KOLL REAL ESTATE GROUP INC, 10-Q, 1994-11-14

KOLL REAL ESTATE GROUP INC
10-Q, 1994-11-14
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<PAGE>

This Form 10-Q consists of 15 sequentially numbered pages.

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1994
------------------

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 of (I.R.S. Employer
incorporation or organization.) Identification No.)

4343 Von Karman Avenue
Newport Beach, California 92660
------------------------- ---------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (714) 833-3030

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
----- -----

The number of shares of Class A Common Stock outstanding at November 11, 1994
were 45,319,703

<PAGE>

KOLL REAL ESTATE GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 1994

I N D E X
--------------------------

PAGE NO.
PART I - Financial Information:

Item 1 - Financial Statements

Introduction to the Financial Statements . . . . . . . . . . 3

Balance Sheets -
December 31, 1993 and September 30, 1994 . . . . . . . . . . 4

Statements of Operations -
Three and Nine Months Ended September 30, 1993 and 1994. . . 5

Statements of Cash Flows -
Nine Months Ended September 30, 1993 and 1994. . . . . . . . 6

Notes to Financial Statements. . . . . . . . . . . . . . . . 7

Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . .10

Part II - Other Information:

Item 1 - Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .13

Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .13

SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

<PAGE>

KOLL REAL ESTATE GROUP, INC.

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

INTRODUCTION TO THE FINANCIAL STATEMENTS

The condensed financial statements included herein have been prepared by
Koll Real Estate Group, Inc. and its consolidated subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, and the current year's previously issued Quarterly
Reports on Form 10-Q.

The financial information presented herein reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.

<PAGE>

KOLL REAL ESTATE GROUP, INC.

BALANCE SHEETS

(in millions)
<TABLE>
<CAPTION>

December 31, September 30,
1993 1994
------- -------
<S> <C> <C>
ASSETS

Cash and cash equivalents $ 21.8 $ 26.9
Short-term investments 21.7 3.0
Real estate held for development or sale 47.7 46.3
Operating properties, net 16.3 12.6
Land held for development 315.9 323.4
Other assets 22.9 20.6
------- -------

$ 446.3 $ 432.8
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Accounts payable and accrued
liabilities $ 30.8 $ 30.7
Senior bank debt 7.0 -
Subordinated debentures 134.9 148.2
Other liabilities 110.1 103.3
------- -------

Total liabilities 282.8 282.2
------- -------

Stockholders' equity:
Series A Preferred Stock .4 .4
Class A Common Stock 2.2 2.2
Capital in excess of par value 230.0 229.5
Deferred proceeds from stock issuance (1.5) (1.0)
Minimum pension liability (1.5) (1.5)
Accumulated deficit (66.1) (79.0)
------- -------

Total stockholders' equity 163.5 150.6
------- -------

$ 446.3 $ 432.8
------- -------
------- -------
</TABLE>

See accompanying notes to financial statements.

<PAGE>

KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>

Three Months Ended Nine Months Ended
September 30, September 30,
1993 1994 1993 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES:
Asset Sales $ - $ 4.9 $ - $ 8.4
Operations 2.2 3.5 3.3 8.2
------- ------- ------- --------
2.2 8.4 3.3 16.6
------- ------- ------- --------
COSTS OF:
Asset Sales - 4.8 - 8.3
Operations 1.5 3.1 3.0 7.6
------- ------- ------- --------
1.5 7.9 3.0 15.9
------- ------- ------- --------
Gross operating margin .7 .5 .3 .7

General and administrative expenses 1.8 2.0 6.6 6.5
Interest expense 6.2 4.7 18.6 13.7
Other expense (income), net (2.4) .5 (3.6) 1.2
------- ------- ------- --------

Loss from continuing operations before
income taxes (4.9) (6.7) (21.3) (20.7)

Provision (benefit) for income taxes ( .1) (2.3) (6.6) (7.1)
------- ------- ------- --------

Loss from continuing operations (4.8) (4.4) (14.7) (13.6)
Discontinued operations:
Income from operations, net of income taxes .8 - 4.8 -
Gain on disposition, net of income taxes 1.9 - 1.9 .7
------- ------- ------- --------

Loss before the cumulative effect of an
accounting change (2.1) ( 4.4) (8.0) (12.9)

