993. F-20 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- INCOME TAXES (CONTINUED) In January 1993, the Internal Revenue Service completed its examination of the Federal tax returns of WTI for the periods May 27, 1986 through December 31, 1988 and asserted a material deficiency relating to the tax basis of a former subsidiary of WTI. WTI, Abex and the Company disagreed with the position taken by the IRS and WTI filed a petition with the U.S. Tax Court. A trial date had been scheduled for June 1994; however, in March 1994, WTI and the IRS entered into a Stipulation of Settlement that will result in a tax payable together with interest of approximately $72 million which is due in April 1994. The Company has been informed by the other parties to these tax sharing agreements that it is being charged with a net obligation of approximately $21 million under this settlement. The Company is currently evaluating the scope of this claimed obligation under the settlement and potential sources of financing for such amount that the Company may ultimately be obligated to pay. However, there can be no assurance that any financing will be available, or that if available, it can be obtained on terms that are favorable to the Company and its stockholders. NOTE 10 -- COMMITMENTS AND CONTINGENCIES TRANSITION AGREEMENTS Pursuant to a 1989 transition agreement, Henley Group provided to the Company and its subsidiaries certain services, including management, strategic planning and advice, legal, tax, accounting, data processing, cash management, employee benefits, operational, corporate secretarial, insurance purchasing and claims administration consulting services for a quarterly fee of $750,000, commencing on the date of the 1989 distribution, plus an amount for the use of office space in Henley Group's Hampton, New Hampshire offices for such period. This rent amounted to approximately $.8 million for the year ended December 31, 1991, and $.4 million for the first half of 1992. The 1989 Transition Agreement was cancelled in July 1992 in connection with the Merger. Pursuant to a 1992 transition agreement, each of Abex and the Company provides to the other certain administrative support services until the first anniversary of the Merger, and thereafter until 60 days' prior written notice of termination is given by one company to the other and each company reimburses the other for its out-of-pocket expenses. Effective March 16, 1993, the 1992 transition agreement was amended to provide that all transitional services would be provided by Abex to the Company for a period ending on March 31, 1994, and that the Company would pay $.5 million quarterly for such services. Accordingly, the Company reimbursed Abex approximately $1.0 million and $1.8 million for the years ended December 31, 1992 and 1993. The amendment also provided for the termination of the New Hampshire facilities lease on March 31, 1993. In connection with the Merger, the Company entered into a put option agreement with Abex, through December 31, 1995, which provided the Company the right to require Abex to purchase certain assets of the Company at 85% of appraised value, subject to an annual limitation of no more than $50 million and an aggregate limitation of $75 million for such assets. On August 27, 1993, the Company received $3.0 million from Abex in exchange for the termination of this agreement (Note 4). LEGAL PROCEEDINGS The owners of undeveloped real property located in San Diego County sued Signal Landmark, a subsidiary of the Company ("Signal"), in San Diego Superior Court, in May 1990, alleging that Signal had deposited contaminated soils on their property and was liable under theories of nuisance, negligence, trespass and strict liability. The plaintiffs sought general damages in the amount of approximately $40 million and additionally, punitive damages in an unspecified amount, plus prejudgment interest and costs. On August 5, 1991, the plaintiffs filed a complaint in Federal court against Signal and several other parties asserting claims under the Federal Comprehensive Environmental Response, Compensation and Liability Act, seeking essentially the same relief sought in the state action. F-21 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 10 -- COMMITMENTS AND CONTINGENCIES (CONTINUED) In April 1992, a jury awarded the plaintiffs damages in the amount of $2.5 million following a trial in the state action. Signal appealed the verdict in the state action and posted a bond and cash collateral of $3.75 million in August 1992. On March 5, 1993, Signal reached an agreement in principle with the plaintiffs in such litigation to settle both the federal and state actions. On July 2, 1993, the Federal Court for the Southern District of California approved the settlement agreement under the terms of which funds from such cash collateral account were disbursed approximately as follows: 1) $1.3 million was deposited in trust for remediation expenditures; 2) $1.3 million was disbursed to the plaintiffs; and 3) $1.1 million was returned to Signal. There are various other lawsuits and claims pending against the Company and certain subsidiaries. In the opinion of the Company's management, ultimate liability, if any, will not have a material adverse effect on the Company's liquidity or financial condition. CORPORATE INDEMNIFICATION MATTERS The Company and its predecessors have, through a variety of transactions effected since 1986, disposed of several assets and businesses, many of which are unrelated to the Company's current operations. By operation of law or contractual indemnity provisions, the Company has retained liabilities relating to certain of these assets and businesses. Many of such liabilities are supported by insurance or by indemnities from certain of the Company's predecessor and currently or previously affiliated companies. The Company believes its balance sheet reflects adequate reserves for these matters. Abex and the Company agreed that, following the Distribution and the Merger, each company will be responsible for environmental liabilities relating to its existing, past and future assets and businesses and will indemnify the other in respect thereof. The United States Environmental Protection Agency ("EPA") has designated Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party ("PRP") with respect to an area of the Upper Peninsula of Michigan (the "Torch Lake Site") under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor in interest to one of the companies that conducted mining operations in the Torch Lake area and an affiliate of Allied-Signal Inc., a predecessor of the Company. The Company has not been named as a PRP at the site. However, Allied-Signal has, through UOP, asserted a contractual indemnification claim against the Company for claims that may be asserted against UOP by EPA or other parties with respect to the site. EPA has proposed a cleanup plan which would involve covering certain real property both contiguous and non-contiguous to Torch Lake with soil and vegetation in order to address alleged risks posed by copper tailings and slag at an estimated cost of approximately $7.2 million. EPA estimates that it has spent in excess of $2 million to date in performing studies of the site. Under CERCLA, EPA could assert claims against the Torch Lake PRPs, including UOP, to recover the cost of these studies, the cost of all remedial action required at the site, and natural resources damages. An earlier settlement in principle with EPA staff pursuant to which UOP would pay $1.7 million in exchange for a release similar to those normally granted by EPA in such circumstances was rejected by certain other governmental authorities in July 1993. Settlement negotiations between the Company, on behalf of UOP, and EPA resumed shortly thereafter and are ongoing. NOTE 11 -- RELATED PARTY TRANSACTIONS MANAGEMENT AGREEMENT In June 1990 the Company entered into a management agreement with Koll. On September 30, 1993, in connection with the Company's acquisition of the domestic real estate development business and related assets of Koll, the Company paid Koll $325,000 to terminate the management agreement in lieu of continuing to receive and pay for duplicative services during the 90-day notice period which would otherwise have been required under the management agreement. Under the terms of the management agreement, the F-22 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 11 -- RELATED PARTY TRANSACTIONS (CONTINUED) Company was obligated to pay a quarterly management fee equal to .125% of the average book value of its assets managed by Koll. Additionally, the Company was obligated to reimburse Koll for certain personnel costs and other expenses and Koll was generally entitled to a disposition fee of 1% of the net sale proceeds (as defined) upon the sale of any real estate property (other than the Bolsa Chica and Wentworth properties) managed by Koll. During 1991, 1992 and 1993 the Company incurred management fees of $2.5 million, $2.0 million and $1.4 million through September 30, 1993, respectively, and reimbursable personnel costs and other expenses of $1.6 million, $.9 million and $.1 million, respectively, under this management agreement. In 1990, the Company also entered into construction management agreements with Koll Construction, a wholly owned subsidiary of Koll, with respect to the Eagle Crest and Murrieta projects. In 1993, the Company entered into a construction management agreement with Koll Construction for demolition of bunkers at the Bolsa Chica project. During 1991, 1992 and 1993 the Company incurred fees aggregating approximately $.5 million, $.2 million and $.1 million, respectively, to Koll Construction in consideration of these services and related reimbursements. SERVICE AGREEMENTS On September 30, 1993, the Company entered into a Financing and Accounting Services Agreement to provide Koll with financing, accounting, billing, collections and other related services until 30 days' prior written notice of termination is given by one company to the other. Fees earned for the year ended December 31, 1993 were approximately $.1 million. The Company also entered into a Management Information Systems and Human Resources Services Agreement on September 30, 1993 with Koll Management Services, Inc. ("KMS"), a public company majority owned by Koll. Under this agreement, KMS provides computer programming, data organization and retention, record keeping, payroll and other related services until 30 days' prior written notice of termination is given by one company to the other. Fees and related reimbursements accrued during the year ended December 31, 1993 were approximately $.1 million. SUBLEASE AGREEMENTS On September 30, 1993, the Company entered into a month-to-month Sublease Agreement with Koll to sublease a portion of a Koll affiliate's office building located in Newport Beach, California. The Company also entered into lease agreements on a month-to-month basis for office space in Northern California and San Diego, California with KMS and Koll Construction, respectively. Combined annual lease costs on these month-to-month leases during the year ended December 31, 1993 were approximately $.1 million. DEVELOPMENT FEES For the year ended December 31, 1993, the Company earned fees of approximately $.7 million for real estate development services provided to partnerships in which Koll and certain directors and officers of the Company have an ownership interest. LOAN RECEIVABLE In December 1993, the Company purchased a nonrecourse construction loan, secured by a first trust deed on four multi-tenant industrial buildings, for which the borrower is a partnership in which Koll and certain directors and officers of the Company have an ownership interest. The loan balance of $.8 million as of December 31, 1993 is included in other assets. OTHER TRANSACTIONS See Notes 4, 9 and 10 for descriptions of other transactions and agreements with Koll, Libra, Abex and WTI. F-23 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- RETIREMENT PLANS The Company has noncontributory defined benefit retirement plans covering substantially all employees of the Company prior to September 30, 1993 who had completed one year of continuous employment. Net periodic pension cost for the years ended December 31, consisted of the following (in millions):
1991 1992 1993 ----- ----- ----- Service cost...................................... $ .1 $ .1 $ .1 Interest cost..................................... .5 .5 .5 Actual return on assets........................... (.4) (.1) (.2) Net amortization and deferral..................... .1 (.2) (.3) Curtailment loss.................................. -- -- .8 ----- ----- ----- Net periodic pension cost......................... $ .3 $ .3 $ .9 ----- ----- ----- ----- ----- -----
The curtailment loss in 1993 resulted from the freeze of benefit accruals for former participants in April 1993. The funded status and accrued pension cost at December 31, 1992 and 1993 for defined benefit plans were as follows (in millions):
1992 1993 ------ ------ Actuarial present value of benefit obligations: Vested.................................................... $ (6.8) $ (6.9) Nonvested................................................. -- -- ------ ------ Accumulated benefit obligation.............................. $ (6.8) $ (6.9) ------ ------ ------ ------ Projected benefit obligation................................ $ (7.2) $ (6.9) Plan assets at fair value................................... 5.4 5.5 ------ ------ Projected benefit obligation in excess of plan assets....... (1.8) (1.4) Unrecognized transition liability........................... .1 -- Unrecognized prior service cost............................. .9 -- Unrecognized net loss....................................... 1.4 1.3 Adjustment required to recognize additional minimum liability.................................................. (2.0) (1.5) ------ ------ Accrued pension cost........................................ $ (1.4) $ (1.4) ------ ------ ------ ------
The development of the projected benefit obligation for the plans at December 31, 1991, 1992 and 1993 are based on the following assumptions: discount rates of 8.5%, 8% and 7%, respectively, rates of increase in employee compensation of 5.5%, 4% and 0%, respectively, and expected long-term rates of return on assets of 9%. The date used to measure plan assets and liabilities was October 31 in each year. Assets of the plans are invested primarily in stocks, bonds, short-term securities and cash equivalents. NOTE 13 -- CAPITAL STOCK COMMON STOCK Under its restated certificate of incorporation, the Company has authority to issue up to 750 million shares of common stock, par value $.05 per share, subject to approval of the Board of Directors (the "Board"), of which 625 million shares of Class A Common Stock and 25 million shares of Class B Common Stock are initially authorized for issuance and an additional 100 million shares may be issued in one or more series, and have such voting powers or other rights and limitations as the Board may authorize. F-24 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 13 -- CAPITAL STOCK (CONTINUED) On June 11, 1992, all shares of Class B Common Stock (convertible nonvoting) were converted into an equal number of shares of Class A Common Stock (voting). On July 16, 1992, in connection with the Merger, the Company issued approximately 19.7 million shares of its Class A Common Stock (Notes 1 and 2). On December 17, 1993, the Company issued 3.4 million shares of its Class A Common Stock in exchange for all of Libra's approximately $10.6 million in aggregate principal amount of Subordinated Debentures plus accrued interest. In connection with the Company's sale of Lake Superior Land Company to Libra, the net cash proceeds from the sale of 3.4 million shares of Class A Common Stock held by Libra will be forwarded to the Company. The estimated amount of proceeds to be received from such sale is reflected in the equity section of the balance sheet as deferred proceeds from stock issuance. Under the Company's term loan agreement with Bank of Boston and Indentures for the Debentures (Note 7), the Company is prohibited from purchasing shares of its common stock. PREFERRED STOCK Under its restated certificate of incorporation, the Company has authority to issue 150 million shares of preferred stock, par value $.01 per share, in one or more series, with such voting powers and other rights as authorized by the Board. Effective July 16, 1992, in connection with the Merger, the Board authorized approximately 42.5 million shares of Series A Preferred Stock, which have a liquidation preference of $.75 per share, participate in any dividend or distribution paid on the Class A Common Stock on a share for share basis, and have no voting rights, except as required by law (Notes 1 and 2). The Series A Preferred Stock is redeemable at the Company's option, on 30 days' notice given at any time after the second anniversary of issuance, at the liquidation preference of $.75 per share, in cash or generally in shares of Class A Common Stock. Each share of the Series A Preferred Stock is convertible at the holder's option, at any time after the second anniversary of issuance, generally into one share of Class A Common Stock. NOTE 14 -- STOCK PLANS The Company has various plans which are described below: 1993 STOCK OPTION/STOCK ISSUANCE PLAN The 1993 Stock Option/Stock Issuance Plan ("1993 Plan"), was adopted by the Board on November 29, 1993, subject to stockholder approval at the 1994 Annual Meeting of Stockholders, as the successor equity incentive program to the Company's 1988 Stock Plan. Outstanding options under the 1988 Stock Plan will be incorporated into the 1993 Plan upon its approval. Under the 1993 Plan 7,500,000 shares each (including 3,000,000 shares each authorized under the 1988 Stock Plan) of Series A Preferred Stock and Class A Common Stock have been reserved for issuance to officers, key employees and consultants of the Company and its subsidiaries and the non-employee members of the Board. Options generally become exercisable for 40% of the option shares upon completion of one year of service and become exercisable for the balance in two equal annual installments thereafter. The 1993 Plan includes an automatic option grant program, pursuant to which each individual serving as a non-employee Board member on the November 29, 1993 effective date of the 1993 Plan received an option grant for 125,000 shares each of Series A Preferred Stock and Class A Common Stock with an exercise price of $.4063 per share, equal to the fair market value of the underlying securities on the grant date. Each individual who first joins the Board as a non-employee director after such effective date will receive a similar option grant. Of the shares subject to each option, 40% will vest upon completion of one year of Board service measured from the grant date, and the balance will vest in two equal annual installments thereafter. Each automatic grant will have a maximum term of 10 years, subject to earlier termination upon the optionee's cessation of Board service. F-25 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 14 -- STOCK PLANS (CONTINUED) Each non-employee Board member may also elect to apply all or any portion of his or her annual retainer fee to the acquisition of shares of Series A Preferred Stock or Class A Common Stock which will vest incrementally over the individual's period of Board service during the year for which the election is in effect. During the fiscal year ended December 31, 1993, options for 3,520,000 shares each of Series A Preferred Stock and Class A Common Stock were granted under the 1993 Plan, including options for an aggregate of 500,000 shares of each class to non-employee directors, subject to stockholder approval at the 1994 Annual Meeting. The exercise price for these options is $.4063 per share, equal to the fair market value of the underlying securities as of the grant date. 1988 STOCK PLAN The 1988 Stock Plan will be replaced by the 1993 Plan, subject to stockholder approval at the 1994 Annual Meeting of Stockholders. The 1988 Stock Plan of the Company provides for the grant of awards covering a maximum of 3,000,000 shares each of Class A Common Stock and Series A Preferred Stock to officers and other executive employees of the Company and to persons who provide management services to the Company. Awards under the 1988 Stock Plan may be granted in the form of: (i) incentive stock options, (ii) non-qualified stock options, (iii) restricted shares, (iv) restricted units to acquire shares, (v) stock appreciation rights or (vi) limited stock appreciation rights. No incentive stock options grants may be made thereunder after December 14, 1999. Options may be accompanied by stock appreciation rights or limited stock appreciation rights. During the year ended December 31, 1993, options for 1,860,000 shares each of Class A Common Stock and Series A Preferred Stock were cancelled and options for 2,630,000 shares of each class were granted at an exercise price of $.25 and $.2813, respectively. No Class A Common Stock options were granted during 1991 and no Series A Preferred Stock options were granted prior to 1992. Options vest 40%, 70%, and 100% at the first, second, and third anniversaries, respectively, from the grant date. RESTRICTED STOCK PLAN Under the Restricted Stock Plan, each individual joining the Company as an non-employee Board member received an immediate one-time grant of 2,000 shares of Class A Common Stock. The shares are subject to certain transfer restrictions for a specified period, during which the director has the right to receive dividends and the right to vote the shares. After the restricted period expires, the shares will vest based upon certain terms related to service. The shares are forfeited if the director ceases to be a nonemployee director prior to the end of the restricted period. During 1993, 8,000 shares were granted and 3,600 shares were forfeited under such Restricted Stock Plan. No shares were granted during 1991 or 1992. The Restricted Stock Plan was terminated in November 1993 in connection with the implementation of the 1993 Plan. F-26 KOLL REAL ESTATE GROUP, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 15 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION The following is a summary of quarterly financial information for 1992 and 1993 (in millions, except per share amounts):
FULL FIRST SECOND THIRD FOURTH YEAR -------- -------- -------- -------- -------- 1993 Revenues (a)................ $ .2 $ .9 $ 2.2 $ 13.4 $ 16.7 Cost of sales (a)........... .6 .9 1.5 13.3 16.3 Loss from continuing operations (a)............. (5.8) (6.6) (2.6) (5.1) (20.1) Net income (loss) (b) (c)... (38.4) (3.5) (2.1) 58.3 14.3 Income (loss) per common share...................... (.96) (.09) (.05) .69 .17 Weighted average common shares outstanding (d) (e)........................ 39.8 39.8 39.8 84.9 83.0 1992 Revenues (a)................ 12.1 4.4 10.9 .9 28.3 Cost of sales (a)........... 11.7 4.0 9.9 .9 26.5 Loss from continuing operations (a)............. (14.1) (8.3) (7.1) (12.4) (41.9) Net loss.................... (13.6) (8.0) (6.3) (10.5) (38.4) Loss per common share....... (.68) (.40) (.18) (.26) (1.32) Weighted average common shares outstanding (e)..... 20.0 20.0 36.3 39.8 29.0 - ------------------------ (a) Amounts have been reclassified to present Lake Superior Land Company and Deltec as discontinued operations. (b) The Company recorded a $36 million ($.90 per share) charge to income in the first quarter of 1993 in connection with the adoption of FAS 109 (Note 9). (c) The Company recognized a $39.1 million gain on the disposition of Lake Superior Land Company and a $23.6 million extraordinary gain on the extinguishment of debt in the fourth quarter of 1993 (Notes 4 and 7). (d) On December 17, 1993 the Company issued 3.4 million shares of Class A Common Stock to Libra in exchange for $10.6 million face amount plus accrued interest of Subordinated Debentures. The fourth quarter 1993 calculation of weighted average shares outstanding includes these newly issued shares, along with the 42.5 million shares of Series A Preferred Stock and options for 5.7 million common and preferred shares granted under the 1988 Stock Plan. (e) On July 16, 1992, in connection with the Merger, the Company issued approximately 19.7 million shares of Class A Common Stock and 42.5 million shares of Series A Preferred Stock. The Series A Preferred Stock is not included in the calculation of weighted average shares outstanding in 1992 and the first three quarters of 1993 because the effect is antidilutive.
F-27 EX-10.02A 2 EXHIBIT 10.02A AMENDMENT NO. 1 TO TAX SHARING AGREEMENT This Amendment Agreement ("Amendment Agreement") is made this 14th day of February 1994 by and among Wheelabrator Technologies Inc. ("WTI"), Koll Real Estate Group, Inc. ("Koll") and Abex, Inc. ("Abex") to amend certain provisions of the Tax Sharing Agreement dated December 15, 1993 (the "Agreement") between WTI (then known as The Wheelabrator Group Inc.) and Koll (then known as Henley Newco Inc. and subsequently known at various times as The Henley Group, Inc., Henley Properties Inc. and The Bolsa Chica Company). RECITALS A. In connection with the formation of Koll, WTI transferred certain assets, liabilities and businesses to Koll in December 1988; B. In consideration of such transfer to Koll and to ensure that WTI had minimum total equity, Koll agreed to pay to WTI the amount by which WTI's net liabilities for certain federal, state or local taxes and related interest and penalties exceed $50 million; C. The agreement sets forth the respective rights and responsibilities of WTI and Koll with respect to such tax indemnifications; D. In consideration of Koll's contribution of certain assets, liabilities and businesses to The Henley Group, Inc. ("HGI") in December 1989, HGI assumed certain of Koll's obligations under the Agreement; E. In consideration of HGI's contribution of certain assets, liabilities and businesses to Abex in July 1992, Abex assumed certain of HGI's obligations under the Agreement; F. As a result of the various transactions referred to above, Abex is now charged with responsibility to administer the Agreement; G. At the request of Abex, Kill made a payment totaling $7,646,802 to WTI in January 1993 to enable WTI to proceed with a partial settlement of liabilities relating to an examination of the 1986-1988 federal income tax returns of WTI and its consolidated subsidiaries; and H. Certain issues have arisen among the parties as to the proper interpretation of certain provisions of the Agreement and the parties desire to amend and clarify the Agreement so as to resolve such issues. AGREEMENT NOW THEREFORE, in consideration of the premises and other good and valuable consideration in hand paid, the parties agree as follows: 1. The definition of "Old Henley Increase" included the Agreement shall be modified as follows: a. The word "or" immediately prior to "(iv)" shall be stricken. b. The following shall be added immediately after the word "Agreement," and before the word "net" in the definition: "; or (v) any interest, penalties or additions to tax (and all reasonable out-of-pocket costs incurred in connection with the assessment or collection thereof) incurred in connection with payments that are "Old Henley Increases" pursuant to this paragraph, in each case . . . " 2. The definition of "Old Henley Limitation" included in the Agreement shall be modified in its entirety to read as follows: "'Old Henley Limitation' means $51 million." 3. Section 3.01(c) of the Agreement shall be modified in its entirety to read as follows: "(c) DETERMINATION OF THE AMOUNT OF ANY OLD HENLEY INCREASE. For purposes of determining the amount of any Old Henley Increase described in clause (i) of the definition of "Old Henley Increase" provided in Article I, any Final Determination which results in a net increase in the Tax Detriments or a net decrease in the Tax Benefits of any member of the Old Henley Affiliated Group or of any Old Henley State or Local Affiliated Group or of any Old Henley Company filing a Stand alone state or local income or franchise tax return for any tax period ending before or including the Disaffiliation Date (ignoring, for this purpose, (1) any adjustment to a Tax Item of, the Tax Basis of, or any excess loss account maintained with respect to, a WESI Company or a WTI Business, or (2) the disallowance or reduction of any carryback from a tax period beginning after the Disaffiliation Date), shall be deemed to result in an Old Henley Increase in an amount equal to (i) in the case of Old Henley Increases resulting from net increases in income and gains, or net decreases in deductions, losses or carryforwards of deductions or losses, the amount of such net increase or net decrease multiplied (x) in the case 2 of adjustments affecting federal income tax items, by the highest marginal rate of federal income tax in the year to which such Final Determination relates (or the average of the highest marginal rates in the event of an adjustment to rates during such year) applicable to the particular category (such as long-term capital gains) of corporate income for the year to which such Final Determination relates and (y) in the case of adjustments affecting state, local or income tax items, the actual effective state or local tax rate, and (ii) in the case of Old Henley Increases resulting from net decreases in credits or carry forwards of credits or net increases in recapture of credits, the amount of such net increase or net decrease. The amount of any Old Henley Increase shall be increased by any interest, penalties or additions to tax (and all reasonable out-of-pocket costs incurred in connection with the assessment or collection thereof) which are actually paid by any Old Henley Company to any government or taxing authority as a result of the Final Determination giving rise to such Old Henley Increase, and shall be reduced by (1) the amount of any reduction in Taxes payable by any Old Henley Company (computed as described in clauses (i) and (ii) of this Section 3.01(c)) as a result of the payment of Taxes, interest, penalties or addition to tax (and all reasonable out-of-pocket costs incurred in connection with the assessment or collection thereof) resulting from the Final Determination giving rise to such Old Henley Increase and (m) any amount received by Old Henley from HMC or Fisher pursuant to Section 2.02(b), Section 5.03 or Section 5.04 of the Old Henley/HMC Tax Sharing Agreement or Section 3.01(c) of the Old Henley/Fisher Tax Sharing Agreement as a result of the Final Determination giving rise to such Old Henley Increase. On or before December 31 of each year, WTI shall provide the effective state and local tax rate to be used in the following year. This effective rate shall be based upon WTI's actual tax rate for returns filed each year." 4. In interpreting the Agreement as amended hereby, the parties agree that: a. The adjustment to 1987 taxable income related to the Master Support Agreement As Amended and Restated as of December 7, 1988 among, inter alia, Allied-Signal Inc. and Resco Holdings Inc. (a subsidiary of WTI) in the amount of $64,185,000, together with the amortization allowed in 1987 and 1988 of $14,263,334 and all future amortization in respect thereof, is a Tax Item of a WTI Business. b. It is understood and agreed among the parties that Old Henley's actual effective state tax rate net of federal benefit. for years through 1992 is 2% and such rate shall be used in calculations through December 31, 1993. 3 c. An analysis of the Old Henley Limitation will be prepared and provided to the parties no less often than quarterly and will reflect the Old Henley Increases charged to the limitation. 5. Except as specifically amended by this Amendment Agreement, the Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment Agreement to be executed by their duly authorized officers on the date first above written. KOLL REAL ESTATE GROUP, INC. By: /s/ --------------------------- Its Chief Financial Officer WHEELABRATOR TECHNOLOGIES, INC. By: /s/ --------------------------- Its Assistant Treasurer ABEX INC. By: /s/ --------------------------- Its Vice President - Taxes 4 EX-10.03A 3 EXHIBIT 10.03A KOLL REAL ESTATE GROUP 1993 STOCK OPTION/STOCK ISSUANCE PLAN ARTICLE ONE GENERAL I. PURPOSE OF THE PLAN A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is intended to promote the interests of Koll Real Estate Group, a Delaware corporation (the "Corporation"), by providing (i) key employees (including officers) of the Corporation (or its parent or subsidiary corporations) who are responsible for the management, growth and financial success of the Corporation (or its parent or subsidiary corporations), (ii) the non-employee members of the Board and (iii) consultants and other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations) with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation (or its parent or subsidiary corporations). B. The Plan shall become effective immediately upon adoption by the Board on November 29, 1993. Such date is hereby designated as the Effective Date of the Plan. C. The Corporation was formerly known as The Bolsa Chica Company, and this Plan shall serve as the successor to the 1988 Stock Plan of The Bolsa Chica Company (the "Predecessor Plan"). No further option grants or share issuances shall be made under the Predecessor Plan from and after the Effective Date of this Plan. All outstanding stock options under the Predecessor Plan on the Effective Date are hereby incorporated into this Plan and shall accordingly be treated as outstanding stock options under this Plan. However, each outstanding option grant so incorporated shall continue to be governed solely by the express terms and conditions of the instrument evidencing such grant, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of the Corporation's Series A Preferred Stock or Class A Common Stock thereunder. II. DEFINITIONS A. For purposes of the Plan, the following definitions shall be in effect: BOARD: the Corporation's Board of Directors. CHANGE IN CONTROL: a change in ownership or control of the Corporation effected through either of the following transactions: a. any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or b. a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. CLASS A COMMON STOCK: shares of the Corporation's Class A Common Stock, par value $.05 per share. CODE: the Internal Revenue Code of 1986, as amended. COMMITTEE: the committee of two (2) or more non-employee Board members appointed by the Board to administer the Plan. CORPORATE TRANSACTION: any of the following stockholder-approved transactions to which the Corporation is a party: a. a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated, b. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or 2 c. any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger. EMPLOYEE: an individual who performs services while in the employ of the Corporation or one or more parent or subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. EXERCISE DATE: the date on which the Corporation shall have received written notice of the option exercise. FAIR MARKET VALUE: the Fair Market Value per share of Series A Preferred Stock or Class A Common Stock determined in accordance with the following provisions: a. If the Series A Preferred Stock or Class A Common Stock is not at the time listed or admitted to trading on any national securities exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share of that security on the date in question, as such price is reported by the National Association of Securities Dealers through the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Series A Preferred Stock or Class A Common Stock on the date in question, then the closing selling price per share of that security on the last preceding date for which such quotation exists shall be determinative of Fair Market Value. b. If the Series A Preferred Stock or Class A Common Stock is at the time listed or admitted to trading on any national stock exchange, then the Fair Market Value shall be the closing selling price per share of that security on the date in question on the exchange serving as the primary market for the Series A Preferred Stock or the Class A Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Series A Preferred Stock or Class A Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price per share of that security on the exchange on the last preceding date for which such quotation exists. 3 HOSTILE TAKE-OVER: a change in ownership of the Corporation effected through the following transaction: a. any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept, AND b. more than fifty percent (50%) of the securities so acquired in such tender or exchange offer are accepted from holders other than the officers and directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. INCENTIVE OPTION: a stock option which satisfies the requirements of Code Section 422. 1934 ACT: the Securities and Exchange Act of 1934, as amended. NON-STATUTORY OPTION: a stock option not intended to meet the requirements of Code Section 422. OPTIONEE: any person to whom an option is granted under the Discretionary Option Grant or Automatic Option Grant Program in effect under the Plan. PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. PLAN ADMINISTRATOR: the Committee in its capacity as the administrator of the Plan. SERIES A PREFERRED STOCK: shares of the Corporation's Series A Convertible Redeemable Preferred Stock, par value $.01 per share. SERVICE: the performance of services on a periodic basis to the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the board of 4 directors or an independent consultant or advisor, except to the extent otherwise specifically provided in the applicable stock option or stock issuance agreement. TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value per share of the Series A Preferred Stock or the Class A Common Stock subject to the particular option surrendered to the Corporation in connection with a Hostile Take-Over on the date such option surrender is effected or (b) the highest reported price per share of that security paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (a) price per share. B. The following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: - Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a PARENT of the Corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. - Each corporation (other than the Corporation) in an unbroken chain of corporations which begins with the Corporation shall be considered to be a SUBSIDIARY of the Corporation, provided each such corporation in the unbroken chain (other than the last corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. III. STRUCTURE OF THE PLAN A. STOCK PROGRAMS. The Plan shall be divided into three (3) separate components: the Discretionary Option Grant Program specified in Article Two, the Automatic Option Grant Program specified in Article Three and the Director Fee Program specified in Article Four. Under the Discretionary Option Grant Program, eligible individuals may, at the discretion of the Plan Administrator, be granted options to purchase shares of Series A Preferred Stock or Class A Common Stock in accordance with the provisions of Article Two. Under the Automatic Option Grant Program, non-employee Board members shall at periodic intervals receive special option grants to purchase shares of Series A 5 Preferred Stock and Class A Common Stock in accordance with the provisions of Article Three. Under the Director Fee Program, each non-employee Board member may, in accordance with the provisions of Article Four, elect to apply all or any portion of his or her annual retainer fee to the acquisition of unvested shares of Series A Preferred Stock or Class A Common Stock. B. GENERAL PROVISIONS. Unless the context clearly indicates otherwise, the provisions of Articles One and Five shall apply to the Discretionary Option Grant Program, the Automatic Option Grant Program and the Director Fee Program and shall accordingly govern the interests of all individuals under the Plan. IV. ADMINISTRATION OF THE PLAN A. The Discretionary Option Grant Program shall be administered by the Committee in its capacity as Plan Administrator. No non-employee Board member shall be eligible to serve on the Committee if such individual has, within the twelve (12)-month period immediately preceding the date of his or her appointment to the Committee, received an option grant or direct stock issuance under this Plan or any other stock plan of the Corporation (or any parent or subsidiary corporation), other than pursuant to the Automatic Option Grant or Director Fee Program. B. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. C. The Committee as Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish rules and regulations for the proper administration of the Discretionary Option Grant Program and to make such determinations under, and issue such interpretations of, the provisions of such program and any outstanding option grants thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Discretionary Option Grant Program or any outstanding option or unvested share issuance thereunder. D. Administration of the Automatic Option Grant and Director Fee Programs shall be self-executing in accordance with the express terms and conditions of Article Three and Article Four, respectively, and the Committee as Plan Administrator shall exercise no discretionary functions with respect to option grants or share issuances made pursuant to those programs. 6 V. OPTION GRANTS AND STOCK ISSUANCES A. The persons eligible to participate in the Discretionary Option Grant Program under Article Two shall be limited to the following: - officers and other key employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or its parent or subsidiary corporations); - members of the Board or the members of the board of directors of any parent or subsidiary corporation; and - those consultants or other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations). B. Non-employee Board members who serve as Plan Administrator shall NOT, during their period of service as such, be eligible to participate in the Discretionary Option Grant Program or in any other stock option, stock purchase, stock bonus or other stock plan of the Corporation (or its parent or subsidiary corporations), other than the Automatic Option Grant and Director Fee Programs, to the extent they are eligible for participation in those latter programs in accordance with the provisions of Articles Three and Four. C. The Plan Administrator shall have full authority to determine which eligible individuals are to receive option grants under the Discretionary Option Grant Program, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each granted option is to become exercisable and the maximum term for which the option is to remain outstanding. VI. STOCK SUBJECT TO THE PLAN A. Shares of Series A Preferred Stock and Class A Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Series A Preferred Stock and Class A Common Stock or from reacquired shares of Series A Preferred Stock and Class A Common Stock, including shares repurchased by the Corporation on the open market. 7,500,000 shares of Series A Preferred Stock and 7,500,000 shares of Class A Common Stock may be issued over the term of the Plan, subject to adjustment from time to time in accordance with the provisions of this Section VI. Such authorized share reserve is comprised of (i) the number of shares 7 of Series A Preferred Stock and Class A Common Stock which remained available for issuance, as of the Effective Date, under the Predecessor Plan, including the shares subject to the outstanding options incorporated into this Plan and any other shares which remained available for future option grant under the Predecessor Plan (estimated to be 3,000,000 shares of Class A Common Stock and 3,000,000 shares of Series A Preferred Stock), plus (ii) an additional increase of 4,500,000 shares of Series A Preferred Stock and (iii) an additional increase of 4,500,000 shares of Class A Common Stock. B. Upon each redemption or conversion of the outstanding shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock at the time available for issuance under the Plan and the number of shares of Series A Preferred Stock subject to stock options at the time outstanding under the Plan shall be decreased by the same percentage by which the number of outstanding shares of Series A Preferred Stock is decreased by reason of such redemption or conversion, and the number of shares of Class A Common Stock at the time available for issuance under the Plan and the number of shares of Class A Common Stock subject to stock options at the time outstanding under the Plan which would otherwise be exercisable for Series A Preferred Stock shall be correspondingly increased by the number of shares obtained by multiplying (i) the number of shares of Series A Preferred Stock no longer issuable under the Plan or no longer subject to each such outstanding stock option by (ii) the number of shares of Class A Common Stock into which each such redeemed or converted share of Series A Preferred Stock was at the time convertible on a per-share basis. In addition, the option exercise price per share of Series A Preferred Stock in effect under each outstanding option shall, upon each redemption or conversion of the outstanding shares of Series A Preferred Stock, be adjusted by dividing (i) such exercise price per share (as such price relates to the shares of Class A Common Stock issuable under the option in place of the Series A Preferred Stock) by (ii) the number of shares of Class A Common Stock into which each such redeemed or converted share of Series A Preferred Stock was at the time convertible on a per-share basis. C. In no event shall there be issued over the term of the Plan more than (i) 15,000,000 shares in the aggregate of Series A Preferred Stock and Class A Common Stock plus (ii) any additional shares of Class A Common Stock which become issuable under Section B of this Article VI by reason of the conversion or redemption of the outstanding shares of Series A Preferred Stock, to the extent each such Series A share was convertible for more than one share of Class A Common Stock at the time of such conversion or redemption. The foregoing share limitations shall be subject to periodic adjustment in accordance with the provisions of Section G of this Article VI. 8 D. In no event may the aggregate number of shares of Series A Preferred Stock and Class A Common Stock for which any one individual participating in this Plan may be granted stock options, separately exercisable stock appreciation rights and direct share issuances exceed 5,000,000 shares over the term of this Plan. E. To the extent one or more outstanding options under the Predecessor Plan which have been incorporated into this Plan are subsequently exercised, the number of shares of Series A Preferred Stock or Class A Common Stock issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares of Series A Preferred Stock or Class A Common Stock (as the case may be) available for subsequent issuance under this Plan. F. Should one or more outstanding options under this Plan (including outstanding options under the Predecessor Plan incorporated into this Plan) expire or terminate for any reason prior to exercise in full then the shares subject to the portion of each option not so exercised shall be available for subsequent issuance under the Plan. Shares subject to any option or portion thereof surrendered in accordance with Section IV of Article Two and all share issuances under the Plan, whether or not the shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Series A Preferred Stock and Class A Common Stock available for subsequent issuance under the Plan. In addition, should the exercise price of an outstanding option under the Plan (including any option incorporated from the Predecessor Plan) be paid with shares of Series A Preferred Stock or Class A Common Stock or should shares of Series A Preferred Stock or Class A Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan or the vesting of a direct share issuance made under the Plan, then the number of shares of Series A Preferred Stock or Class A Common Stock (as the case may be) available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the share issuance, and not by the net number of shares of Series A Preferred Stock or Class A Common Stock actually issued to the holder of such option or share issuance. G. Should any change be made to the Series A Preferred Stock or Class A Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Series A Preferred Stock or Class A Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities in the aggregate for 9 which any one individual participating in the Plan may be granted stock options, separately exercisable stock appreciation rights and direct share issuances over the term of the Plan, (iii) the number and/or class of securities for which automatic option grants or share issuances are subsequently to be made to each newly-elected or continuing non-employee Board member under the Automatic Option Grant or Director Fee Program, (iv) the number and/or class of securities and price per share in effect under each option outstanding under the Discretionary Option Grant or Automatic Option Grant Program and (v) the number and/or class of securities and price per share in effect under each outstanding option incorporated into this Plan from the Predecessor Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 10 ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS Options granted pursuant to the Discretionary Option Grant Program shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either Incentive Options or Non-Statutory Options. Individuals who are not Employees of the Corporation or its parent or subsidiary corporations may only be granted Non-Statutory Options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; PROVIDED, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. A. EXERCISE PRICE. 1. The exercise price per share of Series A Preferred Stock or Class A Common Stock subject to any option granted under this Article Two shall be fixed by the Plan Administrator at the time of the grant, but in no event shall such exercise price be less than one hundred percent (100%) of the Fair Market Value per share of that security on the grant date. 2. The exercise price shall become immediately due upon exercise of the option and, subject to the provisions of Section I of Article Five and the instrument evidencing the grant, shall be payable in one of the following alternative forms specified below: a. full payment in cash or check made payable to the Corporation's order; b. full payment in shares of Series A Preferred Stock or Class A Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; c. full payment in a combination of shares of Series A Preferred Stock or Class A Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the 11 Exercise Date and cash or check drawn to the Corporation's order; or d. to the extent the option is exercised for vested shares, full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (i) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation in connection with such purchase and (ii) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option for vested shares, payment of the exercise price for the purchased shares must accompany the exercise notice. B. TERM AND EXERCISE OF OPTIONS. Each option granted under this Discretionary Option Grant Program shall be exercisable at such time or times and during such period as is determined by the Plan Administrator and set forth in the instrument evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years from the grant date. During the lifetime of the Optionee, the option, together with any stock appreciation rights pertaining to such option, shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee except for a transfer of the option effected by will or by the laws of descent and distribution following the Optionee's death. C. TERMINATION OF SERVICE. 1. The following provisions shall govern the exercise period applicable to any outstanding options under this Article Two held by the Optionee at the time of cessation of Service or death. - Should an Optionee cease Service for any reason (including death or Permanent Disability) while holding one or more outstanding options under this Article Two, then none of those options shall (except to the extent otherwise provided pursuant to subparagraph 3 below) remain exercisable for more than a thirty-six (36)-month period (or such shorter period determined by 12 the Plan Administrator and set forth in the instrument evidencing the grant) measured from the date of such cessation of Service. - Any option held by the Optionee under this Article Two and exercisable in whole or in part on the date of his or her death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. The right to exercise such option, however, shall lapse upon the EARLIER of (i) the third anniversary of the date of the Optionee's death (or such shorter period determined by the Plan Administrator and set forth in the instrument evidencing the grant) or (ii) the specified expiration date of the option term. Accordingly, upon the occurrence of the earlier event, the option shall terminate and cease to be outstanding. - During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of shares (if any) in which the Optionee is vested at the time of his or her cessation of Service. Upon the expiration of the limited post-Service exercise period or (if earlier) upon the specified expiration date of the option term, each such option shall terminate and cease to be outstanding with respect to any vested shares for which the option has not otherwise been exercised. However, each outstanding option shall immediately terminate and cease to be outstanding, at the time of the Optionee's cessation of Service, with respect to any shares for which the option is not otherwise at that time exercisable or in which the Optionee is not otherwise vested. - Under no circumstances shall any such option be exercisable after the specified expiration date of the option term. - Should (i) the Optionee's Service be terminated for misconduct (including, but not limited to, any act of dishonesty, willful misconduct, fraud or embezzlement) or (ii) the Optionee make any unauthorized use or disclosure of confidential information or trade secrets of the Corporation or its parent or subsidiary corporations, then in any such event all outstanding options held by the Optionee under this Article Two shall terminate immediately and cease to be outstanding. 13 2. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the Optionee under this Article Two to be exercised, during the limited post-Service exercise period applicable under subparagraph 1 above, not only with respect to the number of vested shares of Series A Preferred Stock or Class A Common Stock for which each such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more subsequent installments of vested shares for which the option would otherwise have become exercisable had such cessation of Service not occurred. 3. The Plan Administrator shall also have full power and authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under subparagraph 1 above to such greater period of time as the Plan Administrator shall deem appropriate. In no event, however, shall such option be exercisable after the specified expiration date of the option term. D. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights with respect to any shares covered by the option until such individual shall have exercised the option and paid the exercise price for the purchased shares. E. REPURCHASE RIGHTS. The shares of Series A Preferred Stock or Class A Common Stock acquired upon the exercise of any Article Two option grant may be subject to repurchase by the Corporation in accordance with the following provisions: - The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Series A Preferred Stock or Class A Common Stock under this Article Two. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at the exercise price paid per share. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the instrument evidencing such repurchase right. - All of the Corporation's outstanding repurchase rights under this Article Two shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon 14 the occurrence of a Corporate Transaction, except to the extent: (i) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. - The Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of Service, to cancel the Corporation's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under this Discretionary Option Grant Program and thereby accelerate the vesting of such shares in whole or in part at any time. II. INCENTIVE OPTIONS The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to individuals who are Employees of the Corporation. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall NOT be subject to such terms and conditions. A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Series A Preferred Stock and Class A Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as incentive stock options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. Should the number of shares of Series A Preferred Stock or Class A Common Stock for which any Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then that option may nevertheless be exercised in that calendar year for the excess number of shares as a non-statutory option under the Federal tax laws. B. 10% STOCKHOLDER. If any individual to whom an Incentive Option is granted is the owner of stock (as determined under Section 424(d) of the Code) possessing ten percent (10%) or more of the total combined voting power of all classes of stock of 15 the Corporation or any one of its parent or subsidiary corporations, then the exercise price per share or the Series A Preferred Stock or Class A Common Stock subject to that option shall not be less than one hundred and ten percent (110%) of the Fair Market Value per share of that security on the grant date, and the option term shall not exceed five (5) years, measured from the grant date. Except as modified by the preceding provisions of this Section II, the provisions of Articles One, Two and Five of the Plan shall apply to all Incentive Options granted hereunder. III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL A. In the event of any Corporate Transaction, each option which is at the time outstanding under this Article Two shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the shares of Series A Preferred Stock or Class A Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article Two shall NOT so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. B. Immediately following the consummation of the Corporate Transaction, all outstanding options under this Article Two shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or its parent company. C. Each outstanding option under this Article Two which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder, in consummation of such Corporate Transaction, had such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share, PROVIDED the 16 aggregate exercise price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan on both an aggregate and per participant basis following the consummation of the Corporate Transaction shall be appropriately adjusted. D. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide (upon such terms as it may deem appropriate) for both (i) the automatic acceleration of one or more outstanding options granted under this Article Two Plan which are assumed or replaced in a Corporate Transaction and do not otherwise accelerate at that time and (ii) the immediate termination of one or more of the Corporation's outstanding repurchase rights which are assigned in connection with such Corporate Transaction and do not otherwise terminate at that time, in the event the Optionee's Service should subsequently terminate within a designated period following the effective date of such Corporate Transaction. E. The Plan Administrator shall have the discretionary authority, exercisable either in advance of any actually-anticipated Change in Control or at the time of an actual Change in Control, to provide for the automatic acceleration of one or more outstanding options under this Article Two (and the immediate termination of one or more of the Corporation's outstanding repurchase rights under this Article Two) upon the occurrence of the Change in Control. The Plan Administrator shall also have full power and authority to condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent termination of the Optionee's Service within a specified period following the Change in Control. F. Any options accelerated in connection with the Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term. G. The grant of options under this Article Two shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. H. The exercisability as incentive stock options under the Federal tax laws of any options accelerated under this Section III in connection with a Corporate Transaction or Change in Control shall remain subject to the dollar limitation of Section II of this Article Two. To the extent such dollar limitation is exceeded, the accelerated option shall be exercisable as a non-statutory option under the Federal tax laws. 17 IV. STOCK APPRECIATION RIGHTS A. Provided and only if the Plan Administrator determines in its discretion to implement the stock appreciation right provisions of this Section IV, one or more Optionees may be granted the right, exercisable upon such terms and conditions as the Plan Administrator may establish, to surrender all or part of an unexercised option under this Article Two in exchange for a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares of Series A Preferred Stock or Class A Common Stock in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares. B. No surrender of an option shall be effective hereunder unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall accordingly become entitled under this Section IV may be made in shares of Series A Preferred Stock or Class A Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. C. If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the LATER of (i) five (5) business days after the receipt of the rejection notice or (ii) the last day on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event may such rights be exercised more than ten (10) years after the date of the option grant. D. One or more officers of the Corporation subject to the short-swing profit restrictions of the Federal securities laws may, in the Plan Administrator's sole discretion, be granted limited stock appreciation rights with respect to their outstanding options under the Plan. Upon the occurrence of a Hostile Take-Over, the officer shall have a thirty (30)-day period in which he or she may surrender any outstanding options with such a limited stock appreciation right in effect for at least six (6) months to the Corporation, to the extent such option is at the time exercisable for fully-vested shares of Series A Preferred Stock or Class A Common Stock. The officer shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the vested shares of Series A Preferred Stock or Class A Common Stock at the time subject to each surrendered option (or surrendered portion of such option) over (ii) the aggregate exercise price payable for such shares. The 18 cash distribution payable upon such option surrender shall be made within five (5) days following the date the option is surrendered to the Corporation. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. Any unsurrendered portion of the option shall continue to remain outstanding and become exercisable in accordance with the terms of the instrument evidencing such grant. E. The shares of Series A Preferred Stock or Class A Common Stock subject to any option surrendered for an appreciation distribution pursuant to this Section IV shall NOT be available for subsequent issuance under the Plan. 19 ARTICLE THREE AUTOMATIC OPTION GRANT PROGRAM I. ELIGIBILITY The individuals eligible to receive automatic option grants pursuant to the provisions of this Article Three program shall be limited to the following individuals: - each individual serving as a non-employee Board member on the Effective Date; and - each individual who is first elected or appointed as a non-employee Board member after the Effective Date, whether through appointment by the Board or election by the Corporation's stockholders. II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS A. GRANT DATES. Each individual serving as a non-employee Board member on the Effective Date shall automatically be granted on such Effective Date a Non-Statutory Option to purchase 125,000 shares of Class A Common Stock and a Non-Statutory Option to purchase 125,000 shares of Series A Preferred Stock upon the terms and conditions of this Article Three. Each individual who is first elected or appointed as a non-employee Board member after the Effective Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 125,000 shares of Class A Common Stock and a Non-Statutory Option to purchase 125,000 shares of Series A Preferred Stock upon the terms and conditions of this Article Three. In no event, however, shall any non-employee Board member be eligible to receive any such automatic option grant if such individual has previously been in the employ of the Corporation or any parent or subsidiary corporation. Upon each redemption or conversion of the outstanding shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock at the time subject to the outstanding stock options under this Automatic Option Grant Program and the number of shares of Series A Preferred Stock for which automatic option grants are subsequently to be made to each newly-elected non-employee Board member shall be decreased by the same percentage by which the number of outstanding shares of Series A Preferred Stock is decreased by reason of such redemption or conversion, and both (A) the number of shares of Class A Common Stock at the time subject to outstanding stock options under this Automatic Option Grant Program which would otherwise be exercisable for Series A 20 Preferred Stock and (B) the number of shares of Class A Common Stock for which automatic option grants are subsequently to be made to each newly-elected non-employee Board member shall be correspondingly increased by the number of shares obtained by multiplying (i) the number of shares of Series A Preferred Stock no longer subject to each such outstanding stock option or no longer issuable in the future per newly-elected non-employee Board member by (ii) the number of shares of Class A Common Stock into which each such redeemed or converted share of Series A Preferred Stock was at the time convertible on a per-share basis. In addition, the option exercise price per share of Series A Preferred Stock in effect under each outstanding automatic option grant shall, upon each redemption or conversion of the outstanding shares of Series A Preferred Stock, be adjusted by dividing (i) such exercise price per share (as such price relates to the shares of Class A Common Stock issuable under the option in place of the Series A Preferred Stock) by (ii) the number of shares of Class A Common Stock into which each such redeemed or converted share of Series A Preferred Stock was at the time convertible on a per-share basis. B. EXERCISE PRICE. The exercise price per share of Series A Preferred Stock or Class A Common Stock subject to each automatic option grant made under this Article Three shall be equal to one hundred percent (100%) of the Fair Market Value per share of that security on the automatic grant date. C. PAYMENT. The exercise price shall be payable in one of the alternative forms specified below: 1. full payment in cash or check made payable to the Corporation's order; 2. full payment in shares of Series A Preferred Stock or Class A Common Stock held for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value on the Exercise Date; 3. full payment in a combination of shares of Series A Preferred Stock or Class A Common Stock held for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value on the Exercise Date and cash or check payable to the Corporation's order; or 4. to the extent the option is exercised for vested shares, full payment through a sale and remittance procedure pursuant to which the non-employee Board member shall concurrently provide irrevocable written instructions to (i) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares 21 and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares and (ii) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent the sale and remittance procedure specified above is utilized in connection with the exercise of the option for vested shares, payment of the exercise price must accompany the exercise notice. However, if the option is exercised for any unvested shares, then the optionee must also execute and deliver to the Corporation, at time of such exercise, a stock purchase agreement for those unvested shares which provides the Corporation with the right to repurchase, at the exercise price paid per share, any unvested shares held by the optionee at the time of cessation of Board service and which precludes the sale, transfer or other disposition of any shares purchased under the option while those shares remain subject to the Corporation's repurchase right. D. OPTION TERM. Each automatic grant under this Article Three shall have a maximum term of ten (10) years measured from the automatic grant date. E. EXERCISABILITY/VESTING. Each automatic grant shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. The option shares shall vest, and the Corporation's repurchase right shall lapse, as follows: - Forty percent (40%) of the option shares shall vest upon the Optionee's completion of one (1) year of Board service measured from the automatic grant date. - An additional thirty percent (30%) of the option shares shall vest upon the Optionee's completion of two (2) years of Board service measured from the automatic grant date. - The remaining thirty percent (30%) of the option shares shall vest upon the Optionee's completion of three (3) years of Board service measured from the automatic grant date. Vesting of the option shares shall be subject to acceleration as provided in Section II.G and Section III of this Article Three. In no event, however, shall any additional option shares vest after the Optionee's cessation of Board service. 22 F. NON-TRANSFERABILITY. During the lifetime of the Optionee, each automatic option grant, together with the limited stock appreciation right pertaining to such option, shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee other than a transfer of the option effected by will or by the laws of descent and distribution following Optionee's death. G. EFFECT OF TERMINATION OF BOARD SERVICE. - Should the Optionee cease to serve as a Board member for any reason (other than death or Permanent Disability) while holding an automatic option grant under this Article Three, then such individual shall have a six (6)-month period following the date of such cessation of Board service in which to exercise such option for any or all of the option shares in which the Optionee is vested at the time of such cessation of Board service. The option shall immediately terminate and cease to be outstanding, at the time of such cessation of Board service, with respect to any option shares in which the Optionee is not otherwise at that time vested. - Should the Optionee die within six (6) months after cessation of Board service, then any automatic option grant held by the Optionee at the time of death may subsequently be exercised, for any or all of the option shares in which the Optionee is vested at the time of his or her cessation of Board service (less any option shares subsequently purchased by the Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. The right to exercise such option shall lapse upon the expiration of the (12)-month period measured from the date of the Optionee's death. - Should the Optionee die or become Permanently Disabled while serving as a Board member, then the shares of Series A Preferred Stock and Class A Common Stock at the time subject to any automatic option grant held by such Optionee under this Article Three shall immediately vest in full, and the Optionee (or the representative of the Optionee's estate or the person or persons to whom the options are transferred upon the Optionee's death) shall have a twelve (12)-month period following the date of the Optionee's cessation of Board service in which to exercise such option for any or all of those vested shares of Series A Preferred Stock or Class A Common Stock. - In no event shall any automatic grant under this Article Three remain exercisable after the expiration date of the ten (10)-year option term. Upon the expiration of the applicable post-service exercise period above or (if earlier) upon 23 the expiration of the ten (10)-year option term, the automatic grant shall terminate and cease to be outstanding for any option shares in which the Optionee was vested at the time of his or her cessation of Board service but for which the option was not otherwise exercised. H. STOCKHOLDER RIGHTS. The holder of an automatic option grant under this Article Three shall have none of the rights of a stockholder with respect to any shares subject to such option until such individual shall have exercised the option and paid the exercise price for the purchased shares. I. REMAINING TERMS. The remaining terms and conditions of each automatic option grant shall be as set forth in the form Automatic Stock Option Agreements attached as Exhibits A and B. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, the shares of Series A Preferred Stock or Class A Common Stock at the time subject to each outstanding option under this Article Three but not otherwise vested shall automatically vest in full, and the Corporation's repurchase right with respect to those shares shall terminate, so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the shares of Series A Preferred Stock or Class A Common Stock at the time subject to that option and may be exercised for all or any portion of such shares as fully vested shares. Immediately following the consummation of the Corporate Transaction, all automatic option grants under this Article Three shall terminate and cease to be outstanding, except to the extent assumed by the successor entity (or parent thereof). B. In connection with any Change in Control of the Corporation, the shares of Series A Preferred Stock or Class A Common Stock at the time subject to each outstanding option under this Article Three but not otherwise vested shall automatically vest in full, and the Corporation's repurchase right with respect to those shares shall terminate, so that each such option shall, immediately prior to the specified effective date for the Change in Control, become fully exercisable for all of the shares of Series A Preferred Stock or Class A Common Stock at the time subject to that option and may be exercised for all or any portion of such shares as fully vested shares. Each such option shall remain so exercisable following the Change in Control until the expiration or sooner termination of the option term. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender any option held by him or her under this Article Three to the 24 Corporation, to the extent such option has been outstanding for a period of at least six (6) months. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Series A Preferred Stock or Class A Common Stock at the time subject to the surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. D. The shares of Series A Preferred Stock or Class A Common Stock subject to each option surrendered in connection with the Hostile Take-Over shall NOT be available for subsequent issuance under the Plan. E. The automatic option grants outstanding under this Article Three shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS A. LIMITED AMENDMENTS. The provisions of this Automatic Option Grant Program, together with the automatic option grants outstanding under this Article Three, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations. 25 ARTICLE FOUR DIRECTOR FEE PROGRAM I. ELIGIBILITY Each individual serving as a non-employee Board member shall be eligible to apply all or any portion of the annual retainer fee otherwise payable to him or her in cash to the acquisition of unvested shares of Class A Common Stock or Series A Preferred Stock under this Article Four Program. II. ELECTION PROCEDURE A. FILING. The non-employee Board member must make the stock-in-lieu-of-fee election prior to the start of the calendar year for which the election is to be effective. The first calendar year for which any such election may be filed shall be the 1994 calendar year. The election must be filed with the Plan Administrator on the appropriate form provided for this purpose, and the election, once filed, shall be irrevocable. The election for any upcoming calendar year may be filed at any time prior to the start of that year, but in no event later than December 31 of the immediately preceding calendar year. The non-employee Board member may file a standing election to be in effect for two or more consecutive calendar years or to remain in effect indefinitely until revoked by written instrument filed with the Plan Administrator at least six (6) months prior to the start of the first calendar year for which such standing election is no longer to remain in effect. B. ELECTION FORM. On the election form, the non-employee Board member must indicate the percentage or dollar amount of his or her annual retainer fee to be applied to the acquisition of unvested shares under this Article Four Program and the type of shares (Series A Preferred Stock or Class A Common Stock) to be issued in lieu of such fee. The non-employee Board member may elect to apply a portion of the fee to the acquisition of Series A Preferred Stock and a portion to the acquisition of Class A Common Stock. III. SHARE ISSUANCE A. ISSUE DATE. On the first trading day in January of the calendar year for which the election is effective, the portion of the retainer fee subject to such election shall automatically be applied to the acquisition of the selected shares of Series A Preferred Stock or Class A Common Stock by dividing the elected dollar amount by the Fair Market Value per share of the Class A Common Stock or Series A Preferred Stock (as the case may be) on that trading day. The number of issuable shares shall be rounded 26 down to the next whole share, and the issued shares shall be held in escrow by the Secretary of the Corporation until the non-employee Board member vests in those shares. The non-employee Board member shall have full stockholder rights, including voting, dividend and liquidation rights, with respect to all issued shares held in escrow on his or her behalf, but such shares shall not be assignable or transferable while they remain unvested. B. VESTING. Upon completion of each calendar quarter of Board service during the year for which the election is in effect, the non-employee Board member shall vest in one-fourth of the issued shares, and the stock certificate for those shares shall be released from escrow. Immediate vesting in all the issued shares shall occur in the event (i) the non-employee Board member should die or become Permanently Disabled during his or her period of Board service or (ii) there should occur a Corporate Transaction or Change in Control while such individual remains in Board service. Should such individual cease Board service prior to vesting in one or more quarterly installments of the issued shares, then those unvested shares shall immediately be surrendered to the Corporation for cancellation, and the non-employee Board member shall not be entitled to any cash payment or other consideration from the Corporation with respect to the cancelled shares and shall have no further stockholder rights with respect to such shares. IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS A. LIMITED AMENDMENTS. The provisions of this Director Fee Program, together with the unvested share issuances outstanding under this Article Four, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations. 27 ARTICLE FIVE MISCELLANEOUS I. LOANS OR INSTALLMENT PAYMENTS A. The Plan Administrator may, in its discretion, assist any Optionee (including an officer of the Corporation) in the exercise of one or more options granted to such Optionee under the Discretionary Option Grant Program, including the satisfaction of any Federal, state and local income and employment tax obligations arising therefrom, by (i) authorizing the extension of a loan from the Corporation to such Optionee or (ii) permitting the Optionee to pay the exercise price for the purchased shares in installments over a period of years. The terms of any loan or installment method of payment (including the interest rate and terms of repayment) shall be upon such terms as the Plan Administrator specifies in the applicable option agreement or otherwise deems appropriate under the circumstances. Loans or installment payments may be authorized with or without security or collateral. However, the maximum credit available to the Optionee may not exceed the exercise price of the acquired shares (less the par value of such shares) plus any Federal, state and local income and employment tax liability incurred by the Optionee in connection with the acquisition of such shares. B. The Plan Administrator may, in its absolute discretion, determine that one or more loans extended under this financial assistance program shall be subject to forgiveness by the Corporation in whole or in part upon such terms and conditions as the Plan Administrator may deem appropriate. II. AMENDMENT OF THE PLAN AND AWARDS A. The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, (i) no such amendment or modification shall adversely affect rights and obligations with respect to options at the time outstanding under the Plan, unless the Optionee consents to such amendment, and (ii) any amendment made to the Automatic Option Grant or Director Fee Program (or any stock options or share issuances outstanding thereunder) shall be in compliance with the limitation of Section IV of Article Three and Section IV of Article Four. In addition, the Board may not, without the approval of the Corporation's stockholders, amend the Plan to (i) materially increase the maximum number of shares issuable under the Plan, increase the number of shares issuable per newly-elected non-employee Board member under the Automatic Option Grant Program or increase the maximum number of shares of Series A 28 Preferred Stock and Class A Common Stock for which any one participant may receive stock options, separately exercisable stock appreciation rights and direct share issuances over the term of the Plan, except for permissible adjustments under Section VI.G and Section VI. H of Article One, (ii) materially modify the eligibility requirements for plan participation or (iii) materially increase the benefits accruing to plan participants. B. Options to purchase shares of Series A Preferred Stock and Class A Common Stock may be granted under the Discretionary Option Grant Program, which are in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under the Discretionary Option Grant Program are held in escrow until stockholder approval is obtained for a sufficient increase in the number of shares available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess option grants are made, then (i) any unexercised excess options shall terminate and cease to be exercisable and (ii) the Corporation shall promptly refund the purchase price paid for any excess shares actually issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow. III. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Series A Preferred Stock and Class A Common Stock upon the exercise of stock options for such shares or the vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion and in accordance with the provisions of this Section III of Article Five and such supplemental rules as the Plan Administrator may from time to time adopt (including the applicable safe-harbor provisions of Securities and Exchange Commission Rule 16b-3), provide any or all holders of Non-Statutory Options (other than the automatic option grants made pursuant to Article Three of the Plan) or unvested shares (other than the unvested shares issued under the Director Fee Program) with the right to use shares of the Corporation's Series A Preferred Stock and Class A Common Stock in satisfaction of all or part of the Federal, state and local income and employment tax liabilities incurred by such holders in connection with the exercise of their options or the vesting of their shares (the "Taxes"). Such right may be provided to any such holder in either or both of the following formats: 29 STOCK WITHHOLDING: The holder of the Non-Statutory Option or unvested shares may be provided with the election to have the Corporation withhold, from the shares of Series A Preferred Stock or Class A Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of the shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the applicable Taxes (not to exceed one hundred percent (100%)) designated by the holder. STOCK DELIVERY: The Plan Administrator may, in its discretion, provide the holder of the Non-Statutory Option or the unvested shares with the election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Series A Preferred Stock or Class A Common Stock previously acquired by such individual (other than in connection with the option exercise triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes incurred in connection with such option exercise or share vesting (not to exceed one hundred percent (100%)) designated by the holder. IV. EFFECTIVE DATE AND TERM OF PLAN A. This Plan shall become effective immediately upon adoption by the Board, and the initial stock options may be made under the Plan immediately upon the November 29, 1993 Effective Date. However, no stock options granted under the Plan shall become exercisable, and no share issuances under the Plan shall vest, unless and until the Plan is approved by the Corporation's stockholders at the 1994 Annual Meeting. Should such stockholder approval not be obtained, then all stock options and share issuances initially made under this Plan shall terminate and cease to be outstanding, and no further stock option grants or share issuances shall be made under this Plan. However, in such event, the Predecessor Plan shall automatically be reinstated, as of the date of the 1994 Annual Stockholders Meeting, in accordance with the provisions of the plan document as last approved by the Corporation's stockholders (including the available share reserve thereunder), and all options incorporated into this Plan from the Predecessor Plan shall be retransferred to the reinstated Predecessor Plan. B. Each stock option grant outstanding under the Predecessor Plan immediately prior to the Effective Date shall be incorporated into this Plan and treated as an outstanding option under this Plan, but each such option shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant, and nothing in this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such options with respect to their acquisition of shares of Series A Preferred Stock or Class A Common Stock thereunder. 30 C. The option/vesting acceleration provisions of Section III of Article Two relating to Corporate Transactions and Changes in Control may, in the Plan Administrator's discretion, be extended to one or more stock options which are outstanding under the Predecessor Plan on the Effective Date but which do not otherwise provide for such acceleration. D. The Plan shall terminate upon the EARLIER of (i) November 28, 2003 or (ii) the date on which all shares available for issuance under the Plan shall have been issued or cancelled pursuant to the exercise, surrender or cash-out of the options granted under the Plan or the issuance of shares (whether vested or unvested) under the Director Fee Program. If the date of termination is determined under clause (i) above, then all option grants and unvested share issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants or share issuances under the Plan shall be used for general corporate purposes VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option under the Plan, the issuance of any shares under the Director Fee Program and the issuance of Series A Preferred Stock or Class A Common Stock upon the exercise or surrender of the option grants made hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the Series A Preferred Stock and Class A Common Stock issued pursuant to it. B. No shares of Series A Preferred Stock or Class A Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Series A Preferred Stock and Class A Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which the Series A Preferred Stock or Class A Common Stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any 31 individual the right to remain in the Service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's Service at any time and for any reason, with or without cause. VIII. MISCELLANEOUS PROVISIONS A. Except to the extent otherwise expressly provided under the Plan, the right to acquire Series A Preferred Stock or Class A Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or Participant. B. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of California, as such laws are applied to contracts entered into and performed in such State. C. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Optionees and any holders of unvested shares under the Plan, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. 32 KOLL REAL ESTATE GROUP STOCK ISSUANCE AGREEMENT AGREEMENT made as of this ___ day of _________, 199__ by and between Koll Real Estate Group, a Delaware corporation (the "Corporation"), and ______________________________, a non-employee member of the Corporation's Board of Directors ("Board") and a participant ("Director") in the special Director Fee Program in effect under the Corporation's 1993 Stock Option/Stock Issuance Plan (the "Plan"). I. ISSUANCE OF SHARES 1.1 ISSUANCE. In accordance with the Director's election to receive shares of the Corporation's Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") in lieu of $____________ of the annual retainer fee otherwise payable to such Director in cash for his or her service as a Board member during the 199__ calendar year, the Corporation hereby issues to Director __________ shares of Series A Preferred Stock (the "Series A Shares") pursuant to the provisions of the Plan and this Agreement. 1.2 DELIVERY OF CERTIFICATES. The Series A Shares issued under this Agreement are unvested and are subject to cancellation by the Corporation upon the Director's cessation of Board service prior to vesting in such Series A Shares. The certificates representing the unvested Series A Shares issued hereunder shall be held in escrow by the Secretary of the Corporation in accordance with the provisions of Article V of this Agreement, and the Director shall deliver to the Secretary of the Corporation, concurrently with the execution of this Agreement, a duly-executed Assignment Separate from Certificate (in the form attached hereto as Exhibit I) with respect to the unvested Series A Shares. The issued Shares shall possess all the rights, preferences and privileges and shall be subject to all the restrictions and limitations applicable to the Corporation's outstanding shares of Series A Preferred Stock, as set forth in the Certificate of Determination for such Series A Preferred Stock. 1.3 STOCKHOLDER RIGHTS. Until such time as the Series A Shares issued under this Agreement are cancelled by the Corporation upon the Director's cessation of Board service prior to vesting in those Series A Shares, the Director shall have all the rights of a stockholder (including voting, dividend and liquidation rights) with respect to the Series A Shares, subject, however, to the transfer restrictions of Article IV. 1.4 COMPLIANCE WITH LAW. Under no circumstances shall shares of the Series A Preferred Stock or other assets be issued or delivered to the Director pursuant to the provisions of this Agreement unless and until, in the opinion of counsel for the Corporation or its successors, there shall have been compliance with all applicable requirements of the Federal and state securities laws, all applicable listing requirements of any securities exchange on which shares of the Series A Preferred Stock are then listed for trading and all other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. II. VESTING 2.1 SCHEDULE. The Director shall acquire a vested interest in the Series A Shares in four equal and successive quarterly installments upon the Director's completion of each calendar quarter of Board service during the 199__ calendar year. All the Series A Shares issued under this Agreement shall immediately vest in full in the event (i) the Director should die or become Permanently Disabled during his or her period of Board service or (ii) there should occur a Corporate Transaction or Change in Control while such individual remains in Board service. 2.2 DEFINITIONS. For purposes of this Agreement, the following definitional provisions shall be in effect: CHANGE IN CONTROL: a change in ownership or control of the Corporation effected through either of the following transactions: (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, 2 to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. CORPORATE TRANSACTION: any of the following stockholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Corporation is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation and dissolution of the Corporation, or (iii) any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such merger. PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the Director to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. III. AUTOMATIC CANCELLATION 3.1 CANCELLATION. Should the Director cease Board service prior to vesting in one or more quarterly installments of the Series A Shares, then those unvested Series A Shares shall immediately be surrendered to the Corporation for cancellation, and the Director shall not be entitled to any cash payment or other consideration from the Corporation with respect to the cancelled Series A Shares and shall have no further stockholder rights with respect to such Series A Shares. 3 3.2 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. A. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Series A Preferred Stock as a class without the Corporation's receipt of consideration (other than the redemption or conversion of the Series A Preferred Stock), any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is by reason of any such transaction distributed with respect to the unvested Series A Shares at the time subject to this Agreement shall be immediately delivered to the Corporation to be held subject to the provisions of this Agreement, including (without limitation) the provisions governing the automatic surrender and cancellation of such securities or property upon the Director's cessation of Board service prior to vesting in such securities or property. B. In the event of the redemption or conversion of any unvested Series A Shares at the time subject to this Agreement, the new, substituted or additional securities (including any shares of the Corporation's Class A Common Stock issued in conversion of the Series A Shares) or other property (including money or any debt or equity securities issued in redemption of the Series A Shares) which is paid or issued in connection with such redemption or conversion shall be immediately delivered to the Corporation to be held subject to all of the provisions of this Agreement, including (without limitation) the provisions governing the automatic surrender and cancellation of such securities or property upon the Director's cessation of Board service prior to vesting in such securities or property. To the extent shares of the Corporation's Class A Common Stock are issued in conversion or redemption of the unvested Series A Shares subject to this Agreement, all references to such unvested Series A Shares in this Agreement shall automatically be converted into references to those unvested shares of the Class A Common Stock. IV. TRANSFER RESTRICTIONS 4.1 RESTRICTION ON TRANSFER. The Director shall not transfer, assign, encumber or otherwise dispose of any of the unvested Series A Shares which are subject to the automatic cancellation provisions of Article III. 4.2 RESTRICTIVE LEGENDS. The stock certificates for the unvested Series A Shares subject to this Agreement shall be endorsed with the following restrictive legend: 4 THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE SUBJECT TO TRANSFER RESTRICTIONS AND CANCELLATION IN THE EVENT THE REGISTERED HOLDER CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER OF THE SHARES WHICH IS DATED ______________, 199__. A COPY OF SUCH AGREEMENT IS ON FILE AT THE CORPORATION'S PRINCIPAL OFFICES. V. ESCROW 5.1 DEPOSIT. The certificates for the unvested Series A Shares issued hereunder shall be immediately deposited in escrow with the Secretary of the Corporation to be held in accordance with the provisions of this Article V. Each deposited certificate shall be accompanied by a duly-executed Assignment Separate from Certificate in the form of Exhibit I. The deposited certificates, together with any other assets or securities from time to time deposited with the Secretary of the Corporation pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with paragraph 5.3. Upon delivery of the certificates (or other assets and securities) to the Secretary of the Corporation, the Director shall be issued an instrument of deposit acknowledging the number of unvested Series A Shares (or other assets and securities) delivered in escrow. 5.2 RECAPITALIZATION. All regular cash dividends on the unvested Series A Shares (or on any other securities at the time held in escrow) shall be paid directly to the Director and shall not be held in escrow. However, in the event of (i) any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the Corporation's outstanding Series A Preferred Stock as a class effected without the Corporation's receipt of consideration, (ii) any reorganization of the Corporation (including, without limitation, a Corporate Transaction) or (iii) the redemption or conversion of the unvested Series A Shares at the time subject to this Agreement, any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is by reason of such transaction distributed, paid or issued with respect to the unvested Series A Shares at the time subject to this Agreement (including any shares of the Corporation's Class A Common Stock issued in conversion of such Series A Shares or any money or debt or equity securities issued in redemption of such Series A Shares) shall be immediately delivered to the Secretary of the Corporation to be held in escrow under this Article V. 5 5.3 RELEASE/SURRENDER. The unvested Series A Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Corporation for cancellation: (i) Upon the Director's cessation of Board service for any reason other than death or Permanent Disability, the escrowed certificates for the unvested Series A Shares at the time subject to this Agreement (together with any other assets or securities attributable thereto) shall be delivered to the Corporation for cancellation, and the Director shall immediately cease to have any further rights or claims with respect to such unvested Series A Shares (or other assets or securities attributable to those unvested shares). (ii) As the interest of the Director in the Series A Shares issued under this Agreement (or any other assets or securities attributable thereto) vests in accordance with the provisions of Article II, the certificates for those vested shares (as well as all other vested assets and securities) shall be released from escrow and delivered to the Director. VI. SPECIAL TAX ELECTION 6.1 SECTION 83(B) ELECTION. The Director shall be subject to income taxation with respect to the unvested Series A Shares in accordance with the applicable tax principles of Section 83 of the Internal Revenue Code (the "Code"). The Director accordingly understands that there will be no taxation of the unvested Series A Shares at the time of issuance under this Agreement, but as the Director's interest in such Series A Shares vests in quarterly increments over the Director's period of Board service, the fair market value of the Series A Shares which vest on each such quarterly date will be reportable as ordinary income. Director understands, however, that he or she may elect under Code Section 83(b) to be taxed at the time the unvested Series A Shares are issued under this Agreement, rather than when and as the Series A Shares subsequently vest. Such election must be filed with the Internal Revenue Service within thirty (30) days after the date of this Agreement. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. DIRECTOR UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY THE DIRECTOR UPON THE VESTING OF HIS OR HER INTEREST IN THE SERIES A SHARES ISSUED HEREUNDER. 6 6.2 DIRECTOR RESPONSIBILITY. DIRECTOR ACKNOWLEDGES THAT IT IS DIRECTOR'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF DIRECTOR REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF. VII. GENERAL PROVISIONS 7.1 NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. Nor shall this Agreement in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. 7.2 NOTICES. Any notice required in connection with this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail, registered or certified, postage prepaid and addressed to the party entitled to such notice at the address indicated below such party's signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this paragraph 7.2 to all other parties to this Agreement. VIII. MISCELLANEOUS PROVISIONS 8.1 DIRECTOR UNDERTAKING. Director hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Director or the Series A Shares pursuant to the express provisions of this Agreement. 8.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the express terms and provisions of the Plan. 7 8.3 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, as such laws are applied to contracts entered into and performed in such State without resort to that State's conflict-of-laws provisions. 8.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and the Director and the Director's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. 8.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts. Each such counterpart shall be deemed to be an original and all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above. KOLL REAL ESTATE GROUP By: ------------------------------------ Title: _________________________________ Address: ______________________________ ______________________________ _______________________________________ DIRECTOR Address: ______________________________ ______________________________ 8 EXHIBIT I ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED _______________________ hereby assign(s) and transfer(s) unto Koll Real Estate Group (the "Corporation"), ____________________________ (_______) shares of the Series A Convertible Redeemable Preferred Stock of the Corporation standing in ______________ name on the books of the Corporation represented by Certificate No. ___________ herewith and do hereby irrevocably constitute and appoint _____________________ Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises. Dated: ____________________ Signature _______________________________ INSTRUCTION: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Corporation to automatically cancel unvested shares in the event of the Director's termination of Board service in accordance with the Agreement without requiring additional signatures on the part of the Director. EXHIBIT II SECTION 83(B) TAX ELECTION This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2. (1) The taxpayer who performed the services is: Name: Address: Taxpayer Ident. No.: (2) The property with respect to which the election is being made is shares of the Series A Convertible Redeemable Preferred Stock of Koll Real Estate Group. (3) The property was issued on January ____, 199__. (4) The taxable year in which the election is being made is the calendar year 199__. (5) The property is subject to a substantial risk of forfeiture pursuant to which the taxpayer's right to the property will be cancelled if taxpayer's service with the issuer is terminated for any reason other than death or disability. The property will cease to be subject to such forfeiture risk and will vest in four quarterly installments at the end of each calendar quarter during the 199__ calendar year. (6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $______________ per share. (7) The amount paid for such property is $-0- per share. (8) A copy of this statement was furnished to Koll Real Estate Group for whom taxpayer rendered the services underlying the transfer of property. (9) This statement is executed as of: _________________, 199__. ____________________________________ ______________________________________ Spouse (if any) Taxpayer THIS FORM MUST BE FILED WITH THE INTERNAL REVENUE SERVICE CENTER WITH WHICH TAXPAYER FILES HIS/HER FEDERAL INCOME TAX RETURNS. THE FILING MUST BE MADE WITHIN 30 DAYS AFTER THE EXECUTION DATE OF THE STOCK ISSUANCE AGREEMENT AND SHOULD BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED. DIRECTOR MUST RETAIN TWO (2) COPIES OF THE COMPLETED FORM FOR FILING WITH HIS OR HER FEDERAL AND STATE TAX RETURNS FOR THE CURRENT TAX YEAR AND AN ADDITIONAL COPY FOR HIS OR HER RECORDS. KOLL REAL ESTATE GROUP STOCK ISSUANCE AGREEMENT AGREEMENT made as of this ___ day of _________, 199__ by and between Koll Real Estate Group, a Delaware corporation (the "Corporation"), and 1-, a non-employee member of the Corporation's Board of Directors ("Board") and a participant ("Director") in the special Director Fee Program in effect under the Corporation's 1993 Stock Option/Stock Issuance Plan (the "Plan"). I. ISSUANCE OF SHARES 1.1 ISSUANCE. In accordance with the Director's election to receive shares of the Corporation's Class A Common Stock in lieu of $2- of the annual retainer fee otherwise payable to such Director in cash for his or her service as a Board member during the 1993- calendar year, the Corporation hereby issues to Director 4- shares of Class A Common Stock (the "Class A Shares") pursuant to the provisions of the Plan and this Agreement. 1.2 DELIVERY OF CERTIFICATES. The Class A Shares issued under this Agreement are unvested and are subject to cancellation by the Corporation upon the Director's cessation of Board service prior to vesting in such Class A Shares. The certificates representing the unvested Class A Shares issued hereunder shall be held in escrow by the Secretary of the Corporation in accordance with the provisions of Article V of this Agreement, and the Director shall deliver to the Secretary of the Corporation, concurrently with the execution of this Agreement, a duly-executed Assignment Separate from Certificate (in the form attached hereto as Exhibit I) with respect to the unvested Class A Shares. 1.3 STOCKHOLDER RIGHTS. Until such time as the Class A Shares issued under this Agreement are cancelled by the Corporation upon the Director's cessation of Board service prior to vesting in those Class A Shares, the Director shall have all the rights of a stockholder (including voting, dividend and liquidation rights) with respect to the Class A Shares, subject, however, to the transfer restrictions of Article IV. 1.4 COMPLIANCE WITH LAW. Under no circumstances shall shares of the Series A Preferred Stock or other assets be issued or delivered to the Director pursuant to the provisions of this Agreement unless and until, in the opinion of counsel for the Corporation or its successors, there shall have been compliance with all applicable requirements of the Federal and state securities laws, all applicable listing requirements of any securities exchange on which shares of the Corporation's Class A Common Stock are then listed for trading and all other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. II. VESTING 2.1 SCHEDULE. The Director shall acquire a vested interest in the Class A Shares in four equal and successive quarterly installments upon the Director's completion of each calendar quarter of Board service during the 1995- calendar year. All the Class A Shares issued under this Agreement shall immediately vest in full in the event (i) the Director should die or become Permanently Disabled during his or her period of Board service or (ii) there should occur a Corporate Transaction or Change in Control while such individual remains in Board service. 2.2 DEFINITIONS. For purposes of this Agreement, the following definitional provisions shall be in effect: CHANGE IN CONTROL: a change in ownership or control of the Corporation effected through either of the following transactions: (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. 2. CORPORATE TRANSACTION: any of the following stockholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Corporation is incorporated, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation and dissolution of the Corporation, or (iii) any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such merger. PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the Director to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. III. AUTOMATIC CANCELLATION 3.1 CANCELLATION. Should the Director cease Board service prior to vesting in one or more quarterly installments of the Class A Shares, then those unvested Class A Shares shall immediately be surrendered to the Corporation for cancellation, and the Director shall not be entitled to any cash payment or other consideration from the Corporation with respect to the cancelled Class A Shares and shall have no further stockholder rights with respect to such Class A Shares. 3.2 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. A. In the event of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Class A Common Stock as a class without the Corporation's receipt of consideration, any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is by reason of any such transaction distributed with respect to the unvested Class A Shares at the time subject to this Agreement shall 3. be immediately delivered to the Corporation to be held subject to the provisions of this Agreement, including (without limitation) the provisions governing the automatic surrender and cancellation of such securities or property upon the Director's termination of Board service prior to vesting in such securities or property. B. Neither the redemption nor the conversion of the shares of the Corporation's outstanding Series A Convertible Redeemable Preferred Stock shall have any effect or impact upon the unvested Class A Shares at the time subject to this Agreement or any other securities or property held in escrow pursuant to the provisions of Article V. IV. TRANSFER RESTRICTIONS 4.1 RESTRICTION ON TRANSFER. The Director shall not transfer, assign, encumber or otherwise dispose of any of the unvested Class A Shares which are subject to the automatic cancellation provisions of Article III. 4.2 RESTRICTIVE LEGENDS. The stock certificates for the unvested Class A Shares subject to this Agreement shall be endorsed with the following restrictive legend: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE SUBJECT TO TRANSFER RESTRICTIONS AND CANCELLATION IN THE EVENT THE REGISTERED HOLDER CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER OF THE SHARES WHICH IS DATED ______________, 199___. A COPY OF SUCH AGREEMENT IS ON FILE AT THE CORPORATION'S PRINCIPAL OFFICES. V. ESCROW 5.1 DEPOSIT. The certificates for the unvested Class A Shares issued hereunder shall be immediately deposited in escrow with the Secretary of the Corporation to be held in accordance with the provisions of this Article V. Each deposited certificate shall be accompanied by a duly-executed Assignment Separate from Certificate in the form of Exhibit I. The deposited certificates, together with any other assets or securities from time to time deposited with the Secretary of the Corporation pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with paragraph 5.3. Upon delivery of the certificates (or other assets and securities) to the Secretary of the 4. Corporation, the Director shall be issued an instrument of deposit acknowledging the number of unvested Class A Shares (or other assets and securities) delivered in escrow. 5.2 RECAPITALIZATION. All regular cash dividends on the unvested Class A Shares (or on any other securities at the time held in escrow) shall be paid directly to the Director and shall not be held in escrow. However, in the event of (i) any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the Corporation's outstanding Series A Preferred Stock as a class effected without the Corporation's receipt of consideration or (ii) any reorganization of the Corporation (including, without limitation, a Corporate Transaction), any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which is by reason of such transaction distributed with respect to the unvested Class A Shares at the time subject to this Agreement shall be immediately delivered to the Secretary of the Corporation to be held in escrow under this Article V. 5.3 RELEASE/SURRENDER. The unvested Class A Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Corporation for cancellation: (i) Upon the Director's cessation of Board service for any reason other than death or Permanent Disability, the escrowed certificates for the unvested Class A Shares at the time subject to this Agreement (together with any other assets or securities attributable thereto) shall be delivered to the Corporation for cancellation, and the Director shall immediately cease to have any further rights or claims with respect to such unvested Class A Shares (or other assets or securities attributable to those unvested shares). (ii) As the interest of the Director in the Class A Shares issued under this Agreement (or any other assets or securities attributable thereto) vests in accordance with the provisions of Article II, the certificates for those vested shares (as well as all other vested assets and securities) shall be released from escrow and delivered to the Director. 5. VI. SPECIAL TAX ELECTION 6.1 SECTION 83(B) ELECTION. The Director shall be subject to income taxation with respect to the unvested Class A Shares in accordance with the applicable tax principles of Section 83 of the Internal Revenue Code (the "Code"). The Director accordingly understands that there will be no taxation of the unvested Class A Shares at the time of issuance under this Agreement, but as the Director's interest in such Class A Shares vests in quarterly increments over the Director's period of Board service, the fair market value of the Class A Shares which vest on each such quarterly date will be reportable as ordinary income. Director understands, however, that he or she may elect under Code Section 83(b) to be taxed at the time the unvested Class A Shares are issued under this Agreement, rather than when and as the Class A Shares subsequently vest. Such election must be filed with the Internal Revenue Service within thirty (30) days after the date of this Agreement. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. DIRECTOR UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY THE DIRECTOR UPON THE VESTING OF HIS OR HER INTEREST IN THE CLASS A SHARES ISSUED HEREUNDER. 6.2 DIRECTOR RESPONSIBILITY. DIRECTOR ACKNOWLEDGES THAT IT IS DIRECTOR'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF DIRECTOR REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF. VII. GENERAL PROVISIONS 7.1 NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. Nor shall this Agreement in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. 7.2 NOTICES. Any notice required in connection with this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail, registered or certified, postage prepaid and addressed to the party entitled to such notice at the address indicated below such party's signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this paragraph 7.2 to the other party. 6. VIII. MISCELLANEOUS PROVISIONS 8.1 DIRECTOR UNDERTAKING. Director hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Director or the Class A Shares pursuant to the express provisions of this Agreement. 8.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the express terms and provisions of the Plan. 8.3 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, as such laws are applied to contracts entered into and performed in such State without resort to that State's conflict-of-laws rules. 8.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and the Director and the Director's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. 8.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts. Each such counterpart shall be deemed to be an original and all such counterparts shall together constitute one and the same instrument. 7. EXHIBIT A STOCK OPTION AGFEEMENT EXHIBIT I ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED 1 - hereby assign(s) and transfer(s) unto Koll Real Estate Group (the "Corporation"), _________________________________ (_____) shares of the Class A Common Stock of the Corporation standing in __________ name on the books of the Corporation represented by Certificate No. ___________________ herewith and do hereby irrevocably constitute and appoint _______________________________ Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises. Dated: ________________ Signature ____________________________ 1- INSTRUCTION: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Corporation to automatically cancel unvested shares in the event of the Director's termination of Board service in accordance with the Agreement without requiring additional signatures on the part of the Director. 01/07/94 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above. KOLL REAL ESTATE GROUP By: ________________________________________ Title: _____________________________________ Address: ___________________________________ ___________________________________ ____________________________________________ 1-, DIRECTOR Address: 6- 7- 8- 8. EXHIBIT II SECTION 83(B) TAX ELECTION This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2. (1) The taxpayer who performed the services is: Name: 1- Address: 6- 7- 8- Taxpayer Ident. No.: (2) The property with respect to which the election is being made is 4- shares of the Class A Common Stock of Koll Real Estate Group. (3) The property was issued on January, 1993-. (4) The taxable year in which the election is being made is the calendar year 1993-. (5) The property is subject to a substantial risk of forfeiture pursuant to which the taxpayer's right to the property will be cancelled if taxpayer's service with the issuer is terminated for any reason other than death or disability. The property will cease to be subject to such forfeiture risk and will vest in four quarterly installments at the end of each calendar quarter during the 1995- calendar year. (6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $9- per share. (7) The amount paid for such property is $-0- per share. (8) A copy of this statement was furnished to Koll Real Estate Group for whom taxpayer rendered the services underlying the transfer of property. (9) This statement is executed as of: _________________, 199__. __________________________ ______________________________ Spouse (if any) Taxpayer THIS FORM MUST BE FILED WITH THE INTERNAL REVENUE SERVICE CENTER WITH WHICH TAXPAYER FILES HIS/HER FEDERAL INCOME TAX RETURNS. THE FILING MUST BE MADE WITHIN 30 DAYS AFTER THE EXECUTION DATE OF THE STOCK ISSUANCE AGREEMENT AND SHOULD BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED. DIRECTOR MUST RETAIN TWO (2) COPIES OF THE COMPLETED FORM FOR FILING WITH HIS OR HER FEDERAL AND STATE TAX RETURNS FOR THE CURRENT TAX YEAR AND AN ADDITIONAL COPY FOR HIS OR HER RECORDS. KOLL REAL ESTATE GROUP NOTICE OF GRANT OF AUTOMATIC STOCK OPTION Notice is hereby given of the following stock option (the "Option") to purchase shares of the Class A Common Stock of Koll Real Estate Group (the "Corporation") which has been granted pursuant to the automatic grant program in effect under the Corporation's 1993 Stock Option/Stock Issuance Plan ( the "Plan"): OPTIONEE: _______________________________ GRANT DATE: _______________________________ TYPE OF OPTION: Non-Statutory Stock Option OPTION EXERCISE PRICE: $___________ per share NUMBER OF OPTION SHARES: 125,000 shares of Series A Convertible Redeemable Preferred Stock EXPIRATION DATE: _____________________________ EXERCISE SCHEDULE: The option is immediately exercisable for all the Option Shares. VESTING SCHEDULE: The Option Shares shall be unvested and subject to repurchase by the Corporation, at the Option Exercise Price paid per share, upon Optionee's cessation of service as a member of the Corporation's Board of Directors (the "Board") prior to vesting in the Option Shares. Optionee shall acquire a vested interest in, and the Corporation's repurchase right shall lapse with respect to: (i) forty percent (40%) of the Option Shares upon Optionee's completion of one (1) year of Board service measured from the Grant Date, (ii) an additional thirty percent (30%) of the Option Shares upon the Optionee's completion of two (2) years of Board service measured from the Grant Date, and (iii) the remaining thirty percent (30%) of the Option Shares upon the Optionee's completion of three (3) years of Board service measured from the Grant Date. In no event shall any additional Option Shares vest following Optionee's cessation of Board service other than by reason of death or permanent disability. Optionee understands and agrees that the Option is granted subject to and in accordance with the express terms and conditions of the Plan governing automatic option grants made to non-employee Board members. Optionee further agrees to be bound by the terms and conditions of the Plan and the terms and conditions of the Option as set forth in the Automatic Stock Option Agreement attached hereto as Exhibit A. Optionee hereby acknowledges receipt of a copy of the official Plan Summary and Prospectus attached hereto as Exhibit B. A copy of the Plan is also available upon request made to the Corporate Secretary at the Corporate Offices at 4343 Von Karman Boulevard, Newport Beach, CA 92660. REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERRABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION AND ITS ASSIGNS, AT THE OPTION EXERCISE PRICE PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF BOARD SERVICE PRIOR TO VESTING IN SUCH SHARES. THE TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SET FORTH IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE. No provision of this Notice of Grant or the attached Automatic Stock Option Agreement shall in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. DATED: ____________________, 199__ KOLL REAL ESTATE GROUP By: __________________________ Title: _______________________ ______________________________ OPTIONEE Address: ____________________ ____________________ ATTACHMENTS: EXHIBIT A: STOCK OPTION AGREEMENT EXHIBIT B: PLAN SUMMARY AND PROSPECTUS KOLL REAL ESTATE GROUP AUTOMATIC STOCK OPTION AGREEMENT RECITALS A. The Corporation has approved and implemented an automatic option grant program under the 1993 Stock Option/Stock Issuance Plan (the "Plan") pursuant to which eligible non-employee members of the Corporation's Board of Directors (the "Board") will automatically receive special option grants at periodic intervals over their period of Board service in order to provide such individuals with a meaningful incentive to continue to serve as Board members. B. Optionee is an eligible non-employee Board member, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the automatic grant of a stock option to purchase shares of the Corporation's Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") under the Plan. C. The granted option is intended to be a non-statutory option which does NOT meet the requirements of Section 422 of the Internal Revenue Code. NOW, THEREFORE, it is hereby agreed as follows: 1. GRANT OF OPTION. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of grant (the "Grant Date") specified in the accompanying Notice of Grant of Automatic Stock Option (the "Grant Notice"), a stock option to purchase up to the number of shares of Series A Preferred Stock (the "Option Shares") specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term at the price per share (the "Option Exercise Price") specified in the Grant Notice. 2. OPTION TERM. This option shall have a maximum term of ten (10) years measured from the Grant Date and shall expire at the close of business on the expiration date specified in the Grant Notice ("Expiration Date"), unless sooner terminated pursuant to Paragraph 5, 7 or 8. 