Cumulative effect of an accounting
change for income taxes - - (36.0) -
------- ------- ------- --------

Net loss ($ 2.1) ($ 4.4) ($44.0) ($12.9)
------- ------- ------- --------
------- ------- ------- --------

Earnings (loss) per common share:
Continuing operations ($.12) ($.10) ($.38) ($.32)
Discontinued operations .07 - .17 .02
Cumulative effect of accounting change - - (.90) -
------- ------- ------- --------
Net loss per common share ($ .05) ($ .10) ($1.11) ($ .30)
------- ------- ------- --------
------- ------- ------- --------
</TABLE>

See the accompanying notes to financial statements.

<PAGE>

KOLL REAL ESTATE GROUP, INC.

STATEMENTS OF CASH FLOWS

(in millions)
<TABLE>
<CAPTION>

Nine Months Ended
September 30,
1993 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Loss before the cumulative effect of an accounting change ($ 8.0) ($ 12.9)
Adjustments to reconcile to cash used by operating activities:
Depreciation and amortization 1.2 .9
Non-cash interest expense 16.3 13.3
Gains on sales - (.1)
Gain on disposition of discontinued operation (1.9) (.7)
Proceeds from asset sales, net - 7.9
Investments in real estate held for development or sale (2.2) (3.2)
Investments in land held for development (5.5) (7.5)
Decrease (increase) in other assets (6.3) 1.8
Decrease in accounts payable, accrued and
other liabilities (14.6) ( 7.1)
-------- --------

Cash used by operating activities (21.0) ( 7.6)
-------- --------

Cash flows from investing activities:
Sale of short-term investments, net - 18.7
Proceeds from disposition of discontinued operation - 1.0
Acquisition of real estate development business (6.1) -
Sale of equity investment 43.7 -
-------- --------

Cash provided by investing activities 37.6 19.7
-------- --------

Cash flows from financing activities:
Net proceeds from nonrecourse debt 43.4 -
Repayments of senior bank debt (47.9) (7.0)
-------- --------

Cash used by financing activities (4.5) (7.0)
-------- --------

Net increase in cash and cash equivalents 12.1 5.1

Cash and cash equivalents - beginning of period 41.6 21.8
-------- --------

Cash and cash equivalents - end of period $ 53.7 $ 26.9
-------- --------
-------- --------
</TABLE>

See the accompanying notes to financial statements.

<PAGE>

KOLL REAL ESTATE GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying financial statements should be read in conjunction with the
Financial Statements and Notes thereto included in the Annual Report on Form 10-
K of Koll Real Estate Group, Inc. (the "Company") for the year ended December
31, 1993, and the current year's previously issued Quarterly Reports on Form 10-
Q.

Certain prior-period amounts have been reclassified to conform with their
current presentation.

NOTE 2 - ACQUISITION

On November 9, 1994, the Company acquired the stock of Kathryn G. Thompson
Company and related assets. The principal activities of the acquired business
are residential real estate development and homebuilding, focusing on the entry-
level and first time move-up market segments. Current projects of the acquired
business include partnership interests in a 230-acre project approved for 1,421
residential units in southern Orange County and a 30-acre project approved for
92 single family detached homes in northern San Diego County. In connection with
the acquisition, the Company paid $1.2 million in cash and a $.5 million note,
issued 2 million shares of Class A Common Stock and warrants for an additional 2
million shares, and assumed approximately $4.8 million of capital contribution
notes which are primarily payable out of positive net cash flow to be generated
by the Orange County partnership interest and are not due until the earlier of
the completion of the project or April 1999. In addition, the Company is in
preliminary discussions with other homebuilding companies regarding potential
acquisitions. However, the Company has not entered into any letter of intent or
agreement in principle with respect to the terms of any potential acquisition,
and there can be no assurance that these preliminary discussions will result in
any acquisition.

NOTE 3 - LOSS PER COMMON SHARE

The weighted average number of common shares outstanding for both the three
and nine month periods ended September 30, 1993 and 1994 were 39.8 million
shares and 43.3 million shares, respectively. The Series A Preferred Stock is
not included in the loss-per-share calculations because the effect would be
anti-dilutive.

NOTE 4 - 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. The
Company continues to seek approvals from local, state and federal governmental
entities for a residential project of

<PAGE>

approximately 4,900 units (including approximately 4,300 units on Company-owned
land) on this site. During the fourth quarter of 1994, the Orange County
Environmental Management Agency proposed a new development plan for the Bolsa
Chica project which would allow a maximum of 3,300 residential units and a
wetlands restoration plan modified to include a tidal inlet, to be financed by
the Company. The plan is subject to additional public review and numerous
governmental approvals, including the approval of the Orange County Board of
Supervisors, which is currently expected to vote on this proposal in December
1994, the state Coastal Commission and the U.S. Army Corps of Engineers. There
can be no assurances that the project will receive final approvals as currently
proposed. 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 1995 and to begin infrastructure
construction in 1996, depending on economic and market conditions. If the number
of units ultimately approved is materially lower than the County's proposed
3,300 unit option, a reduction in the book value of the Bolsa Chica project
currently reflected in the Company's financial statements would result. Any such
future impact on the Statement of Operations and stockholders' equity would be
partially offset by a decrease in deferred taxes. 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 5 - DEBT

SENIOR BANK DEBT

On September 8, 1994, the Company sold the golf course at its Wentworth By
The Sea project in New Hampshire for approximately $3.3 million and used the
proceeds to retire the balance of senior bank debt. Cash payments for interest
on senior bank debt were approximately $2.3 million for the nine months ended
September 30, 1993 and $.4 million in 1994, through the date of retirement.

In October 1994, the Company obtained a commitment from a major financial
institution for a $30 million credit facility, which may be used, if necessary,
to secure an appeal bond in the event of an adverse decision in connection with
the litigation described below in Note 7 and in Part II, Item 1 - Legal
Proceedings. The credit facility includes $5 million available to fund project
investments at the Company's Eagle Crest project. During the fourth quarter of
1994, the Company also obtained a commitment for $7.5 million from another major
financial institution to fund project development costs at the Wentworth By The
Sea project.

<PAGE>

SUBORDINATED DEBT

Subordinated debt was comprised of the following (in millions):
<TABLE>
<CAPTION>

December 31, September 30,
1993 1994
------------ -------------

<S> <C> <C>
Senior subordinated debentures $ 109.4 $ 123.0
Subordinated debentures 27.4 30.7
-------- --------
Total face amount 136.8 153.7
Less unamortized discount (6.7) (6.3)
Plus accrued interest 4.8 .8
-------- --------
$ 134.9 $ 148.2
-------- --------
-------- --------

</TABLE>

NOTE 6 - INCOME TAXES

Cash payments for federal, state and local income taxes were approximately
$7.8 million and $.4 million for the nine months ended September 30, 1993 and
1994, respectively. Tax refunds received were $1.0 million and $.8 million for
the nine months ended September 30, 1993 and 1994, respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company was notified in March 1994 that a predecessor company and the
Internal Revenue Service entered into a Stipulation of Settlement regarding an
asserted tax deficiency that is the subject of certain tax sharing agreements.
The Company was informed by the other parties to these tax sharing agreements
that it was being charged with a net obligation of approximately $21 million
under this settlement. The Company has accrued for this obligation since
December 1989. In April 1994, the Company notified the other parties that it was
contesting their assertion of this obligation, prompting them to commence legal
action against the Company by filing suit in Delaware Chancery Court. The
Company fully anticipated the prospect of litigation and vigorously defended its
position with respect to the nonpayment of the alleged tax sharing obligation,
in addition to asserting its own claims for monetary damages. In that regard,
the Company filed suit against one of the parties in the Supreme Court of the
state of New York in April 1994. The Delaware case was tried in September 1994
and the court's decision is pending. See "Part II, Item 1 - Legal Proceedings".
In October 1994, the Company obtained a commitment from a major financial
institution for a $30 million credit facility, which may be used, if necessary,
to secure an appeal bond in the event of an adverse decision in this case.

<PAGE>

ITEM 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 homebuilders; or
participate in joint ventures with other developers, investors or homebuilders
to finance and construct infrastructure and homes. The Company's principal
activities also 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 Dallas, Denver,
Las Vegas, Phoenix and Seattle. 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 is in preliminary discussions
with other homebuilding companies regarding potential acquisitions. However, the
Company has not entered into any letter of intent or agreement in principle with
respect to the terms of any potential acquisition, and there can be no assurance
that these preliminary discussions will result in any acquisition.