3. LIMITED TRANSFERABILITY. This option, together with the special stock appreciation right provided under Paragraph 8.B., shall be neither transferable nor assignable by Optionee, other than a transfer of this option effected by will or by the laws of descent and distribution following Optionee's death, and may be exercised, during Optionee's lifetime, only by Optionee. 4. EXERCISABILITY. This option shall be immediately exercisable for any or all of the Option Shares, whether or not the Option Shares are vested in accordance with the Vesting Schedule set forth in the Grant Notice and shall remain so exercisable until the expiration or sooner termination of the option term. In no event, however, shall any additional Option Shares vest following Optionee's cessation of service as a Board member. 5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board member cease while this option remains outstanding, then the option term specified in Paragraph 2 shall terminate (and this option shall cease to remain outstanding) prior to the Expiration Date in accordance with the following provisions: - Should Optionee cease to serve as a Board member for any reason (other than death or permanent disability) while holding this option, then the period for exercising this option shall be reduced to a six (6)-month period commencing with the date of such cessation of Board service, but in no event shall this option be exercisable at any time after the Expiration Date. During such limited period of exercisability, this option may not be exercised for more than the number of Option Shares (if any) in which the Optionee is vested on the date Optionee ceases service as a Board member. Upon the EARLIER of (i) the expiration of such six (6)-month period or (ii) the specified Expiration Date, the option shall terminate and cease to remain outstanding with respect to any vested Option Shares for which the option has not otherwise been exercised. - Should Optionee die during the six (6)-month period following his or her cessation of Board service, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution shall have the right to exercise this option for any or all of the Option Shares in which the Optionee is vested at the time of Optionee's cessation of Board service (less any Option Shares subsequently purchased by Optionee but prior to death). Such right of exercise shall terminate, and this option shall accordingly cease to remain outstanding with respect to all vested Option Shares for which this option has not otherwise been exercised, upon the EARLIER of (i) the expiration of the twelve (12)-month period measured from the date of Optionee's death or (ii) the specified Expiration Date of the option term. 2. - Should Optionee die or become permanently disabled while serving as a Board member, then all the Option Shares subject to this option at the time of such cessation of Board service shall immediately vest, and Optionee, or the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution, shall have the right to exercise this option for any or all of those vested Option Shares. Such right of exercise shall terminate, and this option shall cease to remain outstanding with respect to all Option Shares for which this option has not otherwise been exercised, upon the EARLIER of (i) the expiration of the twelve (12)-month period measured from the date on which Optionee dies or becomes permanently disabled or (ii) the specified Expiration Date of the option term. - Upon Optionee's cessation of Board service for any reason other than death or permanent disability, this option shall immediately terminate and cease to be outstanding with respect to any and all Option Shares in which the Optionee is not otherwise at that time vested in accordance with the Vesting Schedule set forth in the Grant Notice or the special vesting acceleration provisions of Paragraph 7 or 8. - Optionee shall be deemed to be PERMANENTLY DISABLED if Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. 6. ADJUSTMENT IN OPTION SHARES. A. Should any change be made to the Series A Preferred Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting such Series A Preferred Stock as a class without the Corporation's receipt of consideration (other than the redemption or conversion of such Series A shares), then the number and class of securities purchasable under this option and the Option Exercise Price payable per share shall be appropriately adjusted to prevent the dilution or enlargement of Optionee's rights hereunder; PROVIDED, however, the aggregate Option Exercise Price shall remain the same. B. Upon each redemption or conversion of the Corporation's outstanding shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock at the time subject to this option shall automatically be decreased by the same percentage by which the number of outstanding shares of Series A Preferred Stock is decreased by reason of such redemption or conversion, and 3. this option shall, in lieu of such Series A shares, automatically become exercisable for that number of shares of the Corporation's Class A Common Stock obtained by multiplying (i) the number of shares of Series A Preferred Stock no longer subject to this option by (ii) the number of shares of Class A Common Stock into which each such redeemed or converted share of Series A Preferred Stock was at the time convertible on a per-share basis. In addition, the Option Exercise Price payable per share of the Class A Common Stock which becomes subject to this option shall be determined by dividing (i) the Option Exercise Price per share in effect for the Series A Preferred Stock immediately prior to the redemption or conversion of such Series A shares by (ii) the number of shares of Class A Common Stock into which each such redeemed or converted share of Series A Preferred Stock was at the time convertible on a per-share basis. To the extent this option becomes exercisable for shares of Class A Common Stock, all references in this Agreement to the Series A Preferred Stock shall automatically be converted into references to shares of the Class A Common Stock. C. To the extent this option is assumed in connection with any Corporate Transaction under Paragraph 7 or is otherwise to continue in effect, this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the Optionee, in consummation of such Corporate Transaction, had this option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the Exercise Price payable per share, PROVIDED the aggregate exercise price payable for such securities shall remain the same. 7. CORPORATE TRANSACTION. In the event of any of the following stockholder-approved transactions to which the Corporation is a party (a "Corporate Transaction"): a. a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated, b. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or c. any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or 4. persons different from the persons holding those securities immediately prior to such merger, all Option Shares at the time subject to this option but not otherwise vested shall automatically vest so that this option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the Option Shares at the time subject to this option and may be exercised for all or any portion of such shares as fully-vested shares of Series A Preferred Stock. Immediately following the consummation of the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor entity (or parent thereof). 8. CHANGE IN CONTROL/HOSTILE TAKEOVER. A. All Option Shares subject to this option at the time of a Change in Control (as defined below) but not otherwise vested shall automatically vest so that this option shall, immediately prior to the effective date of such Change in Control, become fully exercisable for all of the Option Shares at the time subject to this option and may be exercised for all or any portion of such shares as fully-vested shares of Series A Preferred Stock. This option shall remain exercisable for such fully-vested Option Shares until the EARLIEST to occur of (i) the specified Expiration Date of the option term, (ii) the sooner termination of this option in accordance with Paragraph 5 or 7 or (iii) the surrender of this option under Paragraph 8.B. B. Provided this option has been outstanding for at least six (6) months prior to the occurrence of a Hostile Take-Over (as defined below), Optionee shall have the unconditional right (exercisable during the thirty (30)- day period immediately following the consummation of such Hostile Take-Over) to surrender this option to the Corporation in exchange for a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price (as defined below) of the Option Shares at the time subject to the surrendered option (whether or not those Option Shares are at the time vested) over (ii) the aggregate Option Exercise Price payable for such shares. To exercise this limited stock appreciation right, Optionee must, during the applicable thirty (30)-day exercise period, provide the Corporation with written notice of the option surrender in which there is specified the number of Option Shares as to which the Option is being surrendered. Such notice must be accompanied by the return of Optionee's copy of this Agreement, together with any written amendments to such Agreement. The cash distribution shall be paid to Optionee within five (5) days 5. following such delivery date, and neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. Upon receipt of such cash distribution, this option shall be cancelled with respect to the shares subject to the surrendered option (or the surrendered portion), and Optionee shall cease to have any further right to acquire those Option Shares under this Agreement. In the event this option is surrendered for only a portion of the Option Shares at the time subject thereto, the Corporation shall issue a new stock option agreement (substantially in the form of this Agreement) for the balance of the Option Shares for which this option is not surrendered. This limited stock appreciation right shall in all events terminate upon the expiration or sooner termination of the option term and may not be assigned or transferred by Optionee. C. DEFINITIONS: For purposes of this Agreement, the following definitions shall be in effect: A CHANGE IN CONTROL shall be deemed to occur in the event: (1) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934 (the "1934 Act")) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or (2) there is a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. 6. A HOSTILE TAKE-OVER shall be deemed to occur in the event (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept AND (ii) more than fifty percent (50%) of the securities so acquired in such tender or exchange offer are accepted from holders other than officers and directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. The TAKE-OVER PRICE per share shall be deemed to be equal to the GREATER of (i) the Fair Market Value per share of Series A Preferred Stock on the option surrender date, as determined in accordance with the valuation provisions of Paragraph 9.B. or (ii) the highest reported price per share of Series A Preferred Stock paid by the tender offeror in effecting the Hostile Take-Over. 9. MANNER OF EXERCISING OPTION. A. In order to exercise this option for all or any part of the Option Shares for which the option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: - To the extent the option is exercised for vested Option Shares, the Secretary of the Corporation shall be provided with written notice of the option exercise (the "Exercise Notice"), in substantially the form of Exhibit I attached hereto, in which there is specified the number of vested Option Shares which are to be purchased under the exercised option. To the extent the option is exercised for one or more unvested Option Shares, the Optionee (or other person exercising the option) shall deliver to the Secretary of the Corporation a stock purchase agreement in form and substance satisfactory to the Corporation (the "Purchase Agreement") which grants the Corporation the right to repurchase, at the Option Exercise Price, any and all 7. unvested Option Shares held by the Optionee at the time of his or her cessation of Board service and which precludes the sale, transfer or other disposition of any purchased Option Shares subject to such repurchase right. - The aggregate Option Exercise Price for the purchased Option Shares shall be paid in one of the following alternative forms: (a) full payment in cash or check made payable to the Corporation's order; or (b) full payment in shares of Series A Preferred Stock held by Optionee for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value (as defined below) on the Exercise Date (as defined below); or (c) full payment in a combination of shares of Series A Preferred Stock held for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value on the Exercise Date and cash or check made payable to the Corporation's order; or (d) to the extent the option is exercised for vested Option Shares, full payment through a broker-dealer sale and remittance procedure pursuant to which Optionee shall concurrently provide irrevocable written instructions to (i) a Corporation- designated brokerage firm to effect the immediate sale of the vested shares purchased under the option and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Option Exercise Price payable for those shares and (ii) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. - Appropriate documentation evidencing the right to exercise this option shall be furnished the Corporation if the person or persons exercising the option is other than the Optionee. B. For all other valuation purposes under this Agreement, the FAIR MARKET VALUE per share of Series A Preferred Stock on any relevant date shall be the determined in accordance with the following provisions: 8. - If the Series A Preferred Stock is not at the time listed or admitted to trading on any national stock exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers through the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Series A Preferred Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value. - If the Series A Preferred Stock is at the time listed or admitted to trading on any national stock exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on the exchange serving as the primary market for the Series A Preferred Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Series A Preferred Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. C. The EXERCISE DATE shall be the date on which the Exercise Notice is delivered to the Secretary of the Corporation, together with the appropriate Purchase Agreement for any unvested shares acquired under the option. Except to the extent the sale and remittance procedure specified above is utilized in connection with the exercise of the option for vested Option Shares, payment of the Option Exercise Price for the purchased shares must accompany such notice. D. As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or other person or persons exercising this option) a certificate or certificates representing the purchased Option Shares. To the extent any such Option Shares are unvested, the certificates for those Option Shares shall be endorsed with an appropriate legend evidencing the Corporation's repurchase rights and may be held in escrow with the Corporation until such shares vest. E. In no event may this option be exercised for any fractional share. 9. 10. STOCKHOLDER RIGHTS. The holder of this option shall not have any of the rights of a stockholder with respect to the Option Shares until such individual shall have exercised this option and paid the Option Exercise Price for the purchased shares. The purchased Option Shares shall possess all the rights, preferences and privileges and shall be subject to all the restrictions and limitations applicable to the Corporation's Series A Preferred Stock, as set forth in the Certificate of Determination for the Series A Preferred Stock. 11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. Nor shall this Agreement in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. 12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which shares of the Series A Preferred Stock may be listed for trading at the time of such exercise and issuance. 13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraph 3 or 7, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the Corporation's successors and assigns. 14. DISCHARGE OF LIABILITY. The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Series A Preferred Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Series A Preferred Stock as to which such approval shall not have been obtained. However, the Corporation shall use its best efforts to obtain all such applicable approvals. 15. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation in care of the Corporate Secretary at the Corporate Offices at 4343 Von Karman Boulevard, Newport Beach, CA 92660. Any notice required to be 10. given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 16. CONSTRUCTION/GOVERNING LAW. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan, including the automatic option grant provisions of Article Three of the Plan. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 17. STOCKHOLDER APPROVAL. Notwithstanding any provision to the contrary in this Agreement, this option may not be exercised in whole or in part at any time prior to the approval of the Plan by the Corporation's stockholders at the 1994 Annual Meeting. In the event such stockholder approval is not obtained, this option shall thereupon terminate and cease to remain outstanding without ever becoming exercisable for any of the Option Shares. 11. EXHIBIT I NOTICE OF EXERCISE OF NON-STATUTORY AUTOMATIC STOCK OPTION I hereby notify Koll Real Estate Group (the "Corporation") that I elect to purchase _________ shares of Series A Convertible Redeemable Preferred Stock of the Corporation (the "Purchased Shares") at the option exercise price of $________ per share (the "Option Exercise Price") pursuant to that certain option (the "Option") granted to me under the Corporation's 1993 Stock Option/Stock Issuance Plan on ___________, 199_. Concurrently with the delivery of this Exercise Notice to the Secretary of the Corporation, I shall hereby pay to the Corporation the Option Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker/dealer sale and remittance procedure specified in my agreement to effect payment of the Option Exercise Price for any Purchased Shares in which I am vested at the time of exercise. ___________________________ __________________________________ Date Optionee Address: _______________________ _______________________ Print name in exact manner it is to appear on the stock certificate: __________________________________ Address to which certificate is to be sent, if different from address above: __________________________________ __________________________________ Social Security Number: __________________________________ KOLL REAL ESTATE GROUP NOTICE OF GRANT OF AUTOMATIC STOCK OPTION Notice is hereby given of the following stock option (the "Option") to purchase shares of the Class A Common Stock of Koll Real Estate Group (the "Corporation") which has been granted pursuant to the automatic grant program in effect under the Corporation's 1993 Stock Option/Stock Issuance Plan ( the "Plan"): OPTIONEE: _______________________________ GRANT DATE: _______________________________ TYPE OF OPTION: Non-Statutory Stock Option OPTION EXERCISE PRICE: $___________ per share NUMBER OF OPTION SHARES: 125,000 shares of Class A Common Stock EXPIRATION DATE: ______________________________ EXERCISE SCHEDULE: The option is immediately exercisable for all the Option Shares. VESTING SCHEDULE: The Option Shares shall be unvested and subject to repurchase by the Corporation, at the Option Exercise Price paid per share, upon Optionee's cessation of service as a member of the Corporation's Board of Directors (the "Board") prior to vesting in the Option Shares. Optionee shall acquire a vested interest in, and the Corporation's repurchase right shall lapse with respect to: (i) forty percent (40%) of the Option Shares upon Optionee's completion of one (1) year of Board service measured from the Grant Date, (ii) an additional thirty percent (30%) of the Option Shares upon the Optionee's completion of two (2) years of Board service measured from the Grant Date, and (iii) the remaining thirty percent (30%) of the Option Shares upon the Optionee's completion of three (3) years of Board service measured from the Grant Date. In no event shall any additional Option Shares vest following Optionee's cessation of Board service other than by reason of death or permanent disability. Optionee understands and agrees that the Option is granted subject to and in accordance with the express terms and conditions of the Plan governing automatic option grants made to non-employee Board members. Optionee further agrees to be bound by the terms and conditions of the Plan and the terms and conditions of the Option as set forth in the Automatic Stock Option Agreement attached hereto as Exhibit A. Optionee hereby acknowledges receipt of a copy of the official Plan Summary and Prospectus attached hereto as Exhibit B. A copy of the Plan is also available upon request made to the Corporate Secretary at the Corporate Offices at 4343 Von Karman Boulevard, Newport Beach, CA 92660. REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERRABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION AND ITS ASSIGNS, AT THE OPTION EXERCISE PRICE PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF BOARD SERVICE PRIOR TO VESTING IN SUCH SHARES. THE TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SET FORTH IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE. No provision of this Notice of Grant or the attached Automatic Stock Option Agreement shall in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. DATED: ____________________, 199__ KOLL REAL ESTATE GROUP By: __________________________ Title: _______________________ ______________________________ OPTIONEE Address: ____________________ ____________________ ATTACHMENTS: EXHIBIT A: STOCK OPTION AGREEMENT EXHIBIT B: PLAN SUMMARY AND PROSPECTUS KOLL REAL ESTATE GROUP AUTOMATIC STOCK OPTION AGREEMENT RECITALS A. The Corporation has approved and implemented an automatic option grant program under the 1993 Stock Option/Stock Issuance Plan (the "Plan") pursuant to which eligible non-employee members of the Corporation's Board of Directors (the "Board") will automatically receive special option grants at periodic intervals over their period of Board service in order to provide such individuals with a meaningful incentive to continue to serve as Board members. B. Optionee is an eligible non-employee Board member, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the automatic grant of a stock option to purchase shares of the Corporation's Class A Common Stock ("Class A Common Stock) under the Plan. C. The granted option is intended to be a non-statutory option which does NOT meet the requirements of Section 422 of the Internal Revenue Code. NOW, THEREFORE, it is hereby agreed as follows: 1. GRANT OF OPTION. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of grant (the "Grant Date") specified in the accompanying Notice of Grant of Automatic Stock Option (the "Grant Notice"), a stock option to purchase up to the number of shares of Class A Common Stock (the "Option Shares") specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term at the price per share (the "Option Exercise Price") specified in the Grant Notice. 2. OPTION TERM. This option shall have a maximum term of ten (10) years measured from the Grant Date and shall expire at the close of business on the expiration date specified in the Grant Notice ("Expiration Date"), unless sooner terminated pursuant to Paragraph 5, 7 or 8. 3. LIMITED TRANSFERABILITY. This option, together with the special stock appreciation right provided under Paragraph 8.B., shall be neither transferable nor assignable by Optionee, other than a transfer of this option effected by will or by the laws of descent and distribution following Optionee's death, and may be exercised, during Optionee's lifetime, only by Optionee. 4. EXERCISABILITY. This option shall be immediately exercisable for any or all of the Option Shares, whether or not the Option Shares are vested in accordance with the Vesting Schedule set forth in the Grant Notice and shall remain so exercisable until the expiration or sooner termination of the option term. In no event, however, shall any additional Option Shares vest following Optionee's cessation of service as a Board member. 5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board member cease while this option remains outstanding, then the option term specified in Paragraph 2 shall terminate (and this option shall cease to remain outstanding) prior to the Expiration Date in accordance with the following provisions: - Should Optionee cease to serve as a Board member for any reason (other than death or permanent disability) while holding this option, then the period for exercising this option shall be reduced to a six (6)-month period commencing with the date of such cessation of Board service, but in no event shall this option be exercisable at any time after the Expiration Date. During such limited period of exercisability, this option may not be exercised for more than the number of Option Shares (if any) in which the Optionee is vested on the date Optionee ceases service as a Board member. Upon the EARLIER of (i) the expiration of such six (6)-month period or (ii) the specified Expiration Date, the option shall terminate and cease to remain outstanding with respect to any vested Option Shares for which the option has not otherwise been exercised. - Should Optionee die during the six (6)-month period following his or her cessation of Board service, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution shall have the right to exercise this option for any or all of the Option Shares in which the Optionee is vested at the time of Optionee's cessation of Board service (less any Option Shares subsequently purchased by Optionee but prior to death). Such right of exercise shall terminate, and this option shall accordingly cease to remain outstanding with respect to all vested Option Shares for which this option has not otherwise been exercised, upon the EARLIER of (i) the expiration of the twelve (12)-month period measured from the date of Optionee's death or (ii) the specified Expiration Date of the option term. 2. - Should Optionee die or become permanently disabled while serving as a Board member, then all the Option Shares subject to this option at the time of such cessation of Board service shall immediately vest, and Optionee, or the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution, shall have the right to exercise this option for any or all of those vested Option Shares. Such right of exercise shall terminate, and this option shall accordingly cease to remain outstanding with respect to all Option Shares for which this option has not otherwise been exercised, upon the EARLIER of (i) the expiration of the twelve (12)-month period measured from the date on which Optionee dies or becomes permanently disabled or (ii) the specified Expiration Date of the option term. - Upon Optionee's cessation of Board service for any reason other than death or permanent disability, this option shall immediately terminate and cease to be outstanding with respect to any and all Option Shares in which the Optionee is not otherwise at that time vested in accordance with the Vesting Schedule set forth in the Grant Notice or the special vesting acceleration provisions of Paragraph 7 or 8. - Optionee shall be deemed to be PERMANENTLY DISABLED if Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. 6. ADJUSTMENT IN OPTION SHARES. A. Should any change be made to the Class A Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting such Class A Common Stock as a class without the Corporation's receipt of consideration, then the number and class of securities purchasable under this option and the Option Exercise Price payable per share shall be appropriately adjusted to prevent the dilution or enlargement of Optionee's rights hereunder; PROVIDED, however, the aggregate Option Exercise Price shall remain the same. B. No adjustments shall be made to either the number of Option Shares or the Option Exercise Price payable per share, in the event the Corporation's outstanding shares of Series A Convertible Redeemable Preferred Stock are converted into shares of the Class A Common Stock or are redeemed for consideration payable in such Class A shares or in cash or other securities. 3. C. To the extent this option is assumed in connection with any Corporate Transaction under Paragraph 7 or is otherwise to continue in effect, this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the Optionee, in consummation of such Corporate Transaction, had this option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the Exercise Price payable per share, PROVIDED the aggregate exercise price payable for such securities shall remain the same. 7. CORPORATE TRANSACTION. In the event of any of the following stockholder-approved transactions to which the Corporation is a party (a "Corporate Transaction"): a. a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated, b. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or c. any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger, all Option Shares at the time subject to this option but not otherwise vested shall automatically vest so that this option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the Option Shares at the time subject to this option and may be exercised for all or any portion of such shares as fully-vested shares of Class A Common Stock. Immediately following the consummation of the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor entity (or parent thereof). 8. CHANGE IN CONTROL/HOSTILE TAKEOVER. A. All Option Shares subject to this option at the time of a Change in Control (as defined below) but not otherwise vested 4. shall automatically vest so that this option shall, immediately prior to the effective date of such Change in Control, become fully exercisable for all of the Option Shares at the time subject to this option and may be exercised for all or any portion of such shares as fully-vested shares of Class A Common Stock. This option shall remain exercisable for such fully-vested Option Shares until the EARLIEST to occur of (i) the specified Expiration Date of the option term, (ii) the sooner termination of this option in accordance with Paragraph 5 or 7 or (iii) the surrender of this option under Paragraph 8.B. B. Provided this option has been outstanding for at least six (6) months prior to the occurrence of a Hostile Take-Over (as defined below), Optionee shall have the unconditional right (exercisable during the thirty (30)- day period immediately following the consummation of such Hostile Take-Over) to surrender this option to the Corporation in exchange for a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price (as defined below) of the Option Shares at the time subject to the surrendered option (whether or not those Option Shares are at the time vested) over (ii) the aggregate Option Exercise Price payable for such shares. To exercise this limited stock appreciation right, Optionee must, during the applicable thirty (30)-day exercise period, provide the Corporation with written notice of the option surrender in which there is specified the number of Option Shares as to which the Option is being surrendered. Such notice must be accompanied by the return of Optionee's copy of this Agreement, together with any written amendments to such Agreement. The cash distribution shall be paid to Optionee within five (5) days following such delivery date, and neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. Upon receipt of such cash distribution, this option shall be cancelled with respect to the shares subject to the surrendered option (or the surrendered portion), and Optionee shall cease to have any further right to acquire those Option Shares under this Agreement. In the event this option is surrendered for only a portion of the Option Shares at the time subject thereto, the Corporation shall issue a new stock option agreement (substantially in the form of this Agreement) for the balance of the Option Shares for which this option is not surrendered. This limited stock appreciation right shall in all events terminate upon the expiration or sooner termination of the option term and may not be assigned or transferred by Optionee. 5. C. DEFINITIONS: For purposes of this Agreement, the following definitions shall be in effect: A CHANGE IN CONTROL shall be deemed to occur in the event: (1) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934 (the "1934 Act")) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or (2) there is a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. A HOSTILE TAKE-OVER shall be deemed to occur in the event (i) any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept AND (ii) more than fifty percent (50%) of the securities so acquired in such tender or exchange offer are accepted from holders other than officers and directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. 6. The TAKE-OVER PRICE per share shall be deemed to be equal to the GREATER of (i) the Fair Market Value per share of Class A Common Stock on the option surrender date, as determined in accordance with the valuation provisions of Paragraph 9.B. or (ii) the highest reported price per share of Class A Common Stock paid by the tender offeror in effecting the Hostile Take-Over. 9. MANNER OF EXERCISING OPTION. A. In order to exercise this option for all or any part of the Option Shares for which the option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: - To the extent the option is exercised for vested Option Shares, the Secretary of the Corporation shall be provided with written notice of the option exercise (the "Exercise Notice"), in substantially the form of Exhibit I attached hereto, in which there is specified the number of vested Option Shares which are to be purchased under the exercised option. To the extent the option is exercised for one or more unvested Option Shares, the Optionee (or other person exercising the option) shall deliver to the Secretary of the Corporation a stock purchase agreement in form and substance satisfactory to the Corporation (the "Purchase Agreement") which grants the Corporation the right to repurchase, at the Option Exercise Price, any and all unvested Option Shares held by the Optionee at the time of his or her cessation of Board service and which precludes the sale, transfer or other disposition of any purchased Option Shares subject to such repurchase right. - The aggregate Option Exercise Price for the purchased Option Shares shall be paid in one of the following alternative forms: (a) full payment in cash or check made payable to the Corporation's order; or (b) full payment in shares of Class A Common Stock held by Optionee for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value (as defined below) on the Exercise Date (as defined below); or 7. (c) full payment in a combination of shares of Class A Common Stock held for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value on the Exercise Date and cash or check made payable to the Corporation's order; or (d) to the extent the option is exercised for vested Option Shares, full payment through a broker-dealer sale and remittance procedure pursuant to which Optionee shall concurrently provide irrevocable written instructions to (i) a Corporation- designated brokerage firm to effect the immediate sale of the vested shares purchased under the option and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Option Exercise Price payable for those shares and (ii) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. - Appropriate documentation evidencing the right to exercise this option shall be furnished the Corporation if the person or persons exercising the option is other than the Optionee. B. For purposes of subparagraph 9.B. above and for all other valuation purposes under this Agreement, the FAIR MARKET VALUE per share of Class A Common Stock on any relevant date shall be the determined in accordance with the following provisions: - If the Class A Common Stock is not at the time listed or admitted to trading on any national stock exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers through the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Class A Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value. - If the Class A Common Stock is at the time listed or admitted to trading on any national stock exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on the exchange serving as the primary market for the Class A 8. Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Class A Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. C. The EXERCISE DATE shall be the date on which the Exercise Notice is delivered to the Secretary of the Corporation, together with the appropriate Purchase Agreement for any unvested shares acquired under the option. Except to the extent the sale and remittance procedure specified above is utilized in connection with the exercise of the option for vested Option Shares, payment of the Option Exercise Price for the purchased shares must accompany such notice. D. As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or other person or persons exercising this option) a certificate or certificates representing the purchased Option Shares. To the extent any such Option Shares are unvested, the certificates for those Option Shares shall be endorsed with an appropriate legend evidencing the Corporation's repurchase rights and may be held in escrow with the Corporation until such shares vest. E. In no event may this option be exercised for any fractional share. 10. STOCKHOLDER RIGHTS. The holder of this option shall not have any of the rights of a stockholder with respect to the Option Shares until such individual shall have exercised this option and paid the Option Exercise Price for the purchased shares. 11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. Nor shall this Agreement in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. 12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which 9. shares of the Class A Common Stock may be listed for trading at the time of such exercise and issuance. 13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraph 3 or 7, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the Corporation's successors and assigns. 14. DISCHARGE OF LIABILITY. The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Class A Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Class A Common Stock as to which such approval shall not have been obtained. However, the Corporation shall use its best efforts to obtain all such applicable approvals. 15. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation in care of the Corporate Secretary at the Corporate Offices at 4343 Von Karman Boulevard, Newport Beach, CA 92660. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 16. CONSTRUCTION/GOVERNING LAW. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan, including the automatic option grant provisions of Article Three of the Plan. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 17. STOCKHOLDER APPROVAL. Notwithstanding any provision to the contrary in this Agreement, this option may not be exercised in whole or in part at any time prior to the approval of the Plan by the Corporation's stockholders at the 1994 Annual Meeting. In the event such stockholder approval is not obtained, this option shall thereupon terminate and cease to remain outstanding without ever becoming exercisable for any of the Option Shares. 10. EXHIBIT I NOTICE OF EXERCISE OF NON-STATUTORY AUTOMATIC STOCK OPTION I hereby notify Koll Real Estate Group (the "Corporation") that I elect to purchase _________ shares of Class A Common Stock of the Corporation (the "Purchased Shares") at the option exercise price of $________ per share (the "Option Exercise Price") pursuant to that certain option (the "Option") granted to me under the Corporation's 1993 Stock Option/Stock Issuance Plan on ___________, 199_. Concurrently with the delivery of this Exercise Notice to the Secretary of the Corporation, I shall hereby pay to the Corporation the Option Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special broker/dealer sale and remittance procedure specified in my agreement to effect payment of the Option Exercise Price for any Purchased Shares in which I am vested at the time of exercise. ___________________________ __________________________________ Date Optionee Address: _______________________ _______________________ Print name in exact manner it is to appear on the stock certificate: __________________________________ Address to which certificate is to be sent, if different from address above: __________________________________ __________________________________ Social Security Number: __________________________________ EX-10.07A 4 EXHIBIT 10.07A THE KOLL REAL ESTATE GROUP RETIREMENT PLAN PLAN AMENDMENT THE KOLL REAL ESTATE GROUP RETIREMENT PLAN, as amended and restated effective August 1, 1992 as the Bolsa Chica Company Retirement Plan, is hereby amended, effective December 31, 1993, as indicated below. All capitalized terms used in this Plan Amendment shall have the meanings assigned to such terms in the Plan, unless otherwise specifically defined in this Plan Amendment. 1. The name of the Bolsa Chica Company Retirement Plan is hereby officially changed to the Koll Real Estate Group Retirement Plan to reflect the name change of Bolsa Chica Company to Koll Real Estate Group. 2. Notwithstanding anything to the contrary in the Plan, there shall be no new Participants in the Plan after December 31, 1993, and any Employees who would otherwise commence their participation in the Plan after December 31, 1993 shall not be eligible for such participation and shall not accrue any retirement or other benefits under the Plan. Accordingly, the participant group in the Plan shall be fixed and frozen as of December 31, 1993. 3. Notwithstanding anything to the contrary in the Plan, no Participant shall accrue any additional retirement benefits under the Plan after December 31, 1993, and the Accrued Benefit of each Participant shall be fixed and frozen on December 31, 1993 on the basis of the Participant's Average Final Compensation (through December 31, 1993), years of Credited Service and Covered Compensation through December 31, 1993. Accordingly, the Normal Retirement Benefit under Section 3.2 of the Plan, the Early Retirement Benefit under Section 3.4 of the Plan, the Disability Retirement Benefit under Section 3.5 of the Plan, and the Vested Retirement Benefit under Section 3.10 of the Plan which each Participant may have accrued through December 31, 1993 shall be fixed and frozen in accordance with the following principles: - The Average Final Compensation of the Participant shall be calculated for a consecutive monthly period under Section 1.7 of the Plan ending no later than December 31, 1993, and no Compensation paid or earned after December 31, 1993 shall be taken into account. Accordingly, the Average Final Compensation of each Participant shall be a fixed dollar amount as of December 31, 1993 which shall not be subsequently adjusted for any Compensation earned or paid after December 31, 1993. - The Credited Service of each Participant shall, for benefit accrual purposes under the Plan, be fixed and frozen as of December 31, 1993, and no Credited Service shall, for benefit accrual purposes, be earned for any service rendered after December 31, 1993. However, Credited Service may continue to be earned after December 31, 1993, in accordance with the provisions of Section 1.19 of the Plan, solely and exclusively for purposes of the early retirement subsidies available under the Plan as of December 31, 1993 and protected under Internal Revenue Code Section 411(d)(6). - The Covered Compensation of each Participant shall be calculated under Section 1.18 of the Plan as of December 31, 1993. For purposes of such calculation, it shall be assumed that the Taxable Wage Base for each year in the remainder of the 35-year period applicable to the Participant shall remain at the Taxable Wage Base in effect for that Participant for the 1993 calendar year. Accordingly, the Covered Compensation of each Participant shall be set at a fixed dollar amount as of December 31, 1993 and shall not be adjusted for (i) any Compensation or other remuneration the Participant may in fact earn after December 31, 1993 or (ii) any changes in the Taxable Wage Base for calendar years after the 1993 calendar year. 4. There is hereby added to Section 3.10 of the Plan new subsection (e) to read as follows: (e) If the present value of the Participant's vested Accrued Benefit is zero at the time of his Separation from the Service, then that Participant shall be deemed to have received an immediate distribution of that vested Accrued Benefit on his Severance from Service Date. 5. Except to the extent specifically modified by this Plan Amendment, all the terms and conditions of the Koll Real Estate Group Retirement Plan, as amended and restated August 1, 1992, shall continue in full force and effect. IN WITNESS WHEREOF, KOLL REAL ESTATE GROUP has caused this Plan Amendment to be executed by its duly-authorized officer as of the 8th day of December 1993. KOLL REAL ESTATE GROUP BY /s/ ----------------------------------- TITLE: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 2. EX-10.08 5 EXHIBIT 10-08 RESOLUTIONS ADOPTED BY THE ADMINISTRATOR AMENDING THE Koll Company 401(k) Plus Plan WHEREAS, the Koll Company (the "Company") approved and adopted the Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") which were originally effective April 1, 1978, and which have subsequently been amended; WHEREAS, the Company reserved the right to amend the Plan and Trust; WHEREAS, Koll Management Services is affiliated with the Company, but not considered a Related Company WHEREAS, the Company has decided that it is in the best interest of participants and beneficiaries to amend the Plan and Trust, and to modify their operations; and NOW, THEREFORE, RESOLVED, that the Plan is amended as follows: 1. Plan section 1 is amended in its entirety as attached to change the definition of Employer and to the definition of Subsidiary. 2. Plan section 2 is amended in its entirety as attached to eliminate the one year eligibility requirement. 3. As was provided for in Plan section 5, the matching contribution was suspended (a 0% matching rate) effective with the pay period beginning January 31, 1991 by notifying Participants in advance. 4. Plan section 6 is amended in its entirety by revising section 6.6 to allow "other Plan expenses" to be paid from the Trust. 5. Plan section 10 is amended in its entirety as attached to allow withdrawals during 1991 for Participants who were 100% vested and only from Profit Sharing Accounts of which all contributions were made at least 24 months ago. IN WITNESS WHEREOF, each of the undersigned directors has hereunto signed his name as of the date herein shown below. Date: 2-28, 1992 Koll Company By: /s/ ------------------------------------ Title: SR. V.P. ADMINISTRATION ----------------------------- 1 DEFINITIONS When capitalized, the following words and phrases have the following meanings unless a different meaning is clearly required by the context: 1.1 "Account". The record maintained for purposes of accounting for a Participant's interest in the Plan. 1.2 "Administrator". The Company, or the committee to whom the Company has delegated all or a portion of the duties of the Administrator under the Plan. 1.3 "Beneficiary". The person or persons who is to receive benefits after the death of the Participant pursuant to the Participant's designation or the Administrator's determination, or as a result of a QDRO. 1.4 "Break in Service". The fifth anniversary of the date for which a Participant is last credited with an Hour of Service. 1.5 "Code". The Internal Revenue Code of 1986, as amended. Reference to any specific Code section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.6 "Company". The Koll Company or any successor by merger, purchase or otherwise. Company also refers to any officer appointed by its board of directors to act on the Company's behalf. 1.7 "Compensation". The sum of a Participant's Taxable Income and salary reductions, if any, pursuant to Code sections 125, 402(a)(8), 402(h) or 403(b). For purposes of determining benefits under this Plan, Compensation is limited to $200,000 (as indexed by the cost of living pursuant to Code section 415(d)) per Plan Year. For Plan Years beginning before 1990 (or any later date provided for under the Code), Compensation is limited to amounts paid while a Participant. 1.8 "Contributions". Amounts contributed to the Plan by the Employer or an Eligible Employee. The specific types of Contributions included are: (a) "Pre-Tax Contributions". Amounts contributed on a pre-tax basis in conjunction with a Participant's Code section 401(k) salary deferral agreement. (b) "Rollover Contributions". Amounts contributed by an Eligible Employee which originated from another employer's qualified plan. 1 (c) "Matching Contributions". Amounts contributed by the Employer based upon the amount contributed by the eligible Participant. (d) "Profit Sharing Contributions". Amounts contributed by the Employer and allocated on a pay based formula to eligible Participants' Accounts, which are no longer permitted, but previously contributed amounts continue to be accounted for in the Plan. 1.9 "Disability". A Participant's total and permanent, mental or physical disability resulting in termination of employment as evidenced by (a) receipt of disability payments under the Employer's long-term disability program or (b) presentation of medical evidence satisfactory to the Committee. 1.10 "Effective Date". July 1, 1989. 1.11 "Eligible Employee". An Employee of the Employer, except any Employee: (a) whose compensation and conditions of employment are covered by a collective bargaining agreement to which the Employer is a party unless the agreement calls for the Employee's participation in the Plan; (b) who is treated as an Employee because he or she is a Leased Employee; or 1.12 "Employee". An individual who is (a) directly employed by any Related Company and for whom any income for such employment is subject to withholding of income or social security taxes, or (b) indirectly employed as a Leased Employee. 1.13 "Employer". The Company and any Subsidiary or other Related Company of either the Company or a Subsidiary which adopts this Plan with the approval of the Company. 1.14 "ERISA". The Employee Retirement Income Security Act of 1974, as amended. Reference to any specific section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.15 "Forfeiture Account". An account holding amounts forfeited by Participants who have left the Employer, which are to be used to reduce subsequent Employer Contributions. 1.16 "Highly Compensated Employee" or "HCE". An Employee described as a highly compensated employee in Code section 414(q). 2 1.17 "Hour of Service". Each hour for which an Employee is entitled to: (a) payment for the performance of duties for any Related Company; (b) payment from any Related Company for any period during which no duties are performed due to vacation, holiday, sickness, incapacity (including disability), layoff, leave of absence, jury duty or military service; (c) back pay, irrespective of mitigation of damages, by award or agreement with any Related Company (and these hours shall be credited to the period to which the agreement pertains); or (d) no payment, but is on a Leave of Absence or Parental Leave (and these hours shall be based upon his or her normally scheduled hours per week or a 40 hour week if there is no regular schedule), provided that, for Parental Leave, hours shall be credited for the Plan Year the Leave occurs only if no hours have been credited for that Plan Year. The crediting of hours shall be made in accordance with Department of Labor regulation section 2530.200b-2(b). Actual hours shall be used whenever an accurate record of hours are maintained for an Employee. Otherwise, an equivalent number of hours shall be credited for each payroll period in which the Employee would be credited with at least 1 hour. The payroll period equivalencies are 45 hours weekly, 90 hours biweekly, 95 hours semimonthly and 190 hours monthly. Hours credited prior to a Break in Service are included. Hours shall be credited for the period prior to the acquisition of a Related Company by an Employer only if the Company directs that credit for such period shall be granted. 1.18 "Ineligible". An individual during the period in which he or she is (1) an Employee of a Related Company which is not then an Employer, (2) an Employee, but not an Eligible Employee, or (3) not an Employee. 1.19 "Investment Fund". An investment fund consisting of a collective investment fund, a pool of assets or deposits of the Trustee. The Investment Funds authorized by the Administrator as of the Effective Date are listed in Appendix A. 1.20 "Leased Employee". An individual who is deemed to be an employee of any Related Company as provided in Code section 414(n) or (o). 1.21 "Leave of Absence". A period during which an individual is deemed to be an Employee, but is absent from active employment, provided that the absence: 3 (a) was authorized by a Related Company; or (b) due to military service in the United States armed forces and the individual returns to active employment within the period during which he or she retains employment rights under federal law. 1.22 "Non-Highly Compensated Employee" or "NHCE". An Employee who is neither an HCE nor a family member of certain HCEs as defined in Code section 414(q). 1.23 "Normal Retirement Date". The date of a Participant's 65th birthday. 1.24 "Owner". A person with an ownership interest in the capital, profits, outstanding stock or voting power of a Related Company within the meaning of Code section 318 or 416 (which exclude indirect ownership through a qualified retirement plan). 1.25 "Parental Leave". The period of absence from work by reason of pregnancy, the birth of an Employee's child, the placement of a child with the Employee in connection with the child's adoption, or caring for such child immediately after birth or placement as described in Code section 410(a)(5)(E). 1.26 "Participant". An Eligible Employee who begins to participate in the Plan after completing the eligibility requirements. A Participant's participation continues until his or her employment with the Employer (and all Related Companies) ends and his or her Account is distributed or forfeited. 1.27 "Pay". The base pay and overtime paid to an Eligible Employee by the Employer while a Participant during the current period. Pay is neither increased nor decreased by any salary credit or reduction pursuant to Code sections 125 or 402(a)(8). Pay is limited to $200,000 (as indexed by the cost of living pursuant to Code section 415(d)) per Plan Year. 1.28 "Period of Employment". The period beginning on the date an Employee's employment first begins and ending on the date his or her employment ends. Employment ends on the date the Employee quits, retires, is discharged, dies or (if earlier) the first anniversary of his or her absence for any other reason. The period of absence starting with the date an Employee's employment temporarily ends and ending on the date he or she is subsequently reemployed is (1) included in his or her Period of Employment if the period of absence does not exceed one year, and (2) excluded if such period exceeds one year. Period of Employment includes the period prior to a Break in Service. Period of Employment includes the period prior to acquisition of a Related Company by an 4 Employer only if the Company directs that credit for such period shall be granted. 1.29 "Plan". The Koll Company 401(k) Plus Plan set forth in this document, as from time to time amended. 1.30 "Plan Year". The annual accounting period of the Plan and Trust which ends on each December 31. 1.31 "Pre-Tax Dollar Limit". The annual limit placed on each Participant's Pre-Tax Contributions, which shall be $7,000 per calendar year (as indexed by the cost of living pursuant to Code section 415(d)). 1.32 "QDRO". A domestic relations order which the Administrator has determined to be a qualified domestic relations order within the meaning of Code section 414(p). 1.33 "Related Company". The Company and any corporation, trade or business which is, together with the Company, a member of the same controlled group of corporations, a trade or business under common control, or an affiliated service group within the meaning of Code section 414(b), (c), (m) or (o) and, solely for purposes of the maximum annual addition limits, as modified by Code section 415(h). 1.34 "Settlement Date". The date on which the transactions from the most recent Trade Date are settled. 1.35 "Spousal Consent". The written consent given by a spouse to a Participant's election of a specified form of benefit or Beneficiary designation. The spouse's consent must acknowledge the effect on the spouse of the Participant's election and be duly witnessed by a notary public. Spousal Consent also means a determination by the Administrator that there is no spouse, the spouse cannot be located or such other circumstances as may be established by applicable law. 1.36 "Subsidiary". A company which is 50% or more owned, directly or indirectly, by the Company. 1.37 "Sweep Account". The subsidiary Account for each Contribution type within each Participant's Account through which all transactions for such Contribution type are processed and which is invested in interest bearing deposits of the Trustee. 1.38 "Sweep Date". The cut off date and time for receiving instructions for transactions to be processed on the next Trade Date. 1.39 "Taxable Income". The wages, salary, fees for professional services and other amounts paid by the Employer or a Related Company to a Participant during a 5 Limitation Year for personal services actually rendered in the course of employment, including (by way of example) overtime, bonuses, commissions and incentive compensation, but after excluding such amounts which are not currently treated as Taxable Income as a result of their: (a) deferral under a Code section 125, 402(a)(8), 402(h) or 403(b) salary deferral arrangement, (b) contribution to a retirement, deferred compensation or other plan, or (c) not being treated as income for services currently rendered, such as amounts realized from the sale, exercise or exchange or Employer stock or stock options. 1.40 "Trade Date". Each day the Investment Funds are valued, which is the last business day of each month. 1.41 "Trust". The legal entity created by those provisions of this document which relate to the Trustee. The Trust is part of the Plan and holds the Plan assets which are comprised of the aggregate of Participants' Accounts and the Forfeiture Account. 1.42 "Trustee". Wells Fargo Bank, National Association. 1.43 "Year of Vesting Service". For any Employee hired on or after July 1, 1989, a 12 month Period of Employment. For any Employee hired prior to July 1, 1989, service shall be credited differently before and after January 1, 1990 as follows: (a) For service from January 1, 1990, a 12 month Period of Employment; and (b) For Plan Years ending before January 1, 1990, a 12 month period ending on the last day of any Plan Year in which an Employee is credited with at least 1,000 Hours of Service. Years of Vesting Service shall include service credited prior to April 1, 1978. In the case of the acquisition of a Related Company by an Employer, the Company will determine what, if any, pre-acquisition employment will be counted in determining Years of Vesting Service. 6 2 ELIGIBILITY 2.1 Eligibility Each Eligible Employee shall become a Participant on January 1, 1991 or the first subsequent January 1, April 1, July 1 or October 1 after the date he or she becomes an Eligible Employee. 2.2 Ineligible Employees If an Employee completes the above eligibility requirements, but is Ineligible at the time participation would otherwise begin (if he or she were not Ineligible), he or she shall become a Participant on the first subsequent date on which he or she is an Eligible Employee. 2.3 Ineligible Participants A Participant may not make or share in Plan Contributions, nor be eligible for a new Plan loan, during the period he or she is Ineligible, but he or she shall continue to participate for all other purposes. An Ineligible Participant shall automatically become an active Participant on the date he or she again becomes an Eligible Employee. 7 3 PARTICIPANT CONTRIBUTIONS 3.1 Pre-Tax Contribution Election Upon becoming a Participant, an Eligible Employee may elect to reduce his or her Pay and have the amount contributed to the Plan by the Employer as a Pre-Tax Contribution. The election shall be made as a whole percentage of pay and in the form prescribed by the Administrator. 3.2 Changes A Participant who is an Eligible Employee may change his or her Pre-Tax Contribution election as of January 1, April 1, July 1 or October 1 by giving the Administrator such advance notice as it requires. The changed percentage shall become effective with the first payroll paid after such date. Participants' Contribution election percentages shall automatically apply to Pay increases or decreases. 3.3 Stopping Contributions A Participant may revoke his or her Contribution election at any time by giving written notice to the Administrator, and such election shall be effective as soon as administratively feasible. A Participant may contribute again by making a new Contribution election in the same manner in which a Participant may change his or her election. 3.4 Contribution Percentage Limits The Administrator may establish (and subsequently change) the maximum Pre-Tax Contribution percentage, prospectively or retrospectively (for the current Plan Year), for all Participants. In addition, the Administrator may establish any lower percentage limits for Highly Compensated Employees as it deems necessary. As of the Effective Date, the maximum percentages are: Highly Contribution Compensated All Type Employees Participants ------------ ----------- ------------ Pre-Tax 15% 15% 3.5 Refunds When Pre-Tax Dollar Limit Exceeded A Participant who makes pre-tax contributions to this and any other qualified contribution plan in excess of the Pre-Tax Dollar Limit 8 may notify the Administrator in writing by the following March 1 (or as late as April 14 if allowed by the Administrator) that an excess has occurred. In this event, the amount of the excess specified by the Participant shall be returned to him by April 15, subject to an adjustment for net investment gain or loss as described below: E x G x (1 + (10% x M)) ----- (AB-G) where: E = the excess amount specified, G = the net gain or loss for the Plan Year in the Participant's Pre-Tax Accounts, AB = the total value of the Participant's Pre-Tax Account, determined as of the end of the calendar year being corrected, M = the number of full months from the calendar year end to the date the excess amount is paid, plus one for the month during which payment is to be made if payment will occur after the 15th of that month. 