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 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. The Company continues to seek approvals from
local, state and federal governmental entities for a residential project of
approximately 4,900 units (including approximately 4,300 units on Company-owned
land) on the Bolsa Chica site. During the fourth quarter of 1994, the Orange
County Environmental Management Agency proposed a new development plan for the
Bolsa Chica project which would allow a maximum of 3,300 residential units and
a wetlands restoration plan modified to include a tidal inlet, to be financed by
the Company. The plan is subject to additional public review and numerous
governmental approvals, including the approval of the Orange County Board of
Supervisors, which is currently expected to vote on this proposal in December
1994, the state Coastal Commission and the U.S. Army Corps of Engineers. There
can be no assurances that the project will receive final approvals as currently
proposed. If the number of units ultimately approved is materially lower than
the County's proposed 3,300 unit option, a reduction in the book value of the
Bolsa Chica project currently reflected in the Company's financial statements
would result. Any such future impact on the Statement of Operations and
stockholders' equity would be partially offset by a decrease in deferred taxes.
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

<PAGE>

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 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. Historically, sources of capital have
included bank lines of credit, specific property financings, asset sales and
available internal funds. During the first nine months of 1994, the Company
utilized substantially all of the proceeds from asset sales to make required
prepayments of senior bank debt, which was retired on September 8, 1994.
Although the Company reported income in 1993 as a result of gains on
dispositions and extinguishment of debt, it reported losses in 1991, 1992 and
for the nine months ended September 30, 1994, 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 October 1994, the Company obtained a commitment from a major financial
institution for a $30 million credit facility, which may be used, if necessary,
to secure an appeal bond in the event of an adverse decision in this case. The
credit facility includes $5 million available to fund project investments at the
Company's Eagle Crest project. During the fourth quarter of 1994, the Company
also obtained a commitment for $7.5 million from another major financial
institution to fund project development costs at the Company's Wentworth By The
Sea project in New Hampshire. At September 30, 1994 the Company's cash, cash
equivalents and short-term investments aggregated $29.9 million.

<PAGE>

FINANCIAL CONDITION

SEPTEMBER 30, 1994 COMPARED WITH DECEMBER 31, 1993

The $18.7 million decrease in short-term investments primarily reflects the
funding of project development and general and administrative costs, as well as
a $5.1 million increase in cash and cash equivalents.

RESULTS OF OPERATIONS

The results for 1993 have been reclassified to reflect the results of Lake
Superior Land Company and Deltec Panamerica S.A. as discontinued operations.

THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1993

The increase in revenues from $2.2 million in 1993 to $8.4 million in 1994
and the increase in costs of sales from $1.5 million in 1993 to $7.9 million in
1994 principally reflect residential home sales and the golf course sale at the
Company's Wentworth By The Sea project during the three months ended September
30, 1994, and operations of the domestic real estate development business
acquired from The Koll Company in September 1993.

The decrease in interest expense from $6.2 million in 1993 to $4.7 million
in 1994 reflects both the reductions in outstanding senior bank debt during the
second half of 1993 and the first three quarters of 1994, and the reduction in
outstanding subordinated debt in December 1993.

The change in other expense (income), net from $2.4 million of income for
1993 to $.5 million of expense for 1994 primarily reflects $3.0 million received
in August 1993 in connection with the termination of a put option agreement with
Abex Inc.

NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1993

The increase in revenues from $3.3 million in 1993 to $16.6 million in 1994
and the increase in costs of sales from $3.0 million in 1993 to $15.9 million in
1994 principally reflect residential home sales and the golf course sale at the
Wentworth By The Sea project during the nine months ended September 30, 1994,
and the operations of the domestic real estate development business acquired
from The Koll Company in September 1993.

The decrease in interest expense from $18.6 million in 1993 to $13.7
million in 1994 reflects both the reductions in outstanding senior bank debt
throughout 1993 and the first three quarters of 1994, and the reduction in
outstanding subordinated debt in December 1993.

The change in other expense (income), net from $3.6 million of income for
1993 to $1.2 million of expense for 1994 primarily reflects $3.0 million
received in August 1993 in connection with the termination of a put option
agreement with Abex Inc. and a $2.0 million insurance reimbursement received in
February 1993 related to 1992 environmental litigation costs.

<PAGE>

The gain on disposition of discontinued operations, net of income taxes for
the 1994 period reflects the receipt of cash for the February 1994 termination
of the contingent payment provision of a December 1993 agreement with Libra
Invest & Trade Ltd. ("Libra") whereby the Company exchanged its Lake Superior
Land Company subsidiary for approximately $42.4 million face amount of the
Company's senior subordinated debentures held by Libra and other consideration.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On April 13, 1994, Abex Inc. ("Abex") and Wheelabrator Technologies Inc.
("WTI") filed suit in Delaware Chancery Court against the Company seeking, among
other things, declaratory relief, specific performance, and monetary damages for
the Company's alleged failure to pay approximately $21 million claimed to be
owed pursuant to tax sharing agreements entered into in 1988 and 1989. This suit
was filed after the Company contested the alleged obligation and asserted
various defenses to making any payment under these agreements. The Delaware suit
was tried in September 1994 and the court's decision is pending.

The Company vigorously defended its position with respect to the nonpayment
of the alleged tax sharing obligation. In that regard, on April 18, 1994 the
Company filed suit in the Supreme Court of the state of New York against WTI and
Abex for damages of $7.6 million for breach of their obligations under a related
tax sharing agreement entered into in 1992. On April 27, 1994, the Company
amended its complaint to name only Abex as a defendant in this action. No trial
date has been set for the New York case.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

10.1 Second Amended and Restated Asset Purchase Agreement
dated as of October 28, 1994 between the Company and
Kathryn G. Thompson Construction Company and
affiliates.

10.2 Agreement Respecting Vesting of Rights dated as of October 1,
1993 between a subsidiary of the Registrant and an executive
officer of the Registrant, together with a schedule identifying
five (5) substantially identical documents not filed herewith.

10.3 Agreement of Limited Partnership dated as of October 1, 1993
between a subsidiary of the Registrant and an executive officer
of the Registrant, together with a schedule identifying five (5)
substantially identical documents not filed herewith.

27.1 Financial Data Schedule.

(b) Reports on Form 8-K:

None.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

KOLL REAL ESTATE GROUP, INC.

Date November 14, 1994 ____________________________
RAYMOND J. PACINI
Executive Vice President -
Chief Financial Officer

14
<PAGE>

SCHEDULE 10.2

Pursuant to Instruction 2 of Item 601 of Regulation S-K, the following
documents have not been filed as exhibits because they are substantially
identical in all material respects to Exhibit 10.2 filed herewith:

Five (5) other Agreements Respecting Vesting of Rights each dated as of
October 1, 1993 between an executive officer of the Registrant and
different subsidiaries and limited partnerships of the Registrant.

SCHEDULE 10.3

Pursuant to Instruction 2 of Item 601 of Registration S-K, the following
documents have not been filed as exhibits because they are substantially
identical in all material respects to Exhibit 10.3 filed herewith:

Five (5) other Limited Partnership Agreements each dated as of October 1,
1993 between an executive officer of the Registrant and different
subsidiaries and limited partnerships of the Registrant.

<PAGE>

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

SECOND

AMENDED AND RESTATED

ASSET PURCHASE AGREEMENT

DATED AS OF

OCTOBER 28, 1994

BY AND AMONG

KOLL REAL ESTATE GROUP, INC.

(and Certain Affiliates)

AND

KATHRYN G. THOMPSON CONSTRUCTION COMPANY

AND

MONTARA OCEANSIDE HOMES, INC.

AND

MYSTRA HOMES, INC.