3.6 Timing, Posting and Tax Considerations Participants' Contributions may only be made through payroll deduction. Such amounts shall be paid to the Trustee in cash and posted to each Participant's Account as soon as such amounts can reasonably be separated from the Employer's general assets and balanced against the specific amount made on behalf of each Participant. In no event, however, shall such amounts be paid to the Trustee more than 90 days after the date amounts are deducted from a Participant's Pay or 30 days after the end of the Plan Year in which deducted. Pre-Tax Contributions shall be treated as employer contributions in determining tax deductions under Code section 404(a). 9 4 ROLLOVERS & TRUST-TO-TRUST TRANSFERS 4.1 Rollovers The Administrator may authorize the Trustee to accept a rollover contribution, within the meaning of Code section 402(a)(5) or 408(d)(3)(A)(ii), from an Eligible Employee in cash, even if he or she is not yet a Participant. The Employee shall furnish satisfactory evidence to the Administrator that the amount is eligible for rollover treatment. A rollover contribution must be paid to the Trustee in cash within 60 days after the date received by the Eligible Employee from a qualified plan or conduit individual retirement account. Such amount shall be posted to the Employee's Rollover Account as of the date received by the Trustee. If it is later determined that an amount transferred pursuant to the above paragraph did not in fact qualify as a rollover contribution under Code section 402(a)5) or 408(d)(3)(A)(ii), the balance credited to the Employee's Rollover Account shall immediately be (1) segregated from all other Plan assets, (2) treated as a nonqualified trust established by and for the benefit of the Employee, and (3) distributed to the Employee. Any such nonqualifying rollover shall be deemed never to have been a part of the Plan. 4.2 Transfers From Other Qualified Plans The Administrator may instruct the Trustee to receive assets in cash or in kind from another qualified plan. The Trustee may refuse the receipt of any transfer if: (a) the Trustee finds the in-kind assets unacceptable, (b) instructions for posting amounts to Participants' Accounts are incomplete, (c) any amounts are not exempted by Code section 401(a)(11)(B) from the annuity requirements of Code section 417, or (d) any amounts include benefits protected by Code section 411(d)(6) which would not be preserved under applicable Plan provisions. Such amounts shall be posted to the appropriate Accounts of Participants as of the date received by the Trustee. 10 5 EMPLOYER CONTRIBUTIONS 5.1 Matching Contributions (a) Frequency and Eligibility. For each time Participants' Contributions are made, the Employer shall make Matching Contributions on behalf of each Participant (except for any officer of the Employer who is a regular participant in equity partnership interests) who contributed during the period. (b) Allocation Method. The Matching Contribution, including any available Forfeiture Account amount, shall be equal to 50% of each eligible participant's Pre-Tax Contributions for the period, provided that no Matching Contributions shall be made based upon a Participant's Contributions in excess of 5% of his or her Pay. The Employer may change the 50% matching rate or the 5% of considered Pay to any other percentages, including 0%, by notifying eligible Participants in sufficient time to adjust their Contribution elections prior to the start of the period for which the new percentages apply. (c) Timing, Medium and Posting. The Employer shall make each period's Matching Contribution in cash as soon as is feasible, and not later than the Employer's federal tax filing date, including extensions, for deducting such Contribution. The Trustee shall post such amount to each Participant's Matching Account once the total Contribution received has been balanced against the specific amount to be credited to each Participant's Matching Account. 11 6 ACCOUNTING 6.1 Individual Participant Accounting The Administrator shall maintain an individual set of Accounts for each Participant in order to reflect transactions both by type of Contribution and investment medium. Financial transactions shall be accounted for at the individual Account level by "posting" each transaction to the appropriate Account of each affected Participant. Participants' Account values shall be maintained in shares for the Investment Funds and in dollars for their Sweep and Participant loan Accounts. At any point in time, the Account value shall be determined using the most recent Trade Date values provided by the Trustee. 6.2 Sweep Account is Transaction Account All transactions related to amounts being contributed to or distributed from the Trust shall be posted to each affected Participant's Sweep Account. Any amount held in the Sweep Account will be credited with interest up until the Settlement Date or the later date on which it is removed from the Sweep Account. 6.3 Trade Date Accounting and Investment Cycle Participant Account values shall be determined as of each Trade Date. For any transaction to be processed as of a Trade Date, the Trustee must receive all transaction instructions by the Sweep Date. Such instructions shall apply to amounts held in the Account on that Sweep Date. Financial transactions of the Investment Funds shall be posted to Participants' Accounts as of the Trade Date and based upon the Trade Date values provided by the Trustee. All Trade Date transactions shall be effected on the Settlement Date relating to that Trade Date (or as soon thereafter as is administratively feasible). 6.4 Accounting for Investment Funds Investments in each Investment Fund shall be maintained in shares. The Trustee is responsible for determining the share values of each Investment Fund as of each Trade Date. To the extent an Investment Fund is comprised of collective investment funds of the Trustee, the net asset and share values shall be determined in accordance with the rules governing such collective investment funds, which are incorporated herein by reference. All other net asset and share values shall be determined by the Trustee. The net asset value of each Investment Fund shall be based on the fair market value of its underlying assets. 12 6.5 Accounting for Participant Loans Participant loans shall be held in a separate Account of the Participant and accounted for in dollars as an earmarked asset of the borrowing Participant's Account. 6.6 Company Decides Who Pays Fees and Expenses The Company shall decide whether administrative fees and expenses related to the Plan and Trust, including those incurred by agents and advisors retained by the Administrator, shall be paid by the Employer, to have them charged directly to the Participants' Accounts, or a combination of both. The Company may direct the Employer to pay a lower portion of the fees and expenses allocable to the Accounts of Participants who are no longer Employees or Beneficiaries than for active Employees. All other Plan fees and expenses (such as government annual report preparation, audit and legal fees, nondiscrimination testing, and any other special services) shall be paid separately from the Trust, unless paid by the Employer. 6.7 How Fees and Expenses are Charged to Participants Account maintenance fees shall be charged to each Participant's Account on a per Participant basis, provided that no fee shall reduce a Participant's Account balance below zero. Transaction type fee (such as special asset fees, investment election change fees, etc.) shall be charged to the Accounts involved in the transaction. Fees and expenses incurred for the management and maintenance of Investment Funds shall be charged at the Investment Fund level and reflected in the net gain or loss of each Fund. 6.8 Error Correction The Administrator may correct any errors or omissions in the administration of the Plan by restoring any Participant's Account balance with the amount that would be credited to the Account had no error or omission been made. Funds necessary for any such restoration shall be provided through payment made by the Employer, or if the restoration involves an Employer Contribution Account, the Company may direct the Trustee to use amounts from the Forfeiture Account. 6.9 Participant Statements The Administrator shall provide Participants with statements of their Accounts as soon after the end of each quarter of the Plan Year as is administratively feasible. Participants' Account statements will be expressed in dollars without reference to any underlying shares and share values used in determining the Account value. 13 6.10 Special Accounting During Conversion Period The Administrator and Trustee may use any reasonable accounting methods in performing their respective duties during the period of converting the prior accounting system of the Plan and Trust to conform to the individual Participant accounting system described in this Section. This includes, but is not limited to, the method for allocating net investment gains or losses and the extent, if any, to which contributions received by and distributions paid from the Trust during this period share in such allocation. All or a portion of the Trust assets may be held, if necessary, in a short term interest bearing vehicle, which may include deposits of the Trustee, during the conversion period for establishing such individual Participant Accounts. 6.11 Accounts for QDRO Beneficiaries A separate Account shall be established for a Beneficiary entitled to any portion of a Participant's Account under a QDRO as of the date and in accordance with the directions specified in the QDRO. Such Account shall be valued and accounted for in the same manner as any other Account. (a) Investment Direction. A QDRO Beneficiary may direct the investment of such Account in the same manner as any other Participant. (b) Distributions. A QDRO Beneficiary shall be entitled to payment as provided in the QDRO and permissible under the Distribution Once Employment Ends Section regardless of whether the Participant is an Employee, and to name a Beneficiary as specified in the QDRO. (c) Participant Loans. A QDRO Beneficiary shall not be entitled to borrow from his or her Account. If a QDRO specifies that the QDRO Beneficiary is entitled to any portion of the Account of a Participant who has an outstanding loan balance, all outstanding loans shall continue to be held in the Participant's Account and shall not be divided between the Participant's and QDRO Beneficiary's Accounts. 14 7 INVESTMENT FUNDS AND ELECTIONS 7.1 Investment Funds Except for a Participants' Sweep and loan Accounts, the Trustee shall be maintained in various Investment Funds. The Administrator may change the number of composition of the Investment Funds, subject to the terms and conditions agreed to with the Trustee. 7.2 Investment Fund Elections Each Participant (or Beneficiary) shall make a single election covering all of his or her Contribution Accounts. A Participant (or Beneficiary) shall make his or her investment election in any combination of whole percentage increments of one or any number of the Investment Funds offered. Each election shall specify whether it applies only to the amounts not yet received by the Trustee or to both such future amounts and the current Account balance. The Administrator may set a maximum percentage of the total election that a Participant may direct into any specific Investment Fund. 7.3 Responsibility for Investment Choice Each Participant shall be solely responsible for the selection of his or her investment election. No fiduciary with respect to the Plan is empowered to advise a Participant as to the manner in which his or her Accounts are to be invested, and the fact that an Investment Fund is offered shall not be construed to be a recommendation for investment. The Administrator may, however, establish a maximum percentage which a Participant may choose for any investment fund. 7.4 Default if No Election If a Participant does not have a valid investment election on file, his or her election shall be deemed to be a 100% election of the Investment Fund designated by the Administrator as the default option. "GIC" 7.5 Timing A Participant shall make his or her initial investment election upon becoming a Participant and may change his or her election at any time in accordance with the procedures established by the Trustee. Investment elections received by the Trustee by the Sweep Date deadline will be effective on the next following Trade Date. 7.6 Switching Fees 15 A reasonable processing fee may be charged directly to a Participant's Account for investment election changes in excess of a specified number per Plan Year as determined by the Administrator. first four changes free each additional = $10 16 8 VESTING & FORFEITURES 8.1 Fully Vested Contribution Accounts A Participant shall be fully vested in these Accounts at all times: Pre-Tax Account Rollover Account 8.2 Full Vesting upon Certain Events A Participant's entire Account shall become fully vested once he or she has attained his or her Normal Retirement date as an Employee, or upon his or her leaving the employer due to his or her Disability or death. 8.3 Vesting Schedule In addition to the vesting provided above, a Participant's Matching and Profit Sharing Accounts shall become vested in accordance with the following schedule: Years of Vesting Vested Service Percentage ---------------- ---------- Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100% If this vesting schedule is changed, the vested percentage for each Participant shall not be less than his or her vested percentage determined as of the last day prior to this change, and for any Participant with at least three Years of Vesting Service when the schedule is changed, vesting shall be determined using the more favorable vesting schedule. 8.4 Forfeitures A Participant's non-vested Account balance shall be forfeited as of the Settlement Date next following the Sweep Date on which the Administrator has reported to the Trustee that the Participant's employment has terminated. Forfeitures from all Participants' Employer Contribution Accounts shall be transferred to and maintained in a single Forfeiture Account, which shall be invested in interest bearing deposits of the Trustee. Forfeiture Account amounts shall be credited to eligible 17 Participants' Accounts as soon as is administratively feasible as part of Employer Matching Contributions for the period. 8.5 Rehired Employees (a) Service. If an Employee is rehired, all Years of Vesting Service credited prior to his or her termination of employment shall be counted in determining his or her vested interest. (b) Account Restoration. If an Employee is rehired before he or she has a Break in Service, the amount forfeited when his or her employment last terminated shall be restored to his or her Account. The restoration shall include the interest which would have been credited had such forfeiture been invested in the Sweep Account from the date forfeited until the date the restoration amount is determined. The amount shall come from the Forfeiture Account to the extent possible, and any additional amount needed shall be contributed by the Employer. The vested interest in his or her restored Account shall then be equal to: V% times (AB + D) - D where: V% = current vested percentage AB = current account balance D = amount previously distributed 18 9 PARTICIPANT LOANS 9.1 Participant Loans Permitted Loans to Participants are permitted pursuant to the terms and conditions set forth in this Section. All loans are made (and limits determined) as of the Sweep Date occurring on or next following the date the loan approval directive is received by the Trustee. The funds will be disbursed to the Participant as soon as is administratively feasible after the next following Settlement Date. 9.2 Loan Funding Limits The loan amount must meet all of the following limits: (a) Plan Minimum Limit. The minimum amount for any loans if $500. (b) Plan Maximum Limit. The maximum a Participant may borrow, including the outstanding balance of existing Plan loans, is based upon the following Accounts of the Participant which are fully vested (the "Source Amount"): Pre-Tax Account Rollover Account The maximum amount is equal to: IF SOURCE AMOUNT IS: MAXIMUM LOAN AMOUNT IS: Under $20,000 100% of Source Amount, not to exceed $10,000 $20,000 or over 50% of Source Amount, not to exceed $50,000 (c) Legal Maxumum Limit. The maximum a Participant may borrow, including the outstanding balance of existing loans, is based upon his or her vested interest in this Plan and all other qualified plans maintained by a Related Company (the "Vested Interest"). The maximum amount is equal to 50% of Vested Interest, not to exceed $50,000* * The $50,000 amount is reduced by the Participant's highest outstanding balance of all loans from any Related Company's qualified plans during the 12 month period ending on the day before the Sweep Date on which the loan is made. 19 9.3 Maximum Number of Loans A Participant may have only one loan outstanding at any given time. 9.4 Source of Loan Funding A loan to a Participant shall be made solely from the assets of his or her own Accounts. The available assets shall be determined first by Contribution Account and then by investment type within each type of Contribution Account. The hierarchy for loan funding by type of Contribution Account shall be the order listed in the preceding Plan Maximum Limit paragraph. Within each Account used for funding, amounts shall first be taken from the cash Account and then taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund as of the Sweep Date on which the loan is made. 9.5 Interest Rate The interest rate charged on Participant loans shall be fixed and equal to the Trustee's prime rate, plus 1%. 9.6 Repayment Substantially level amortization shall be required of each loan with payments made at least quarterly, through payroll deduction, provided that payment can be made by check for advance loan payments, or when a Participant is on a Leave of Absence or transferred to the employ of a Related Company which is not participating in the Plan. Loans may be prepaid in full or in part at any time. The loan repayment period shall be as mutually agreed upon by the Participant and Administrator, not to exceed five years. However, the term may be for any period not to exceed 10 years if the purpose of the loan is to acquire the Participant's principal residence. 9.7 Repayment Hierarchy Loan principal repayments shall be credited to the Participant's Contribution Accounts in the inverse of the order used to fund the loan. Loan interest shall be credited to the Contribution Account in direct proportion to the principal repayment. Loan payments are credited by investment type based upon the Participant's current investment election for new Contributions. 9.8 Loan Application, Note and Security A Participant shall apply for any loan in writing. The Administrator shall 20 specify the time frame for approving loan applications. All loans shall be evidenced by a promissory note and secured only by a Participant's vested Account balance. The Plan shall have a lien on a Participant's Account to the extent of any outstanding loan balance. 9.9 Default, Suspension and Call Feature (a) Default. A loan is treated as a default if scheduled loan payments are more than 90 days late, provided that the Administrator may agree to a suspension of loan payments for up to 12 months for a Participant who is on a Leave of Absence. A Participant shall then have 30 days from the time he or she receives written notice of the default and a demand for past due amounts to cure the default before it becomes final. (b) Actions upon Default. In the event of default, the Administrator may direct the Trustee to execute upon its security interest in the Participant's Account by deducting the unpaid loan balance from the Account, including interest to the date of default and report the default as a taxable distribution. As soon as a Plan withdrawal or distribution to such Participant would otherwise be permitted, the Administrator may instruct the Trustee to distribute the note to the Participant. A default constitutes a permitted distribution to the extent it does not involve a Participant's Pre-Tax Account. (c) Call Feature. The Administrator shall have the right to call any Participant loan once employment with all Related Companies terminates. 21 10 IN-SERVICE WITHDRAWALS 10.1 Withdrawals for Hardship (a) Requirements. A Participant may request the withdrawal of any amount needed to satisfy a financial need by submitting a completed withdrawal request form to the Administrator. The Administrator shall only approve those requests for withdrawals (1) on account of a Participant's "Deemed Financial Need", and (2) which are "Deemed Necessary" to satisfy the financial need. (b) "Deemed Financial Need". Financial commitments relating to: (1) medical expenses described under Code section 213(d) incurred by the Employee, his or her spouse or his or her dependents; (2) the purchase (excluding mortgage payments) of the Employee's principal residence; (3) the payment of next semester's or quarter's tuition for postsecondary education for the Employee, his or her spouse or dependents; (4) the need to pay for the funeral expenses of a family member; (5) the need for the Employee to prevent losing his or her principal residence through eviction or foreclosure on the mortgage; or (6) any other circumstance specifically permitted under the Code. (c) "Deemed Necessary". A withdrawal is "deemed necessary" to satisfy the financial need only if all of these conditions are met: (1) the Employee has obtained all other possible withdrawals and nontaxable loans available from all plans maintained by the Related Companies; (2) the Employee is suspended from making any Contributions to any qualified plan maintained by the Employer for 12 months from the date the withdrawal payment is processed; and (3) the Pre-Tax Dollar Limit for the calendar year next following the calendar year of the hardship withdrawal shall be reduced by the 22 amount of the Employee's Pre-Tax Contributions for the calendar year of the hardship withdrawal. (d) Contribution Account Sources for Withdrawal. The withdrawal amount shall come only from his or her fully vested Accounts, in the following priority order of Contribution Accounts: Rollover Account Matching Account Profit Sharing Account Pre-Tax Account The amount that may be withdrawn from a Participant's Pre-Tax Account shall not include any earnings credited to his or her Pre-Tax Contribution Account after the first Plan Year beginning after December 31, 1988. 10.2 Withdrawals for Participants over Age 59-1/2 (a) Requirements. A Participant who is over age 59-1/2 may withdraw from the Contribution Accounts listed in paragraph (b) below. (b) Contribution Account Sources for Withdrawal. The withdrawal amount shall come only from his or her fully vested Accounts, in the following priority order of Contribution Accounts: Pre-Tax Account Rollover Account Matching Account Profit Sharing Account (c) Permitted Frequency. There is no restriction on the number of times a Participant may withdraw from these Accounts after age 59-1/2. 10.3 Withdrawals of Amounts on Deposit Two Years Requirements. During 1991, a Participant may withdraw any amount credited to his or her Profit Sharing Account attributable to Contributions made at least 24 months prior to the withdrawal. 10.4 Withdrawal Processing (a) Minimum Amount. The minimum payment for any type of withdrawal is $500. 23 (b) Application by Participant. A Participant must submit a completed withdrawal request form to the Administrator to apply for any type of withdrawal. (c) Approval by Administrator. The Administrator is responsible for determining that a withdrawal request conforms to the requirements described in this Section and notifying the Trustee of any payments to be made in a timely manner. (d) Time of Processing. The Trustee shall process all withdrawal requests which it receives by the Sweep Date cut off, based on the value as of the Sweep Date, and fund them on the next Settlement Date. The Trustee shall then make payment to the Participant as soon thereafter as is administratively feasible. (e) Medium and Form of Payment. The medium of payment for withdrawals is either cash or direct deposit. The form of payment for withdrawals shall be a single installment. (f) Investment Fund Sources. Within each Contribution Account used for funding a withdrawal, amounts shall first be taken from the Sweep Account and then taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes Participant loans) at the time the withdrawal is made. 24 11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS 11.1 Benefit Election Subject to the other requirements of this Section, a Participant (or his or her Beneficiary in the case of his or her death) may elect to have his or her vested Account balance paid to him or her beginning upon any Settlement Date following his or her termination of employment with all Related Companies, by submitting his or her completed election forms to the Administrator. The election must be submitted in sufficient time for the Administrator to instruct the Trustee to process the payment by the Sweep Date that relates to the Settlement Date upon which payments are to begin. 11.2 Payment Form and Medium A Participant shall be paid in the form of a lump sum. Payments will generally be made in cash (generally by check). 11.3 Small Amounts Paid Immediately If the Participant's vested Account BALANCE IS $3,500 or less, the Participant's benefit shall be paid as a single lump sum as soon as administratively feasible after his or her employment with all Related Companies ends. 11.4 Latest Commencement Permitted Unless a Participant elects otherwise, his or her benefit payments will begin not later than 60 days after the end of the Plan Year in which he or she attains his or her Normal Retirement Date or retires, whichever is later. However, if the amount of the payment or the location of the Participant (after a reasonable search) cannot be ascertained by that deadline, payment shall be made no later than 60 days after the earliest date on which such amount or location is ascertained. In any case, benefit payments shall begin by the April 1 immediately following the end of the calendar year in which he or she attains age 70-1/2 (whether or not he or she is an Employee). 11.5 Payment Within Life Expectancy The Participant's payment election must be consistent with the requirement of Code section 401(a)(9) that all payments are to be completed within a 25 period not to exceed the lives or the joint and last survivor life expectancy of the Participant and his or her Beneficiary. The life expectancies of a Participant and his or her spouse may be recomputed annually. 11.6 Incidental Benefit Rule The Participant's payment election must be consistent with the requirement that, if the Participant's spouse is not his or her sole primary Beneficiary, the minimum annual distribution for each calendar year, beginning with the year in which he or she attains age 70-1/2, shall not be less than the quotient obtained by dividing (a) the Participant's vested Account balance as of the last Trade Date of the preceding year by (b) the applicable divisor as determined under the incidental benefit requirements of Code section 401(a)(9). 11.7 Payment to Beneficiary Payment to a Beneficiary must either: (1) be completed within five years of the Participant's death or (2) begin within one year of the his or her death and be completed within the period of the Beneficiary's life or life expectancy, except that: (a) If the Participant dies after the April 1 immediately following the end of the calendar year in which he or she attains age 70-1/2, payment to his or her Beneficiary must be at least as rapidly as provided in the Participant's distribution election; (b) If the surviving spouse is the Beneficiary, payments need not begin until the end of the calendar year in which the Participant would have attained age 70-1/2; and (c) If the Participant and the surviving spouse who is the Beneficiary die before (1) the end of the calendar year in which April 1 on which the Participant would have attained age 70-1/2 and (2) payments have begun to the spouse, the spouse's Beneficiary will be treated as the Participant's Beneficiary in applying these rules. 11.8 Beneficiary Designation Each Participant shall complete a beneficiary designation form indicating the Beneficiary who is to receive the Participant's remaining Plan interest at the time of his or her death. The designation may be changed at any time. However, a Participant's spouse shall be the Beneficiary unless the designation includes Spousal Consent for the other Beneficiary. If no designation is in effect at the time of a Participant's death or if the Beneficiary does not survive the Participant, the Beneficiary shall be, in the order listed, the: 26 (a) Participant's surviving spouse, (b) Beneficiary named by the Participant in the Employer's primary life insurance plan, or (c) Participant's estate. 27 12 ADP AND ACP TESTS 12.1 Contribution Limitation Definitions (a) "Average Contribution Percentage" or "ACP". The Average Percentage calculated using Contributions. (b) "Average Deferral Percentage" or "ADP". The Average Percentage calculated using Deferrals. (c) "Average Percentage". The average of the calculated percentages for Participants within the specified group. The calculated percentage refers to either the "Deferrals" or "Contributions" (as defined in this Section) made on the Participant's behalf for the Plan Year, divided by his or her Compensation for such year. (Pre-Tax Contributions which will be refunded because they exceed the Pre-Tax Dollar Limit are included in the percentage.) (d) "Contributions" shall include Matching Contributions. In addition, Contributions may include Pre-Tax Contributions, but only to the extent that (1) the Employer elects to use them, (2) they are not used or counted in the ADP Test, and (3) they are necessary to meet the ACP Test Alternative Limitation. (e) "Deferrals" shall include Pre-Tax Contributions. (f) "HCE Group" and "NHCE Group". The respective group of HCEs and NHCEs who are eligible to have amounts contributed on their behalf for the Plan Year. (1) If the Related Companies maintain two or more plans which are subject to the ADP or ACP Test, and are considered as one plan for purposes of Code sections 401(a)(4) or 410(b), all such plans shall be aggregated and treated as one plan for purposes of meeting the ADP and ACP Tests. (2) If an HCE has any "family members" (within the meaning of Code section 414(g)(6)(B)), the Deferrals, Contributions and Compensation of the HCE's family members shall be treated as made or earned by the HCE. (3) If an HCE is covered by more than one cash or deferred arrangement maintained by the Related Companies, all such plans shall be aggregated and treated as one plan for purposes of calculating the separate percentage for the HCE which is used in the determination of the Average Percentage. 28 12.2 ADP and ACP Tests The ADP and ACP for the HCE Group must meet either the Basic or Alternative Limitation when compared to the respective ADP and ACP for the NHCE group: (a) Basic Limitation. The HCE Group percentage may not exceed 1.25 times the NHCE Group percentage. (b) Alternative Limitation. The HCE group percentage is limited by reference to the NHCE group percentage as follows: If the NHCE Group Then the Maximum HCE Percentage is: Group Percentage is: Less than 2% 2 times NHCE Group % 2% to 8% NHCE Group % plus 2% More than 8% Basic Limitation applies 12.3 Correction of ADP and ACP Tests If the ADP or ACP Tests are not met, the Administrator shall determine a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce the ADP and/or ACP for the HCE group by a sufficient amount to meet the ADP and ACP Tests. (a) ADP Correction. Pre-Tax Contributions shall be refunded (including amounts previously refunded because they exceeded the Pre-Tax Dollar Limit) to the Participant in an amount equal to the actual Deferral minus the product of the maximum percentage and the HCE's Compensation. (b) ACP Correction. Contribution amounts in excess of the maximum percentage of an HCE's Compensation shall be refunded to the Participant to the extent vested, and forfeited to the extent such amounts were not vested as of the end of the Plan Year being tested. The excess amounts shall first be taken from unmatched After-Tax Contributions, and then as a proportional combination of matched After-Tax and Matching Contributions. (c) Investment Fund Sources. Once the amount of excess Deferrals and/or Contributions is determined by type of Contribution, amounts shall then be taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes Participant loans) at the time the correction is processed. 29 12.4 Multiple Use Test If the Alternative Limitation is used to meet both the ADP and ACP Tests, the ADP and ACP for the HCE Group must also comply with the requirements of Code section 401(m)(9), which as of the Effective Date require that the sum of these two percentages (as determined after any corrections needed to meet the ADP and ACP Tests have been made) must not exceed the sum of: (a) the larger of the ADP or ACP for the NHCE Group times 1.25, and (b) the smaller of the ADP or ACP for the NHCE Group, times 2 if the NHCE percentage is less than 2%, or plus 2% if it is greater than 2%. If the multiple use limit is exceeded, the Administrator shall determine a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce either or both the ADP or ACP for the HCE Group by a sufficient amount to meet the multiple use limit. Any excess shall be handled in the same manner that excess Deferrals or Contributions are handled. 12.5 Adjustment for Investment Gain or Loss The net investment gain or loss associated with the excess Deferral or Contribution amount shall be distributed or forfeited in the same manner as the excess amount. Such gain or loss is calculated as follows: E x G x (1 + (10% x M)) ------ (AB - G) where: E = the total excess amount, G = the net gain or loss for the Plan Year from all of an HCE's affected Accounts, AB= the total value of an HCE's affected Accounts, determined as of the end of the Plan Year being corrected, M = the number of full months from the Plan Year end to the date excess amounts are paid, plus one for the month during which payment is to be made if payment will occur after the 15th of that month. 12.6 Required Records The Administrator shall maintain records which are sufficient to demonstrate that the ADP, ACP and Multiple Use Tests have been met for 30 each Plan Year for at least as long as the Employer's corresponding tax year is open to audit. 12.7 Incorporation by Reference The provisions of this Section are intended to satisfy the requirements of Code sections 401(k)(3) and (m)(2) and, to the extent not otherwise stated in this Section, those Code sections are incorporated herein by reference. 31 13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS 13.1 "Annual Addition" Defined The sum of all contributions (excluding rollovers and transfers from another qualified plan) and forfeitures allocated to the Participant's accounts in this Plan and all other defined contribution plans (currently or previously) maintained by any Related Company for the Plan Year (which shall be the Code section 415 limitation year). The Plan Year refers to the year the allocation pertains, regardless of when it is allocated. 13.2 Maximum Annual Addition The Annual Addition to a Participant's accounts under this Plan and any other defined contribution plan maintained by the Employer for any Plan Year shall not exceed the lesser of (1) 25% of his or her Taxable Income or (2) the greater of $30,000 or one-quarter of the dollar limitation in effect under Code section 415(b)(1)(A). 13.3 Avoiding an Excess Annual Addition If the allocation of Employer Contributions would produce an excess Annual Addition, the affected Participant shall receive the maximum Annual Addition from Employer Contributions and the remainder of the Employer Contribution will be allocated in the prescribed manner to all other eligible Participants. 13.4 Correcting an Excess Annual Addition Upon the discovery of a reasonable error (due to estimating a Participant's compensation or other limited facts and circumstances acceptable to the Internal Revenue Service) which has resulted in the allocation to a Participant's Account of an amount which exceeds the Annual Addition limit, the excess amount (adjusted to reflect investment gains) shall be forfeited by the Participant and used to reduce subsequent Contributions as soon as is administratively feasible. The Employer shall pay each affected Participant an amount equal to any forfeiture from his or her Pre-Tax Account. 13.5 Correcting a Multiple Plan Excess If a Participant, whose Account is credited with an excess Annual Addition, received allocations to more than one defined contribution plan, the excess shall be corrected by reducing the Annual Addition to this Plan only after all possible reductions have been made to the other defined contribution plans. 32 13.6 "Defined Benefit Fraction" Defined The fraction, for any Plan Year, where the numerator is the "projected annual benefit" and the denominator is the greater of 125% of the "protected current accrued benefit" or the normal limit which is the lesser of (1) 125% of the maximum dollar limitation provided under Code section 415(b)(1)(A) for the Plan Year or (2) 140% of the amount which may be taken into account under Code section 415(b)(1)(B) for the Plan Year, where a Participant's: (a) "projected annual benefit" is the annual benefit provided by the Plan determined pursuant to Code section 415(e)(2)(A), and (b) "protected current accrued benefit" in a defined benefit plan in existence on July 1, 1982, shall be the accrued annual benefit provided for under Public Law 97-248, section 235(g)(4), as amended. 13.7 "Defined Contribution Fraction" Defined The fraction where the numerator is the sum of the Participant's Annual Addition for each Plan Year to date and the denominator is the sum of the "annual amounts" for each year in which the Participant has performed service with a Related Company. The "annual amount" for any Plan Year is the lesser of (1) 125% of the Code section 415(c)(1)(A) dollar limitation (determined without regard to subsection (c)(6)) in effect for the Plan Year and (2) 140% of the Code section 415(c)(1)(B) amount in effect for the Plan Year, where: (a) each Annual Addition is determined pursuant to the Code section 415(c) rules in effect for such Plan Year, and (b) the numberator is adjusted pursuant to Public Law 97-248, section 235(g)(3), as amended. 13.8 Combined Plan Limits and Correction If a Participant has also participated in a defined benefit plan maintained by a Related Company, the sum of the Defined Benefit Fraction and the Defined Contribution Fraction for any Plan Year may not exceed 1.0. If the combined fraction exceeds 1.0 for any Plan Year, the Participant's defined benefit amount shall be limited so that the combined fraction does not exceed 1.0. 33 14 TOP HEAVY RULES 14.1 Top Heavy Definitions When capitalized, the following words and phrases have the following meanings when used in this Section: (a) "Aggregation Group". The group consisting of each qualified plan maintained by a Related Company (1) in which a Key Employee is a participant, or (2) which enables another plan in the group to meet the requirements of Code sections 401(a)(4) and 410. The Employer may also treat any other qualified plan as part of the group if the group would continue to meet the requirements of Code sections 401(a)(4) and 410 with such plan being taken into account. (b) "Determination Date". The last day of the preceding Plan Year or, in the case of the Plan's first year, the last day of the first Plan Year. (c) "Key Employee". A current or former Employee (or his or her Beneficiary) who at any time during the five year period ending on the Determination Date was: (1) an officer of the Employer whose Taxable Income (i) exceeds 150% of the amount in effect under Code section 415(c)(1)(A) and (ii) places him within the following highest paid group of officers: Number of Highest Paid Employees Officers Included Less than 30 3 30 to 500 10% of the Employees More than 500 50 (2) a more than 5% Owner, (3) a more than 1% Owner whose Taxable Income exceeds $150,000, or (4) a more than 0.5% Owner who is among the 10 Employees owning the largest interest in the Company and whose Taxable Income exceeds the amount in effect under Code section 415(c)(1)(A). 34 (d) "Plan Benefit". The sum as of the Determination Date of (1) an Employee's Account, (2) the present value of his or her other accrued benefits provided by all qualified plans within the Aggregation Group, and (3) the aggregate distributions made within the five year period ending on such date. Plan Benefits shall exclude rollover contributions from a non-related employer made after December 31, 1983. (e) "Top Heavy". The Plan's status when the Plan Benefits of Key Employees account for more than 60% of the Plan Benefits of all Employees who have performed services at any time during the five year period ending on the Determination Date. The Plan Benefits of Employees who were, but are no longer Key Employees (because they have not been an officer or Owner during the five year period), are excluded in the determination. 14.2 Special Contributions (a) Minimum Contribution Requirement. For each Plan Year in which the Plan is Top Heavy, the Employer shall not allow any contributions (other than a Rollover Contribution) to be made by or on behalf of any Key Employee unless the Employer makes a Profit Sharing or Special contribution on behalf of all Participants who were Eligible Employees as of the last day of the Plan Year in an amount equal to at least 3% of each such Participant's Taxable Income. The Administrator shall remove any such contributions (including applicable investment gain or loss) credited to a Key Employee's Account in violation of the foregoing rule and return them to the Employer or Employee to the extent permitted by the Limited Return of Contributions paragraph. (b) Overriding Minimum Benefit. Notwithstanding, contributions shall be permitted on behalf of Key Employees if the Employer also maintains a defined benefit plan which automatically provides a benefit which satisfies the Code section 416(c)(1) minimum benefit requirements, including the adjustment provided in Code section 416(h)(2)(A), if applicable. 14.3 Special Vesting If a Plan becomes Top Heavy after the Effective Date, vesting for all Employees shall thereafter be accelerated to the extent the following vesting schedule produces a greater vested percentage for the Employee than the normal vesting schedule at any relevant time: Years of Vesting Vested Service Percentage ---------------- ----------- 35 Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100% 14.4 Adjustment to Combined Limits for Different Plans For each Plan Year in which the Plan is Top Heavy, 100% shall be substituted for 125% in determining the Defined Benefit Fraction and the Defined Contribution Fraction. 36 15 PLAN ADMINISTRATION 15.1 Plan Delineates Authority and Responsibility Plan fiduciaries include the Company, the Administrator and the Trustee, whose specific duties are delineated in this Plan and Trust. In addition, Plan fiduciaries also include any other person to whom fiduciary duties or responsibility is delegated with respect to the Plan. Any person or group may serve in more than one fiduciary capacity with respect to the Plan. To the extent permitted under ERISA section 405, no fiduciary shall be liable for a breach by another fiduciary. 15.2 Fiduciary Standards Each fiduciary shall: (a) discharge his or her duties in accordance with this Plan and Trust to the extent they are consistent with ERISA; (b) use that degree of care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (c) act with the exclusive purpose of providing benefits to Participants and their Beneficiaries, and defraying reasonable expenses of administering the Plan; (d) diversify Plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and (e) treat similarly situated Participants and Beneficiaries in a uniform and nondiscriminatory manner. 15.3 Company is ERISA Plan Administrator The Company is the plan administrator, within the meaning of ERISA section 3(16), responsible for compliance with all reporting and disclosure requirements, except those that are explicitly the responsibility of the Trustee under applicable law. The Administrator shall have any necessary authority to carry out such functions through the actions of its duly appointed officers. 15.4 Administrator Duties 37 The Administrator shall have the authority to construe this Plan and Trust, other than the provisions which relate to the Trustee, and to do all things necessary or convenient to effect the intent and purpose of the Plan, whether or not such powers are specifically set forth in this Plan and Trust. Actions taken in good faith by the Administrator shall be conclusive and binding on all interested parties, and shall be given the maximum possible deference allowed by law. In addition to the duties listed elsewhere in this Plan and Trust, the Administrator's authority shall include, but not be limited to, the authority to: (a) Determine who is eligible to participate, the allocation of Contributions, and the eligibility for withdrawals, loans and distributions; (b) Provide each Participant with a summary plan description no later than 90 days after he or she has become a Participant (or such other period permitted under ERISA section 104(b)(1)), as well as informing each Participant of any material modification to the Plan in a timely manner; (c) Make a copy of the following documents available to Participants during normal work hours: this Plan and Trust (including subsequent amendments), all annual and interim reports of the Trustee related to the entire Plan, the latest annual report and the summary plan description; (d) Determine the fact of a Participant's death and of any Beneficiary's right to receive the deceased Participant's interest based upon such proof and evidence as it deems necessary; and (e) Establish and review at least annually a funding policy bearing in mind both the short-run and long-run needs and goals of the Plan. To the extent Participants may direct their own investments, the funding policy shall focus on which Investment Funds are available for Participants to use. 15.5 Advisors May be Retained The Administrator may retain such agents and advisors (including attorneys, accountants, actuaries, consultants, record keepers, investment counsel and administrative assistants) as it considers necessary to assist it in the performance of its duties. The Administrator shall also comply with the bonding requirements of ERISA section 412. 15.6 Delegation of Administrator Duties The Administrator shall provide the Trustee with the names and specimen 38 signatures of any person who is authorized to act as or on behalf of the Administrator. The Company may, but shall not be required to, delegate its duties as Administrator by appointing a committee (the "Committee") which shall be responsible for performing the duties allocated to the Administrator in this Plan and Trust. Any Committee member appointed by the Company shall serve at the pleasure of the Company, but may resign by written notice to the Company. Committee members shall serve without compensation from the Plan for such services. 15.7 Committee Operating Rules (a) Actions on Majority. Any act delegated by the Administrator to the Committee may be done by a majority of its members. The majority may be expressed by a vote at a meeting or in writing without a meeting, and a majority action shall be equivalent to an action of all Committee members. (b) Meetings. The Committee shall hold meetings upon such notice, place and times as it determines necessary to conduct its functions properly. (c) Reliance by Trustee. The Committee may authorize one or more of its members to execute documents on its behalf and give written direction to the Trustee in the performance of its duties. The Trustee shall accept such direction and rely upon it until notified in writing that the Committee has revoked the authorization to give such direction. The Trustee shall not be deemed to be on notice of any change in the membership of the Committee or the duties delegated to the Committee until notified in writing. 39 16 MANAGEMENT OF INVESTMENTS 16.1 Trust Agreement All Plan assets shall be held by the Trustee in trust, in accordance with those provisions of this Plan and Trust which relate to the Trustee, for use in providing Plan benefits and paying Plan expenses not paid directly by the Employer. Plan benefits will be drawn solely from the Trust and paid by the Trustee as directed by the Administrator. 16.2 Investment Funds The Administrator is hereby granted authority to direct the Trustee to invest Trust assets in various Investment Funds. The Investment Funds shall be comprised of: (a) collective investment funds maintained by the Trustee which are available for investment by trusts which are qualified under Code sections 401(a) and 501(a); (b) guaranteed investment contracts purchased from a bank or insurance company prior to the Effective Date; (c) interest bearing deposits of the Trustee; and (d) Employer common or preferred stock which is readily tradable and listed on a national securities exchange (or quoted on a system sponsored by a national securities association) registered under the Securities Exchange Act of 1934, as amended. Any Investment Fund assets invested in a collective investment fund of the Trustee shall be subject to all the provisions of the instruments establishing and governing the collective investment fund. These instruments, including any subsequent amendments, are incorporated hereby by reference. Notwithstanding, the Administrator may appoint, with the approval of the Trustee, another trustee to hold and administer Plan assets which do not meet these requirements. 16.3 Authority to Hold Cash Each Participant's Sweep Account, which is used to hold assets pending investment or disbursement, shall consist of interest bearing deposits of the Trustee. The Trustee may also maintain sufficient deposit or money market type assets in each Investment Fund to handle the ordinary administration of the Plan and disbursement of funds. 40 16.4 Trustee to Act Upon Instructions The Trustee shall carry out investment instructions during each investment cycle that begins on the Sweep Date after such instructions are received from the Administrator or Participants. Such instructions shall remain in effect until changed by the Administrator or Participants. 16.5 Trustee is Investment Manager The authority to manage, acquire and dispose of Trust assets in the Investment Funds is hereby vested in the Trustee. 16.6 Investment in Employer Stock If the Company provides an Employer Stock Investment Fund option for Participants, the Trustee may acquire and hold sufficient Employer common or preferred stock to comply with Participants' investment elections of such Fund. 16.7 Voting and Tendering Employer Stock Each Participant shall be entitled to direct the Trustee to vote or tender Employer common or preferred stock held on his or her behalf in the Employer Stock Investment Fund based upon the customary procedure of the Trustee for the voting and tendering of employer securities it holds in trust. The Administrator shall instruct the Trustee with respect to how to vote or tender any shares for which directions are not received from Participants. 16.8 Registration and Disclosure for Employer Stock The Administrator shall be responsible for determining the applicability (and, if applicable, complying with) the requirements of the Securities Act of 1933, as amended, the California Corporate Securities Law of 1968, as amended, and any other applicable blue sky law. The Administrator shall also specify what restrictive legend or transfer restriction, if any, is required to be set forth on the certificates for the securities and the procedure to be followed by the Trustee to effectuate a resale of such securities. 41 17 TRUST ADMINISTRATION 17.1 Trustee to Construe Trust The Trustee shall have the authority to construe those provisions of this Plan and Trust which relate to the Trustee and to do all things necessary or convenient to the administration of the Trust, whether or not such powers are specifically set forth in this Plan and Trust. Actions taken in good faith by the Trustee shall be conclusive and binding on all interested parties, and shall be given the maximum possible deference allowed by law. 17.2 Trustee To Act As Owner of Trust Assets Subject to the specific conditions and limitations set forth in this Plan and Trust, the Trustee shall have all the power, authority, rights and privileges of an absolute owner of the Trust assets and, not in limitation but in amplification of the foregoing, may: (a) receive, hold, manage, invest and reinvest, sell, tender, exchange, dispose of, encumber, hypothecate, pledge, mortgage, lease, grant options respecting, repair, alter, insure, or distribute any and all property in the Trust; (b) borrow money, participate in reorganizations, pay calls and assessments, vote or execute proxies, exercise subscription or conversion privileges, exercise options and register any securities in the Trust in the name of the nominee, in federal book entry form or in any other form as will permit title thereto to pass by delivery; (c) renew, extend the due date, compromise, arbitrate, adjust, settle, enforce or foreclose, by judicial proceedings or otherwise, or defend against the same, any obligations or claims in favor of or against the Trust; and (d) lend, through a collective investment fund, any securities held in such collective investment fund to brokers, dealers or other borrowers and to permit such securities to be transferred into the name and custody and be voted by the borrower of others. 17.3 United States Indicia of Ownership The Trustee shall not maintain the indicia or ownership of any Trust assets outside the jurisdiction of the United States, except as authorized by ERISA section 404(b). 17.4 Tax Withholding and Payment 42 (a) Withholding. The Administrator shall provide the Trustee with a signed withholding form (which is acceptable to the Trustee) for any Participant or Beneficiary who is to receive a taxable distribution from the Trust. The Trustee shall calculate and withhold federal (and, if agreed to with the Administrator, state) income taxes as directed on the withholding form. (b) Taxes Due From Investment Funds. The Trustee shall pay from the Investment Fund any taxes or assessments imposed by any taxing or governmental authority on such Fund or its income, including related interest and penalties. 17.5 Trustee Duties and Limitations The Trustee's duties shall be confined to receiving funds on behalf of and making payments from the Trust, safeguarding and valuing Trust assets, and investing and reinvesting Trust assets in the Investment Funds as directed by the Administrator or Participants. The Trustee shall have no duty or authority to ascertain whether Contributions are in compliance with the Plan, to enforce collection or to compute or verify the accuracy or adequacy or any amount to be paid to it by the Employer. The Trustee shall not be liable for the proper application of any part of the Trust with respect to any disbursement made in accordance with the written directions of the Administrator. 17.6 Trust Accounting (a) Annual Report. Within 60 days (or other reasonable period) following the close of the Plan Year, the Trustee shall provide the Administrator with an annual accounting of Trust assets and information to assist the Administrator in meeting ERISA's annual reporting and audit requirements. (b) Periodic Reports. The Trustee shall maintain records and provide sufficient reporting to allow the Administrator to properly monitor the Trust's assets and activity. (c) Administrator Approval. Approval of any Trustee accounting will automatically occur 90 days after such accounting has been received by the Administrator, unless the Administrator files a written objection with the Trustee within such time period. Such approval shall be final as to all matters and transactions stated or shown therein and binding upon the Administrator. 17.7 Valuation of Certain Assets 43 If the Trustee determines the Trust holds any asset which is not readily tradable and listed on a national securities exchange registered under the Securities Exchange Act of 1934, as amended, the Trustee may engage a qualified independent appraiser to determine the fair market value of such property, and the appraisal fees shall be paid from the Investment Fund containing the asset. 17.8 Legal Counsel The Trustee may consult with legal counsel of its choice, including counsel for the Employer or counsel of the Trustee, upon any question or matter arising under this Plan and Trust. When relied upon by the Trustee, the opinion of such counsel shall be evidence that the Trustee has acted in good faith. 17.9 Fees and Expenses The Trustee's fees for its services as Trustee shall be such as may be mutually agreed upon by the Company and the Trustee. Trustee fees and all reasonable expenses of counsel and advisors retained by the Trustee may be paid by the Employer. If the Employer chooses not to pay for these fees and expenses, or if they remain unpaid by the Employer for a period of 60 days, the Trustee may cause such fees and expenses to be paid from the Trust. 44 18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION 18.1 Plan Does Not Affect Employment Rights The Plan does not provide any employment rights to any Employee. The Employer expressly reserves the right to discharge an Employee without regard to the effect such discharge would have upon the Employee's interest in the Plan. 18.2 Limited Return of Contributions Except as provided in this paragraph, (1) Plan assets shall not revert to the Employer nor be diverted for any purpose other than the exclusive benefit of Participants or their Beneficiaries; and (2) a Participant's vested interest shall not be subject to divestment. As provided in ERISA's section 403(c)(2), the actual amount of a Contribution (or the current value of the Contribution if a net loss has occurred) may revert to the Employer if such Contribution is: (a) made by reason of a mistake or fact; (b) conditioned on the initial qualification of the Plan under Code section 401(a); or (c) conditioned upon its deductibility under Code section 404. The reversion to the Employer must be made within one year of the mistaken payment of the Contribution, the date of denial of qualification, or disallowance of deduction, as the case may be. A Participant shall have no rights under the Plan with respect to any such reversion. 18.3 Assignment and Alienation As provided by Code section 401(a)(13), no benefit provided by the Plan may be anticipated, assigned or alienated, except: (a) to create, assign or recognize a right to any benefit with respect to a Participant pursuant to a QDRO, or (b) to use a Participant's vested Account balance as security for a loan from the Plan. 18.4 Facility of Payment If a Plan benefit is due to be paid to a minor or a person who is unable to care for his or her affairs due to illness or accident, the Administrator 45 may instead direct that the benefit be paid in complete satisfaction of its obligation, to any person acting as his or her custodian under the California Uniform Transfers to Minors Act, his or her legal representative or a near relative, or directly for his or her support, maintenance or education. 18.5 Reallocation of Lost Participant's Accounts If the Administrator cannot locate a person entitled to payment of a Plan benefit after a reasonable search, the Administrator may at any time thereafter treat such person's Account as it would a forfeiture. If such person subsequently presents the Administrator with a valid claim for the benefit, such person shall be paid the amount treated as forfeited, plus the interest that would have been earned in the Sweep Account to the date of determination. The Administrator shall direct the Trustee to pay the amount from the Forfeiture Account or through an additional Employer Contribution. 18.6 Claims Procedure (a) Right to Make Claim. An interested party who disagrees with the Administrator's determination of his or her right to Plan benefits, must submit a written claim and exhaust this claim procedure before legal recourse of any type is sought. The claim must include the important issues the interested party believes support the claim. (b) Process for Denying a Claim. The Administrator's partial or complete denial of an initial claim must include an understandable, written response covering (1) the specific reasons why the claim is being denied (with reference to the pertinent Plan provisions) and (2) the steps necessary to perfect the claim and obtain a final review. (c) Appeal of Denial and Final Review. The interested party may make a written appeal of the Administrator's initial decision, and the Administrator shall respond in the same manner and form as prescribed for denying a claim initially. (d) Time Frame. The initial claim, its review, appeal and final review shall be made in a timely fashion, subject to the following time table: ACTION MAXIMUM RESPONSE TIME File initial claim 60 days after benefit determined Initial claim review 90 days after claim filed 46 However, the Administrator may take up to twice the maximum response time for its initial and final review if it provides an explanation within the normal period of why an extension is needed and when its decision will be forthcoming. 18.7 Construction Headings are included for reading convenience. The text shall control if any ambiguity or inconsistency exists between the headings and the text. The singular and plural shall be interchanged wherever appropriate. 