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

<PAGE>

TABLE OF CONTENTS

SCHEDULES AND EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

DEFINED TERMS CROSS-REFERENCE SHEET. . . . . . . . . . . . . . . . . . . . . v

ARTICLE I PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES . . . . . . . 1
Section 1.01 Purchase and Sale of Assets . . . . . . . . . . . . . . . . 1
Section 1.02 Assumption of Liabilities . . . . . . . . . . . . . . . . . 5
Section 1.03 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.04 Allocation of Purchase Price. . . . . . . . . . . . . . . . 6

ARTICLE II THE CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.01 The Closing . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.02 Actions to Be Taken at Closing. . . . . . . . . . . . . . . 7
Section 2.03 Conditions to Obligation of Buyers. . . . . . . . . . . . . 10
Section 2.04 Conditions to Obligation of Sellers . . . . . . . . . . . . 12

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . 14
Section 3.01 Due Organization, Authorization, Etc. . . . . . . . . . . . 14
Section 3.02 No Conflict or Default. . . . . . . . . . . . . . . . . . . 14
Section 3.03 Compliance with Law . . . . . . . . . . . . . . . . . . . . 15
Section 3.04 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.05 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.06 Tangible Assets . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.07 State of Facts. . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.08 Absence of Defaults . . . . . . . . . . . . . . . . . . . . 16
Section 3.09 Title to and Condition of KGTC Assets, Acquired Assets and
Partnership Assets . . . . . . . . . . . . . . . . . . . . 16
Section 3.10 Hazardous Materials . . . . . . . . . . . . . . . . . . . . 18
Section 3.11 Subsequent Changes. . . . . . . . . . . . . . . . . . . . . 19
Section 3.12 Financial Statements. . . . . . . . . . . . . . . . . . . . 19
Section 3.13 No Infringement . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.14 Restrictions on Business Activities . . . . . . . . . . . . 19
Section 3.15 Certain Agreements. . . . . . . . . . . . . . . . . . . . . 20
Section 3.16 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.17 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.18 Employees and Labor Relations . . . . . . . . . . . . . . . 21
Section 3.19 Major Contracts . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.20 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.21 Brokers, Finders. . . . . . . . . . . . . . . . . . . . . . 23
Section 3.22 MHI Option Agreement. . . . . . . . . . . . . . . . . . . . 23
Section 3.23 KGTC Capitalization . . . . . . . . . . . . . . . . . . . . 23
Section 3.24 Title to KGTC Stock . . . . . . . . . . . . . . . . . . . . 23

</TABLE>

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<PAGE>

PAGE
----
<S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYERS . . . . . . . . . . . 24
Section 4.01 Organization of Buyers. . . . . . . . . . . . . . . . . . . 24
Section 4.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.03 No Conflict or Default. . . . . . . . . . . . . . . . . . . 24
Section 4.04 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.05 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.06 Brokers, Finders. . . . . . . . . . . . . . . . . . . . . . 25
Section 4.07 Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.08 Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE V PRE-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . . . . 25
Section 5.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.02 Notices and Consents. . . . . . . . . . . . . . . . . . . . 25
Section 5.03 Pre-Closing Operation of the Business . . . . . . . . . . . 26
Section 5.04 Notice of Developments. . . . . . . . . . . . . . . . . . . 27
Section 5.05 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.06 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.07 Buyers' Investigation . . . . . . . . . . . . . . . . . . . 28
Section 5.08 Maintenance of Insurance Benefits.. . . . . . . . . . . . . 28

ARTICLE VI POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . 28
Section 6.01 Further Assurances. . . . . . . . . . . . . . . . . . . . . 28
Section 6.02 Litigation Support and Insurance Claims . . . . . . . . . . 28
Section 6.03 Transition. . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.04 Continued Use of Name . . . . . . . . . . . . . . . . . . . 29
Section 6.05 Post-Closing Employee Matters and Transition Period
Payments . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.06 Liability Insurance . . . . . . . . . . . . . . . . . . . . 30
Section 6.07 Sharing of Contract Rights. . . . . . . . . . . . . . . . . 30
Section 6.08 Covenant Not to Compete.. . . . . . . . . . . . . . . . . . 30
Section 6.09 KREG Board Representation . . . . . . . . . . . . . . . . . 32
Section 6.10 Incentive Compensation. . . . . . . . . . . . . . . . . . . 32
Section 6.11 Tax Election Forms. . . . . . . . . . . . . . . . . . . . . 32
Section 6.12 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

ARTICLE VII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.01 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.02 Indemnification Provisions for Benefit of Buyers. . . . . . 32
Section 7.03 Indemnification Provisions for Benefit of Sellers . . . . . 33
Section 7.04 Matters Involving Third Parties . . . . . . . . . . . . . . 34