18.8 Jurisdiction and Severability The Plan and Trust shall be construed, regulated and administered under ERISA and other applicable federal laws and, where not otherwise preempted, by the laws of the State of California. If any provision of this Plan and Trust shall become invalid or unenforceable, that fact shall not affect the validity or enforceability of any other provision of this Plan and Trust. All provisions of this Plan and Trust shall be so construed as to render them valid and enforceable in accordance with their intent. 18.9 Indemnification by Employer The Company hereby agrees to indemnify all Plan fiduciaries against any and all liabilities resulting from any action or inaction, in relation to the Plan or Trust (1) including (without limitation) expenses reasonably incurred in the defense of any claim relating to the Plan or its assets, and amounts paid in any settlement relating to the Plan or its assets, but (2) excluding actions or inactions made in bad faith, or resulting from the negligence or or breach of fiduciary duty of the Trustee. The Company shall have the right, but not the obligation, to conduct the defense of any action to which this paragraph applies. The fiduciaries are not entitled to indemnity from the Plan assets relating to any such action. 47 19 AMENDMENT, MERGER AND TERMINATION 19.1 Amendment The Company reserves the right to amend this Plan and Trust at any time, to any extent and in any manner it may deem necessary or appropriate. The Company (and not the Trustee) shall be responsible for adopting any amendments necessary to maintain the qualified status of this Plan and Trust under Code sections 401(a) and 501(a). The Administrator shall have the authority to adopt Plan amendments which have no substantial adverse financial impact upon the Employer or the Plan. All interested parties shall be bound by any amendment, provided that no amendment shall: (a) Become effective until it is accepted in writing by the Trustee; (b) Make it possible for any portion of the Trust assets to revert to the Employer or to be used for, or diverted to, any purpose other than for the exclusive benefit of Participants and Beneficiaries entitled to Plan benefits: (c) Decrease the rights of any affected Employee to benefits accrued to the date on which the amendment is adopted, or if later, the date upon which the amendment becomes effective; or (d) Permit an Employee to be paid the balance of his or her Pre-Tax Account unless the Related Company (or the subsidiary) employing the Employee (1) terminates its participation in the Plan and does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code section 4975) or (2) transfers the Employee to an acquiring company through the disposition of corporate assets (within the meaning of Code section 409(d)(2)) as provided for in Code sections 401(k)(2)(B) and (10). 19.2 Merger This Plan and Trust may not be merged or consolidated with, nor may its assets or liabilities transferred to another Plan, unless each Participant and Beneficiary would receive a benefit just after the merger, consolidation or transfer which is at least equal to the benefit which would be received if the Plan had terminated just before such event. 19.3 Plan Termination The Company may, at any time and for any reason, terminate the Plan in full or in part, or completely discontinue contributions. Upon any of these 48 events, the rights of each affected Employee to benefits accrued to that date shall be fully vested. Distributions or withdrawals will be made in accordance with the terms of the Plan which are subject to amendment at the time of the Plan's termination. The Trustee's authority shall continue beyond the Plan's termination date until all Trust assets have been liquidated and distributed. 19.4 Termination of Related Company's Participation Any Related Company may terminate its Plan participation upon written notice executed by the Related Company and delivered to the Company. Upon the Related Company's request, the Company may instruct the Trustee and Administrator to spin off all affected Accounts and underlying assets into a separate qualified plan under which the Related Company shall assume the powers and duties of the Company. Alternatively, the Company may treat the event as a partial termination described above or continue to maintain the Accounts under the Plan. 19.5 Replacement of the Trustee The Trustee may resign as Trustee under this Plan and Trust or may be removed by the Company at any time upon at least 90 days written notice (or less if agreed to by both parties). In such event, the Company shall appoint a successor trustee by the end of the notice period. The successor trustee shall then succeed to all the powers and duties of the Trustee under this Plan and Trust. If no successor trustee has been named by the end of the notice period, the Company's chief executive officer shall become the trustee, or if he or she declines, the Trustee may petition the court for the appointment of a successor Trustee. 19.6 Final Settlement and Accounting of Trustees (a) Final Settlement. As soon as is administratively feasible after its resignation or removal as Trustee, the Trustee shall transfer to the successor trustee all property currently held by the Trust. However, the Trustee is authorized to reserve such sum of money as it may deem advisable for payment of its accounts and expenses in connection with the settlement of its accounts or other fees or expenses payable by the Trust. Any balance remaining after payment of such fees and expenses shall be paid to the successor trustee. (b) Final Accounting. The Trustee shall provide a final accounting to the Administrator within 90 days of the date Trust assets are transferred to the successor trustee. (c) Administrator Approval. Approval of the final accounting will 49 automatically occur 90 days after such accounting has been received by the Administrator, unless the Administrator files a written objection with the Trustee within such time period. Such approval shall be final as to all matters and transactions stated or shown therein and binding upon the Administrator. 50 APPENDIX A The Investment Funds offered to Participants and Beneficiaries as of the Effective Date include this set of monthly valued funds: Employer's Transition GIC Fund Asset Allocation Fund Tilts and Timing Fund If investment instructions are not received from any Participant, his or her investment instructions shall be assumed to be a 100% investment in the Employer's Transition GIC Fund. 51 ACTION OF THE BOARD OF DIRECTORS OF KOLL MANAGEMENT SERVICES WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its eligible employees; WHEREAS, the Koll Management Services (the "Related Company") is a Related Company as defined in the Plan; WHEREAS, the Plan provides that any Related Company may become a participating Employer as defined in the Plan with the approval of the company; NOW, THEREFORE, RESOLVED, that the Related Company hereby adopts the amended and restated Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an Employer; IN WITNESS WHEREOF, each of the undersigned directors has hereunto signed his name as of the date herein shown below. Date:9-3-91 Koll Management Services By: /s/ --------------------------------- Title: President --------------------------------- The adoption of the Plan by the Related Company is hereby approved. Date:9-3-91 The Koll Company By: /s/ Lynda M. Lane --------------------------------- Title: Sr. V.P., Administration --------------------------------- ACTION OF THE BOARD OF DIRECTORS OF KOLL REALTY ADVISORS WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its eligible employees; WHEREAS, the Koll Realty Advisors (the "Related Company") is a Related Company as defined in the Plan; WHEREAS, the Plan provides that any Related Company may become a participating Employer as defined in the Plan with the approval of the Company; NOW, THEREFORE, RESOLVED, that the Related Company hereby adopts the amended and restated Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an Employer; IN WITNESS WHEREOF, each of the undersigned directors has hereunto signed his name as of the date herein shown below. Date: ______________________ Koll Realty Advisors By: --------------------------------- Title: --------------------------------- The adoption of the Plan by the Related Company is hereby approved. Date:9-22-89 The Koll Company By: /s/ Lynda M. Lane --------------------------------- Title: --------------------------------- ACTION OF THE BOARD OF DIRECTORS OF KOLL CONSTRUCTION COMPANY WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its eligible employees; WHEREAS, the Koll Construction Company (the "Related Company") is a Related Company as defined in the Plan; WHEREAS, the Plan provides that any Related Company may become a participating Employer as defined in the Plan with the approval of the Company; NOW, THEREFORE, RESOLVED, that the Related Company hereby adopts the amended and restated Plan and Trust which is effective as of July 1, 1989 and thereby continue its participation as an Employer; IN WITNESS WHEREOF, each of the undersigned directors has hereunto signed his name as of the date herein shown below. Date: ________________ Koll Construction Company By: --------------------------------- Title: --------------------------------- The adoption of the Plan by the Related Company is hereby approved. Date:9-22-89 The Koll Company By: /s/ Lynda M. Lane --------------------------------- Title: Sr. V.P. Administration --------------------------------- RESOLUTIONS ADOPTED BY THE ADMINISTRATOR AMENDING THE KOLL COMPANY 401(k) PLUS PLAN WHEREAS, The Koll Company (the "Company") approved and adopted The Koll Company 401(k) Plus (the "Plan") and Trust Agreement (the "Trust") which were originally effective April 1, 1978, and which have subsequently been amended; and WHEREAS, the Company reserved the right, through the Board of Directors or Plan Administrator, to amend the Plan and Trust; and WHEREAS, the Company has determined that it is in the best interests of the Company and the participants and beneficiaries to amend the Plan and Trust. NOW, THEREFORE, BE IT RESOLVED that Section 9.2(b) of the Plan is amended, effective July 1, 1989, as follows: "(b) Plan Maximum Limit. Subject to the legal limit described in Section 9.2(c), the maximum a Participant may borrow, including the outstanding balance of existing Plan loans, is based upon the following Accounts of the Participant which are fully vested (the "Source Amount"): Pre-Tax Account Rollover Account The maximum loan amount is equal to 100% of the Source Amount, up to a maximum of $50,000." IN WITNESS WHEREOF, the Company, as Plan Administrator, has adopted the above amendment as evidenced by signature of the undersigned representative of the Plan committee. Date: 10-11 1990 By: /s/ Lynda M. Lane --------------------------------- Title: Sr. Vice Pres. --------------------------------- October 2, 1990 Ms. Sharon Leahy Manager, Compensation & Benefits The Koll Company 4343 Von Karman Avenue Newport Beach, CA 92660-2083 Re: Amendment to The Koll Company 401(k) Plus Plan Dear Shari: Enclosed, as we discussed, is a revised proposed amendment to The Koll Company 401(k) Plus Plan. This one clarifies that a participant may borrow up to 100% of his "Source Amount", as long as he does not borrow more than 50% of his "Vested Interest". Let me know if you have any questions. Otherwise, please send me an executed copy of the amendment as soon as it is available. Sincerely, /s/ Cornelia R. Cooper Cornelia R. Cooper ACTION OF THE BOARD OF DIRECTORS OF THE KOLL COMPANY AMENDMENT AND RESTATEMENT OF THE THE KOLL COMPANY 401(k) PLUS PLAN WHEREAS, The Koll Company (the "Company") approved and adopted the The Koll Company 401(k) Plus Plan, formerly called The Koll Company Profit Sharing and 401(k) Plan, (the "Plan"), and Trust Agreement (the "Trust") which were originally effective April 1, 1978, and which have subsequently been amended; WHEREAS, the Company reserved the right to amend the Plan and Trust; WHEREAS, the purpose of the Plan has changed sufficiently to warrant a change in the Plan name; WHEREAS, the Company has decided that it is in the best interest of participants and beneficiaries to amend the Plan and Trust, and to modify their operations; and WHEREAS, the Company has entered into a letter of understanding with Wells Fargo Bank to provide record keeping, trustee and investment management services for the Plan and Trust under its 401(k) MasterWorks program; NOW, THEREFORE, RESOLVED, that the attached document renames, amends and restates the Plan and Trust into a single document effective as of July 1, 1989; FURTHER RESOLVED, that Wells Fargo Bank, National Association, continue as Trustee for the Plan in conjunction with its 401(k) MasterWorks program; FURTHER RESOLVED, that the Company is the Administrator under the Plan, and that as the Administrator, the Company appoints the following committee to carry out the Company's responsibilities as Administrator under the Plan and Trust: Raymond E. Wirta Lynda M. Lane Lawrence W. Kellner FURTHER RESOLVED, the Company authorizes the committee members to do all things, perform all acts and execute all documents deemed by them to be necessary or appropriate to give effect to the purpose and intent of these resolutions which include, but are not limited to (1) executing the Plan and Trust, (2) securing a favorable determination letter for the amended and restated Plan and Trust, and (3) amending the Plan and Trust as necessary to obtain such a determination letter or to make other changes which do not have a material cost impact to the Company. Signed: /s/ Lynda M. Lane Date: 9-22-89 -------------------------- -------- RESOLUTION ADOPTED BY THE ADMINISTRATOR REGARDING THE KOLL COMPANY 401(k) PLUS PLAN Whereas, The Koll Company (the "Company") approved and adopted The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") which were originally adopted April 1, 1978, which has subsequently been amended; Whereas, the Company has decided that it is in the best interest of the participants and beneficiaries to adopt a resolution relative to the payment of Company Matching Contributions as provided in paragraph 5.1(b); It is now, therefore, resolved that: 1. For the quarter of October 1, 1989 through December 31, 1989, the Matching Contribution shall be equal to 100% of each eligible Participant's Pre-Tax Contribution for the period, provided that no Matching Contributions shall be made based upon a Participant's Contribution in excess of 5% of his or her pay. 2. Beginning January 1, 1990, the Matching Contribution will be changed to 50% of each eligible Participant's Pre-Tax Contribution provided that no Matching Contributions shall be made based upon a Participant's Contribution in excess of 5% of his or her pay. In witness whereof, the adoption of this resolution is hereby approved. Date August 30, 1990 By /s/ Lynda M. Lane ------------------- ------------------------------------ Lynda M. Lane Senior Vice President Administration THE KOLL COMPANY 401(k) PLUS PLAN AND TRUST As Amended and Restated July 1, 1989 The Koll Company established The Koll Company 401(k) Plus Plan for the benefit of eligible employees of the Company and its participating affiliates. The Plan is intended to constitute a qualified profit sharing plan, as described in Code section 401(a), which includes a qualified cash or deferred arrangement, as described in Code section 401(k). The provisions of this Plan and Trust relating to the Trustee constitute the trust agreement which is entered into by and between The Koll Company and Wells Fargo Bank, National Association. The Trust is intended to be tax exempt as described under Code section 501(a). The Plan constitutes an amendment and restatement of The Koll Company Profit Sharing & 401(k) Plan which was originally established effective as of April 1, 1978, and its related trust agreement. The Koll Company 401(k) Plus Plan and Trust, as set forth in this document, is hereby executed. Date: 9-22, 1989 The Knoll Company By: /s/ Lynda M. Lane ----------------------------------- Title: Sr V.P. Administration ----------------------------- The trust agreement set forth in those provisions of this Plan and Trust which relate to the Trustee is hereby executed. Date: 10-2, 1989 Wells Fargo Bank, National Association By: /s/ ----------------------------------- Title: ASSISTANT VICE PRESIDENT AND TRUST OFFICER RESOLUTIONS ADOPTED BY THE ADMINISTRATOR AMENDING THE KOLL COMPANY 401(k) PLUS PLAN WHEREAS, The Koll Company (the "Company") approved and adopted the Koll Company 401(k) Plus (the "Plan") and Trust Agreement (the "Trust") which were originally effective April 1, 1978, and which have subsequently been amended; WHEREAS, the Company reserved the right to amend the Plan and Trust; WHEREAS, the Company has decided that it is in the best interest of the participants and beneficiaries to amend the Plan and Trust, and to modify their operations; and NOW, THEREFORE, RESOLVED, that the Plan is amended as follows: 1. Section 1.16 is amended by adding the following sentence: Pursuant to Code Section 414 (q), the Company elects for the lookback year to be the 12 months ending immediately prior to the start of the Plan year IN WITNESS WHEREOF, each of the undersigned directors has hereunto signed his/her name as of the date herein shown below. The Koll Company Date 19 By: ---------- --- ----------------------------------- Title: --------------------------------- Date 19 By: ---------- --- ----------------------------------- Title: --------------------------------- The adoption of the amendment is hereby approved. Date FEB 1 1990 By: /s/ Lynda Lane ----------------------------------- Lynda Lane Title: Senior Vice President, -------------------------------- Administration AMENDMENT TO THE KOLL COMPANY PROFIT SHARING AND 401(K) PLAN WHEREAS The Koll Company (the "Employer") adopted The Koll Company Profit Sharing and 401(K) Plan (the "Plan") in order to provide retirement income to its eligible employees; and WHEREAS it has become necessary to amend said plan; NOW THEREFORE, said plan is amended as follows; 1. Section 7.4, "Valuation of Accounts" is amended to include the following: The net earnings, gains and losses of the Trust Fund and Changes in the fair market value of the Trust Fund assets that are a part of the Participants' Employer Regular Profit Sharing Account described in Section 7.1(b) shall be allocated annually except for the six months ended June 30, 1989 where they will be allocated at that date. The effective date of this Amendment shall be February 15, 1988. IN WITNESS WHEREOF, the Employer has caused this Amendment to be executed this 16 day of October 1989. THE KOLL COMPANY APPROVED: /s/ Lynda Lane BY: /s/ Lynda Lane ------------------------ ----------------------------------- Sr. V.P. Administration ----------------------------------- TABLE OF CONTENTS 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Ineligible Employees. . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 Ineligible Participants . . . . . . . . . . . . . . . . . . . . . . . 7 3 PARTICIPANT CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 8 3.1 Pre-Tax Contribution Election . . . . . . . . . . . . . . . . . . . . 8 3.2 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.3 Stopping Contributions. . . . . . . . . . . . . . . . . . . . . . . . 8 3.4 Contribution Percentage Limits. . . . . . . . . . . . . . . . . . . . 8 3.5 Refunds When Pre-Tax Dollar Limit Exceeded. . . . . . . . . . . . . . 8 3.6 Timing, Posting and Tax Considerations. . . . . . . . . . . . . . . . 9 4 ROLLOVERS & TRUST-TO-TRUST TRANSFERS . . . . . . . . . . . . . . . . . . . 10 4.1 Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.2 Transfers From Other Qualified Plans. . . . . . . . . . . . . . . . . 10 5 EMPLOYER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.1 Matching Contributions. . . . . . . . . . . . . . . . . . . . . . . . 11 6 ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.1 Individual Participant Accounting . . . . . . . . . . . . . . . . . . 12 6.2 Sweep Account is Transaction Account. . . . . . . . . . . . . . . . . 12 6.3 Trade Date Accounting and Investment Cycle. . . . . . . . . . . . . . 12 6.4 Accounting for Investment Funds . . . . . . . . . . . . . . . . . . . 12 6.5 Accounting for Participant Loans. . . . . . . . . . . . . . . . . . . 13 6.6 Company Decides Who Pays Fees and Expenses. . . . . . . . . . . . . . 13 6.7 How Fees and Expenses are Charged to Participants . . . . . . . . . . 13 6.8 Error Correction. . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.9 Participant Statements. . . . . . . . . . . . . . . . . . . . . . . . 13 6.10 Special Accounting During Conversion Period . . . . . . . . . . . . . 14 6.11 Accounts for QDRO Beneficiaries . . . . . . . . . . . . . . . . . . . 14 7 INVESTMENT FUNDS AND ELECTIONS . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Investment Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.2 Investment Fund Elections . . . . . . . . . . . . . . . . . . . . . . 15 7.3 Responsibility for Investment Choice. . . . . . . . . . . . . . . . . 15 7.4 Default if No Election. . . . . . . . . . . . . . . . . . . . . . . . 15 7.5 Timing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.6 Switching Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 8 VESTING & FORFEITURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.1 Fully Vested Contribution Accounts. . . . . . . . . . . . . . . . . . 17 8.2 Full Vesting upon Certain Events. . . . . . . . . . . . . . . . . . . 17 8.3 Vesting Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.4 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.5 Rehired Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 18 9 PARTICIPANT LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.1 Participant Loans Permitted . . . . . . . . . . . . . . . . . . . . . 19 9.2 Loan Funding Limits . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.3 Maximum Number of Loans . . . . . . . . . . . . . . . . . . . . . . . 19 9.4 Source of Loan Funding. . . . . . . . . . . . . . . . . . . . . . . . 20 9.5 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.6 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.7 Repayment Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.8 Loan Application, Note and Security . . . . . . . . . . . . . . . . . 20 9.9 Default, Suspension and Call Feature. . . . . . . . . . . . . . . . . 21 10 IN-SERVICE WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . . . 22 10.1 Withdrawals for Hardship . . . . . . . . . . . . . . . . . . . . . . 22 10.2 Withdrawals for Participants over Age 59-1/2 . . . . . . . . . . . . 23 10.3 Withdrawal Processing. . . . . . . . . . . . . . . . . . . . . . . . 23 11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS. . . . . . . . . . . . . . . . . . . . 25 11.1 Benefit Election . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.2 Payment Form and Medium. . . . . . . . . . . . . . . . . . . . . . . 25 11.3 Small Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.4 Latest Commencement Permitted. . . . . . . . . . . . . . . . . . . . 25 11.5 Payment Within Life Expectancy . . . . . . . . . . . . . . . . . . . 25 11.6 Incidental Benefit Rule. . . . . . . . . . . . . . . . . . . . . . . 26 11.7 Payment to Beneficiary . . . . . . . . . . . . . . . . . . . . . . . 26 11.8 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 12 ADP AND ACP TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 12.1 Contribution Limitation Definitions. . . . . . . . . . . . . . . . . 28 12.2 ADP and ACP Tests. . . . . . . . . . . . . . . . . . . . . . . . . . 29 12.3 Correction of ADP and ACP Tests. . . . . . . . . . . . . . . . . . . 29 12.4 Multiple Use Test. . . . . . . . . . . . . . . . . . . . . . . . . . 30 12.5 Adjustment for Investment Gain or Loss . . . . . . . . . . . . . . . 30 12.6 Required Records . . . . . . . . . . . . . . . . . . . . . . . . . . 30 12.7 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . 31 13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS. . . . . . . . . . . . . . . 32 13.1 "Annual Addition" Defined. . . . . . . . . . . . . . . . . . . . . . 32 13.2 Maximum Annual Addition. . . . . . . . . . . . . . . . . . . . . . . 32 13.3 Avoiding an Excess Annual Addition . . . . . . . . . . . . . . . . . 32 13.4 Correcting an Excess Annual Addition . . . . . . . . . . . . . . . . 32 13.5 Correcting a Multiple Plan Excess. . . . . . . . . . . . . . . . . . 32 13.6 "Defined Benefit Fraction" Defined . . . . . . . . . . . . . . . . . 33 13.7 "Defined Contribution Fraction" Defined. . . . . . . . . . . . . . . 33 13.8 Combined Plan Limits and Correction . . . . . . . . . . . . . . . . . 33 14 TOP HEAVY RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 14.1 Top Heavy Definitions. . . . . . . . . . . . . . . . . . . . . . . . 34 14.2 Special Contributions. . . . . . . . . . . . . . . . . . . . . . . . 35 14.3 Special Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . 35 14.4 Adjustment to Combined Units for Different Plans . . . . . . . . . . 36 15 PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 15.1 Plan Delineates Authority and Responsibility . . . . . . . . . . . . 37 15.2 Fiduciary Standards. . . . . . . . . . . . . . . . . . . . . . . . . 37 15.3 Company is ERISA Plan Administrator. . . . . . . . . . . . . . . . . 37 15.4 Administrator Duties . . . . . . . . . . . . . . . . . . . . . . . . 37 15.5 Advisors May be Retained . . . . . . . . . . . . . . . . . . . . . . 38 15.6 Delegation of Administrator Duties . . . . . . . . . . . . . . . . . 38 15.7 Committee Operating Rules. . . . . . . . . . . . . . . . . . . . . . 39 16 MANAGEMENT OF INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 40 16.1 Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 16.2 Investment Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 40 16.3 Authority to Hold Cash . . . . . . . . . . . . . . . . . . . . . . . 40 16.4 Trustee to Act Upon Instructions . . . . . . . . . . . . . . . . . . 41 16.5 Trustee is Investment Manager. . . . . . . . . . . . . . . . . . . . 41 16.6 Investment in Employer Stock . . . . . . . . . . . . . . . . . . . . 41 16.7 Voting and Tendering Employer Stock. . . . . . . . . . . . . . . . . 41 16.8 Registration and Disclosure for Employer Stock . . . . . . . . . . . 41 17 TRUST ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 42 17.1 Trustee to Construe Trust. . . . . . . . . . . . . . . . . . . . . . 42 17.2 Trustee To Act As Owner of Trust Assets. . . . . . . . . . . . . . . 42 17.3 United States Indicia of Ownership . . . . . . . . . . . . . . . . . 42 17.4 Tax Withholding and Payment. . . . . . . . . . . . . . . . . . . . . 42 17.5 Trustee Duties and Limitations . . . . . . . . . . . . . . . . . . . 43 17.6 Trust Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . 43 17.7 Valuation of Certain Assets. . . . . . . . . . . . . . . . . . . . . 43 17.8 Legal Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 17.9 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 44 18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION . . . . . . . . . . . . 45 18.1 Plan Does Not Affect Employment Rights . . . . . . . . . . . . . . . 45 18.2 Limited Return of Contributions. . . . . . . . . . . . . . . . . . . 45 18.3 Assignment and Alienation. . . . . . . . . . . . . . . . . . . . . . 45 18.4 Facility of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 45 18.5 Reallocation of Lost Participant's Accounts. . . . . . . . . . . . . 46 18.6 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 46 18.7 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 18.8 Jurisdiction and Severability. . . . . . . . . . . . . . . . . . . . 47 18.9 Indemnification by Employer. . . . . . . . . . . . . . . . . . . . . 47 19 AMENDMENT, MERGER AND TERMINATION . . . . . . . . . . . . . . . . . . . . 48 19.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 19.2 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 19.3 Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 48 19.4 Termination of Related Company's Participation . . . . . . . . . . . 49 19.5 Replacement of the Trustee . . . . . . . . . . . . . . . . . . . . . 49 19.6 Final Settlement and Accounting of Trustee . . . . . . . . . . . . . 49 1 DEFINITIONS When capitalized, the following words and phrases have the following meanings unless a different meaning is clearly required by the context: 1.1 "Account". The record maintained for purposes of accounting for a Participant's interest in the Plan. 1.2 "Administrator". The Company, or the committee to whom the Company has delegated all or a portion of the duties of the Administrator under the Plan. 1.3 "Beneficiary". The person or persons who is to receive benefits after the death of the Participant pursuant to the Participant's designation or the Administrator's determination, or as a result of a QDRO. 1.4 "Break in Service". The fifth anniversary of the date for which a Participant is last credited with an Hour of Service. 1.5 "Code". The Internal Revenue Code of 1986, as amended. Reference to any specific Code section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.6 "Company". The Koll Company or any successor by merger, purchase or otherwise. Company also refers to any officer appointed by its board of directors to act on the Company's behalf. 1.7 "Compensation". The sum of a Participant's Taxable Income and salary reductions, if any, pursuant to Code sections 125, 402(a)(8), 402(h) or 403(b). For purposes of determining benefits under this Plan, Compensation is limited to $200,000 (as indexed by the cost of living pursuant to Code section 415(d)) per Plan Year. For Plan Years beginning before 1990 (or any later date provided for under the Code), Compensation is limited to amounts paid while a Participant. 1.8 "Contributions". Amounts contributed to the Plan by the Employer or an Eligible Employee. The specific types of Contributions included are: (a) "Pre-Tax Contributions". Amounts contributed on a pre-tax basis in conjunction with a Participant's Code section 401 (k) salary deferral agreement. (b) "Rollover Contributions". Amounts contributed by an Eligible Employee which originated from another employer's qualified plan. 1 (c) "Matching Contributions". Amounts contributed by the Employer based upon the amount contributed by the eligible Participant. (d) "Profit Sharing Contributions". Amounts contributed by the Employer and allocated on a pay based formula to eligible Participants' Accounts, which are no longer permitted, but previously contributed amounts continue to be accounted for in the Plan. 1.9 "Disability". A Participant's total and permanent, mental or physical disability resulting in termination of employment as evidenced by (a) receipt of disability payments under the Employer's long-term disability program or (b) presentation of medical evidence satisfactory to the Committee. 1.10 "Effective Date". July 1, 1989. 1.11 "Eligible Employee". An Employee of the Employer, except any Employee: (a) whose compensation and conditions of employment are covered by a collective bargaining agreement to which the Employer is a party unless the agreement calls for the Employee's participation in the Plan; (b) who is treated as an Employee because he or she is a Leased Employee; or 1.12 "Employee". An individual who is (a) directly employed by any Related Company and for whom any income for such employment is subject to withholding of income or social security taxes, or (b) indirectly employed as a Leased Employee. 1.13 "Employer". The Company and any other Related Company which adopts this Plan with the approval of the Company. 1.14 "ERISA". The Employee Retirement Income Security Act of 1974, as amended. Reference to any specific section shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. 1.15 "Forfeiture Account". An account holding amounts forfeited by Participants who have left the Employer, which are to be used to reduce subsequent Employer Contributions. 1.16 "Highly Compensated Employee" or "HCE". An Employee described as a highly compensated employee in Code section 414(q). 2 1.17 "Hour of Service". Each hour for which an Employee is entitled to: (a) Payment for the performance of duties for any Related Company; (b) payment from any Related Company for any period during which no duties are performed due to vacation, holiday, sickness, incapacity (including disability), layoff, leave of absence, jury duty or military service; (c) back pay, irrespective of mitigation of damages, by award or agreement with any Related Company (and these hours shall be credited to the period to which the agreement pertains); or (d) no payment, but is on a Leave of Absence or Parental Leave (and these hours shall be based upon his or her normally scheduled hours per week or a 40 hour week if there is no regular schedule), provided that, for Parental Leave, hours shall be credited for the Plan Year the Leave occurs only if no hours have been credited for that Plan Year. The crediting of hours shall be made in accordance with Department of Labor regulation section 2530.200b-2(b). Actual hours shall be used whenever an accurate record of hours are maintained for an Employee. Otherwise, an equivalent number of hours shall be credited for each payroll period in which the Employee would be credited with at least 1 hour. The payroll period equivalencies are 45 hours weekly, 90 hours biweekly, 95 hours semimonthly and 190 hours monthly. Hours credited prior to a Break in Service are included. Hours shall be credited for the period prior to the acquisition of a Related Company by an Employer only if the Company directs that credit for such period shall be granted. 1.18 "Ineligible". An individual during the period in which he or she is (1) an Employee of a Related Company which is not then an Employer, (2) an Employee, but not an Eligible Employee, or (3) not an Employee. 1.19 "Investment Fund". An investment fund consisting of a collective investment fund, a pool of assets or deposits of the Trustee. The Investment Funds authorized by the Administrator as of the Effective Date are listed in Appendix A. 1.20 "Leased Employee". An individual who is deemed to be an employee of any Related Company as provided in Code section 414(n) or (o). 1.21 "Leave of Absence". A period during which an individual is deemed to be 3 an Employee, but is absent from active employment, provided that the absence: (a) was authorized by a Related Company; or (b) due to military service in the United States armed forces and the individual returns to active employment within the period during which he or she retains employment rights under federal law. 1.22 "Non-Highly Compensated Employee" or "NHCE". An Employee who is neither an HCE nor a family member of certain HCEs as defined in Code section 414(q). 1.23 "Normal Retirement Date". The date of a Participant's 65th birthday. 1.24 "Owner". A person with an ownership interest in the capital, profits, outstanding stock or voting power of a Related Company within the meaning of Code section 318 or 416 (which exclude indirect ownership through a qualified retirement plan). 1.25 "Parental Leave". The period of absence from work by reason of pregnancy, the birth of an Employee's child, the placement of a child with the Employee in connection with the child's adoption, or caring for such child immediately after birth or placement as described in Code section 410(a)(5)(E). 1.26 "Participant". An Eligible Employee who begins to participate in the Plan after completing the eligibility requirements. A Participant's participation continues until his or her employment with the Employer (and all Related Companies) ends and his or her Account is distributed or forfeited. 1.27 "Pay". The base pay and overtime paid to an Eligible Employee by the Employer while a Participant during the current period. Pay is neither increased nor decreased by any salary credit or reduction pursuant to Code sections 125 or 402(a)(8). Pay is limited to $200,000 (as indexed by the cost of living pursuant to Code section 415(d)) per Plan Year. 1.28 "Period of Employment". The period beginning on the date an Employee's employment first begins and ending on the date his or her employment ends. Employment ends on the date the Employee quits, retires, is discharged, dies or (if earlier) the first anniversary of his or her absence for any other reason. The period of absence starting with the date an Employee's employment temporarily ends and ending on the date he or she is subsequently reemployed is (1) included in his or her Period of Employment if the period of absence does not exceed one year, and (2) 4 excluded if such period exceeds one year. Period of Employment includes the period prior to a Break in Service. Period of Employment includes the period prior to acquisition of a Related Company by an Employer only if the Company directs that credit for such period shall be granted. 1.29 "Plan". The Koll Company 401(k) Plus Plan set forth in this document, as from time to time amended. 1.30 "Plan Year". The annual accounting period of the Plan and Trust which ends on each December 31. 1.31 "Pre-Tax Dollar Limit". The annual limit placed on each Participant's Pre-Tax Contributions, which shall be $7,000 per calendar year (as indexed by the cost of living pursuant to Code section 415(d)). 1.32 "QDRO". A domestic relations order which the Administrator has determined to be a qualified domestic relations order within the meaning of Code section 414(p). 1.33 "Related Company". The Company and any corporation, trade or business which is, together with the Company, a member of the same controlled group of corporations, a trade or business under common control, or an affiliated service group within the meaning of Code section 414(b), (c), (m) or (o) and, solely for purposes of the maximum annual addition limits, as modified by Code section 415(h). 1.34 "Settlement Date". The date on which the transactions from the most recent Trade Date are settled. 1.35 "Spousal Consent". The written consent given by a spouse to a Participant's election of a specified form of benefit or Beneficiary designation. The spouse's consent must acknowledge the effect on the spouse of the Participant's election and be duly witnessed by a notary public. Spousal Consent also means a determination by the Administrator that there is no spouse, the spouse cannot be located or such other circumstances as may be established by applicable law. 1.36 "Sweep Account". The subsidiary Account for each Contribution type within each Participant's Account through which all transactions for such Contribution type are processed and which is invested in interest bearing deposits of the Trustee. 1.37 "Sweep Date". The cut off date and time for receiving instructions for transactions to be processed on the next Trade Date. 5 Participant during a Limitation Year for personal services actually rendered in the course of employment, including (by way of example) overtime, bonuses, commissions and incentive compensation, but after excluding such amounts which are not currently treated as Taxable Income as a result of their: (a) deferral under a Code section 125, 402(a)(8), 402(h) or 403(b) salary deferral arrangement, (b) contribution to a retirement, deferred compensation or other plan, or (c) not being treated as income for services currently rendered, such as amounts realized from the sale, exercise or exchange or Employer stock or stock options. 1.39 "Trade Date". Each day the Investment Funds are valued, which is the last business day of each month. 1.40 "Trust". The legal entity created by those provisions of this document which relate to the Trustee. The Trust is part of the Plan and holds the Plan assets which are comprised of the aggregate of Participants' Accounts and the Forfeiture Account. 1.41 "Trustee". Wells Fargo Bank, National Association. 1.42 "Year of Vesting Service". For any Employee hired on or after July 1, 1989, a 12 month Period of Employment. For any Employee hired prior to July 1, 1989, service shall be credited differently before and after January 1, 1990 as follows: (a) For service from January 1, 1990, a 12 month Period of Employment; and (b) For Plan Years ending before January 1, 1990, a 12 month period ending on the last day of any Plan Year in which an Employee is credited with at least 1,000 Hours of Service. Years of Vesting Service shall include service credited prior to April 1, 1978. In the case of the acquisition of a Related Company by an Employer, the Company will determine what, if any, pre-acquisition employment will be counted in determining Years of Vesting Service. 6 2 ELIGIBILITY 2.1 Eligibility Each Eligible Employee shall become a Participant on July 1, 1989 or the first subsequent January 1, April 1, July 1 or October 1 after the date he or she completes a 12 month eligibility period in which he or she is credited with at least 1,000 Hours of Service. The initial eligibility period begins on the date an Employee first performs an Hour of Service. Subsequent eligibility periods begin with the start of each Plan Year beginning after the first Hour of Service is performed. 2.2 Ineligible Employees If an Employee completes the above eligibility requirements, but is Ineligible at the time participation would otherwise begin (if he or she were not Ineligible), he or she shall become a Participant on the first subsequent date on which he or she is an Eligible Employee. 2.3 Ineligible Participants A Participant may not make or share in Plan Contributions, nor be eligible for a new Plan loan, during the period he or she is Ineligible, but he or shall continue to participate for all other purposes. An Ineligible Participant shall automatically become an active Participant on the date he or she again becomes an Eligible Employee. 7 3 PARTICIPANT CONTRIBUTIONS 3.1 Pre-Tax Contribution Election Upon becoming a Participant, an Eligible Employee may elect to reduce his or her Pay and have the amount contributed to the Plan by the Employer as a Pre-Tax Contribution. The election shall be made as a whole percentage of Pay and in the form prescribed by the Administrator. 3.2 Changes A Participant who is an Eligible Employee may change his or her Pre-Tax Contribution election as of any January 1, April 1, July 1 or October 1 by giving the Administrator such advance notice as it requires. The changed percentage shall become effective with the first payroll paid after such date. Participants' Contribution election percentages shall automatically apply to Pay increases or decreases. 3.3 Stopping Contributions A Participant may revoke his or her Contribution election at any time by giving written notice to the Administrator, and such election shall be effective as soon as administratively feasible. A Participant may contribute again by making a new Contribution election in the same manner in which a Participant may change his or her election. 3.4 Contribution Percentage Limits The Administrator may establish (and subsequently change) the maximum Pre-Tax Contribution percentage, prospectively or retrospectively (for the current Plan Year), for all Participants. In addition, the Administrator may establish any lower percentage limits for Highly Compensated Employees as it deems necessary. As of the Effective Date, the maximum percentages are:
HIGHLY CONTRIBUTION COMPENSATED ALL TYPE EMPLOYEES PARTICIPANTS ------------ ----------- ------------ Pre-Tax 15% 15%
3.5 Refunds When Pre-Tax Dollar Limit Exceeded A Participant who makes pre-tax contributions to this and any other qualified defined contribution plan in excess of the Pre-Tax Dollar Limit 8 may notify the Administrator in writing by the following March 1 (or as late as April 14 if allowed by the Administrator) that an excess has occurred. In this event, the amount of the excess specified by the Participant shall be returned to him by April 15, subject to an adjustment for net investment gain or loss as described below: E x G x (1 + (10% x M)) -------- (AB - G) where: E = the excess amount specified, G = the net gain or loss for the Plan Year in the Participant's Pre-Tax Accounts, AB = the total value of the Participant's Pre-Tax Account, determined as of the end of the calendar year being corrected, M = the number of full months from the calendar year end to the date the excess amount is paid, plus one for the month during which payment is to be made if payment will occur after the 15th of that month. 3.6 Timing, Posting and Tax Considerations Participants' Contributions may only be made through payroll deduction. Such amounts shall be paid to the Trustee in cash and posted to each Participant's Account as soon as such amounts can reasonably be separated from the Employer's general assets and balanced against the specified amount made on behalf of each Participant. In no event, however, shall such amounts be paid to the Trustee more than 90 days after the date amounts are deducted from a Participant's Pay or 30 days after the end of the Plan Year in which deducted. Pre-Tax Contributions shall be treated as employer contributions in determining tax deductions under Code section 404(a). 9 4 ROLLOVERS & TRUST-TO-TRUST TRANSFERS 4.1 Rollovers The Administrator may authorize the Trustee to accept a rollover contribution, within the meaning of Code section 402(a)(5) or 408(d)(3)(A)(ii), from an Eligible Employee in cash, even if he or she is not yet a Participant. The Employee shall furnish satisfactory evidence to the Administrator that the amount is eligible for rollover treatment. A rollover contribution must be paid to the Trustee in cash within 60 days after the date received by the Eligible Employee from a qualified plan or conduit individual retirement account. Such amount shall be posted to the Employee's Rollover Account as of the date received by the Trustee. If it is later determined that an amount transferred pursuant to the above paragraph did not in fact qualify as a rollover contribution under Code section 402(a)(5) or 408(d)(3)(A)(ii), the balance credited to the Employee's Rollover Account shall immediately be (1) segregated from all other Plan assets, (2) treated as a nonqualified trust established by and for the benefit of the Employee, and (3) distributed to the Employee. Any such nonqualifying rollover shall be deemed never to have been a part of the Plan. 4.2 Transfers From Other Qualified Plans The Administrator may instruct the Trustee to receive assets in cash in or kind from another qualified plan. The Trustee may refuse the receipt of any transfer if: (a) the Trustee finds the in-kind assets unacceptable, (b) instructions for posting amounts to Participants' Accounts are incomplete, (c) any amounts are not exempted by Code section 401(a)(11)(B) from the annuity requirements of Code section 417, or (d) any amounts include benefits protected by Code section 411(d)(6) which would not be preserved under applicable Plan provisions. Such amounts shall be posted to the appropriate Accounts of Participants as of the date received by the Trustee. 10 5 EMPLOYER CONTRIBUTIONS 5.1 Matching Contributions (a) Frequency and Eligibility. For each time Participants' Contributions are made, the Employer shall make Matching Contributions on behalf of each Participant (except for any officer of the Employer who is a regular participant in equity partnership interests) who contributed during the period. (b) Allocation Method. The Matching Contribution, including any available Forfeiture Account amount, shall be equal to 50% of each eligible Participant's Pre-Tax Contributions for the period, provided that no Matching Contributions shall be made based upon a Participant's Contributions in excess of 5% of his or her Pay. The Employer may change the 50% matching rate or the 5% of considered Pay to any other percentages, including 0%, by notifying eligible Participants in sufficient time to adjust their Contribution elections prior to the start of the period for which the new percentages apply. (c) Timing, Medium and Posting. The Employer shall make each period's Matching Contribution in cash as soon as is feasible, and not later than the Employer's federal tax filing date, including extensions, for deducting such Contribution. The Trustee shall post such amount to each Participant's Matching Account once the total Contribution received has been balanced against the specific amount to be credited to each Participant's Matching Account. 11 6 ACCOUNTING 6.1 Individual Participant Accounting The Administrator shall maintain an individual set of Accounts for each Participant in order to reflect transactions both by type of Contribution and investment medium. Financial transactions shall be accounted for at the individual Account level by "posting" each transaction to the appropriate Account of each affected Participant. Participants' Account values shall be maintained in shares for the Investment Funds and in dollars for their Sweep and Participant loan Accounts. At any point in time, the Account value shall be determined using the most recent Trade Date values provided by the Trustee. 6.2 Sweep Account is Transaction Account All transactions related to amounts being contributed to or distributed from the Trust shall be posted to each affected Participant's Sweep Account. Any amount held in the Sweep Account will be credited with interest up until the Settlement Date or the later date on which it is removed from the Sweep Account. 6.3 Trade Date Accounting and Investment Cycle Participant Account values shall be determined as of each Trade Date. For any transaction to be processed as of a Trade Date, the Trustee must receive all transaction instructions by the Sweep Date. Such instructions shall apply to amounts held in the Account on that Sweep Date. Financial transactions of the Investment Funds shall be posted to Participants' Accounts as of the Trade Date and based upon the Trade Date values provided by the Trustee. All Trade Date transactions shall be effected on the Settlement Date relating to that Trade Date (or as soon thereafter as is administratively feasible). 6.4 Accounting for Investment Funds Investments in each Investment Fund shall be maintained in shares. The Trustee is responsible for determining the share values of each Investment Fund as of each Trade Date. To the extent an Investment Fund is comprised of collective investment funds of the Trustee, the net asset and share values shall be determined in accordance with the rules governing such collective investment funds, which are incorporated herein by reference. All other net asset and share values shall be determined by the Trustee. The net asset value of each Investment Fund shall be based on the fair market value of its underlying assets. 12 6.5 Accounting for Participant Loans Participant loans shall be held in a separate Account of the Participant and accounted for in dollars as an earmarked asset of the borrowing Participant's Account. 6.6 Company Decides Who Pays Fees and Expenses The Company shall decide whether administrative fees and expenses related to the Plan and Trust, including those incurred by agents and advisors retained by the Administrator, shall be paid by the Employer, to have them charged directly to the Participants' Accounts, or a combination of both. The Company may direct the Employer to pay a lower portion of the fees and expenses allocable to the Accounts of Participants who are no longer Employees or Beneficiaries than for active Employees. All other Plan fees and expenses (such as government annual report preparation, audit and legal fees, nondiscrimination testing, and any other special services) shall be paid separately by the Employer. 6.7 How Fees and Expenses are Charged to Participants Account maintenance fees shall be charged to each Participant's Account on a per Participant basis, provided that no fee shall reduce a Participant's Account balance below zero. Transaction type fees (such as special asset fees, investment election change fees, etc.) shall be charged to the Accounts involved in the transaction. Fees and expenses incurred for the management and maintenance of Investment Funds shall be charged at the Investment Fund level and reflected in the net gain or loss of each Fund. 6.8 Error Correction The Administrator may correct any errors or omissions in the administration of the Plan by restoring any Participant's Account balance with the amount that would be credited to the Account had no error or omission been made. Funds necessary for any such restoration shall be provided through payment made by the Employer, or if the restoration involves an Employer Contribution Account, the Company may direct the Trustee to use amounts from the Forfeiture Account. 6.9 Participant Statements The Administrator shall provide Participants with statements of their Accounts as soon after the end of each quarter of the Plan Year as is administratively feasible. Participants' Account statements will be expressed in dollars without reference to any underlying shares and share values used in determining the Account value. 13 6.10 Special Accounting During Conversion Period The Administrator and Trustee may use any reasonable accounting methods in performing their respective duties during the period of converting the prior accounting system of the Plan and Trust to conform to the individual Participant accounting system described in this Section. This includes, but is not limited to, the method for allocating net investment gains or losses and the extent, if any, to which contributions received by and distributions paid from the Trust during this period share in such allocation. All or a portion of the Trust assets may be held, if necessary, in a short term interest bearing vehicle, which may include deposits of the Trustee, during the conversion period for establishing such individual Participant Accounts. 6.11 Accounts for QDRO Beneficiaries A separate Account shall be established for a Beneficiary entitled to any portion of a Participant's Account under a QDRO as of the date and in accordance with the directions specified in the QDRO. Such Account shall be valued and accounted for in the same manner as any other Account. (a) Investment Direction. A QDRO Beneficiary may direct the investment of such Account in the same manner as any other Participant. (b) Distributions. A QDRO Beneficiary shall be entitled to payment as provided in the QDRO and permissible under the Distribution Once Employment Ends Section regardless of whether the Participant is an Employee, and to name a Beneficiary as specified in the QDRO. (c) Participant Loans. A QDRO Beneficiary shall not be entitled to borrow from his or her Account. If a QDRO specifies that the QDRO Beneficiary is entitled to any portion of the Account of a Participant who has an outstanding loan balance, all outstanding loans shall continue to be held in the Participant's Account and shall not be divided between the Participant's and QDRO Beneficiary's Accounts. 14 7 INVESTMENT FUNDS AND ELECTIONS 7.1 Investment Funds Except for a Participants' Sweep and loan Accounts, the Trust shall be maintained in various Investment Funds. The Administrator may change the number or composition of the Investment Funds, subject to the terms and conditions agreed to with the Trustee. 7.2 Investment Fund Elections Each Participant (or Beneficiary) shall make a single election covering all of his or her Contribution Accounts. A Participant (or Beneficiary) shall make his or her investment election in any combination of whole percentage increments of one or any number of the Investment Funds offered. Each election shall specify whether it applies only to the amounts not yet received by the Trustee or to both such future amounts and the current Account balance. The Administrator may set a maximum percentage of the total election that a Participant may direct into any specific Investment Fund. 7.3 Responsibility for Investment Choice Each Participant shall be solely responsible for the selection of his or her investment election. No fiduciary with respect to the Plan is empowered to advise a Participant as to the manner in which his or her Accounts are to be invested, and the fact that an Investment Fund is offered shall not be construed to be a recommendation for investment. The Administrator may, however, establish a maximum percentage which a Participant may choose for any Investment fund. 7.4 Default if No Election If a Participant does not have a valid investment election on file, his or her election shall be deemed to be a 100% election of the Investment Fund designated by the Administrator as the default option. 7.5 Timing A Participant shall make his or her initial investment election upon becoming a Participant and may change his or her election at any time in accordance with the procedures established by the Trustee. Investment elections received by the Trustee by the Sweep Date deadline will be effective on the next following Trade Date. 7.6 Switching Fees 15 A reasonable processing fee may be charged directly to a Participant's Account for investment election changes in excess of a specified number per Plan Year as determined by the Administrator. 16 8 VESTING & FORFEITURES 8.1 Fully Vested Contribution Accounts A Participant shall be fully vested in these Accounts at all times: Pre-Tax Account Rollover Account 8.2 Full Vesting upon Certain Events A Participant's entire Account shall become fully vested once he or she has attained his or her Normal Retirement Date as an Employee, or upon his or her leaving the Employer due to his or her Disability or death. 8.3 Vesting Schedule In addition to the vesting provided above, a Participant's Matching and Profit Sharing Accounts shall become vested in accordance with the following schedule:
Years of Vesting Vested Service Percentage ---------------- ---------- Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100%
If this vesting schedule is changed, the vested percentage for each Participant shall not be less than his or her vested percentage determined as of the last day prior to this change, and for any Participant with at least three Years of Vesting Service when the schedule is changed, vesting shall be determined using the more favorable vesting schedule. 8.4 Forfeitures A Participant's non-vested Account balance shall be forfeited as of the Settlement Date next following the Sweep Date on which the Administrator has reported to the Trustee that the Participant's employment has terminated. Forfeitures from all Participants' Employer Contribution Accounts shall be transferred to and maintained in a single Forfeiture Account, which shall be invested in interest bearing deposits of the Trustee. Forfeiture Account amounts shall be credited to eligible 17 Participants' Accounts as soon as is administratively feasible as part of Employer Matching Contributions for the period. 8.5 Rehired Employees (a) Service. If an Employee is rehired, all Years of Vesting Service credited prior to his or her termination of employment shall be counted in determining his or her vested interest. (b) Account Restoration. If an Employee is rehired before he or she has a Break in Service, the amount forfeited when his or her employment last terminated shall be restored to his or her Account. The restoration shall include the interest which would have been credited had such forfeiture been invested in the Sweep Account from the date forfeited until the date the restoration amount is determined. The amount shall come from the Forfeiture Account to the extent possible, and any additional amount needed shall be contributed by the Employer. The vested interest in his or her restored Account shall then be equal to: V% times (AB + D) - D where: V% = current vested percentage AB = current account balance D = amount previously distributed 18 9 PARTICIPANT LOANS 9.1 Participant Loans Permitted Loans to Participants are permitted pursuant to the terms and conditions set forth in this Section. All loans are made (and limits determined) as of the Sweep Date occurring on or next following the date the loan approval directive is received by the Trustee. The funds will be disbursed to the Participant as soon is as administratively feasible after the next following Settlement Date. 9.2 Loan Funding Limits The loan amount must meet all of the following limits: (a) Plan Minimum Limit. The minimum amount for any loan is $500. (b) Plan Maximum Limit. The maximum a Participant may borrow, including the outstanding balance of existing Plan loans, is based upon the following Accounts of the Participant which are fully vested (the "Source Amount"): Pre-Tax Account Rollover Account The maximum amount is equal to: If Source Amount is: Maximum Loan Amount is: -------------------- ----------------------- Under $20,000 50% of Source Amount, not to exceed $10,000 $20,000 or over 50% of Source Amount, not to exceed $50,000 (c) Legal Maximum Limit. The maximum a Participant may borrow, including the outstanding balance of existing loans, is based upon his or her vested interest in this Plan and all other qualified plans maintained by a Related Company (the "Vested Interest"). The maximum amount is equal to 50% of Vested Interest, not to exceed $50,000* * The $50,000 amount is reduced by the Participant's highest outstanding balance of all loans from any Related Company's qualified plans during the 12 month period ending on the day before the Sweep Date on which the loan is made. 19 9.3 Maximum Number of Loans A Participant may have only one loan outstanding at any given time. 9.4 Source of Loan Funding A loan to a Participant shall be made solely from the assets of his or her own Accounts. The available assets shall be determined first by Contribution Account and then by investment type within each type of Contribution Account. The hierarchy for loan funding by type of Contribution Account shall be the order listed in the preceding Plan Maximum Limit paragraph. Within each Account used for funding, amounts shall first be taken from the cash Account and then taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund as of the Sweep Date on which the loan is made. 9.5 Interest Rate The interest rate charged on Participant loans shall be fixed and equal to the Trustee's prime rate, plus 1%. 9.6 Repayment Substantially level amortization shall be required of each loan with payments made at least quarterly, through payroll deduction, provided that payment can be made by check for advance loan payments, or when a Participant is on a Leave of Absence or transferred to the employ of a Related Company which is not participating in the Plan. Loans may be prepaid in full or in part at any time. The loan repayment period shall be as mutually agreed upon by the Participant and Administrator, not to exceed five years. However, the term may be for any period not to exceed 10 years if the purpose of the loan is to acquire the Participant's principal residence. 9.7 Repayment Hierarchy Loan principal repayments shall be credited to the Participant's Contribution Accounts in the inverse of the order used to fund the loan. Loan interest shall be credited to the Contribution Account in direct proportion to the principal repayment. Loan payments are credited by investment type based upon the Participant's current investment election for new Contributions. 9.8 Loan Application, Note and Security A Participant shall apply for any loan in writing. The Administrator shall 20 specify the time frame for approving loan applications. All loans shall be evidenced by a promissory note and secured only by a Participant's vested Account balance. The Plan shall have a lien on a Participant's Account to the extent of any outstanding loan balance. 9.9 Default, Suspension and Call Feature (a) Default. A loan is treated as a default if scheduled loan payments are more than 90 days late, provided that the Administrator may agree to a suspension of loan payments for up to 12 months for a Participant who is on a Leave of Absence. A Participant shall then have 30 days from the time he or she receives written notice of the default and a demand for past due amounts to cure the default before it becomes final. (b) Actions upon Default. In the event of default, the Administrator may direct the Trustee to execute upon its security interest in the Participant's Account by deducting the unpaid loan balance from the Account, including interest to the date of default and report the default as a taxable distribution. As soon as a Plan withdrawal or distribution to such Participant would otherwise be permitted, the Administrator may instruct the Trustee to distribute the note to the Participant. A default constitutes a permitted distribution to the extent it does not involve a Participant's Pre-Tax Account. (c) Call Feature. The Administrator shall have the right to call any Participant loan once employment with all Related Companies terminates. 21 10 IN-SERVICE WITHDRAWALS 10.1 Withdrawals for Hardship (a) Requirements. A Participant may request the withdrawal of any amount needed to satisfy a financial need by submitting a completed withdrawal request form to the Administrator. The Administrator shall only approve those requests for withdrawals (1) on account of a Participant's "Deemed Financial Need", and (2) which are "Deemed Necessary" to satisfy the financial need. (b) "Deemed Financial Need". Financial commitments relating to: (1) medical expenses described under Code section 213(d) incurred by the Employee, his or her spouse or his or her dependents; (2) the purchase (excluding mortgage payments) of the Employee's principal residence; (3) the payment of next semester's or quarter's tuition for postsecondary education for the Employee, his or her spouse or dependents; (4) the need to pay for the funeral expenses of a family member; (5) the need for the Employee to prevent losing his or her principal residence through eviction or foreclosure on the mortgage; or (6) any other circumstance specifically permitted under the Code. (c) "Deemed Necessary". A withdrawal is "deemed necessary" to satisfy the financial need only if all of these conditions are met: (1) the Employee has obtained all other possible withdrawals and nontaxable loans available from all plans maintained by the Related Companies; (2) the Employee is suspended from making any Contributions to any qualified plan maintained by the Employer for 12 months from the date the withdrawal payment is processed; and (3) the Pre-Tax Dollar Limit for the calendar year next following the calendar year of the hardship withdrawal shall be 22 reduced by the amount of the Employee's Pre-Tax Contributions for the calendar year of the hardship withdrawal. (d) Contribution Account Sources for Withdrawal. The withdrawal amount shall come only from his or her fully vested Accounts, in the following priority order of Contribution Accounts: Rollover Account Matching Account Profit Sharing Account Pre-Tax Account The amount that may be withdrawn from a Participant's Pre-Tax Account shall not include any earnings credited to his or her Pre-Tax Contribution Account after the first Plan Year beginning after December 31, 1988. 10.2 Withdrawals for Participants over Age 59-1/2 (a) Requirements. A Participant who is over age 59-1/2 may withdraw from the Contribution Accounts listed in paragraph (b) below. (b) Contribution Account Sources for Withdrawal. The withdrawal amount shall come only from his or her fully vested Accounts, in the following priority order of Contribution Accounts: Pre-Tax Account Rollover Account Matching Account Profit Sharing Account (c) Permitted Frequency. There is no restriction on the number of times a Participant may withdraw from these Accounts after age 59-1/2. 10.3 Withdrawal Processing (a) Minimum Amount. The minimum payment for any type of withdrawal is $500. (b) Application by Participant. A Participant must submit a completed withdrawal request form to the Administrator to apply for any type of withdrawal. (c) Approval by Administrator. The Administrator is responsible for determining that a withdrawal request conforms to the requirements 23 described in this Section and notifying the Trustee of any payments to be made in a timely manner. (d) Time of Processing. The Trustee shall process all withdrawal requests which it receives by the Sweep Date cut off, based on the value as of the Sweep Date, and fund them on the next Settlement Date. The Trustee shall then make payment to the Participant as soon thereafter as is administratively feasible. (e) Medium and Form of Payment. The medium of payment for withdrawals is either cash or direct deposit. The form of payment for withdrawals shall be a single installment. (f) Investment Fund Sources. Within each Contribution Account used for funding a withdrawal, amounts shall first be taken from the Sweep Account and then taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes Participant loans) at the time the withdrawal is made. 24 11 DISTRIBUTIONS ONCE EMPLOYMENT ENDS 11.1 Benefit Election Subject to the other requirements of this Section, a Participant (or his or her Beneficiary in the case of his or her death) may elect to have his or her vested Account balance paid to him or her beginning upon any Settlement Date following his or her termination of employment with all Related Companies, by submitting his or her completed election forms to the Administrator. The election must be submitted in sufficient time for the Administrator to instruct the Trustee to process the payment by the Sweep Date that relates to the Settlement Date upon which payments are to begin. 11.2 Payment Form and Medium A Participant shall be paid in the form of a lump sum. Payments will generally be made in cash (generally by check). 11.3 Small Amounts Paid Immediately If the Participant's vested Account balance is $3,500 or less, the Participant's benefit shall be paid as a single lump sum as soon as administratively feasible after his or her employment with all Related Companies ends. 11.4 Latest Commencement Permitted Unless a Participant elects otherwise, his or her benefit payments will begin not later than 60 days after the end of the Plan Year in which he or she attains his or her Normal Retirement Date or retires, whichever is later. However, if the amount of the payment or the location of the Participant (after a reasonable search) cannot be ascertained by that deadline, payment shall be made no later than 60 days after the earliest date on which such amount or location is ascertained. In any case, benefit payments shall begin by the April 1 immediately following the end of the calendar year in which he or she attains age 70-1/2 (whether or not he or she is an Employee). 11.5 Payment Within Life Expectancy The Participant's payment election must be consistent with the requirement of Code section 401(a)(9) that all payments are to be completed within a 25 period not to exceed the lives or the joint and last survivor life expectancy of the Participant and his or her Beneficiary. The life expectancies of a Participant and his or her spouse may be recomputed annually. 11.6 Incidental Benefit Rule The Participant's payment election must be consistent with the requirement that, if the Participant's spouse is not his or her sole primary Beneficiary, the minimum annual distribution for each calendar year, beginning with the year in which he or she attains age 70-1/2, shall not be less than the quotient obtained by dividing (a) the Participant's vested Account balance as of the last Trade Date of the preceding year by (b) the applicable divisor as determined under the incidental benefit requirements of Code section 401(a)(9). 11.7 Payment to Beneficiary Payment to a Beneficiary must either: (1) be complete within five years of the Participant's death or (2) begin within one year of the his or her death and be completed within the period of the Beneficiary's life or life expectancy, except that: (a) If the Participant dies after the April 1 immediately following the end of the calendar year in which he or she attains age 70-1/2, payment to his or her Beneficiary must be at least as rapidly as provided in the Participant's distribution election; (b) If the surviving spouse is the Beneficiary, payments need not begin until the end of the calendar year in which the Participant would have attained age 70-1/2; and (c) If the Participant and the surviving spouse who is the Beneficiary die before (1) the end of the calendar year in which April 1 on which the Participant would have attained age 70-1/2 and (2) payments have begun to the spouse, the spouse's Beneficiary will be treated as the Participant's Beneficiary in applying these rules. 11.8 Beneficiary Designation Each Participant shall complete a beneficiary designation form indicating the Beneficiary who is to receive the Participant's remaining Plan interest at the time of his or her death. The designation may be changed at any time. However, a Participant's spouse shall be the Beneficiary unless the designation includes Spousal Consent for the other Beneficiary. If no designation is in effect at the time of a Participant's death or if the Beneficiary does not survive the Participant, the Beneficiary shall be, in the order listed, the: 26 (a) Participant's surviving spouse, (b) Beneficiary named by the Participant in the Employer's primary life insurance plan, or (c) Participant's estate. 27 12 ADP AND ACP TESTS 12.1 Contribution Limitation Definitions (a) "Average Contribution Percentage" or "ACP". The Average Percentage calculated using Contributions. (b) "Average Deferral Percentage" or "ADP". The Average Percentage calculated using Deferrals. (c) "Average Percentage". The average of the calculated percentages for Participants within the specified group. The calculated percentage refers to either the "Deferrals" or "Contributions" (as defined in this Section) made on the Participant's behalf for the Plan Year, divided by his or her Compensation for such year. (Pre-Tax Contributions which will be refunded because they exceed the Pre-Tax Dollar Limit are included in the percentage.) (d) "Contributions" shall include Matching Contributions. In addition, Contributions may include Pre-Tax Contributions, but only to the extent that (1) the Employer elects to use them, (2) they are not used or counted in the ADP Test, and (3) they are necessary to meet the ACP Test Alternative Limitation. (e) "Deferrals" shall include Pre-Tax Contributions. (f) "HCE Group" and "NHCE Group". The respective group of HCEs and NHCEs who are eligible to have amounts contributed on their behalf for the Plan Year. (1) If the Related Companies maintain two or more plans which are subject to the ADP or ACP Test, and are considered as one plan for purposes of Code sections 401(a)(4) or 410(b), all such plans shall be aggregated and treated as one plan for purposes of meeting the ADP and ACP Tests. (2) If an HCE has any "family members" (within the meaning of Code section 414(g)(6)(B)), the Deferrals, Contributions and Compensation of the HCE's family members shall be treated as made or earned by the HCE. (3) If an HCE is covered by more than one cash or deferred arrangement maintained by the Related Companies, all such plans shall be aggregated and treated as one plan for purposes of calculating the separate percentage for the HCE which is used in the determination of the Average Percentage. 28 12.2 ADP and ACP Tests The ADP and ACP for the HCE Group must meet either the Basic or Alternative Limitation when compared to the respective ADP and ACP for the NHCE group: (a) Basic Limitation. The HCE Group percentage may not exceed 1.25 times the NHCE Group percentage. (b) Alternative Limitation. The HCE group percentage is limited by reference to the NHCE group percentage as follows: If the NHCE Group Then the Maximum HCE Percentage is: Group Percentage is: -------------- -------------------- Less than 2% 2 time NHCE Group % 2% to 8% NHCE Group % plus 2% More than 8% Basic Limitation applies 12.3 Correction of ADP and ACP Tests If the ADP or ACP Tests are not met, the Administrator shall determine a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce the ADP and/or ACP for the HCE group by a sufficient amount to meet the ADP and ACP Tests. (a) ADP Correction. Pre-Tax Contributions shall be refunded (including amounts previously refunded because they exceeded the Pre-Tax Dollar Limit) to the Participant in an amount equal to the actual Deferral minus the product of the maximum percentage and the HCE's Compensation. (b) ACP Correction. Contribution amounts in excess of the maximum percentage of an HCE's Compensation shall be refunded to the Participant to the extent vested, and forfeited to the extent such amounts were not vested as of the end of the Plan Year being tested. The excess amounts shall first be taken from unmatched After-Tax Contributions, and then as a proportional combination of matched After-Tax and Matching Contributions. (c) Investment Fund Sources. Once the amount of excess Deferrals and/or Contributions is determined by type of Contribution, amounts shall then be taken by type of investment in direct proportion to the market value of the Participant's interest in each Investment Fund (which excludes Participant loans) at the time the correction is processed. 29 12.4 Multiple Use Test If the Alternative Limitation is used to meet both the ADP and ACP Tests, the ADP and ACP for the HCE Group must also comply with the requirements of Code section 401(m)(9), which as of the Effective Date require that the sum of these two percentages (as determined after any corrections needed to meet the ADP and ACP Tests have been made) must not exceed the sum of: (a) the larger of the ADP or ACP for the NHCE Group times 1.25, and (b) the smaller of the ADP or ACP for the NHCE Group, times 2 if the NHCE percentage is less than 2%, or plus 2% if it is greater than 2%. If the multiple use limit is exceeded, the Administrator shall determine a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce either or both the ADP or ACP for the HCE Group by a sufficient amount to meet the multiple use limit. Any excess shall be handled in the same manner that excess Deferrals or Contributions are handled. 12.5 Adjustment for Investment Gain or Loss The net investment gain or loss associated with the excess Deferral or Contribution amount shall be distributed or forfeited in the same manner as the excess amount. Such gain or loss is calculated as follows: E x G x (1 + (10% x M)) --------- (AB - G) where: E = the total excess amount, G = the net gain or loss for the Plan Year from all of an HCE's affected Accounts, AB= the total value of an HCE's affected Accounts, determined as of the end of the Plan Year being corrected, M = the number of full months from the Plan Year end to the date excess amounts are paid, plus one for the month during which payments is to be made if payment will occur after the 15th of that month. 12.6 Required Records The Administrator shall maintain records which are sufficient to demonstrate that the ADP, ACP and Multiple Use Tests have been met for 30 each Plan Year for at least as long as the Employer's corresponding tax year is open to audit. 12.7 Incorporation by Reference The provisions of this Section are intended to satisfy the requirements of Code sections 401(k)(3) and (m)(2) and, to the extent not otherwise stated in this Section, those Code sections are incorporated herein by reference. 31 13 MAXIMUM CONTRIBUTION AND BENEFIT LIMITATIONS 13.1 "Annual Addition" Defined The sum of all contributions (excluding rollovers and transfers from another qualified plan) and forfeitures allocated to the Participant's accounts in this Plan and all other defined contribution plans (currently or previously) maintained by any Related Company for the Plan Year (which shall be the Code section 415 limitation year). The Plan Year refers to the year the allocation pertains, regardless of when it is allocated. 13.2 Maximum Annual Addition The Annual Addition to a Participant's accounts under this Plan and any other defined contribution plan maintained by the Employer for any Plan Year shall not exceed the lesser of (1) 25% of his or her Taxable Income or (2) the greater of $30,000 or one-quarter of the dollar limitation in effect under Code section 415(b)(1)(A). 13.3 Avoiding an Excess Annual Addition If the allocation of Employer Contributions would produce an excess Annual Addition, the affected Participant shall receive the maximum Annual Addition from Employer Contributions and the remainder of the Employer Contribution will be allocated in the prescribed manner to all other eligible Participants. 13.4 Correcting an Excess Annual Addition Upon the discovery of a reasonable error (due to estimating a Participant's compensation or other limited facts and circumstances acceptable to the Internal Revenue Service) which has resulted in the allocation to a Participant's Account of an amount which exceeds the Annual Addition limit, the excess amount (adjusted to reflect investment gains) shall be forfeited by the Participant and used to reduce subsequent Contributions as soon as is administratively feasible. The Employer shall pay each affected Participant an amount equal to any forfeiture from his or her Pre-Tax Account. 13.5 Correcting a Multiple Plan Excess If a Participant, whose Account is credited with an excess Annual Addition, received allocations to more than one defined contribution plan, the excess shall be corrected by reducing the Annual Addition to this Plan only after all possible reductions have been made to the other defined contribution plans. 32 13.6 "Defined Benefit Fraction" Defined The fraction, for any Plan Year, where the numerator is the "projected annual benefit" and the denominator is the greater of 125% of the "protected current accrued benefit" or the normal limit which is the lesser of (1) 125% of the maximum dollar limitation provided under Code section 415(b)(1)(A) for the Plan Year or (2) 140% of the amount which may be taken into account under Code section 415(b)(1)(B) for the Plan Year, where a Participant's: (a) "projected annual benefit" is the annual benefit provided by the Plan determined pursuant to Code section 415(e)(2)(A), and (b) "protected current accrued benefit" in a defined benefit plan in existence on July 1, 1982, shall be the accrued annual benefit provided for under Public Law 97-248, section 235(g)(4), as amended. 13.7 "Defined Contribution Fraction" Defined The fraction where the numerator is the sum of the Participant's Annual Addition for each Plan Year to date and the denominator is the sum of the "annual amounts" for each year in which the Participant has performed service with a Related Company. The "annual amount" for any Plan Year is the lesser of (1) 125% of the Code section 415(c)(1)(A) dollar limitation (determined without regard to subsection (c)(6)) in effect for the Plan Year and (2) 140% of the Code section 415(c)(1)(B) amount in effect for the Plan Year, where: (a) each Annual Addition is determined pursuant to the Code section 415(c) rules in effect for such Plan Year, and (b) the numerator is adjusted pursuant to Public Law 97-248, section 235(g)(3), as amended. 13.8 Combined Plan Limits and Correction If a Participant has also participated in a defined benefit plan maintained by a Related Company, the sum of the Defined Benefit Fraction and the Defined Contribution Fraction for any Plan Year may not exceed 1.0. If the combined fraction exceeds 1.0 for any Plan Year, the Participant's defined benefit amount shall be limited so that the combined fraction does not exceed 1.0. 33 14 TOP HEAVY RULES 14.1 Top Heavy Definitions When capitalized, the following words and phrases have the following meanings when used in this Section: (a) "Aggregation Group". The group consisting of each qualified plan maintained by a Related Company (1) in which a Key Employee is a participant, or (2) which enables another plan in the group to meet the requirements of Code sections 401(a)(4) and 410. The Employer may also treat any other qualified plan as part of the group if the group would continue to meet the requirements of Code sections 401(a)(4) and 410 with such plan being taken into account. (b) "Determination Date". The last day of the preceding Plan Year or, in the case of the Plan's first year, the last day of the first Plan Year. (c) "Key Employee". A current or former Employee (or his or her Beneficiary) who at any time during the five year period ending on the Determination Date was: (1) an officer of the Employer whose Taxable Income (i) exceeds 150% of the amount in effect under Code section 415(c)(1)(A) and (ii) places him within the following highest paid group of officers: Number of Highest Paid Employees Officers Included --------- ----------------- Less than 30 3 30 to 500 10% of the Employees More than 500 50 (2) a more than 5% Owner, (3) a more than 1% Owner whose Taxable Income exceeds $150,000, or (4) a more than 0.5% Owner who is among the 10 Employees owning the largest interest in the Company and whose Taxable Income exceeds the amount in effect under Code section 415(c)(1)(A). 34 (d) "Plan Benefit". The sum as of the Determination Date of (1) an Employee's Account, (2) the present value of his or her other accrued benefits provided by all qualified plans within the Aggregation Group, and (3) the aggregate distributions made within the five year period ending on such date. Plan Benefits shall exclude rollover contributions from a non-related employer made after December 31, 1983. (e) "Top Heavy". The Plan's status when the Plan Benefits of Key Employees account for more than 60% of the Plan Benefits of all Employees who have performed services at any time during the five year period ending on the Determination Date. The Plan Benefits of Employees who were, but are no longer Key Employees (because they have not been an officer or Owner during the five year period), are excluded in the determination. 14.2 Special Contributions (a) Minimum Contribution Requirement. For each Plan Year in which the Plan is Top Heavy, the Employer shall not allow any contributions (other than a Rollover Contribution) to be made by or on behalf of any Key Employee unless the Employer makes a Profit Sharing or Special contribution on behalf of all Participants who were Eligible Employees as of the last day of the Plan Year in an amount equal to at least 3% of each such Participant's Taxable Income. The Administrator shall remove any such contributions (including applicable investment gain or loss) credited to a Key Employee's Account in violation of the foregoing rule and return them to the Employer or Employee to the extent permitted by the Limited Return of Contributions paragraph. (b) Overriding Minimum Benefit. Notwithstanding, contributions shall be permitted on behalf of Key Employees if the Employer also maintains a defined benefit plan which automatically provides a benefit which satisfies the Code section 416(c)(1) minimum benefit requirements, including the adjustment provided in Code section 416(h)(2)(A), if applicable. 14.3 Special Vesting If a Plan becomes Top Heavy after the Effective Date, vesting for all Employees shall thereafter be accelerated to the extent the following vesting schedule produces a greater vested percentage for the Employee than the normal vesting schedule at any relevant time: Years of Vesting Vested Service Percentage ---------------- ---------- 35 Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 but less than 6 80% 6 or more 100% 14.4 Adjustment to Combined Limits for Different Plans For each Plan Year in which the Plan is Top Heavy, 100% shall be substituted for 125% in determining the Defined Benefit Fraction and the Defined Contribution Fraction. 36 15 PLAN ADMINISTRATION 15.1 Plan Delineates Authority and Responsibility Plan fiduciaries include the Company, the Administrator and the Trustee, whose specific duties are delineated in this Plan and Trust. In addition, Plan fiduciaries also include any other person to whom fiduciary duties or responsibility is delegated with respect to the Plan. Any person or group may serve in more than one fiduciary capacity with respect to the Plan. To the extent permitted under ERISA section 405, no fiduciary shall be liable for a breach by another fiduciary. 15.2 Fiduciary Standards Each fiduciary shall: (a) discharge his or her duties in accordance with this Plan and Trust to the extent they are consistent with ERISA; (b) use that degree of care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (c) act with the exclusive purpose of providing benefits to Participants and their Beneficiaries, and defraying reasonable expenses of administering the Plan; (d) diversify Plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and (e) treat similarly situated Participants and Beneficiaries in a uniform and nondiscriminatory manner. 15.3 Company is ERISA Plan Administrator The Company is the plan administrator, within the meaning of ERISA section 3(16), responsible for compliance with all reporting and disclosure requirements, except those that are explicitly the responsibility of the Trustee under applicable law. The Administrator shall have any necessary authority to carry out such functions through the actions of its duly appointed officers. 15.4 Administrator Duties 37 The Administrator shall have the authority to construe this Plan and Trust, other than the provisions which relate to the Trustee, and to do all things necessary or convenient to effect the intent and purpose of the Plan, whether or not such powers are specifically set forth in this Plan and Trust. Actions taken in good faith by the Administrator shall be conclusive and binding on all interested parties, and shall be given the maximum possible deference allowed by law. In addition to the duties listed elsewhere in this Plan and Trust, the Administrator's authority shall include, but not be limited to, the authority to: (a) Determine who is eligible to participate, the allocation of Contributions, and the eligibility for withdrawals, loans and distributions; (b) Provide each Participant with a summary plan description no later than 90 days after he or she has become a Participant (or such other period permitted under ERISA section 104(b)(1)), as well as informing each Participant of any material modification to the Plan in a timely manner; (c) Make a copy of the following documents available to Participants during normal work hours: this Plan and Trust (including subsequent amendments), all annual and interim reports of the Trustee related to the entire Plan, the latest annual report and the summary plan description; (d) Determine the fact of a Participant's death and of any Beneficiary's right to receive the deceased Participant's interest based upon such proof and evidence as it deems necessary; and (e) Establish and review at least annually a funding policy bearing in mind both the short-run and long-run needs and goals of the Plan. To the extent Participants may direct their own investments, the funding policy shall focus on which Investment Funds are available for Participants to use. 15.5 Advisors May be Retained The Administrator may retain such agents and advisors (including attorneys, accountants, actuaries, consultants, record keepers, investment counsel and administrative assistants) as it considers necessary to assist it in the performance of its duties. The Administrator shall also comply with the bonding requirements of ERISA section 412. 15.6 Delegation of Administrator Duties The Administrator shall provide the Trustee with the names and specimen 38 signatures of any person who is authorized to act as or on behalf of the Administrator. The Company may, but shall not be required to, delegate its duties as Administrator by appointing a committee (the "Committee") which shall be responsible for performing the duties allocated to the Administrator in this Plan and Trust. Any Committee member appointed by the Company shall serve at the pleasure of the Company, but may resign by written notice to the Company. Committee members shall serve without compensation from the Plan for such services. 15.7 Committee Operating Rules (a) Actions of Majority. Any act delegated by the Administrator to the Committee may be done by a majority of its members. The majority may be expressed by a vote at a meeting or in writing without a meeting, and a majority action shall be equivalent to an action of all Committee members. (b) Meetings. The Committee shall hold meetings upon such notice, place and times as it determine$ necessary to conduct its functions properly. (c) Reliance by Trustee. The Committee may authorize one or more of its members to execute documents on its behalf and give written direction to the Trustee in the performance of its duties. The Trustee shall accept such direction and rely upon it until notified in writing that the Committee has revoked the authorization to give such direction. The Trustee shall not be deemed to be on notice of any change in the membership of the Committee or the duties delegated to the Committee until notified in writing. 39 16 MANAGEMENT OF INVESTMENTS 16.1 Trust Agreement All Plan assets shall be held by the Trustee in trust, in accordance with those provisions of this Plan and Trust which relate to the Trustee, for use in providing Plan benefits and paying Plan expenses not paid directly by the Employer. Plan benefits will be drawn solely from the Trust and paid by the Trustee as directed by the Administrator. 16.2 Investment Funds The Administrator is hereby granted authority to direct the Trustee to invest Trust assets in various Investment Funds. The Investment Funds shall be comprised of: (a) collective investment funds maintained by the Trustee which are available for investment by trusts which are qualified under Code sections 401(a) and 501(a); (b) guaranteed investment contracts purchased from a bank a insurance company prior to the Effective Date; (c) interest bearing deposits of the Trustee; and (d) Employer common or preferred stock which is readily tradable and listed on a national securities exchange (or quoted on a system sponsored by a national securities association) registered under the Securities Exchange Act of 1934, as amended. Any Investment Fund assets invested in a collective investment fund of the Trustee shall be subject to all the provisions of the instruments establishing and governing the collective investment fund. These instruments, including any subsequent amendments, are incorporated herein by reference. Notwithstanding, the Administrator may appoint, with the approval of the Trustee, another trustee to hold and administer Plan assets which do not meet these requirements. 16.3 Authority to Hold Cash Each Participant's Sweep Account, which is used to hold assets pending investment or disbursement, shall consist of interest bearing deposits of the Trustee. The Trustee may also maintain sufficient deposit or money market type assets in each Investment Fund to handle the ordinary administration of the Plan and disbursement of funds. 40 16.4 Trustee to Act Upon Instructions The Trustee shall carry out investment instructions during each investment cycle that begins on the Sweep Date after such instructions are received from the Administrator or Participants. Such instructions shall remain in effect until changed by the Administrator or Participants. 16.5 Trustee is Investment Manager The authority to manage, acquire and dispose of Trust assets in the Investment Funds is hereby vested in the Trustee. 16.6 Investment in Employer Stock If the Company provides an Employer Stock Investment Fund option for Participants, the Trustee may acquire and hold sufficient Employer common or preferred stock to comply with Participants' investment elections of such Fund. 16.7 Voting and Tendering Employer Stock Each Participant shall be entitled to direct the Trustee to vote or tender Employer common or preferred stock held on his or her behalf in the Employer Stock Investment Fund based upon the customary procedure of the Trustee for the voting and tendering of employer securities it holds in trust. The Administrator shall instruct the Trustee with respect to how to vote or tender any shares for which directions are not received from Participants. 16.8 Registration and Disclosure for Employer Stock The Administrator shall be responsible for determining the applicability (and, if applicable, complying with) the requirements of the Securities Act of 1933, as amended, the California Corporate Securities Law of 1968, as amended, and any other applicable blue sky law. The Administrator shall also specify what restrictive legend or transfer restriction, if any, is required to be set forth on the certificates for the securities and the procedure to be followed by the Trustee to effectuate a resale of such securities. 41 17 TRUST ADMINISTRATION 17.1 Trustee to Construe Trust The Trustee shall have the authority to construe those provisions of this Plan and Trust which relate to the Trustee and to do all things necessary or convenient to the administration of the Trust, whether or not such powers are specifically set forth in this Plan and Trust. Actions taken in good faith by the Trustee shall be conclusive and binding on all interested parties, and shall be given the maximum possible deference allowed by law. 17.2 Trustee To Act As Owner of Trust Assets Subject to the specific conditions and limitations set forth in this Plan and Trust, the Trustee shall have all the power, authority, rights and privileges of an absolute owner of the Trust assets and, not in limitation but in amplification of the foregoing, may: (a) receive, hold, manage, invest and reinvest, sell, tender, exchange, dispose of, encumber, hypothecate, pledge, mortgage, lease, grant options respecting, repair, alter, insure, or distribute any and all property in the Trust; (b) borrow money, participate in reorganizations, pay calls and assessments, vote or execute proxies, exercise subscription or conversion privileges, exercise options and register any securities in the Trust in the name of the nominee, in federal book entry form or in any other form as will permit title thereto to pass by delivery; (c) renew, extend the due date, compromise, arbitrate, adjust, settle, enforce or foreclose, by judicial proceedings or otherwise, or defend against the same, any obligations or claims in favor of or against the Trust; and (d) lend, through a collective investment fund, any securities held in such collective investment fund to brokers, dealers or other borrowers and to permit such securities to be transferred into the name and custody and be voted by the borrower of others. 17.3 United States Indicia of Ownership The Trustee shall not maintain the indicia or ownership of any Trust assets outside the jurisdiction of the United States, except as authorized by ERISA section 404(b). 17.4 Tax Withholding and Payment 42 (a) Withholding. The Administrator shall provide the Trustee with a signed withholding form (which is acceptable to the Trustee) for any Participant or Beneficiary who is to receive a taxable distribution from the Trust. The Trustee shall calculate and withhold federal (and, if agreed to with the Administrator, state) income taxes as directed on the withholding form. (b) Taxes Due From Investment Funds. The Trustee shall pay from the Investment Fund any taxes or assessments imposed by any taxing or governmental authority on such Fund or its income, including related interest and penalties. 17.5 Trustee Duties and Limitations The Trustee's duties shall be confined to receiving funds on behalf of and making payments from the Trust, safeguarding and valuing Trust assets, and investing and reinvesting Trust assets in the Investment Funds as directed by the Administrator or Participants. The Trustee shall have no duty or authority to ascertain whether Contributions are in compliance with the Plan, to enforce collection or to compute or verify the accuracy or adequacy or any amount to be paid to it by the Employer. The Trustee shall not be liable for the proper application of any part of the Trust with respect to any disbursement made in accordance with the written directions of the Administrator. 17.6 Trust Accounting (a) Annual Report. Within 60 days (or other reasonable period) following the close of the Plan Year, the Trustee shall provide the Administrator with an annual accounting of Trust assets and information to assist the Administrator in meeting ERISA's annual reporting and audit requirements. (b) Periodic Reports. The Trustee shall maintain records and provide sufficient reporting to allow the Administrator to properly monitor the Trust's assets and activity. (c) Administrator Approval. Approval of any Trustee accounting will automatically occur 90 days after such accounting has been received by the Administrator, unless the Administrator files a written objection with the Trustee within such time period. Such approval shall be final as to all matters and transactions stated or shown therein and binding upon the Administrator. 17.7 Valuation of Certain Assets 43 If the Trustee determines the Trust holds any asset which is not readily tradable and listed on a national securities exchange registered under the Securities Exchange Act of 1934, as amended, the Trustee may engage a qualified independent appraiser to determine the fair market value of such property, and the appraisal fees shall be paid from the Investment Fund containing the asset. 17.8 Legal Counsel The Trustee may consult with legal counsel of its choice, including counsel for the Employer or counsel of the Trustee, upon any question or matter arising under this Plan and Trust. When relied upon by the Trustee, the opinion of such counsel shall be evidence that the Trustee has acted in good faith. 17.9 Fees and Expenses The Trustee's fees for its services as Trustee shall be such as may be mutually agreed upon by the Company and the Trustee. Trustee fees and all reasonable expenses of counsel and advisors retained by the Trustee may be paid by the Employer. If the Employer chooses not to pay for these fees and expenses, or if they remain unpaid by the Employer for a period of 60 days, the Trustee may cause such fees and expenses to be paid from the Trust. 44 18 RIGHTS, PROTECTION, CONSTRUCTION AND JURISDICTION 18.1 Plan Does Not Affect Employment Rights The Plan does not provide any employment rights to any Employee. The Employer expressly reserves the right to discharge an Employee without regard to the effect such discharge would have upon the Employee's interest in the Plan. 18.2 Limited Return of Contributions Except as provided in this paragraph, (1) Plan assets shall not revert to the Employer nor be diverted for any purpose other than the exclusive benefit of Participants or their Beneficiaries; and (2) a Participant's vested interest shall not be subject to divestment. As provided in ERISA section 403(c)(2), the actual amount of a Contribution (or the current value of the Contribution if a net loss has occurred) may revert to the Employer if such Contribution is: (a) made by reason of a mistake of fact; (b) conditioned on the initial qualification of the Plan under Code section 401(a); or (c) conditioned upon its deductibility under Code section 404. The reversion to the Employer must be made within one year of the mistaken payment of the Contribution, the date of denial of qualification, or disallowance of deduction, as the case may be. A Participant shall have no rights under the Plan with respect to any such reversion. 18.3 Assignment and Alienation As provided by Code section 401(a)(13), no benefit provided by the Plan may be anticipated, assigned or alienated, except: (a) to create, assign or recognize a right to any benefit with respect to a Participant pursuant to a QDRO, or (b) to use a Participant's vested Account balance as security for a loan from the Plan. 18.4 Facility of Payment If a Plan benefit is due to be paid to a minor or a person who is unable to care for his or her affairs due to illness or accident, the Administrator 45 may instead direct that the benefit be paid in complete satisfaction of its obligation, to any person acting as his or her custodian under the California Uniform Transfers to Minors Act, his or her legal representative or a near relative, or directly for his or her support, maintenance or education. 18.5 Reallocation of Lost Participant's Accounts If the Administrator cannot locate a person entitled to payment of a Plan benefit after a reasonable search, the Administrator may at any time thereafter treat such person's Account as it would a forfeiture. If such person subsequently presents the Administrator with a valid claim for the benefit, such person shall be paid the amount treated as forfeited, plus the interest that would have been earned in the Sweep Account to the date of determination. The Administrator shall direct the Trustee to pay the amount from the Forfeiture Account or through an additional Employer Contribution. 18.6 Claims Procedure (a) Right to Make Claim. An interested party who disagrees with the Administrator's determination of his or her right to Plan benefits, must submit a written claim and exhaust this claim procedure before legal recourse of any type is sought. The claim must include the important issues the interested party believes support the claim. (b) Process for Denying a Claim. The Administrator's partial or complete denial of an initial claim must include an understandable, written response covering (1) the specific reasons why the claim is being denied (with reference to the pertinent Plan provisions) and (2) the steps necessary to perfect the claim and obtain a final review. (c) Appeal of Denial and Final Review. The interested party may make a written appeal of the Administrator's initial decision, and the Administrator shall respond in the same manner and form as prescribed for denying a claim initially. (d) Time Frame. The initial claim, its review, appeal and final review shall be made in a timely fashion, subject to the following time table: Action Maximum Response Time ------ --------------------- File initial claim 60 days after benefit determined Initial claim review 90 days after claim filed 46 However, the Administrator may take up to twice the maximum response time for its initial and final review if it provides an explanation within the normal period of why an extension is needed and when its decision will be forthcoming. 18.7 Construction Headings are included for reading convenience. The text shall control if any ambiguity or inconsistency exists between the headings and the text. The singular and plural shall be interchanged wherever appropriate. 18.8 Jurisdiction and Severability The Plan and Trust shall be construed, regulated and administered under ERISA and other applicable federal laws and, where not otherwise preempted, by the laws of the State of California. If any provision of this Plan and Trust shall become invalid or unenforceable, that fact shall not affect and validity or enforceability of any other provision of this Plan and Trust. All provisions of this Plan and Trust shall be so construed as to render them valid and enforceable in accordance with their intent. 18.9 Indemnification by Employer The Company hereby agrees to indemnify all Plan fiduciaries against any and all liabilities resulting from any action or inaction, in relation to the Plan or Trust (1) including (without limitation) expenses reasonably incurred in the defense of any claim relating to the Plan or its assets, and amounts paid in any settlement relating to the Plan or its assets, but (2) excluding actions or inactions made in bad faith, or resulting from the negligence or breach of fiduciary duty of the Trustee. The Company shall have the right, but not the obligation, to conduct the defense of any action to which this paragraph applies. The fiduciaries are not entitled to indemnity from the Plan assets relating to any such action. 47 19 AMENDMENT, MERGER AND TERMINATION 19.1 Amendment The Company reserves the right to amend this Plan and Trust at any time, to any extent and in any manner it may deem necessary or appropriate. The Company (and not the Trustee) shall be responsible for adopting any amendments necessary to maintain the qualified status of this Plan and Trust under Code sections 401(a) and 501(a). The Administrator shall have the authority to adopt Plan amendments which have no substantial adverse financial impact upon the Employer or the Plan. All interested parties shall be bound by any amendment, provided that no amendment shall: (a) Become effective until it is accepted in writing by the Trustee; (b) Make it possible for any portion of the Trust assets to revert to the Employer or to be used for, or diverted to, any purpose other than for the exclusive benefit of Participants and Beneficiaries entitled to Plan benefits; (c) Decrease the rights of any affected Employee to benefits accrued to the date on which the amendment is adopted, or if later, the date upon which the amendment becomes effective; or (d) Permit an Employee to be paid the balance of his or her Pre-Tax Account unless the Related Company (or the subsidiary) employing the Employee (1) terminates its participation in the Plan and does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code section 4975) or (2) transfers the Employee to an acquiring company through the disposition of corporate assets (within the meaning of Code section 409(d)(2)) as provided for in Code sections 401(k)(2)(B) and (10). 19.2 Merger This Plan and Trust may not be merged or consolidated with, nor may its assets or liabilities transferred to another Plan, unless each Participant and Beneficiary would receive a benefit just after the merger, consolidation or transfer which is at least equal to the benefit which would be received if the Plan had terminated just before such event. 19.3 Plan Termination The Company may, at any time and for any reason, terminate the Plan in full or in part, or completely discontinue contributions. Upon any of these 48 events, the rights of each affected Employee to benefits accrued to that date shall be fully vested. Distributions or withdrawals will be made in accordance with the terms of the Plan which are subject to amendment at the time of the Plan's termination. The Trustee's authority shall continue beyond the Plan's termination date until all Trust assets have been liquidated and distributed. 19.4 Termination of Related Company's Participation Any Related Company may terminate its Plan participation upon written notice executed by the Related Company and delivered to the Company. Upon the Related Company's request, the Company may instruct the Trustee and Administrator to spin off all affected Accounts and underlying assets into a separate qualified plan under which the Related Company shall assume the powers and duties of the Company. Alternatively, the Company may treat the event as a partial termination described above or continue to maintain the Accounts under the Plan. 19.5 Replacement of the Trustee The Trustee may resign as Trustee under this Plan and Trust or may be removed by the Company at any time upon at least 90 days written notice (or less if agreed to by both parties). In such event, the Company shall appoint a successor trustee by the end of the notice period. The successor trustee shall then succeed to all the powers and duties of the Trustee under this Plan and Trust. If no successor trustee has been named by the end of the notice period, the Company's chief executive officer shall become the trustee, or if he or she declines, the Trustee may petition the court for the appointment of a successor trustee. 19.6 Final Settlement and Accounting of Trustee (a) Final Settlement. As soon as is administratively feasible after its resignation or removal as Trustee, the Trustee shall transfer to the successor trustee all property currently held by the Trust. However, the Trustee is authorized to reserve such sum of money as it may deem advisable for payment of its accounts and expenses in connection with the settlement of its accounts or other fees or expenses payable by the Trust. Any balance remaining after payment of such fees and expenses shall be paid to the successor trustee. (b) Final Accounting. The Trustee shall provide a final accounting to the Administrator within 90 days of the date Trust assets are transferred to the successor trustee. (c) Administrator Approval. Approval of the final accounting will 49 automatically occur 90 days after such accounting has been received by the Administrator, unless the Administrator files a written objection with the Trustee within such time period. Such approval shall be final as to all matters and transactions stated or shown therein and binding upon the Administrator. 50 APPENDIX A The Investment Funds offered to Participants and Beneficiaries as of the Effective Date include this set of monthly valued funds: Employer's Transition GIC Fund Asset Allocation Fund Tilts and Timing Fund If investment instructions are not received from any Participant, his or her investment instructions shall be assumed to be a 100% investment in the Employer's Transition GIC Fund. 51 ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG OPERATING CO. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG OPERATING CO. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan; and WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG-LA, INC. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG-LA, INC. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan; and WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG-OC, INC. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG-OC, INC. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company" maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan and; WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG-SD, INC. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG-SD, INC. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan; and WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG-SW, INC. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG-SW, INC. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan; and WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG-NW, INC. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG-NW, INC. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan; and WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF KREG-NC, INC. February 21, 1994 Under and in accordance with Section 14(f) of the Delaware General Corporation Law, we the undersigned being all of the members of the Board of Directors (the "Board") of KREG-NC, INC. ("KREG"), a Delaware corporation, waiving all notice, hereby execute this instrument, or a counterpart hereof, to evidence their consent to the taking of the actions set forth herein, and in the adoption of the following resolution without the holding of a meeting: WHEREAS, The Koll Company (the "Company") maintains The Koll Company 401(k) Plus Plan (the "Plan") and Trust Agreement (the "Trust") for its employees; WHEREAS, KREG is a Non-Affiliated Company as defined in the Plan; and WHEREAS, the Plan provides that any Related Company or Non-Affiliated Company may become a participating Employer as defined in the Plan with the approval of the Company. RESOLVED, that effective October 1, 1993, KREG hereby adopts the Plan and Trust which is effective as of July 1, 1989 and thereby elects to participate as an employer. IN WITNESS WHEREOF, the undersigned have executed this Action by Unanimous Written Consent effective as of the date first written above. /s/ --------------------------------------- Ray Wirta /s/ --------------------------------------- Raymond J. Pacini /s/ --------------------------------------- Richard M. Ortwein EX-10.12A 6 EXHIBIT 10.12A April 1, 1993 The Bolsa Chica Company c/o The Koll Company 4343 Von Karman Avenue Newport Beach, CA 92660 Dear Sirs: This will confirm our understanding with respect to amendments to the following agreements among Abex Inc. ("Abex") and The Bolsa Chica Company ("Bolsa Chica") and/or their respective subsidiaries: 1. The Transition Agreement, dated as of July 16, 1992 (the "Transition Agreement"), among The Henley Group, Inc., Bolsa Chica and Abex. Section 2.01 of the Transition Agreement is hereby amended to read in its entirety as follows: "SECTION 2.01. TRANSITIONAL SERVICES. Abex shall make available to Bolsa Chica and its subsidiaries such administrative support services ("Transitional Services") for the period commencing April 1, 1993 and ending on April 1, 1994 (the "Transition Period" ) as are reasonably necessary and appropriate to facilitate the orderly transition of such functions to Bolsa Chica. Abex shall not be required to provide transitional services to the extent that doing so would unreasonably interfere with the performance by any of its employees of services for Abex or otherwise unreasonably burden Abex or any of its employees in light of the purposes of this Agreement. The Bolsa Chica Company c/o The Koll Company April 1, 1993 Page Two provide and make available the Transition Services for the Transition Period, Bolsa Chica shall pay Abex a fee of $500,000 on each of June 30, 1993, September 30, 1993, December 31, 1993 and March 31, 1994. 2. The Lease Agreement, dated as of June 15, 1992, between Liberty Lane Real Estate Inc. and Bolsa Chica, shall terminate as of April 1, 1993. This will also confirm our agreement regarding the audits of the consolidated federal income tax returns filed by Bolsa and/or The Henley Group, Inc. for 1989, 1990, 1991 and 1992 (collectively, the "Audits"). It is agreed and understood that (i) Abex shall control and direct the day-to-day conduct of the Audits on behalf of Bolsa and any administrative or judicial appeals relating thereto, (ii) Bolsa will provide Abex and its counsel with appropriate powers of attorney or other documents which will enable Abex to exercise such control and direction, and (iii) Bolsa will provide Abex with such reasonable assistance as Abex may request with respect to any such proceeding. Notwithstanding the foregoing, Abex shall not agree to pay, settle, compromise or concede any claim or issue arising with respect to the Audits or any appeal without the consent of Bolsa, which shall not be unreasonably withheld PROVIDED that Bolsa shall be entitled to withhold its consent if Bolsa reasonably believes that it could achieve a materially more favorable settlement with respect to any issues for which Bolsa is not being indemnified by Abex. Abex shall undertake any action which it is permitted to take pursuant to this paragraph with the same diligence and care as if such action pertained to Abex, and as if any amount which might be payable by or to Bolsa were payable by or to Abex. Except as expressly set forth above, the Tax Sharing Agreement dated June 10, 1992 between The Henley Group, Inc. and Abex shall govern the handling of the Audits subject to such Agreement and any administrative or individual appeals relating thereto and this letter is not intended to modify the parties' rights and obligations under that Agreement. Abex will provide Bolsa with copies of all correspondence, notices and other documents received by Abex in connection with The Bolsa Chica Company c/o The Koll Company April 1, 1993 Page Three the audits, including copies of all Information Document Requests (IDR's), or appeals and will permit Bolsa to review drafts of any materials to be submitted in connection with such proceedings prior to such submission, it being understood that time is of the essence and any such review shall not delay any submission. Bolsa will promptly advise Abex of those IDR responses it wishes to review prior to such submission. Abex will consult with Bolsa regarding any position it intends to take regarding any issue raised during the audit or appeal and will afford Bolsa the right to participate in any conferences with tax authorities. Bolsa shall reimburse Abex for any reasonable out-of-pocket costs (including accountants and attorney's fees) incurred by Abex in connection with the conduct of the audit or any related administrative or judicial appeal (other than with respect to issues described in clauses x and y of Section 7.01(b) of the Tax Sharing Agreement). Any amount payable pursuant to this required reimbursement shall be payable within 30 days after receipt by Bolsa of appropriate documentation. Abex shall obtain Bolsa's approval prior to incurring any expense (or group of related expenses) in excess of $50,000. Please indicate your agreement with the foregoing by signing in the space provided below. Very truly yours, ABEX INC. By /s/ Clifford T Dirkes ------------------------------------ Title: V.P.-Tax Accepted and Agreed to as of the date first above written: THE BOLSA CHICA COMPANY By /s/ -------------------------- Title: CFO EX-10.18A 7 EXHIBIT 10.18A EXHIBIT 10.18A AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT This Amendment No. 1 (the "Amendment"), dated as of December 29, 1993, is made and entered into by and between THE KOLL COMPANY, a California corporation ("TKC") and KREG OPERATING CO., a Delaware corporation ("KREG"), for the purpose of amending that certain Asset Purchase Agreement (the "Agreement") dated as of September 30, 1993 by and between TKC and KREG. R E C I T A L S: WHEREAS, TKC desires to surrender all of its right, title and interest in certain periodic earnout payments pursuant to the Agreement in exchange for a lump-sum cash payment; and WHEREAS, KREG desires to make such cash payment in exchange for the cancellation and termination of the earnout provisions of the Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. DEFINED TERMS. For purposes of this Amendment, all capitalized terms used and not otherwise defined herein, shall have the meanings assigned to them in the Agreement. 2. TERMINATION OF EARNOUT PROVISIONS. Section 2.4 of the Agreement shall be terminated in its entirety, effective as of the date of the Agreement as if the terms and provisions of Section 2.4 were not at any time of any force or effect. From and after the date of this Amendment, Section 2.4 of the Agreement shall be amended and restated to read in full as follows: "2.4 [RESERVED]" 3. The provisions of Section 10.3(a)(ii) are hereby amended and restated to read in full as follows: "(ii) in the event that an Action is brought against Parent, the Purchaser or any of their respective Affiliates or Representatives by a stockholder of Parent alleging breach of fiduciary duty or other causes of action, including, without limitation, a derivative action, arising out of the consummation of the Acquisition or any action taken pursuant to this Agreement including any amendment hereto (a "Stockholder Action"), the Seller shall indemnify, defend and hold harmless Parent, the Purchaser and their respective Affiliates and Representatives from and against fifty percent (50%) of all Damages incurred in connection with, arising out of, resulting from or incident to the defense and/or settlement of such Stockholder Action; provided that in no event shall the aggregate liability of the Seller under this Section 10.3(a)(ii) exceed One Million Three Hundred Thousand Dollars ($1,300,000)." 4. CONSIDERATION. In consideration of the foregoing, KREG shall deliver to TKC Four Million Two Hundred Fifty Thousand Dollars ($4,250,000). 5. NO OTHER AMENDMENT. Except to the extent modified by this Amendment, all of the terms and provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, KREG and TKC have caused this Amendment to be duly executed as of the date first written above. THE KOLL COMPANY By/s/ RAYMOND E. WIRTA ------------------------------------------- Raymond E. Wirta President and Chief Operating Officer KREG OPERATING CO. By/s/ RICHARD M. ORTWEIN ------------------------------------------- Richard M. Ortwein President EX-10.19 8 EXHIBIT 10.19 - ------------------------------------------------------------------------------- STOCK PURCHASE AGREEMENT by and among LIBRA INVEST & TRADE LTD. (Buyer), SIGNAL LANDMARK (Seller), KOLL REAL ESTATE GROUP, INC. (Parent) and LAKE SUPERIOR LAND COMPANY dated December 17, 1993 - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1 Purchase and Sale . . . . . . . . . . . . . . . . . 2 Section 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3 Purchase Price . . . . . . . . . . . . . . . . . . 2 Section 1.4 Sale of the KREG Shares . . . . . . . . . . . . . . 3 Section 1.5 Contingent Payments . . . . . . . . . . . . . . . . 5 ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER WITH RESPECT TO THE COMPANY. . . . . . . . . . . . . . . . . 10 Section 2.1 Organization . . . . . . . . . . . . . . . . . . . 11 Section 2.2 Authority, Binding Effect . . . . . . . . . . . . . 11 Section 2.3 Financial Information; Absence of Material Adverse Changes . . . . . . . . . . . . . 13 Section 2.4 Title . . . . . . . . . . . . . . . . . . . . . . . 15 Section 2.5 Franchises, Licenses, Agreements, etc.. . . . . . . 17 Section 2.6 Consents. . . . . . . . . . . . . . . . . . . . . . 17 Section 2.7 Actions Pending . . . . . . . . . . . . . . . . . . 18 Section 2.8 Collective Bargaining Agreements . . . . . . . . . 18 Section 2.9 Employee Benefit Plans; ERISA . . . . . . . . . . . 18 Section 2.10 Environmental Matters . . . . . . . . . . . . . . . 25 Section 2.11 Capitalization . . . . . . . . . . . . . . . . . . 28 Section 2.12 Subsidiaries . . . . . . . . . . . . . . . . . . . 28 Section 2.13 Bank Accounts . . . . . . . . . . . . . . . . . . . 29 Section 2.14 Tax Returns and Payments . . . . . . . . . . . . . 29 Section 2.15 Governmental Approvals . . . . . . . . . . . . . . 30 Section 2.16 Easements . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . 30 Section 3.1 Organization . . . . . . . . . . . . . . . . . . . 31 Section 3.2 Authority, Binding Effect . . . . . . . . . . . . . 31 Section 3.3 Consents . . . . . . . . . . . . . . . . . . . . . 32 Section 3.4 Title . . . . . . . . . . . . . . . . . . . . . . . 32 Section 3.5 Investment Representation . . . . . . . . . . . . . 33 Section 3.6 Actions Pending . . . . . . . . . . . . . . . . . . 34 Section 3.7 No Reliance . . . . . . . . . . . . . . . . . . . . 34 Section 3.8 Environmental Matters . . . . . . . . . . . . . . . 35 Section 3.9 Governmental Approvals . . . . . . . . . . . . . . 35 i ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER WITH RESPECT TO SELLER . . . . . . . . . . . . . . . . . . . . . 36 Section 4.1 Organization . . . . . . . . . . . . . . . . . . . 36 Section 4.2 Authority, Binding Effect . . . . . . . . . . . . . 36 Section 4.3 Consents . . . . . . . . . . . . . . . . . . . . . 37 Section 4.4 Title to Shares . . . . . . . . . . . . . . . . . . 38 Section 4.5 Actions Pending . . . . . . . . . . . . . . . . . . 38 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT. . . . . . . . . . . . . . . . 39 Section 5.1 Organization . . . . . . . . . . . . . . . . . . . 39 Section 5.2 Authority, Binding Effect . . . . . . . . . . . . . 39 Section 5.3 Consents . . . . . . . . . . . . . . . . . . . . . 40 Section 5.4 Actions Pending . . . . . . . . . . . . . . . . . . 41 Section 5.5 Fairness Opinion . . . . . . . . . . . . . . . . . 41 ARTICLE VI COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.1 Experts . . . . . . . . . . . . . . . . . . . . . . 42 Section 6.2 Settlement Accounts . . . . . . . . . . . . . . . . 42 Section 6.3 Management Services . . . . . . . . . . . . . . . . 43 ARTICLE VII DELIVERIES AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.1 Deliveries by Seller . . . . . . . . . . . . . . . 44 Section 7.2 Deliveries by Buyer . . . . . . . . . . . . . . . . 46 ARTICLE VIII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.1 Indemnification . . . . . . . . . . . . . . . . . . 47 Section 8.2 Defense of Claims . . . . . . . . . . . . . . . . . 51 Section 8.3 Letter Agreement Payment . . . . . . . . . . . . . 55 Section 8.4 Tax Returns . . . . . . . . . . . . . . . . . . . . 55 Section 8.5 Tax Refunds . . . . . . . . . . . . . . . . . . . . 57 Section 8.6 Services Indemnity. . . . . . . . . . . . . . . . . 57 Section 8.7 Termination of Tax Sharing Agreements . . . . . . . 58 ii ARTICLE IX MISCELLANEOUS PROVISIONS AND AGREEMENTS . . . . . . . . . . . . . . . . 58 Section 9.1 Confidentiality . . . . . . . . . . . . . . . . . . 58 Section 9.2 Expenses . . . . . . . . . . . . . . . . . . . . . 58 Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . 59 Section 9.4 Amendments; Termination . . . . . . . . . . . . . . 61 Section 9.5 Assignment. . . . . . . . . . . . . . . . . . . . . 61 Section 9.6 Entire Agreement . . . . . . . . . . . . . . . . . 61 Section 9.7 Applicable Law . . . . . . . . . . . . . . . . . . 62 Section 9.8 Survival . . . . . . . . . . . . . . . . . . . . . 62 Section 9.9 Further Assurances. . . . . . . . . . . . . . . . . 63 Section 9.10 Brokers . . . . . . . . . . . . . . . . . . . . . . 64 Section 9.11 Provision of Services . . . . . . . . . . . . . . . 64 Section 9.12 Wage Reporting . . . . . . . . . . . . . . . . . . 65 Section 9.13 Unemployment Compensation . . . . . . . . . . . . . 66 iii STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT dated as of December 17, 1993 (together with the annexes, exhibits and schedules hereto, this "Agreement"), among Libra Invest & Trade Ltd., a corporation organized under the laws of the British Virgin Islands ("Buyer"), Signal Landmark, a California corporation ("Seller"), Koll Real Estate Group, Inc. (formerly named The Bolsa Chica Company), a Delaware corporation ("Parent"), and Lake Superior Land Company, a Delaware corporation (the "Company"). Buyer desires to purchase all of the outstanding shares of common stock of the Company and Seller desires to sell such shares to Buyer on the terms and conditions hereinafter set forth. The definitions of certain initially capitalized terms used herein are set forth in Annex A hereto. In consideration of the premises and of the respective covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES Section 1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions set forth in this Agreement, Seller will sell, transfer and convey to Buyer, and Buyer will purchase from Seller, 1,000 shares (the "Shares") of common stock, par value $1.00 per share ("Common Stock"), of the Company, representing all of the outstanding equity securities of the Company, for the Purchase Price (as defined in Section 1.3). Section 1.2 CLOSING. Subject to the conditions set forth herein, the purchase and sale of the Shares pursuant to this Agreement (the "Closing") will take place at the offices of Skadden, Arps, Slate, Meagher & Flom, at 7:00 P.M., New York time, on the date hereof (the "Closing Date"). Section 1.3 PURCHASE PRICE. In consideration for the sale, transfer and conveyance of the Shares to Buyer by Seller, Buyer will deliver to Seller the following (the "Purchase Price"): (a) all of Buyer's right, title and interest in and to the Senior Debentures; and 2 (b) payment in an amount equal to the net proceeds from the sale by Buyer of the KREG Shares in accordance with Section 1.4 hereof; and (c) the Contingent Payments, if any, paid at the times and calculated as specified in Section 1.5 hereof. Section 1.4 SALE OF THE KREG SHARES. Buyer will, after the Closing Date, commence the sale, through orderly open market or private placement transactions, of 3,395,482 shares (the "KREG Shares") of the Class A common stock, par value $.05 per share, of Seller ("KREG Common Stock"). On the Closing Date, Buyer will deposit the KREG Shares with Smith Barney Shearson Inc. ("Smith Barney"), which will execute sales thereof and will distribute the proceeds of such sales in accordance with the terms of the Custody Agreement in the form attached hereto as Exhibit A. Parent will cause the sale of all KREG shares to occur on or before December 17, 1996 and, Parent will at its own expense in connection with any public sale of the KREG Shares, either register such KREG Shares for public sale under the Securities Act of 1933, as amended (the "Act"), and under appropriate state securities laws (the "Blue Sky Laws") or provide an 3 opinion of counsel reasonably acceptable to both Seller and Smith Barney that such registrations are not required. In connection with any such registrations or any sale, whether publicly or privately, Parent will indemnify Buyer, any controlling person of Buyer or any person who is or will be an underwriter as such term is defined in the Act as provided in Exhibit B. Notwithstanding anything to the contrary in this Agreement, Parent shall pay and be responsible for, and indemnify, defend and hold harmless Buyer from and against, (i) any Taxes asserted against or imposed upon Buyer, and any Indemnifiable Losses attributable to such Taxes as a result of or in connection with the sale of the KREG shares described in this Section 1.4; and (ii) any fees, costs or other expenses, including reasonable attorneys' fees and expenses, incurred by Buyer or the Company primarily as a result of Buyer's ownership of the KREG Shares; provided that Parent and Seller shall in no event be liable for any fees, costs or other expenses which aggregate in excess of $20,000. 4 Section 1.5 CONTINGENT PAYMENTS. (a) In the event that Buyer, at any time during the 15 year period following the Closing Date, in any transaction or series of transactions, (i) sells any of the Shares, (ii) permits the Company to sell all or substantially all of its assets, or (iii) receives cash or assets from the Company by way of management or consulting fees or overhead allocations in excess of $350,000 (such amounts up to and including $350,000 per annum, "Allowable Fees"), in sale/lease-back transactions, financings that are nonrecourse to Buyer or its Affiliates that are secured by any assets of the Company, or otherwise (each a "Triggering Event"), then Buyer will pay to Seller an amount (each a "Contingent Payment") equal to (A) one-half of the difference between (1) the cumulative total Net Proceeds from all Triggering Events (the "Buyer Net Proceeds") and (2) the product of (a) $16 million and (b) 1.20 raised to the power equal to the quotient obtained by dividing (y) the number of days that have elapsed between the Closing Date and the date of the Triggering Event by (z) 360, less (B) the cumulative amount of Contingent Payments previously paid to Seller by Buyer; PROVIDED, HOWEVER, that no Contingent Payment will be re- 5 quired unless the application of the foregoing equation (the "Contingent Payment Equation") equals an amount greater than zero. (b) In the event that any Triggering Event occurs during the twelve month period following the Closing Date with (i) any Affiliate of Buyer or (ii) any Prior Affiliate of Seller (individually or collectively an "Affiliate Transaction"), the terms of which (including price) will in all events be at the sole discretion of Buyer, Buyer will pay to Seller an amount equal to the greater of (1) $2.5 million or (2) the amount, in the form of consideration received by Buyer, of the Contingent Payment calculated in accordance with the Contingent Payment Equation; PROVIDED, HOWEVER, that for purposes of this Section 1.5(b), Buyer Net Proceeds shall include only Buyer's pro-rata share (calculated, without double counting, as a percentage equal to Buyer's percentage ownership interest in all relevant Affiliates or, if Buyer has no ownership interest in any such Affiliate, calculated, without double counting, as a percentage equal to such Affiliate's percentage ownership in Buyer) of the cumulative total Net Proceeds from such Affiliate Transaction. 6 (c) In the event that, during the period expiring on the later of (i) twelve months after the Closing Date or (ii) six months after the latest Affiliate Transaction occurring during the twelve month period immediately following the Closing Date, a transaction or series of transactions occurs which would be a Triggering Event (each a "Subsequent Transaction"), Buyer will pay Seller an amount equal to the difference between (1) the Contingent Payment calculated in accordance with the Contingent Payment Equation, except that for purposes of this Section 1.5(c), the term "Buyer Net Proceeds" as used in the Contingent Payment Equation shall equal the sum of (A) the cumulative total Net Proceeds from the intervening Affiliate Transactions, plus (B) Buyer's pro-rata share (calculated as a percentage equal to Buyer's percentage ownership interest in all relevant Affiliates or, if Buyer has no ownership interest in any Affiliate, calculated as a percentage equal to such Affiliate's percentage ownership interest in Buyer) of the cumulative Net Proceeds to Buyer and its Affiliates from the Subsequent Transaction and (2) the amount of the Contingent Payment required pursuant to Section 1.5(b) resulting from the intervening Affiliate Transactions; PROVIDED, 7 HOWEVER, that no payment will be required unless the application of the foregoing equation equals an amount greater than zero. (d) In the event the Net Proceeds consist entirely of U.S. legal tender or U.S. legal tender equivalents (collectively, "Cash Consideration"), payments made pursuant to this Section 1.5 will be made by or on behalf of Buyer by wire transfer of immediately available funds to an account designated by Seller, not later than two Business Days after the Triggering Event, Affiliate Transaction or Subsequent Transaction, as the case may be. (e) In the event the Net Proceeds consist, in whole or in part, of consideration other than Cash Consideration, the following payment procedures will apply: (i) Buyer will provide Seller a written statement (the "Valuation Statement"), no later than ten Business Days after receipt of the Net Proceeds, setting forth a description of the non-Cash Consideration portion of the Net Proceeds and specifying the fair market value attributable thereto. Seller will, within ten Business Days of receipt of the Valuation 8 Statement, deliver to Buyer, in writing, its objections (the "Seller Objections"), if any, to the Valuation Statement. If Seller timely delivers the Seller Objections to Buyer, Buyer and Seller will promptly enter into discussions for the purpose of resolving in good faith the Seller Objections. In the event that Seller and Buyer are unable to resolve the Seller Objections on mutually agreeable terms within fifteen Business Days from the date of delivery of the Seller Objections to Buyer, all unresolved Seller Objections will be submitted to Houlihan Lokey Howard & Zukin, or, if such firm is unavailable, such other firm as the parties hereto may mutually agree upon in writing (the "Designated Firm"). The Designated Firm will determine appropriate valuations of any disputed items on the basis of valuation methods deemed reasonable and appropriate by such Designated Firm. The costs of the Designated Firm will be borne equally by the parties. (ii) The Valuation Statement will be deemed final and binding upon Buyer and Seller 9 upon the earliest to occur of the following (the "Final Valuation Statement Date"): (1) Seller and Buyer mutually resolve the issues raised by timely delivered Seller Objections, (2) the issues raised by the timely delivered Seller Objections are resolved by the Designated Firm or (3) the close of business on the tenth Business Day following delivery of the Valuation Statement to Seller if Seller has not, prior to such time, provided any Seller Objections. (iii) Within two Business Days of the Final Valuation Statement Date, Buyer will pay to Seller the Contingent Payment, at Buyer's option, (1) in the form of consideration of the Net Proceeds, (2) by wire transfer of immediately available funds to an account designated by Seller or (3) any combination of (1) or (2). ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER WITH RESPECT TO THE COMPANY Parent and Seller jointly and severally represent and warrant to Buyer that: 10 Section 2.1 ORGANIZATION. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware with the corporate power to own its assets and carry on the business conducted by it as now conducted. The Company is duly qualified or registered for the transaction of business and in good standing as a foreign corporation in each jurisdiction in which such qualification is required, except in any such jurisdictions in which the failure so to qualify or be registered would not have a material adverse effect on the business, property or assets, condition or operations of the Company or on the ability of Parent, Seller or the Company to perform their respective obligations under this Agreement or the Ancillary Agreements (a "Material Adverse Effect"). Complete and correct copies of the Certificate of Incorporation and By-Laws of the Company, as in effect on the date hereof, have been delivered to Buyer. Section 2.2 AUTHORITY, BINDING EFFECT. The Company has the corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements. Such execution, delivery and performance have been duly authorized by all necessary action on the 11 part of the Company, and do not and will not contravene the Certificate of Incorporation or By-Laws of the Company or conflict with, result in a breach of, or entitle any party (with due notice or lapse of time or both) to terminate, accelerate or call a default with respect to, or result in the creation or imposition of any Lien upon any of the Shares or any Assets other than, with respect to the Assets only, Permitted Liens, pursuant to any agreement or instrument to which the Company is a party or by which the Company or any of its properties or the Assets are bound. The execution, delivery and performance of this Agreement and the Ancillary Agreements by the Company will not result in any violation by the Company of any law, rule or regulation applicable to the Company or its assets which would have a Material Adverse Effect. The Company is not a party to, or subject to or bound by, any judgment, injunction or decree of any court or governmental authority which may restrict or interfere with, in any material respect, the performance of this Agreement and the Ancillary Agreements. This Agreement is, and each of the Ancillary Agreements to be executed by the Company hereunder on or prior to the Closing Date will be, a valid and binding obligation of the Company 12 enforceable in accordance with their respective terms except as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally or (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 2.3 FINANCIAL INFORMATION; ABSENCE OF MATERIAL ADVERSE CHANGES. The Company has delivered to Buyer its balance sheets as of December 31 for each of the years 1991 and 1992 and statements of income and cash flows for each of the years in the two-year period ended December 31, 1992, which audited financial statements are accompanied by the unqualified opinion of Deloitte and Touche. Such financial statements, with the notes thereto, are in accordance with the books and records of the Company, and present fairly the financial position, results of operations and cash flows of the Company as of the dates and for the periods indicated, in conformity with GAAP. The Company has furnished to Buyer true and complete copies of its unaudited balance sheet as at September 30, 1993 (the "Interim Balance Sheet") and the related statements of income and cash flows for the nine- 13 month period then ended (collectively, the "Unaudited Financial Statements"). The Unaudited Financial Statements fairly present, in all material respects, the Company's financial position at the date thereof and its income and changes in financial position or cash flows for the period then ended. Such Unaudited Financial Statements have been prepared in accordance with GAAP, subject only to year-end adjustments consistent with prior practice. Except as disclosed in Schedule 2.3 hereto, there is no material liability or obligation, fixed or contingent, including, without limitation, any unfunded obligation under any pension plan, any liability for taxes or any liabilities under any Environmental Laws, relating to the Company that is not reflected or reserved against in the Interim Balance Sheet or otherwise disclosed in the notes thereto, other than liabilities incurred in the ordinary course of business after the date thereof. Since the date of the Interim Balance Sheet, there has been no material adverse change in the business, assets, liabilities, obligations, prospects, financial condition or results of operations of the Company and the business of the Company has been conducted in the ordinary course consistent with past practice. 14 Section 2.4 TITLE. (a) Schedule 2.4 sets forth a complete list of (i) all land, timber producing real property ("Timberland"), easements and rights of way, leasehold estates in land and improvements owned by the Company, and (ii) all leases of real property and mineral rights owned by the Company or to which the Company is a party (collectively with such other real property and interests therein, "Real Property"), and (b) the Company owns no Real Property in fee simple other than such property as is covered in the title insurance policies attached hereto as Schedule 2.4(a). Except as disclosed on Schedule 2.4(a) hereto, to Parent and Seller's Knowledge except for Permitted Liens (a) the Company has good title to all of its Assets and Real Property, or any interest therein owned, free and clear of all Liens, except for Permitted Liens, (b) such Real Property is in good condition and conforms in all material respects with all applicable building, zoning, land use and other laws, ordinances, codes, orders and regulations, (c) the use of such Real Property conforms in all material respects with such laws, ordinances, codes, orders and regulations, and all necessary occupancy and other certificates and permits for the 15 lawful use and occupancy thereof and the equipment thereon have been issued, and there are no unrecorded interests, rights, options or instruments affecting the Assets or the Real Property (other than those matters which, individually or in the aggregate, would not have a Material Adverse Effect), (d) the Company owns or has a valid, legal right to use all real property and assets sufficient to carry on the business conducted by it as now conducted (other than those matters which, individually or in the aggregate, would not have a Material Adverse Effect), (e) all notices of violations of law, ordinances, codes, orders or regulations issued by any state, county, municipal or local department having jurisdiction against or affecting any of the Real Property received by the Company have been complied with in all material respects, and (f) the Company has sufficient right of access to the Real Property to carry on the business conducted by it as now conducted. Since the effective dates of the Owner's title insurance policies attached hereto as Schedule 2.4, up to the Closing Date the Real Property has not been encumbered by any act of the Company, Parent or Seller in any 16 manner which would reasonably appear as an exception to the coverage of such title insurance policies. Section 2.5 FRANCHISES, LICENSES, AGREEMENTS, ETC. To Parent and Seller's Knowledge, the Company is in possession of and operating in substantial compliance with all franchises, grants, authorizations, approvals, licenses, permits, easements, consents, certificates and orders required to own or lease its respective properties (including, without limitation, to own the Timberland and to assume certain liabilities relating to the Timberland and the Assets) and to permit the conduct of its business, except for those franchises, grants, authorizations, approvals, licenses, permits, easements, consents, certificates and orders (collectively, "Permitted Exceptions") (i) which are administrative in nature and which are expected to be obtained or given in the ordinary course of business after the Closing Date, or (ii) the failure of which to be obtained or given would not individually or in the aggregate have a Material Adverse Effect. Section 2.6 CONSENTS. No consent, approval or authorization of or declaration or filing with any Person, other than pursuant to the Hart-Scott-Rodino Anti- 17 trust Improvement Act of 1976, is required for the valid execution, delivery and performance by the Company of this Agreement or the Ancillary Agreements. Section 2.7 ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to the Parent and Seller's Knowledge, threatened against the Company or any properties or rights of the Company by or before any court, arbitrator or administrative or governmental body which questions the validity of this Agreement or the Ancillary Agreements or any action taken or to be taken pursuant to this Agreement or the Ancillary Agreements or which would be reasonably likely to result in a Material Adverse Effect. Section 2.8 COLLECTIVE BARGAINING AGREEMENTS. The Company is not a party to or bound by any collective bargaining agreements. Section 2.9 EMPLOYEE BENEFIT PLANS; ERISA. Notwithstanding anything to the contrary in this Agreement, all representations and warranties in this Section 2.9 with respect to (i) an ERISA Affiliate, as defined below, other than the Company, Seller, or Parent, (ii) a plan sponsored, maintained, contributed to, or to which such an ERISA Affiliate is or was required to contribute, 18 and/or (iii) a multiemployer plan, as defined below, are made to Parent and Seller's Knowledge. (a) Schedule 2.9(a) contains a true and complete list of (i) each material bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension, or retirement plan, program, agreement or arrangement, and each other material employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to on or prior to the Closing Date by the Company for the benefit of any employee or former employee of the Company and (ii) each (1) "pension plan" (as defined in section 3(2) of ERISA) covered by Title IV of ERISA that provides benefits to any employee or former employee of an ERISA Affiliate (as defined below) and (2) each material "welfare benefit plan" (as defined in Section 3(1) of ERISA) that provides benefits (other than benefits provided pursuant to section 4980B of the Code) to former employees of an ERISA Affiliate that, in either case, on or prior to the Closing Date is sponsored, maintained or contributed to or 19 required to be contributed to by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Company would be deemed a "single employer" within the meaning of section 4001 of ERISA (each a "Plan"). Schedule 2.9(a) identifies each Plan that is an "employee benefit plan," as that term is defined in section 3(3) of ERISA (the "ERISA Plans"). (b) With respect to each Plan that is not a "multiemployer plan" (as defined in section 3(37) of ERISA), the Company has heretofore delivered (or will deliver as soon as practicable after the Closing) to Buyer true and complete copies of each of the following documents: (i) if the Plan is in writing, a copy thereof or, if the Plan is not in writing, a written summary of the material terms thereof; (ii) a copy of the most recent annual report and actuarial report, if required under ERISA and the most recent report, if any, prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87, Employer's Accounting for Pensions; 20 (iii) a copy of the most recent Summary Plan Description if required under ERISA with respect thereto; (iv) if the Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (v) the most recent determination letter, if any, received from the Internal Revenue Service with respect to each Plan intended to qualify under Section 401 of the Code. (c) No liability under Title IV of ERISA has been assessed by the Pension Benefit Guaranty Corporation ("PBGC") or by any Plan that is a "multiemployer plan" against the Company or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring a material liability under such Title, other than liability for premiums due the PBGC (which premiums have been paid when due). To the extent this representation applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only with 21 respect to each ERISA Plan but also with respect to any material employee benefit plan, program, agreement or arrangement subject to Title IV of ERISA to which the Company or any ERISA Affiliate made, or was required to make, contributions during the five (5) year period ending on the Closing Date. (d) Except as provided on Schedule 2.9(a), with respect to each ERISA Plan which is subject to Title IV of ERISA, the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan's actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits. (e) Neither the Company nor any ERISA Affiliate, nor any ERISA Plan, nor any trust created thereunder, nor any trustee or administrator thereof has engaged in a transaction in connection with which the Company or any ERISA Affiliate, any ERISA Plan, any such trust, or any trustee or administrator thereof, or any party dealing with any ERISA Plan or any such trust could be subject to either a material civil penalty assessed pursuant 22 to section 409 or 502(i) of ERISA or a material tax imposed pursuant to section 4975 or 4976 of the Code. (f) Except as provided on Schedule 2.9(a), no ERISA Plan or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of such ERISA Plan ended prior to the Closing Date; and all contributions required to be made by the Company or any ERISA Affiliate to any ERISA Plan (whether pursuant to the terms of such ERISA Plan or otherwise) on or prior to the Closing Date have been timely made. (g) Except as provided on Schedule 2.9(a), no ERISA Plan is a multiemployer pension plan, nor is any ERISA Plan a plan described in Section 4063(a) of ERISA. (h) Each Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code. (i) Each ERISA Plan intended to be "qualified" within the meaning of section 401(a) of the Code has either received a favorable IRS determination letter as 23 to its qualified status or still has a remaining period of time in which to apply for such a determination letter and to make amendments necessary to obtain a favorable determination. (j) Except as provided on Schedule 2.9(a), no Plan provides benefits, including without limitation death or medical benefits, with respect to current or former employees of the Company or any ERISA Affiliate beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law or (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in section 3(2) of ERISA). (k) Except as provided on Schedule 2.9(a), the consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or officer of the Company or any ERISA Affiliate to any material severance pay, unemployment compensation or any other material payment, except as expressly provided in this Agreement or (ii) accelerate the time of payment or vesting of any material compensation due any such employee or officer or materially increase the amount of compensation due any such employee or officer. 24 (l) Except as provided on Schedule 2.9(a), there are no pending, threatened or anticipated material claims by or on behalf of any Plan, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan (other than routine claims for benefits). (m) Except as provided on Schedule 2.9(a), no Plan could result in the payment of amounts by the Company that would be nondeductible for federal income tax purposes under section 280G of the Code, due in whole or in part, to the consummation of the transaction contemplated by this Agreement. Section 2.10 ENVIRONMENTAL MATTERS. (a) To Parent and Seller's Knowledge, except as set forth in Schedule 2.10(a), the Company is in full compliance with all applicable Environmental Laws, which compliance includes, but is not limited to, the possession by the Company of all Environmental Operating Permits required under applicable Environmental Laws, and compliance with the terms and conditions thereof. To Parent and Seller's Knowledge, except as set forth in Schedule 2.10(a), the Company has not received any communication (written or oral), whether from a governmental 25 authority, citizens group, employee or otherwise, that alleges that the Company is not in such full compliance, and, to Parent and Seller's Knowledge, there are no present circumstances that may prevent or interfere with such full compliance in the future with existing Environmental Laws as they are presently drafted as of the date hereof. All Environmental Operating Permits currently held by the Company pursuant to the Environmental Laws are identified in Schedule 2.10(a). (b) To Parent and Seller's Knowledge, except as set forth in Schedule 2.10(b), there is no Environmental Claim pending or threatened against the Company or against any Person whose liability for any Environmental Claim the Company has or may have retained or assumed either contractually or by operation of law. (c) To Parent and Seller's Knowledge, except as set forth in Schedule 2.10(c), there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claim against the Company or against any person or entity whose liability for any 26 Environmental Claim the Company has or may have retained or assumed either contractually or by operation of law. (d) Without in any way limiting the generality of the foregoing, (i) all on-site and off-site locations where the Company has stored, disposed or arranged for the disposal of Materials of Environmental Concern are identified in Schedule 2.10(d), (ii) all underground storage tanks, and the capacity and contents of such tanks, located on property owned or leased by the Company are identified in Schedule 2.10(d), (iii) except as set forth in Schedule 2.10(d), there is no asbestos contained in or forming part of any building, building component, structure or office space owned or leased by the Company, and (iv) except as set forth in Schedule 2.10(d), no polychlorinated byphenyls (PCB's) are used or stored at any property owned or leased by the Company. (e) Parent and Seller represent and warrant that to Parent and Seller's Knowledge, the information contained in the Environmental Assessment Report prepared by Garrity and Miller dated May 28, 1992 (the "Environmental Assessment Report") is complete and accurate in all material respects and does not omit to state any 27 material fact with respect to any environmental matters relating to the Company. Section 2.11 CAPITALIZATION. The Shares represent all of the issued and outstanding equity securities of the Company. The Shares have been duly authorized by the Company, have been validly issued and are fully paid, non-assessable and free of preemptive or similar rights, are subject to no Liens and are owned beneficially and of record by Seller. There is no option, warrant, call, convertible security, arrangement, agreement or commitment of any character, whether oral or written, relating to any security of, or phantom security interest in, the Company (other than the Contingent Payments contemplated by this Agreement) and there are no voting trusts or other agreements or understandings with respect to the voting of the capital stock of the Company. Section 2.12 SUBSIDIARIES. Other than as set forth on Schedule 2.12, the Company has no subsidiaries nor owns or controls directly or indirectly, nor has, at any time since January 1, 1986 owned or controlled, directly or indirectly, any shares of capital stock or other interest in any other corporation, partnership, 28 joint venture or any other enterprise and has no right or obligation to acquire any such capital stock or other interest. Section 2.13 BANK ACCOUNTS. Schedule 2.13 sets forth a true and correct list of the names of each bank, savings and loan or other financial institution in which the Company has an account, including cash contribution accounts or safe deposit boxes and the names of all persons authorized to draw thereon or have access thereto. Section 2.14 TAX RETURNS AND PAYMENTS. The Company has duly and timely filed (or there has been filed on its behalf) all Tax Returns required to be filed by it as of the date hereof and all such Tax Returns are true, correct and complete in all material respects. The Company has (or others have on its behalf) paid all Taxes due or claimed to be due through the date hereof by any governmental authority levied upon the Company or any of its properties, assets, businesses, income or franchises. Schedule 2.14 sets forth a true, complete and correct list of all Tax Returns to which the Company is party which have not been audited or for which all applicable statutes of limitations have not expired. 29 Section 2.15 GOVERNMENTAL APPROVALS. All filings required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 have been made by Parent, Seller and Company and the waiting period under such Act has run with respect to the transactions contemplated by this Agreement. Section 2.16 EASEMENTS. Parent and Seller will obtain for the benefit of the Company all easements across real property owned by Parent, Seller or Calumet as the Company or Buyer may reasonably request providing reasonable rights of access to the Real Property, as set forth in the form of easement attached hereto as Schedule 2.16. The Company will obtain for the benefit of Parent and Seller all easements across the Real Property as Parent and Seller may reasonably request providing reasonable rights of access to such real property owned by Calumet. ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller that: 30 Section 3.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the British Virgin Islands. Section 3.2 AUTHORITY, BINDING EFFECT. Buyer has the corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party. Such execution, delivery and performance have been duly authorized by all necessary action on the part of the Buyer and will not contravene the organizational documents of Buyer or conflict with, result in a breach of, or entitle any party (with due notice or lapse of time or both) to terminate, accelerate or call a default with respect to, any agreement or instrument to which Buyer is a party or by which Buyer or its properties or assets are bound. The execution, delivery and performance of this Agreement and the Ancillary Agreements by Buyer will not result in any violation by Buyer of any law, rule or regulation applicable to Buyer other than such violations which would not, individually or in the aggregate, have a Material Adverse Effect with respect to Buyer. Buyer is not a party to, nor subject to or bound by, any judgment, injunction or decree of any court or governmental authority which may 31 restrict or interfere with the performance of this Agreement or the Ancillary Agreements. This Agreement is, and each Ancillary Agreement to be executed by Buyer on or prior to the Closing Date will be, a valid and binding obligation of Buyer enforceable against Buyer in accordance with their respective terms except as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally or (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 3.3 CONSENTS. No consent or waiver of any Person is required for the valid execution, delivery and performance by the Buyer of this Agreement or the Ancillary Agreements, other than pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and such other consents or waivers the failure of which to obtain would not, individually or in the aggregate, have a Material Adverse Effect with respect to Buyer. Section 3.4 TITLE. Buyer is the sole owner of, and has, and will convey to Seller at the Closing, good, valid and marketable title to, all of the Senior 32 Debentures free and clear of all Liens. Other than as contemplated by this Agreement and the Ancillary Agreements, Buyer is not party to, or bound by, any agreement, instrument, proxy or understanding restricting the transfer of the Senior Debentures. Section 3.5 INVESTMENT REPRESENTATION. Buyer is acquiring the Shares for its own account with no present intention of reselling or otherwise distributing the same or participating in a distribution of same except pursuant to an offering of Shares duly registered under the Act and applicable state securities laws, or under other circumstances that, in the opinion of counsel for the Buyer at the time, would not require registration of the Shares under the Securities Act. Buyer acknowledges that it has been advised and is aware that (i) Seller is relying upon an exemption under the Act predicated upon Buyer's representations and warranties contained in this Section 3.5 in connection with the offer and sale of the Shares pursuant to this Agreement and (ii) the Shares in the hands of Buyer will be restricted stock within the meaning of Rule 144 promulgated pursuant to the Act and unless, and until, registered under the Act, may be subject to limitations upon its resale (in- 33 cluding, among others, pertinent requirements of Rule 144 and limitations on the amount of stock that can be resold and the time of resale) set forth in Rule 144 or in administrative interpretations by the Securities and Exchange Commission, or in other rules and regulations promulgated thereunder by the Securities and Exchange Commission, in effect at the time of the proposed sale or other disposition of the Shares. Section 3.6. ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to Buyer's knowledge after reasonable inquiry, threatened against Buyer or any of its properties or rights by or before any court, arbitrator or administrative or governmental body which questions the validity of this Agreement or the Ancillary Agreements or any action taken or to be taken pursuant hereto or thereto which could reasonably be expected to have a Material Adverse Effect with respect to Buyer in connection with the transactions contemplated herein. Section 3.7 NO RELIANCE. Buyer possesses the level of sophistication requisite to its determination to enter into the transactions contemplated hereby and has based such determination upon its own independent inves- 34 tigation as to the financial and other merits of such transactions and not in reliance upon the accuracy or completeness of any financial information, documents or other information, written or oral, other than the representations and warranties contained in Articles II, IV and V hereof, provided to Buyer by Parent, Company and Seller. Section 3.8 ENVIRONMENTAL MATTERS. Buyer acknowledges that Seller has provided Buyer with a copy of the Environmental Assessment Report and that Buyer has read and is familiar with the findings of such Environmental Assessment Report. Section 3.9 GOVERNMENTAL APPROVALS. All required governmental filings with respect to the transactions contemplated by this Agreement have been made, all applicable waiting periods including those under the Hart-Scott-Rodino Antitrust Improvements Act have run, and all requisite governmental approvals for the consummation of the transactions contemplated hereby have been granted. 35 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER WITH RESPECT TO SELLER Parent, with respect to Seller, and Seller, with respect to itself, hereby, jointly and severally represent and warrant to Buyer that: Section 4.1 ORGANIZATION. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of California. Section 4.2 AUTHORITY, BINDING EFFECT. Seller has the corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party. Such execution, delivery and performance have been duly authorized by all necessary action on the part of Seller and will not contravene the certificate of incorporation or by-laws of Seller or conflict with, result in a breach of, or entitle any party (with due notice or lapse of time or both) to terminate, accelerate or call a default with respect to, any agreement or instrument to which Seller is a party or by which Seller or its properties or assets are bound. The execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements to which it is a party will not result in any violation by Seller of any law, 36 rule or regulation applicable to Seller other than such violations which would not, individually or in the aggregate, have a Material Adverse Effect. Seller is not a party to, nor subject to or bound by, any judgment, injunction or decree of any court or governmental authority which may restrict or interfere with the performance of this Agreement or the Ancillary Agreements. This Agreement is, and each of the Ancillary Agreements to be executed by Seller on or prior to the Closing Date will be, a valid and binding obligation of Seller enforceable in accordance with their respective terms except as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally or (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 4.3 CONSENTS. No consent or waiver of any Person is required for the valid execution, delivery and performance of this Agreement and the Ancillary Agreements other than pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and such other consents or waivers the failure of which to obtain would 37 not, individually or in the aggregate, have a Material Adverse Effect. No consent or waiver of any party to any Contract to which Seller is a party or by which it is bound is required for the execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements other than those which would not, individually or in the aggregate, have a Material Adverse Effect. Section 4.4 TITLE TO SHARES. Seller is the record and beneficial owner of, and has, and will convey to Buyer at the Closing, good, valid and marketable title to, all of the Shares free and clear of all Liens. Other than as contemplated by this Agreement and the Ancillary Agreements, Seller is not party to, or bound by, any agreement, instrument, proxy or understanding restricting the transfer of the Shares. Section 4.5 ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to Seller's Knowledge, threatened against Seller or any of its properties or rights by or before any court, arbitrator or administrative or governmental body which questions the validity of this Agreement or the Ancillary Agreements or any action taken or to be taken pursuant hereto or thereto which could reasonably be expected to 38 have a Material Adverse Effect or impair or restrict the Seller's ability to perform its obligations hereunder or thereunder. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT Parent hereby represents and warrants to Buyer that: Section 5.1 ORGANIZATION. Parent is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. Section 5.2 AUTHORITY, BINDING EFFECT. Parent has the corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements to which it is a party. Such execution, delivery and performance have been duly authorized by all necessary action on the part of Parent and will not contravene the certificate of incorporation or by-laws of Parent or conflict with, result in a breach of, or entitle any party (with due notice or lapse of time or both) to terminate, accelerate or call a default with respect to, any agreement or instrument to which Parent is a party or by which Parent or its properties or assets are bound. The execu- 39 tion, delivery and performance by Parent of this Agreement and the Ancillary Agreements to which it is a party will not result in any violation by Parent of any law, rule or regulation applicable to Parent other than such violations which would not, individually or in the aggregate, have a Material Adverse Effect. Parent is not a party to, nor subject to or bound by, any judgment, injunction or decree of any court or governmental authority which may restrict or interfere with the performance of this Agreement or the Ancillary Agreements. This Agreement is, and each of the Ancillary Agreements to be executed by Parent on or prior to the Closing Date will be, a valid and binding obligation of Parent enforceable in accordance with their respective terms except as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally or (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 5.3 CONSENTS. No consent or waiver of any Person is required for the valid execution, delivery and performance of this Agreement and the Ancillary 40 Agreements other than pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and such other consents or waivers the failure of which to obtain would not, individually or in the aggregate, have a Material Adverse Effect. No consent or waiver of any party to any Contract, to which Parent is a party or by which it is bound is required for the execution, delivery and performance by Parent of this Agreement and the Ancillary Agreements other than those which would not, individually or in the aggregate, have a Material Adverse Effect. Section 5.4 ACTIONS PENDING. There is no action, suit, investigation or proceeding pending or, to Parent's knowledge, threatened against Parent or any of its properties or rights by or before any court, arbitrator or administrative or governmental body which questions the validity of this Agreement or the Ancillary Agreements or any action taken or to be taken pursuant hereto or thereto which could reasonably be expected to have a Material Adverse Effect. Section 5.5 FAIRNESS OPINION. Parent has obtained from an investment banking firm reasonably satisfactory to Parent an opinion (the "Fairness Opinion") as to the Fairness, from a financial point of view, 41 of the terms of the transactions contemplated hereby to Parent, in form and substance reasonably satisfactory to Parent. ARTICLE VI COVENANTS OF BUYER Buyer will, from and after the Closing Date, do the following: Section 6.1 EXPERTS. Buyer agrees that, other than as permitted by Section 1.5(e), for the period commencing as of the date hereof and ending twelve months after the Closing Date, Buyer will not (without Seller's prior written consent which will not unreasonably be withheld) solicit or enter into any formal or informal agreement or understanding with any of William M. Steigerwaldt, Steigerwaldt Land Services, Inc., or Houlihan Lokey Howard & Zukin for the purpose of Buyer or any of its Affiliates receiving advice or services from or the employment of any of them. Section 6.2 SETTLEMENT ACCOUNTS. Buyer will ensure that the Company pays to Seller, within five Business Days after its receipt of an itemized invoice (including supporting documentation) therefor, all reason- 42 able charges, costs and expenses (including pension plan fundings) incurred in the ordinary course of business, consistent with past practice, by Seller or its Affiliates on the Company's behalf from the Closing Date through December 31, 1993. Buyer will not be liable for any payments to Seller pursuant to this Section 6.2 which exceed $100,000 in the aggregate. Section 6.3 MANAGEMENT SERVICES. Buyer will procure for a period of 3 years after the Closing Date the provision to Calumet of the services of the Company set forth on Schedule 6.3 to the extent of and consistent with prior practice on such terms and conditions as may be mutually agreed upon by Calumet and the Company; PROVIDED, HOWEVER, that Buyer's obligation to procure such services under this Section 6.3 will cease upon the earlier to occur of (i) the ownership by Parent or its Affiliates, directly or indirectly, of less than a majority of the common stock of Calumet and (ii) the ownership by Buyer its Affiliates, directly or indirectly, of less than a majority of the common stock of the Company. Parent and Seller agree to indemnify and hold the Company and Buyer harmless from any claims, demands, losses or other liabilities, including as a result of any Environ- 43 mental Claim, arising from or related to the Company's provision of the services specified in the preceding sentence other than those which result from the intentional acts or gross negligence of persons controlled by the Company or Buyer. ARTICLE VII DELIVERIES AT CLOSING At the Closing, the parties will deliver the following documents or such documents in substitution therefor as are satisfactory to the recipient: Section 7.1 DELIVERIES BY SELLER. Seller will deliver to Buyer: (a) Stock certificates representing all of the Shares, accompanied by stock powers duly executed in blank or duly executed instruments of transfer with all necessary stock transfer and other documentary stamps attached, and any other documents that are necessary to transfer to Buyer good title to all the Shares free and clear of all Liens. (b) The minute books, stock transfer books and corporate seals of the Company. 44 (c) Certified copies of the resolutions, duly adopted by the respective Boards of Directors of Parent, Seller and the Company, and the written consent of Seller as the sole stockholder of the Company, that will be in full force and effect at the time of delivery, authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements. (d) The Ancillary Agreements, duly executed by the Seller. (e) The resignation of (i) each director of the Company and (ii) each officer of the Company who will not be an officer of Seller or its Affiliates after the Closing Date. (f) Owner's title insurance policies issued to the Company as of the effective date of the title insurance policies attached hereto as Schedule 2.4(a), in the amount of $65,000,000, insuring good title to the Real Property (other than leases) free and clear of all liens, encumbrances, restrictions and easements, except the Permitted Liens. If available, Seller shall fully cooperate with Buyer and the title insurance company issuing 45 the Owner's policies to obtain (on a post-Closing basis) a "non-imputation" endorsement in favor of the Buyer. (g) Such other instruments and documents as may be reasonably requested by, and in form and substance reasonably satisfactory to, Buyer. Section 7.2 DELIVERIES BY BUYER. Buyer will deliver to Seller: (a) The Senior Debentures accompanied by all bond powers duly executed in blank, with all necessary bond transfer and other documentary stamps attached. (b) Certified copies of resolutions, duly adopted by the Board of Directors of Buyer that will be in full force and effect at the time of delivery, authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements. (c) The Ancillary Agreements, duly executed by Buyer. (d) Such other instruments and documents as may be reasonably requested by, and in form and substance reasonably satisfactory to, Seller. 46 ARTICLE VIII INDEMNIFICATION Section 8.1 INDEMNIFICATION. (a) Parent and Seller, jointly and severally, will indemnify, defend and hold harmless the Buyer, Persons controlling, controlled by, and under common control with the Buyer, and the respective directors, officers and employees of each of the foregoing Persons, from and against any and all claims, demands or suits by any Person, losses, liabilities, damages, obligations, payments, costs and expenses, paid or incurred, whether or not relating to, resulting from or arising out of any Third Party Claim (as defined in Section 8.2 hereof) (including, without limitation, the reasonable costs and expenses of any and all actions, suits, proceedings, demands, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees in connection therewith) (individually and collectively "Indemnifiable Losses") relating to, resulting from or arising out of: (i) any breach of any representation or warranty of the Parent or Seller contained in or made pursuant to this Agreement or any Ancillary Agree- 47 ment or any facts or circumstances constituting such a breach; PROVIDED, HOWEVER, that, notwithstanding anything to the contrary contained herein, claims for indemnification, whether pursuant to a Third Party Claim or a Direct Claim, may be made under this Article VIII for breaches or inaccuracies of the representations, warranties and statements contained in Sections 2.4, 2.9, 2.10 and 2.14 without regard to any statement contained therein limiting such representation, warranty or statement to Parent and Seller's Knowledge; (ii) any breach of any covenant or agreement of Parent or Seller contained in this Agreement; (iii) any ERISA Plan or any of the Plans, notwithstanding the disclosure set forth on Schedule 2.3 hereto; PROVIDED; HOWEVER, that this indemnification shall not apply to any Indemnifiable Losses relating to coverage provided at Buyer's request under the Seller's ERISA Plans or Plans on and after the Closing Date; (iv) (A) any pollution or threat to human health or the environment that is 48 related in any way to the Company or any previous owner's or operator's management, use, control, ownership or operation of the Real Property Assets or business including, without limitation, all on-site and off-site releases of Materials of Environmental Concern, that occurred, existed, or arise out of condition or circumstances that occurred or existed, or were caused, in whole or in part, on or before the Closing Date, whether or not the pollution or threat to human health or the environment is described in Schedules 2.10(a), (b), (c), or (d); or (B) any Environmental Claim for releases of Materials of Environmental Concern prior to the Closing Date against any person or entity whose liability for such Environmental Claim the Company has or may have assumed or retained 49 either contractually or by operation of law. (b) The Buyer will indemnify, defend and hold harmless the Seller and its Affiliates from and against any and all Indemnifiable Losses relating to, resulting from or arising out of any breach of any of the representations, warranties, covenants or agreements of the Buyer contained in this Agreement. The Company will indemnify and hold harmless the Seller and its Affiliates from and against any and all Environmental Claims related to the use, control, ownership or operation of the Real Property or Assets after the Closing Date and all on-site and off-site releases of materials of Environmental Concern after the Closing Date. (c) For purposes of this Agreement, "Indemnity Payment" will mean any amounts of Indemnifiable Losses required to be paid pursuant to this Section 8.1. (d) For purposes of this Agreement, "Indemnitee" will mean any Person or group entitled to indemnification under this Agreement. (e) For purposes of this Agreement, "Indemnifying Party" will mean any Person or group required to provide indemnification under this Agreement. 50 Section 8.2 DEFENSE OF CLAIMS. (a) If an Indemnitee receives notice of the assertion of any claim or of the commencement of any action or proceeding by any Person or group who is not a party to this Agreement or who is not an Indemnitee hereunder (a "Third Party Claim") against such Indemnitee, with respect to which any Indemnifying Party is obligated to provide indemnification under Section 8.1 of this Agreement, the Indemnitee will give each such Indemnifying Party prompt written notice thereof. Such notice will describe the Third Party Claim in reasonable detail, and will indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. Each Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, which counsel will be reasonably satisfactory to the Indemnitee, and the Indemnitee will, to the extent requested, cooperate in good faith in such defense; PROVIDED, HOWEVER, that the Indemnitee may at its own expense retain separate counsel to participate in such defense. 51 (b) If within 10 calendar days after an Indemnitee receives written notice from an Indemnifying Party that such Indemnifying Party has elected to assume the defense of any Third Party Claim, the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying Party fails to take reasonable steps necessary to defend such Third Party Claim within 30 calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense, and the Indemnifying Party will be liable for any reasonable expenses therefore. Notwithstanding anything contained herein to the contrary, the Indemnitee will have the right to employ separate counsel at the Indemnifying Party's expense and to control its own defense of such action or proceeding if in the reasonable opinion of counsel to the Indemnitee, a conflict or potential conflict exists between the Indemnifying Party and the Indemnitee that would make such separate representation advisable. 52 Without obtaining a complete and unconditional release of the Indemnitee from any further liability in respect of such claim, the Indemnifying Party will not enter into any settlement of any Third Party Claim without the consent of the Indemnitee, which will not be unreasonably withheld. In the event that any Indemnifying Party does not elect to assume the defense of any Third Party Claim in accordance with this Section 8.2, such Indemnifying Party will be obligated as provided in Section 8.2 for all costs of defense of the Indemnitee. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party claim (a "Direct Claim") will be asserted by giving each Indemnifying Party prompt written notice thereof, and each Indemnifying Party will have a period of 30 calendar days within which to respond to such Direct Claim. If any Indemnifying Party does not so respond within such 30 calendar day period, such Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnitee will be free to pursue such remedies as may be available to the Indemnitee under any applicable laws, subject to the terms of this Agreement, 53 including, without limitation, the enforcement of the Indemnitee's rights under this Agreement. (d) A failure to give timely notice as provided in this Section 8.2 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, the defense of any claim is materially and adversely affected or any party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or incurred an obligation or liability which otherwise would have been avoided. (e) Upon making any Indemnity Payment, the Indemnifying Party will, to the extent of such Indemnity Payment, be subrogated to all rights of the Indemnitee against any third party in respect of the Indemnifiable Loss to which the Indemnity Payment relates; PROVIDED, HOWEVER, that (i) the Indemnifying Party is then in compliance with its obligations under this Agreement in respect of such Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its Indemnifiable Loss, any and all claims of the Indemnifying Party against any such third party on account of said Indemnity Payment is hereby made expressly subordinated and sub- 54 jected in right of payment to the Indemnitee's rights against such third party. Without limiting the generality of any other provision hereof, each such Indemnitee and Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described subrogation and subordination rights. Section 8.3 LETTER AGREEMENT PAYMENT. Buyer agrees to indemnify and hold harmless Seller or Parent, for two years from the Closing Date, for any obligation either of them may have for the $500,000 payment which may become due under the Letter Agreement, dated September 1, 1993, between the Company and Robert Grasseschi, attached hereto as Schedule 8.3; PROVIDED, HOWEVER, that Buyer shall in no event be liable for any payments in connection with such Letter Agreement which aggregate in excess of $500,000. Section 8.4 TAX RETURNS. Seller will prepare and file or cause to be prepared and filed on a timely basis all Tax Returns required to be filed by or with respect to the Company for all taxable periods ending on or before the Closing Date and will pay or cause to be paid, and will indemnify and hold Buyer and the Company harmless from and against (i) all Taxes of or attribut- 55 able to the Company for all taxable years or taxable periods or portions thereof ending on or before the Closing Date which were not paid prior to the Closing Date; (ii) all Taxes for all taxable years or periods of all members of all affiliated groups (within the meaning of Section 1504(a) of the Code or similar provisions of other law) of which the Company is or has ever been a member prior to the Closing Date; and (iii) all additional Indemnifiable Losses attributable to the Taxes described in (i) and (ii) of this Section 8.4; PROVIDED, HOWEVER, that the Company will be responsible for any and all state and local taxes properly assessed against the Company which have customarily and regularly been paid by the Company prior to the Closing Date, which taxes may include, but are not limited to, income, franchise and sales taxes, for the period commencing January 1, 1993 and ending on or after the Closing Date, and the Company will promptly reimburse Seller or Parent for any such taxes which are paid by Seller on behalf of the Company. The Company will be responsible for all Taxes in respect of the Company for periods commencing after the Closing Date. Seller and Parent will be responsible for all 56 Federal taxes in respect of the Company for periods prior to and including the Closing Date. Section 8.5 TAX REFUNDS Any Tax refunds to which the Company is entitled (together with interest thereon if any) shall be the property of Seller to the extent Seller is required to bear such taxes pursuant to Section 8.4 and will be paid to Seller promptly upon receipt thereof by the Company, Buyer or their respective Affiliates. All other Tax refunds shall be the property of the Company and the Buyer, as the case may be. Section 8.6 SERVICES INDEMNITY. Notwithstanding anything to the contrary contained in this Article VIII or elsewhere in this Agreement, from and after the Closing Date, Parent and Seller will indemnify, defend and hold harmless Buyer, the Company and their respective Affiliates from and against any and all fines, claims, demands or suits by any Person, losses, liabilities, damages, obligations, payments, costs and expenses, paid or incurred, which relate to the failure to make any filing with any Person which relates to the Company, the Assets or the Real Property, and which was required to have been made prior to the Closing Date. 57 Section 8.7 TERMINATION OF TAX SHARING AGREEMENTS. Subject to the indemnification obligations of Parent and Seller set forth in this Article VIII, as of the date hereof, all agreements, whether written or oral, express or implied, between the Company, the Seller and any of the Seller's Affiliates, relating to the sharing and reimbursement of taxes shall be terminated with no further amount to or from the Company with respect thereto. ARTICLE IX MISCELLANEOUS PROVISIONS AND AGREEMENTS Section 9.1 CONFIDENTIALITY. After the date hereof and prior to the Closing, no party to this Agreement will directly or indirectly make or cause to be made any public announcement or disclosure, or issue any notice with respect to this Agreement or the transactions contemplated hereby without advising the other parties hereto and providing such parties with a reasonable opportunity to comment thereon. Section 9.2 EXPENSES. Seller will bear its own and the Company's expenses, including the fees of any attorneys, accountants, investment bankers or others 58 engaged by the Company or the Seller, in connection with this Agreement and the transactions contemplated hereby, except as otherwise expressly provided herein. Buyer will bear its own expenses, including the fees of any attorneys, accountants, investment bankers or others engaged by Buyer in connection with this Agreement and the transactions contemplated hereby, except as otherwise expressly provided herein. Section 9.3 NOTICES. All notices, requests, demands and other communications made hereunder will be in writing and will be deemed duly given if delivered or sent by facsimile transmission, telex or registered or certified mail, postage prepaid, as follows, or to such other address or Person as any party may designate by notice to the other parties hereunder: If to Seller: Koll Real Estate Group, Inc. 4343 Von Karman Avenue Newport Beach, California 92660 Attention: Raymond J. Pacini Telephone: 714-833-3030 Fax: 714-261-6550 with a copy to: Brobeck, Phleger & Harrison 4675 MacArthur Court Suite 1000 Newport Beach, California 92660 Attention: Gregory W. Preston, Esq. 59 Telephone: 714-752-7535 Fax: 714-752-7522 If to Buyer: Libra Invest & Trade Ltd. c/o Alan Lowe & Company 46, Queen Anne Street London, W1M 9 LA England Attention: Alan Lowe, Esq. Telephone: 011-44-71-486-1935 Fax: 011-44-71-935-2644 with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: Mark N. Kaplan, Esq. Telephone: 212-735-3800 Fax: 212-735-2000 If to the Company: Lake Superior Land Company 101 Red Jacket Road Calumet, Michigan 49913 Attention: Robert P. Grasseschi Telephone: 906-337-0202 Fax: 906-337-5467 with copies to: Brobeck, Phleger & Harrison 4675 MacArthur Court Suite 1000 Newport Beach, California 92660 Attention: Gregory W. Preston, Esq. Telephone: 714-752-7535 Fax: 714-752-7522; 60 Libra Invest & Trade Ltd. c/o Alan Lowe & Company 46, Queen Anne Street London, W1M 9 LA England Attention: Alan Lowe, Esq. Telephone: 011-44-71-486-1935 Fax: 011-44-71-935-2644; and Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: Mark N. Kaplan, Esq. Telephone: 212-735-3800 Fax: 212-735-2000 Section 9.4 AMENDMENTS; TERMINATION. This Agreement cannot be changed or terminated orally and no waiver of compliance with any provision or condition hereof and no consent provided for herein will be effective unless evidenced by an instrument in writing duly executed by the proper party. Section 9.5 ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and assigns, but this Agreement may not be assigned by any party or assumed by any party's successor in interest without the written consent of the other parties hereto. Section 9.6 ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto, the Schedules delivered 61 pursuant hereto and the other writings identified herein or contemplated hereby contain the entire agreement among the parties hereto with respect to the transactions contemplated herein and supersede all previous written or oral negotiations, commitments and writings. The Section headings of this Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret or construe the intentions of the parties. This Agreement may be executed in two or more counterparts, and all such counterparts will constitute one and the same instrument. Section 9.7 APPLICABLE LAW. This Agreement will be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to the conflict of law rules thereof. Section 9.8 SURVIVAL. The representations, warranties, covenants, indemnities and agreements contained in or made pursuant to this Agreement or in any Ancillary Agreement (including any exhibit, certificate, document or statement delivered pursuant hereto or thereto) will survive the Closing and any investigation conducted by any party or any information which any party may have as of the date hereof or from time to time until 62 the completion by Buyer of its second audit of the Company; PROVIDED, HOWEVER, that the representations, warranties and agreements contained in (i) Section 2.10 and Article VIII will survive for a period of twenty years, and (ii) Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.9, 2.14, 9.2 and in Articles IV and V will terminate only upon the expiration of all applicable statutes of limitations. Section 9.9 FURTHER ASSURANCES. Parent, Seller, Buyer and the Company will use their commercially reasonable efforts to do or cause to be done all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. Without limiting the foregoing, Parent, Seller and Buyer will reasonably cooperate, and will cause their respective Affiliates, officers, employees, agents, auditors and representatives reasonably to cooperate, in preparing and filing all Tax Returns (including amended returns and claims for refund), including maintaining and making available to each other all records necessary in connection with Taxes and in resolving all disputes and audits with respect to all taxable periods relating to Taxes. 63 No sale of KREG Shares will be made within 182 days of the date on which the shares of Series A Convertible Preferred Stock of Parent ("Preferred Stock") may be converted into KREG Shares unless Buyer obtains a "no action" letter from the Staff of the Securities and Exchange Commission to the effect that the convertability of the Preferred Stock into KREG Shares will not create a violation of Section 16(b) of the Securities Exchange Act of 1934, Buyer will do its best promptly to obtain such no action letter, and will promptly notify Parent when such no action letter is approved or rejected. Section 9.10 BROKERS. Parent, Seller and the Company will, jointly and severally, defend, indemnify and hold Buyer harmless against and Buyer will defend, indemnify and hold Parent, Seller and the Company harmless against any commissions, finder's fee, consultant's fee or similar claims relating to the transactions contemplated hereby or by the Ancillary Agreements by any Person or entity engaged by them respectively. Section 9.11 PROVISION OF SERVICES. Parent, and Seller will provide the Company, and the Company will provide Parent and Seller, for a period of one year after the Closing Date, such services as the parties hereto may 64 reasonably require upon such terms and conditions as the parties may reasonably agree. Section 9.12 WAGE REPORTING. Pursuant to the standard procedure prescribed by Section 4 of Revenue Procedure 84-77, (i) Seller and the Company will report on a "predecessor-successor" basis with respect to employees of Seller who are employed by Buyer after the Closing Date, (ii) Seller will perform all reporting duties for the wages and other compensation it paid, (iii) Seller will act as the Company's agent for purposes of reporting the payments of wages and other compensation made by the Company from the Closing Date until December 31, 1993 (and Seller will make an adequate disclosure of this arrangement on the returns that are filed), (iv) the Company will be responsible for providing all funds that accompany the returns filed by Seller while acting as the agent for the Company and (v) Seller and the Company will work in good faith to adopt similar procedures under applicable state or local laws. The parties shall cooperate with each other in exchanging such information as is necessary to implement the foregoing and in preparing filings and forms relating to these procedures. 65 Section 9.13 UNEMPLOYMENT COMPENSATION. If requested by the Company, the Company and Seller shall jointly make application to the appropriate state agencies to transfer to the Company Seller's unemployment compensation experience rating for all employees of the Company as of the Closing Date. 66 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KOLL REAL ESTATE GROUP INC. By: /s/ ----------------------------------- Name: Raymond J. Pacini Title: Chief Financial Officer LIBRA INVEST & TRADE LTD. By: /s/ ----------------------------------- Name: Alan Lowe Title: Director SIGNAL PROPERTIES By: /s/ ----------------------------------- Name: Raymond J. Pacini Title: Vice President LAKE SUPERIOR LAND COMPANY By: /s/ ----------------------------------- Name: Robert P. Grasseschi Title: President 67 ANNEX A DEFINITIONS "ACT" is defined in Section 1.4. "AFFILIATE" means with respect to any specified Person, a Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. "ALLOWABLE FEES" is defined in Section 1.5(a). "ANCILLARY AGREEMENTS" means the Voting Agreement, dated as of the date hereof, among Buyer, Parent and Gallant Overseas, Inc., the Custody Agreement and the Easement Agreements. "ASSETS" means all of the Company's property and assets of every kind, nature and description, personal or mixed, tangible or intangible and wherever situated but excluding Real Property. "BUSINESS DAY" means any day (other than a Saturday or Sunday) on which banks are permitted to be open and transact business in The City of New York. "BUYER NET PROCEEDS" is defined in Section 1.5(a). "CALUMET" means Calumet Real Estate, Inc., a Delaware corporation. 68 "CASH CONSIDERATION" is defined in Section 1.5(d). "CODE" means the Internal Revenue Code of 1986, as amended. "COMPANY" is defined in the recital. "CONTINGENT PAYMENT" is defined in Section 1.5. "CONTRACTS" means all agreements or understandings, whether written or oral, including, without limitation, all mortgages, indentures, notes, guarantees, leases, purchase agreements and sale agreements. "EASEMENT AGREEMENT" means (i) the Grant of Easement for Roadway and Utility Purposes, dated December 17, 1993 between the Company, as Grantor, and Calumet, as Grantee, and (ii) the Grant of Easement for Roadway and Utility Purposes, dated December 17, 1993 between the Company, as Grantee, and Calumet, as Grantor. "ENVIRONMENTAL CLAIM" means any claim, action, cause of action, investigation or notice (written or oral) by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, 69 based on or resulting from (a) the presence, or release into the environmental, of any Material of Environmental Concern at any location, whether or not owned or operated by Seller or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ENVIRONMENTAL OPERATING PERMITS" means any permit, license, or other governmental approval required pursuant to the Environmental Laws which authorizes or regulates the handling, treatment, storage or discharge 70 of Materials of Environmental Concern to air, surface water, ground water or land. "INDEMNIFIABLE LOSSES" is defined in Section 8.1. "GAAP" means generally accepted accounting principles consistently applied. "KREG SHARES" is defined in Section 1.5. "LIENS" means all mortgages, pledges, security interests, liens, charges, options, conditional sales agreements, claims, restrictions, covenants, easements, rights of way, title defects or other encumbrances of any nature whatsoever. "MACHINERY AND EQUIPMENT" means all machinery and equipment, wherever located, used or held for use in the conduct of the business of the Company. "MARKETABLE SECURITIES" means readily marketable investment grade securities (debt or equity) issued by domestic corporations, partnerships or other entities. "MATERIAL ADVERSE EFFECT" is defined in Section 2.1. "MATERIALS OF ENVIRONMENTAL CONCERN" means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products. 71 "NET PROCEEDS" means the aggregate proceeds of any Triggering Event, Affiliate Transaction or Subsequent Transaction, as the case may be, received by Buyer, net of the reasonable costs relating to such Triggering Event, Affiliate Transaction or Subsequent Transaction, including, without limitation, Allowable Fees, legal, accounting and investment banking fees, and sales commissions, transfer or sales taxes paid or payable as a result thereof (but excluding taxes in respect of income), amounts required to be applied to the repayment of any indebtedness secured by a Lien on any assets sold pursuant to any such transaction and any reserve for adjustment in respect of the sale price of any such assets, but only until such time as any such reserve is released to Buyer or its Affiliates. "PARENT'S KNOWLEDGE" means the actual knowledge of Parent's officers and directors without independent investigation; PROVIDED, HOWEVER that Parent's knowledge, with respect to the Company shall be limited to the information and representations set forth in the certificate signed by Robert P. Grasseschi which Buyer has prepared and received on the Closing Date, and upon which certificate Parent has relied, with Buyer's consent, for 72 the purposes of giving the representations and warranties with respect to the Company that are set forth in this Agreement, PROVIDED that no officer or director of the Parent has any actual knowledge to the contrary or inconsistent therewith to any material extent. "PERMITS" means all permits, filings, licenses, approvals, franchises, grants, easements, consents, certificates, orders and other authorizations used or held by the Company. "PERMITTED EXCEPTIONS" is defined in Section 2.5. "PERMITTED LIENS" means (i) such defects, claims, liens, encumbrances or statements of facts as are set forth in the Owner's title insurance policies, attached hereto as part of Schedule 2.4 of (a) the Associated Peninsula Title & Abstract Corp., Crystal Falls, Michigan, with respect to the Real Property located in Wisconsin, issued pursuant to the title insurance commitment of the Commonwealth Land Title Insurance Company ("Commonwealth"), effective January 26, 1993 and (b) the Copper Range Abstract & Title Co., Houghton, Michigan, with respect to the Real Property located in Michigan, issued pursuant to the title insurance commitment of 73 Commonwealth, effective January 26, 1993, (ii) such other defects, claims, liens, encumbrances or statements of fact existing as of the date hereof which, individually or in the aggregate, would not have a Material Adverse Effect, (iii) Liens for water and sewer charges and current taxes not yet due and payable or being contested in good faith and for which adequate reserves have been taken, (iv) mechanics', carriers', workers', repairers', materialmens', warehousemens' and other similar Liens arising or incurred in the ordinary course of business, (v) any defect, claim, encumbrance or other matter created, caused or agreed to by Buyer, or which arises after the Closing Date and is not cause by Seller, (vi) any law, ordinance, statute or governmental regulation (including, without limitation, building and zoning ordinances) regulating, restricting or prohibiting the occupancy, use or enjoyment of the Real Property, (vii) the lien granted to, and any mortgage or other document in favor of Continental Bank, National Association in connection with the State Treasurer of the State of Michigan, et al, dated as of January 26, 1993, including, without limitation, (a) the Mortgage, Security Agreement, Assignment of Rents and Fixture Filing, dated as of 74 January 26, 1993, relating to the Real Property located in the state of Michigan, and (b) the mortgage granted to Continental Bank, National Association pursuant to the Mortgage, Security Agreement, Assignment of Rents and Fixture Filing, dated as of January 26, 1993, relating to the Real Property located in the state of Wisconsin (the sum secured by the Mortgages described in (a) and (b) herein and all other documents or instruments securing the referenced lien is in the original principal amount of $45,000,000). "PERSON" means any corporation, individual, joint stock company, joint venture, partnership, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust or other entity. "PRIOR AFFILIATE OF SELLER" means (i) any executive Officer or Director of Seller and their respective Affiliates; (ii) any corporation, partnership or other entity of which either of them is an officer, director, equity owner, a partner or an Affiliate; or (iii) the officers, directors, partners or Affiliates of any such entity. "PURCHASE PRICE" is defined in Section 1.3. 75 "REAL PROPERTY" is defined in Section 2.4. "PARENT AND SELLER'S KNOWLEDGE" means Parent's Knowledge and Seller's Knowledge. "SELLER'S KNOWLEDGE" means the actual knowledge of the directors and officers of Seller without independent investigation; PROVIDED, HOWEVER, that Seller's knowledge, with respect to the Company shall be limited to the information and representations set forth in the certificate signed by Robert P. Grasseschi which Buyer has prepared and received on the Closing Date, and upon which certificate Seller has relied, with Buyer's consent, for the purposes of giving the representations and warranties with respect to the Company that are set forth in this Agreement, PROVIDED that no officer or director of Seller has any actual knowledge to the contrary or inconsistent therewith to any material extent. "SENIOR DEBENTURES" means $42,443,523 in aggregate principal amount, as of September 15, 1993, plus all accrued interest thereon to the Closing Date (including any such interest paid or payable in the form of additional Senior Debentures), of 12% Senior Subordinated Pay-In-Kind Debentures due March 15, 2002 of Parent (issued under its former name, The Bolsa Chica Company) 76 owned by Buyer and issued pursuant to an Indenture between Parent and First Trust National Association, as Trustee, dated July 15, 1992. "TAXES" means all taxes, charges, duties, fees, levies or other assessments, including but not limited to income, excise, property, sales, franchise, withholding, social security and unemployment taxes, imposed by the United States, any possession thereof, any state, county, local or foreign government, or any subdivision or agency of any of the foregoing, and any interest, penalties or additions to tax relating to such taxes, charges, duties, fees, levies or other assessments. "TAX RETURNS" means all returns, reports and declarations relating to Taxes which are or have been required to be filed by the Company. "TIMBERLAND" is defined in Section 2.4(b). "TRIGGERING EVENT" is defined in Section 1.5. 77 ANNEX B LIST OF SCHEDULES
Schedule Number Title - --------------- ---- 2.3 Absence of Material Adverse Changes 2.4 Real Property and Title Reports 2.4(a) D&P Title Exceptions 2.9(a) Employee Benefit Plans 2.10(a) Compliance with Environmental Law 2.10(b) Environmental Claims 2.10(c) Material of Environmental Concern 2.10(d) Disposal Locations 2.12 Subsidiaries 2.13 Bank Accounts 2.14 Tax Returns 2.16 Seller Real Property 6.3 Calumet Management Services 8.3 Letter Agreement
78 EXHIBIT A CUSTODY AGREEMENT A-1 EXHIBIT B REGISTRATION INDEMNIFICATION Parent will indemnify Buyer and hold Buyer harmless and each person, if any, that controls Buyer within the meaning of Section 15 of the Securities Act of 1933, as amended or Section 20 of the Securities Exchange Act of 1934, as amended, and the respective agents, employees, officers and directors of Buyer or any such controlling person from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the fees and expenses of counsel and other expenses in connection with investigating, defending or settling any such action or claim) as they are incurred arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the KREG Shares (including any amendments thereof or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. B-1 EX-10.19A 9 EXHIBIT 10.19A EXHIBIT 10.19A PROPOSED FORM OF: AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT This Amendment No. 1 (the "Amendment"), dated as of February 15, 1994, is made and entered into by and between Libra Invest & Trade, Ltd., a British Virgin Islands corporation ("Libra"), Signal Landmark, a California corporation ("Signal") and Koll Real Estate Group, Inc., a Delaware corporation ("KREG"), a Delaware corporation, for the purpose of amending that certain Stock Purchase Agreement (the "Agreement") dated as of December 17, 1993 by and between the foregoing parties. R E C I T A L S: WHEREAS, Signal desires to surrender all of its right, title and interest in certain contingent payments pursuant to the Agreement in exchange for a lump-sum cash payment; and WHEREAS, Libra desires to make such cash payment in exchange for the cancellation and termination of the contingent payment provisions of the Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. DEFINED TERMS. For purposes of this Amendment, all capitalized terms used and not otherwise defined herein, shall have the meanings assigned to them in the Agreement. 2. TERMINATION OF CONTINGENT PAYMENT. The obligations created under Sections 1.3(c) and 1.5 of the Agreement shall be terminated in their entirety, effective as of the date of this Amendment. From and after the date of this Amendment, Sections 1.3(c) and 1.5 of the Agreement shall be amended and restated to read in full as follows: "Section 1.3(c) [RESERVED]" "Section 1.5 [RESERVED]" 3. SIGNAL CONSIDERATION. In consideration of the foregoing amendments to Sections 1.3 (c) and 1.5, Libra shall deliver One Million Dollars ($1,000,000) to Signal, via wire transfer in accordance with instructions received by Libra as of the date hereof. 4. NO OTHER AMENDMENT. Except to the extent modified by this Amendment, all of the terms and provisions of the Agreement shall remain in full force and effect. 1 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. LIBRA INVESTMENT & TRADE LTD. By /s/ ALAN LOWE ----------------------------- Alan Lowe Director SIGNAL LANDMARK By /s/ RAYMOND J. PACINI ----------------------------- Raymond J. Pacini Vice President KOLL REAL ESTATE GROUP, INC. By /s/ RAYMOND J. PACINI ------------------------------ Raymond J. Pacini Chief Financial Officer EX-10.20 10 EXCHANGE AGREEMENT - ------------------------------------------------------------------------------- EXCHANGE AGREEMENT between LIBRA INVEST & TRADE LTD. and KOLL REAL ESTATE GROUP, INC. Dated December 17, 1993 - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I EXCHANGE OF SHARES FOR JUNIOR DEBENTURES. . . . . . . . . . . . . . . . 2 Section 1.1 Transfer of Exchange Shares . . . . . . . . . . . . 2 Section 1.2 Transfer of Junior Debentures . . . . . . . . . . . 2 ARTICLE II REPRESENTATIONS AND WARRANTIES OF KOLL. . . . . . . . . . . . . . . . . 2 Section 2.1 Organization . . . . . . . . . . . . . . . . . . . 2 Section 2.2 Authority, Binding Effect . . . . . . . . . . . . . 2 Section 2.3 The Exchange Shares . . . . . . . . . . . . . . . . 3 Section 2.4 Absence of Litigation . . . . . . . . . . . . . . . 3 Section 2.5 Governmental Approvals . . . . . . . . . . . . . . 4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF LIBRA . . . . . . . . . . . . . . . . 4 Section 3.1 Organizations . . . . . . . . . . . . . . . . . . . 4 Section 3.2 Authority, Binding Effect . . . . . . . . . . . . . 4 Section 3.3 Title . . . . . . . . . . . . . . . . . . . . . . . 5 Section 3.4 No Reliance . . . . . . . . . . . . . . . . . . . . 5 Section 3.5 Absence of Litigation . . . . . . . . . . . . . . . 6 Section 3.6 Governmental Approvals . . . . . . . . . . . . . . 6 ARTICLE IV DELIVERIES ON EXCHANGE. . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.1 Deliveries by Koll. . . . . . . . . . . . . . . . . 7 Section 4.2 Deliveries by Libra . . . . . . . . . . . . . . . . 8 ARTICLE V MISCELLANEOUS PROVISIONS AND AGREEMENTS . . . . . . . . . . . . . . . . 9 Section 5.1 Expenses. . . . . . . . . . . . . . . . . . . . . . 9 Section 5.2 Notices . . . . . . . . . . . . . . . . . . . . . . 9 i Section 5.3 Amendments; Termination . . . . . . . . . . . . . . 10 Section 5.4 Assignment . . . . . . . . . . . . . . . . . . . . 11 Section 5.5 Headings, Counterparts . . . . . . . . . . . . . . 11 Section 5.6 Applicable Law. . . . . . . . . . . . . . . . . . . 11 Section 5.7 Survival. . . . . . . . . . . . . . . . . . . . . . 11 Section 5.8 Further Assurances. . . . . . . . . . . . . . . . . 12 Section 5.9 Brokers . . . . . . . . . . . . . . . . . . . . . . 12 ii EXCHANGE AGREEMENT EXCHANGE AGREEMENT dated as of December 17, 1993 (including Annex A, this "Exchange Agreement"), between Libra Invest & Trade Ltd., a corporation organized under the laws of the British Virgin Islands ("Libra"), and the Koll Real Estate Group, Inc. (formerly named The Bolsa Chica Company), a Delaware corporation ("Koll"). Libra and Koll desire to exchange (the "Exchange") all of the Junior Debentures for 3,395,482 shares (the "Exchange Shares") of Class A Common Stock, par value $.05 per share, of Koll (the "Common Stock"), on the terms and conditions hereinafter set forth. The definitions of certain initially capitalized terms used herein are set forth in Annex A hereto. In consideration of the premises and of the respective covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I EXCHANGE OF SHARES FOR JUNIOR DEBENTURES Section 1.1 TRANSFER OF EXCHANGE SHARES. Koll hereby issues, sells, transfers and conveys to Libra the Exchange Shares free and clear of all Liens in exchange for all of Libra's right, title and interest in and to the Junior Debentures. Section 1.2 TRANSFER OF JUNIOR DEBENTURES. Libra hereby transfers to Koll all of Libra's right, title and interest in and to the Junior Debentures free and clear of all Liens in exchange for all of Koll's right, title and interest in and to the Exchange Shares. ARTICLE II REPRESENTATIONS AND WARRANTIES OF KOLL Koll represents and warrants to Libra that: Section 2.1 ORGANIZATION. Koll is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Section 2.2 AUTHORITY, BINDING EFFECT. Koll has the corporate power and authority to execute, deliver and perform this Exchange Agreement. The execution, delivery and performance of this Exchange Agreement and 2 the issuance and sale of the Exchange Shares have been duly authorized by all necessary action on the part of Koll and will not contravene the certificate of incorporation or by-laws of Koll. This Exchange Agreement is a valid and binding obligation of Koll enforceable against Koll in accordance with its terms except as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally or (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 2.3 THE EXCHANGE SHARES. The Exchange Shares have been validly authorized by Koll and are validly issued and outstanding, fully paid and nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof; and none of the Exchange Shares are subject to any Lien or any other claim of any third party. No vote of the stockholders of Koll is required to authorize or validly issue the Exchange Shares. Section 2.4 ABSENCE OF LITIGATION. There is no suit, action or other proceeding pending or threatened 3 against Koll before any court or before or by any governmental agency which would result in the restraint, prohibition, set aside or invalidation of the consummation of this Exchange Agreement or the transactions contemplated hereby or would result in substantial damages in connection therewith. Section 2.5 GOVERNMENTAL APPROVALS. All required governmental filings have been made, all applicable waiting periods have run, and all requisite governmental approvals and consents of any Person necessary for the consummation of the transactions contemplated hereby have been granted. ARTICLE III REPRESENTATIONS AND WARRANTIES OF LIBRA Libra hereby represents and warrants to Koll that: Section 3.1 ORGANIZATION. Libra is a corporation duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands. Section 3.2 AUTHORITY, BINDING EFFECT. Libra has the corporate power and authority to execute, deliver and perform this Exchange Agreement. Such execution, 4 delivery and performance have been duly authorized by all necessary action on the part of Libra and will not contravene or conflict with the organizational documents of Libra. This Exchange Agreement is a valid and binding obligation of Libra enforceable in accordance with its terms, except as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally or (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). Section 3.3 TITLE. Libra is the sole owner of, and has, and hereby conveys to Koll, good title to, all of the Junior Debentures free and clear of all Liens. Other than as contemplated by this Exchange Agreement, Libra is not party to, or bound by, any agreement, instrument, proxy requiring prior consent or understanding restricting the transfer of the Junior Debentures. Section 3.4 NO RELIANCE. Libra possesses the level of sophistication requisite to its determination to enter into the Exchange and has based such determination upon its own independent investigation as to the financial and other merits of the Exchange and not in reliance 5 upon the accuracy or completeness of any financial information, documents or other information, written or oral, other than the representations and warranties contained in Article II hereof, provided to Libra by Koll. Section 3.5 ABSENCE OF LITIGATION. There is no suit, action or other proceeding pending or threatened against Libra before any court or before or by any governmental agency which would result in the restraint, prohibition, set aside or invalidation of the consummation of this Exchange Agreement or the transactions contemplated hereby or would result in substantial damages in connection therewith. Section 3.6 GOVERNMENTAL APPROVALS. All required governmental filings have been made, all applicable waiting periods have run and all requisite governmental approvals and consents of any Person necessary for the consummation of the transactions contemplated hereby have been granted. 6 ARTICLE IV DELIVERIES ON EXCHANGE Contemporaneously with the execution of this Exchange Agreement, the parties will deliver the following documents or such documents in substitution therefor as are satisfactory to the recipient; the Exchange will not be deemed to have occurred until the receipt (or waiver thereof) of all such documents by the party entitled thereto: Section 4.1 DELIVERIES BY KOLL. Koll will deliver to Libra: (a) Stock certificates representing all of the Exchange Shares, accompanied by stock powers duly executed in blank or duly executed instruments of transfer with all necessary stock transfer and other documentary stamps attached, and any other documents that are necessary to transfer to Libra good title to all the Exchange Shares free and clear of all Liens. (b) Certified copies of the resolutions, duly adopted by the Board of Directors of Koll, that will be in full force and effect at the time of delivery, 7 authorizing the execution, delivery and performance of this Exchange Agreement. (c) Such other instruments and documents as may be reasonably requested by, and in form and substance reasonably satisfactory to, Libra. Section 4.2 DELIVERIES BY LIBRA. Libra will deliver to Koll: (a) The Junior Debentures accompanied by all bond powers duly executed in blank, with all necessary bond transfer and other documentary stamps attached, and any other documents that are necessary to transfer to Koll good title to all the Junior Debentures free and clear of all Liens. (b) Certified copies of resolutions, duly adopted by the Board of Directors of Libra that will be in full force and effect at the time of delivery, authorizing the execution, delivery and performance of this Exchange Agreement. (c) Such other instruments and documents as may be reasonably requested by, and in form and substance reasonably satisfactory to, Koll. 8 ARTICLE V MISCELLANEOUS PROVISIONS AND AGREEMENTS Section 5.1 EXPENSES. Libra and Koll will each bear its own expenses, including the fees of any attorneys, accountants, investment bankers or others engaged by it in connection with this Exchange Agreement and the transactions contemplated hereby, except as otherwise expressly provided herein. Section 5.2 NOTICES. All notices, requests, demands and other communications made hereunder will be in writing and will be deemed duly given if delivered or sent by facsimile transmission, telex or registered or certified mail, postage prepaid, as follows, or to such other address or Person as any party may designate by notice to the other parties hereunder: If to Koll: Koll Real Estate Group, Inc. 4343 Von Karman Avenue Newport Beach, California 92660 Attention: Raymond J. Pacini Telephone: 714-833-3030 Fax: 714-261-6550 9 with a copy to: Brobeck, Phleger & Harrison 4675 MacArthur Court Suite 1000 Newport Beach, California 92660 Attention: Gregory W. Preston, Esq. Telephone: 714-752-7535 Fax: 714-752-7522 If to Libra: Libra Invest & Trade Ltd. c/o Alan Lowe & Company 46 Queen Anne Street London W1M 9 LA England Attention: Alan Lowe Telephone: 011-44-71-486-1069 Fax: 011-44-71-935-5758 With copies to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: Mark N. Kaplan, Esq. Telephone: 212-735-3800 Fax: 212-735-2000 Section 5.3 AMENDMENTS; TERMINATION. This Exchange Agreement cannot be changed or terminated orally and no waiver of compliance with any provision or condition hereof and no consent provided for herein will be effective unless evidenced by an instrument in writing duly executed by the proper party. 10 Section 5.4 ASSIGNMENT. This Exchange Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and assigns, but this Exchange Agreement may not be assigned by any party without the written consent of the other parties. Section 5.5 HEADINGS, COUNTERPARTS. The Section headings of this Exchange Agreement are for convenience of reference only and do not form a part hereof and do not in any way modify, interpret or construe the intentions of the parties. This Exchange Agreement may be executed in two or more counterparts, and all such counterparts will constitute one and the same instrument. Section 5.6 APPLICABLE LAW. This Exchange Agreement will be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to the conflicts of law rules thereof. Section 5.7 SURVIVAL. All representations, warranties, covenants, indemnities and agreements contained in or made pursuant to this Exchange Agreement (including any exhibit, certificate, document or statement delivered pursuant hereto) will continue and survive after the date hereof and any investigation conducted by 11 any party or any information which any party may have from time to time, subject only to applicable statutes of limitations. Section 5.8 FURTHER ASSURANCES. Koll and Libra will use their commercially reasonable efforts to do or cause to be done all things necessary, proper or advisable to consummate the transactions contemplated by this Exchange Agreement. Section 5.9 BROKERS. Koll will defend, indemnify and hold Libra harmless against and Libra will defend, indemnify and hold Koll harmless against any commissions, finder's fee, consultant's fee or similar claims relating to the transactions contemplated hereby by any Person or entity engaged by them respectively. 12 IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be duly executed as of the day and year first above written. KOLL REAL ESTATE GROUP, INC. By: /s/ ----------------------------------- Name: Raymond J. Pacini Title: Chief Financial Officer LIBRA INVEST & TRADE LTD. By: /s/ ----------------------------------- Name: Alan Lowe Title: Director 13 ANNEX A DEFINITIONS "AFFILIATE" means with respect to any specified Person, a Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified. "JUNIOR DEBENTURES" means the $10,610,881 in aggregate principal amount, as of September 15, 1993, plus all accrued interest thereon on the date of their exchange pursuant to the Exchange (including any such interest paid or payable in the form of additional Junior Debentures) of 12% Subordinated Pay-In-Kind Debentures due March 15, 2002 of Koll (issued under its former name, The Bolsa Chica Company) owned by Libra and issued pursuant to an Indenture between Koll and The Bank of New York, as Trustee, dated July 15, 1992. "LIENS" means all mortgages, pledges, security interests, liens, charges, options, conditional sales agreements, claims, restrictions, covenants, easements, rights of way, title defects or other encumbrances of any nature whatsoever. "PERSON" means any corporation, individual, joint stock company, joint venture, partnership, unin- 14 corporated association, governmental regulatory entity, country, state or political subdivision thereof, trust or other entity. 15 EX-10.21 11 EXHIBIT 10.21 FINANCING AND ACCOUNTING SERVICES AGREEMENT This Financing and Accounting Services Agreement (the "Agreement") is entered into as of September 30, 1993 by and between KREG OPERATING CO., a Delaware corporation (the "Company"), and THE KOLL COMPANY, a California corporation ("TKC"). RECITALS: A. The Company has agreed to purchase certain assets of TKC pursuant to that certain Asset Purchase Agreement dated as of September 30, 1993 between the Company and TKC (the "Purchase Agreement"). B. It is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement that the Company enter into this Agreement to provide certain financing services to TKC as set forth herein. AGREEMENT: NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. SERVICES TO BE PROVIDED. During the term of this Agreement, the Company may provide to TKC such financing and accounting services as may be reasonably requested by TKC from time to time, including, without limitation, assistance and advice regarding financing sources and terms, refinancings, negotiation of new, or renegotiation of existing, financing facilities, financial analysis, recordkeeping, accounting, billing, collections and other related services (collectively, the "Contract Services"). Throughout the term hereof, the Contract Services provided to TKC hereunder shall be at no less than the level and quality of similar services being provided to the Company for its own account from time to time. 2. AMOUNT OF FEE AND PAYMENT TERMS. In consideration of the provision of the Contract Services, TKC shall pay the Company fees (the "Contract Fees") as set forth on SCHEDULE A attached hereto, subject to such changes thereto as may be agreed from time to time. 3. TERM. This Agreement shall continue in effect until thirty (30) days after the date of delivery of notice by either party hereto to the other party of its intention to terminate all Contract Services hereunder. 4. PRESERVATION AND TITLE TO STORED DATA. All data created by the Company after the date hereof pursuant to the Agreement and relating to TKC's business ("TKC Data") stored on any media whatsoever shall be the sole and exclusive property of TKC. All TKC Data shall, at the expiration of the term of this Agreement, be delivered on computer disks, tapes or such other media as TKC shall reasonably request to the location TKC shall reasonably direct at the Company's expense. Back-up data files of TKC Data shall be produced and stored off-site, if and to the extent consistent with the practices of the Company with respect to its own information and data. 5. CONFIDENTIALITY. Each party shall treat as confidential all financial, accounting and other proprietary information of the other that may come into such party's possession during the course of and pursuant to the performance of this Agreement, and each party shall take adequate measures protecting the same to the same extent each party protects against disclosure or destruction of its own financial, accounting and other proprietary information. The parties shall communicate to their respective agents and employees the confidentiality requirements of this Agreement and take whatever measures may be reasonably necessary to protect and enforce such confidentiality. 6. NO PARTNERSHIP. The parties agree that nothing contained in this Agreement shall be construed as creating any relationship of principal and agent or any partnership or joint venture between the parties. Neither party shall take any action or make any implied or express representation to any third party that such party is an agent or partner of the other, or otherwise purport to bind or commit the other to any third party in any way. 7. MISCELLANEOUS. (a) ASSIGNABILITY. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective affiliates, successors and permitted assigns. No party to this Agreement shall have the right to assign its rights and obligations hereunder in whole or in part to any person or party without the express prior written consent of the other. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous agreements or understandings related to the subject matter hereof. (c) HEADINGS. The headings of the Articles and Paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. (d) SEVERABILITY. The provisions of this Agreement are severable. The invalidity, in whole or in part, of any provision of this Agreement shall not affect the validity or enforceability of any other of its provisions. If one or more provisions hereof shall be so declared invalid or unenforceable, the remaining provisions shall remain in full force and effect and shall be construed in the broadest possible manner to effectuate the purposes hereof. The parties further agree to replace such void or unenforceable provisions with provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. -2- (e) MODIFICATION AND WAIVER. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by each of the parties hereto, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be effective unless in writing and duly executed by the waiving party. No waiver shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. (f) ATTORNEYS' FEES. In any judicial action or proceeding or any arbitration proceeding between the parties to enforce any of the provisions of this Agreement, to seek damages on account of the breach hereof, to seek injunctive relief to prevent the breach hereof, to seek a judicial determination of the rights or obligations of any party hereto, or in any judicial action or proceeding or any arbitration proceeding between the parties in which this Agreement is raised as a defense, regardless of whether the action or proceeding is prosecuted to judgment, and in addition to any other remedy, the unsuccessful party shall pay the successful party all costs and expenses, including reasonable attorneys' fees, incurred by the successful party. (g) NOTICES. All notices, requests and other communications under this Agreement shall be delivered in the manner and to the addresses set forth in the Purchase Agreement. (h) GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California without giving effect to conflicts of laws principles. -3- [SIGNATURE PAGE TO FINANCING AND ACCOUNTING SERVICES AGREEMENT] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "COMPANY" KREG OPERATING CO., a Delaware corporation By: /s/ ---------------------------------------- Raymond J. Pacini Chief Financial Officer "TKC" THE KOLL COMPANY, a California corporation By: /s/ ---------------------------------------- Raymond E. Wirta President and Chief Operating Officer -4- KREG - TKC SERVICE AGREEMENT SCHEDULE OF FEES
TKC ANNUAL TIME ANNUAL MONTHLY FRINGE OH MONTHLY SALARY ALLOCATION RATE RATE @ .25 @ .50 TOTAL ------ ---------- ------ ------- ------ ----- ------- ORTWEIN / BUSH 241,350 15% 36,203 3,017 754 1,508 5,280 SHEPHARD / FINNELLY 232,880 10% 23,288 1,941 485 970 3,396 VAN AMBURGH / RUE 228,100 10% 22,810 1,901 475 950 3,326 KRUPOFF / URAM 179,600 50% 89,800 7,483 1,871 3,742 13,096 STAN'S GROUP 169,000 50% 84,500 7,042 1,760 3,521 12,323 KATE'S GROUP 120,900 50% 60,450 5,038 1,259 2,519 8,816 --------- ------- ------- ------- ------- ------- 1,171,830 317,051 26,421 6,605 13,210 46,237 ========= ======= ======= ======= ======= ======= ANNUAL FEE 554,838 =======
EX-10.22 12 EXHIBIT 10.22 MANAGEMENT INFORMATION SYSTEMS AND HUMAN RESOURCE SERVICES AGREEMENT This Management Information Systems and Human Resources Services Agreement (the "Agreement") is entered into as of September 30, 1993 by and between KOLL REAL ESTATE GROUP, INC., a Delaware corporation (the "Company"), and KOLL MANAGEMENT SERVICES, INC., a Delaware corporation ("KMS"). RECITALS: A. The Company has agreed to purchase certain assets of The Koll Company, a California corporation ("TKC"), pursuant to that certain Asset Purchase Agreement dated as of September 30, 1993 between the Company and TKC (the "Purchase Agreement"). B. It is a condition precedent to the consummation of the transactions contemplated by the Purchase Agreement that TKC or an Affiliate (as defined below), which has been identified as KMS, enter into this Agreement to provide certain management information systems and human resource services to the Company and its Affiliates as set forth herein. AGREEMENT: NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. SERVICES TO BE PROVIDED. During the term of this Agreement, KMS may provide to the Company and its Affiliates such management information systems and human resource services as may be reasonably requested by the Company or any Affiliate from time to time, including, without limitation, computer programming, data organization and retention, recordkeeping, payroll, and other related services (collectively, the "Contract Services"). Throughout the term hereof, the Contract Services provided to the Company or any Affiliate hereunder shall be at no less than the level and quality of similar services being provided to KMS for its own account from time to time. 2. AMOUNT OF FEE AND PAYMENT TERMS. In consideration of the provision of the Contract Services, the Company and each Affiliate shall pay KMS fees (the "Contract Fees") as set forth in SCHEDULE A attached hereto, subject to such changes thereto as may be agreed from time to time. 3. TERM. This Agreement shall continue in effect until thirty (30) days after the date of delivery of notice by either party hereto to the other party of its intention to terminate all Contract Services hereunder. 4. PRESERVATION AND TITLE TO STORED DATA. All data created by KMS after the date hereof pursuant to the Agreement and relating to the Company's or any Affiliate's business ("Company Data") stored on any media whatsoever shall be the sole and exclusive property of the Company or such Affiliate. All Company Data shall, at the expiration of the term of this Agreement, be delivered on computer disks, tapes or such other media as the Company or such Affiliate shall reasonably request to the location the Company or such Affiliate shall reasonably direct at KMS's expense. Back-up data files of the Company Data shall be produced and stored off-site, if and to the extent consistent with the practices of KMS with respect to its own information and data. 5. CONFIDENTIALITY. Each party (including, without limitation, each Affiliate of the Company) shall treat as confidential all financial, accounting, personnel and other proprietary information of the other that may come into such party's possession during the course of and pursuant to the performance of this Agreement, and each party shall take adequate measures protecting the same to the same extent each party protects against disclosure or destruction of its own financial, accounting, personnel and other proprietary information. The parties shall communicate to their respective agents and employees the confidentiality requirements of this Agreement and take whatever measures may be reasonably necessary to protect and enforce such confidentiality. 6. NO PARTNERSHIP. The parties agree that nothing contained in this Agreement shall be construed as creating any relationship of principal and agent or any partnership or joint venture between the parties. Neither party shall take any action or make any implied or express representation to any third party that such party is an agent or partner of the other, or otherwise purport to bind or commit the other to any third party in any way. 7. MISCELLANEOUS. (a) ASSIGNABILITY. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective Affiliates, successors and permitted assigns. No party to this Agreement shall have the right to assign its rights and obligations hereunder in whole or in part to any person or party other than an Affiliate of such party without the express prior written consent of the other. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior or contemporaneous agreements or understandings relating to the subject matter hereof. (c) HEADINGS. The headings of the Articles and Paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. -2- (d) SEVERABILITY. The provisions of this Agreement are severable. The invalidity, in whole or in part, of any provision of this Agreement shall not affect the validity or enforceability of any other of its provisions. If one or more provisions hereof shall be so declared invalid or unenforceable, the remaining provisions shall remain in full force and effect and shall be construed in the broadest possible manner to effectuate the purposes hereof. The parties further agree to replace such void or unenforceable provisions with provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provisions. (e) MODIFICATION AND WAIVER. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by each of the parties hereto, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be effective unless in writing and duly executed by the waiving party. No waiver shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. (f) ATTORNEYS' FEES. In any judicial action or proceeding or any arbitration proceeding between the parties to enforce any of the provisions of this Agreement, to seek damages on account of the breach hereof, to seek injunctive relief to prevent the breach hereof, to seek a judicial determination of the rights or obligations of any party hereto, or in any judicial action or proceeding or any arbitration proceeding between the parties in which this Agreement is raised as a defense, regardless of whether the action or proceeding is prosecuted to judgment, and in addition to any other remedy, the unsuccessful party shall pay the successful party all costs and expenses, including reasonable attorneys' fees, incurred by the successful party. (g) NOTICES. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to be duly given on the date of delivery if delivered personally and on the date of receipt or refusal indicated on the return receipt if mailed by first class mail, certified or registered, postage prepaid, return receipt requested, and in each case addressed as follows: -3- If to KMS: Koll Management Services, Inc. 4343 Von Karman Avenue Newport Beach, California 92660 Attention: President With a copy to Allen, Matkins, Leck, Gamble & Mallory (which shall not 18400 Von Karman Avenue, 4th Floor constitute notice): Irvine, California 92715 Attention: Thomas C. Foster, Esq. If to the Company Koll Real Estate Group, Inc. or any Affiliate: 4343 Von Karman Avenue Newport Beach, California 92660 Attention: Raymond J. Pacini, Chief Financial Officer With a copy to Brobeck, Phleger & Harrison (which shall not 4675 MacArthur Court, Suite 1000 constitute notice): Newport Beach, California 92660 Attention: Gregory W. Preston, Esq. or to such other place and with such other copies as any party may designate as to itself by written notice to the others in accordance with the provisions of this Section 7(g). (h) GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California without giving effect to conflicts of laws principles. (i) DEFINITION OF AFFILIATE. For purposes of this Agreement, "AFFILIATE" shall mean any person, corporation, partnership or other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the specified entity or person. The term "control" as used herein (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to vote fifty percent (50%) or more of the outstanding voting securities or interests of such person or entity. -4- [SIGNATURE PAGE TO MANAGEMENT INFORMATION SYSTEMS AND HUMAN RESOURCE SERVICES AGREEMENT] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "COMPANY" KOLL REAL ESTATE GROUP, INC., a Delaware corporation By: /s/ ----------------------------------- Raymond J. Pacini Chief Financial Officer "KMS" KOLL MANAGEMENT SERVICES, INC., a Delaware corporation By: /s/ ----------------------------------- William S. Rothe President -5- SUPPORT AGREEMENT CERTIFICATION I hereby certify that the terms set forth in the Support Agreements between Koll Management Services and Koll Real Estate Group, Inc. and its affiliates, are no less favorable than the terms charged for similar services provided to affiliated Koll Companies, including The Koll Company, Koll Construction Company, and Koll International. /s/ --------------------------------------- Raymond E. Wirta, President MANAGEMENT INFORMATION SYSTEMS AND HUMAN RESOURCE SERVICES AGREEMENT SCHEDULE OF FEES HUMAN RESOURCE SERVICES $125 per month for each KREG employee. MANAGEMENT INFORMATION SERVICES $2,000 per month for the use and utilization of the AS 400 Operating System, plus $100 per hour for special use programming or systems modification assistance specific to KREG. EX-10.24 13 EXHIBIT 10.24 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT ("Sublease") is made this 30th day of September, 1993 by and between THE KOLL COMPANY, a California corporation hereinafter called "Sublessor" and KOLL REAL ESTATE GROUP, INC., a Delaware corporation and its Affiliates (as defined below) hereinafter collectively, called "Sublessee." RECITALS A. Koll Corporate Associates, a California general partnership ("Landlord"), and The Koll Company, a California corporation, as Tenant, heretofore entered in to a certain office lease for the office building (the "Building") at 4343 VonKarman Avenue, Newport Beach (the "Master Lease") dated September 1, 1992. B. Sublessor desires to sublease to Sublessee a portion of the Building located on the east wing of the second floor, and a portion of the third floor of the Building, as indicated by the cross-hatched area on the attached space diagram (Exhibit "A") (the "Premises") and Sublessee desires to sublease such Premises from Sublessor. All additional space on the second and third floors of the Building ("Retained Space"), as indicated by the non-cross-hatched area on Exhibit "A", is to remain the responsibility of the Sublessor. C. Sublessee is entitled to make reasonable use of common area facilities. D. Sublessor shall provide surface parking for all Sublessee's employees, five (5) underground parking stalls, utilities, janitorial and security. Telephone, postage and copying charges shall be separately billed and paid for by Sublessee. Sublessor shall provide reception services during ordinary business hours to include answering of all incoming lines. E. For purposes of this Sublease the term "Affiliates" shall mean any person, corporation, partnership or other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the specified entity or person. The term "control" as used herein (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to vote fifty percent (50%) or more of the outstanding voting securities or interests of such person or entity. THEREFORE, Sublessor and Sublessee agree as follows: 1. MASTER LEASE. Except as otherwise provided hereunder, Sublessee hereby expressly assumes and agrees to perform all obligations and covenants of the Master Lease to the extent they apply to the Premises and are not otherwise intended to be satisfied by Sublessee's performance under this Sublease. -1- 2. MONTHLY ESTIMATED BASE RENT. Sublessee shall pay to Sublessor as estimated rent for the Premises, in advance on the first day of each calendar month of the term of this Sublease, and without deduction, offset, prior notice or demand, in lawful money of the United States, the sum of Twenty-Eight Thousand Eight Hundred Sixty-Two Dollars and Forty Cents ($28,862.40) ("Monthly Estimated Base Rent"). The Monthly Estimated Base Rent is based on the total rent and estimated occupancy costs of $2.89 per square foot (as itemized below) and 9,987 square feet of Premises. Rent: $1.83 per sq.ft. Estimated Occupancy Costs: Utilities .29 Taxes .23 Maintenance .23 Parking .15 CAM .08 Janitorial .06 Insurance .03 ----- Total Monthly Estimated Base Rent $2.89 ----- ----- Within sixty (60) days of the end of each calendar year (or of any termination of this Sublease), Sublessor shall send a reconciliation statement to Sublessee setting forth the actual occupancy costs incurred and reasonably allocated for Sublessee's occupancy of the Premises for the preceding calendar year ("Actual Occupancy Costs") (in addition to any bills and invoices reasonably requested by Sublessee to evidence the Actual Occupancy Costs). To the extent the Estimated Occupancy Costs paid by Sublessee are less than the Actual Occupancy Costs incurred for the same period, Sublessee agrees to pay the difference within thirty (30) days. To the extent that the Actual Operating Costs incurred are less than the Estimated Occupancy Costs paid by Sublessee for the same period, the difference shall be credited to Sublessee's next Monthly Estimated Base Rent obligation (or paid to Sublessee within thirty (30) days of termination of the Sublease). If the size of the Premises which Sublessee occupies either increases or decreases, the Monthly Estimated Base Rent shall be adjusted proportionately to reflect the square footage actually occupied. Sublessor shall also have the right, upon thirty (30) days prior written notice to Sublessee, to adjust the Estimated Occupancy Costs and, consequently, the Monthly Estimated Base Rent to reflect changes in the occupancy costs. 3. TERM. The term of this Sublease shall be month to month. Either Sublessor or Sublessee may terminate this Sublease upon thirty (30) days prior written notice to the other party. -2- 4. USE. Sublessee shall use the Premises for business offices and for no other purpose without the prior written consent of the Sublessor and Landlord. 5. NO RELEASE OF SUBLESSOR. This Sublease agreement shall in no way release Sublessor from any obligation or covenant of the Master Lease between Landlord and Tenant. IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease Agreement as of the date first written above. SUBLESSOR: THE KOLL COMPANY, a California corporation By: /s/ Ray Wirta --------------------------- Ray Wirta, President SUBLESSEE: KOLL REAL ESTATE GROUP, INC. a Delaware corporation By: /s/ Raymond J. Pacini --------------------------- Raymond J. Pacini, Chief Financial Officer The undersigned Landlord under the Master Lease hereby consents to the subletting of the Premises described therein on the terms and conditions contained in the Sublease. This consent shall apply only to this Sublease and shall not be deemed to be a consent to any other Sublease. Dated: September 30, 1993 ------------------------ Landlord: Koll Corporate Associates By: The Koll Company, general partner By: /s/ Ray Wirta --------------------------- Ray Wirta, President -3- EX-21.01 14 SUBSIDIARIES OF THE REGISTRANT EXHIBIT A KOLL REAL ESTATE GROUP, INC. WORLDWIDE SUBSIDIARY LIST
Percentage State/Country of Ownership Incorporation ---------- ---------------- Hengro Fifteen Inc. 100 Delaware Henley Disc Media, Inc. 100 Delaware Henley Facilities, Inc. 100 Delaware Henley Group, Inc., The 100 Delaware New Henley Holdings Inc. 100 Delaware Air Correction International, Inc. 100 Delaware GCC Patents Holding Company Inc. 100 Delaware Hengro Fourteen Inc. 100 Delaware Hengro Ten Inc. 100 Delaware Hengro Thirteen Inc. 100 Delaware Henley Deltec Holdings Inc. 100 Delaware Henley Deltec Corporation 100 Delaware Henley Investments, Inc. Two 100 Delaware IRE Corporation 100 Indiana H I Industries Corporation 100 Florida LJC Investments, Inc. 100 Delaware Moore International Inc. 80 Delaware Newco A.C. Corporation 100 Delaware Nichols Engineering & Research Corporation 100 Delaware Procon International Inc. 100 Delaware Procon Incorporated 100 Delaware Procofrance, S.A. 100 France Procon (Great Britain) Limited 100 United Kingdom Pullman Environmental Services Inc. 100 Delaware Pullman Passenger Car Company Inc. 100 Delaware Pullman Swindell Ltd. 100 United Kingdom Trailmobile International Ltd. 100 Delaware Pullman Trailmobile de Mexico S.A. de C.V. 100 Mexico Trailmobile Leasing Corp. 100 Delaware W.O.L. Corporation 100 Delaware W: W. C. Corporation 100 Delaware Wheelabrator Export Corporation 100 Delaware Henley Holdings Two Inc. 100 Delaware Signal Landmark Holdings Inc. 100 Delaware Signal Landmark 100 California Calumet Real Estate Inc. 100 Delaware Newport Realty Corp. 100 California
1 Signal Bolsa Corporation 100 California Signal Hawaii, Inc. 100 Hawaii Signal Puako Corporation 100 Hawaii Eagle Crest Country Club, Inc. 100 California Glenwood Properties 50 California Signal Development Corporation 100 California Henley/KNO Holding Inc. 100 Delaware KREG Holdings Inc. 100 Delaware KREG Operating Co. 100 Delaware KREG - LA, Inc. 51 Delaware KREG - NC, Inc. 51 Delaware KREG - NW, Inc. 51 Delaware KREG - OC, Inc. 51 Delaware KREG - SD, Inc. 51 Delaware KREG - SW, Inc. 51 Delaware NC Holding Company 100 Delaware Wentworth By The Sea, Inc. * 50 Delaware Newco A. D. Corporation 100 South Carolina Twenty Newco Inc. 100 Delaware Wentworth Holdings Inc. 100 Delaware Wentworth By The Sea, Inc. * 50 Delaware WESI Maryland Inc. 100 Delaware WT/HRC Corporation 100 Illinois Heat Research Corporation 100 Delaware (*) Together NC Holding Company and Wentworth Holdings Inc. own 100% of Wentworth By The Sea, Inc.
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