ARTICLE VIII TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.01 Termination of Agreement. . . . . . . . . . . . . . . . . . 35
Section 8.02 Effect of Termination . . . . . . . . . . . . . . . . . . . 36

</TABLE>

(ii)

<PAGE>

PAGE
----
<S> <C>

ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.01 No Third-Party Beneficiaries. . . . . . . . . . . . . . . . 36
Section 9.02 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 36
Section 9.03 Succession and Assignment . . . . . . . . . . . . . . . . . 36
Section 9.04 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.05 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.06 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.07 Amendments and Waivers. . . . . . . . . . . . . . . . . . . 37
Section 9.08 Severability. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.09 Construction. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.10 Incorporation of Schedules. . . . . . . . . . . . . . . . . 38
Section 9.11 Time of the Essence . . . . . . . . . . . . . . . . . . . . 38
Section 9.12 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.13 Business Day. . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.14 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 38

</TABLE>

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<PAGE>

SCHEDULES AND EXHIBITS

SCHEDULES:
- ---------
<C> <S>
1.01-A Retained Assets
1.01-B Land and Improvements
1.01-C Personal Property
1.01-D Trademarks and Trade Names
1.01-E Permits and Licenses
1.01-F Leases
1.01-G Contracts
1.01-I Partnerships' Development Plans, Marketing Studies and Cash
Flow and Income Projections
1.01-BI Partnership Land and Improvements
1.01-CI Partnership Personal Property
1.01-DI Partnership Trademarks and Trade Names
1.01-EI Partnership Permits and Licenses
1.01-FI Partnership Leases
1.01-GI Partnership Contracts
1.01-HI Partnership Insurance Policies and Warranties
1.02-A Assumed Liabilities of KGTCC
1.02-B Assumed Liabilities of MHI
1.04 Allocation of Purchase Price
2.02 Consents
2.02-(c) Insurance Policies and Warranties
III Disclosure Schedule
3.04 Schedule of Fees and Exactions
3.05 Contingent Liabilities
3.07 KGTC Obligations
3.09(c) Residential Work Requests
3.09(e) Bonds and Letters of Credit
3.12 Financial Statements
3.16-A Employee Benefit Plans
3.16-B Amended Employee Benefit Plans
3.18-A Employee Names (Seller)
3.18-B Unemployment Compensation Claims
3.18-C Consultation or Employment Contracts

</TABLE>

EXHIBITS:
- ---------
<C> <S>
A Form of Note
B Tax Election Forms

</TABLE>

(iv)

<PAGE>

DEFINED TERMS CROSS-REFERENCE SHEET

DEFINED TERM CROSS-REFERENCE
- ------------ ---------------
<S> <C>
Acquired Assets. . . . . . . . . . . . . . . SECTION 1.01(b)
Acquisition. . . . . . . . . . . . . . . . . Recital B
Affiliate. . . . . . . . . . . . . . . . . . SECTION 3.09(d)
Agreement. . . . . . . . . . . . . . . . . . Preamble
Assumed Liabilities. . . . . . . . . . . . . SECTION 1.02
AV Disbursement Letter . . . . . . . . . . . SECTION 1.03(b)
Business . . . . . . . . . . . . . . . . . . Recital A
Business Day . . . . . . . . . . . . . . . . SECTION 9.13
Buyers . . . . . . . . . . . . . . . . . . . Preamble
Capital Notes. . . . . . . . . . . . . . . . SECTION 1.03(b)
Capital Notes Payment. . . . . . . . . . . . SECTION 1.03(b)
Cash Down Payment. . . . . . . . . . . . . . SECTION 1.03(a)
CC&R's . . . . . . . . . . . . . . . . . . . SECTION 1.01(b)(iv)
Closing. . . . . . . . . . . . . . . . . . . SECTION 2.01
Closing Date . . . . . . . . . . . . . . . . SECTION 2.01
Code . . . . . . . . . . . . . . . . . . . . SECTION 2.02(a)(xiv)
Construction Sub . . . . . . . . . . . . . . Preamble
Contracts. . . . . . . . . . . . . . . . . . SECTION 1.01(b)(vi)
Control, Controlled By, and Under Common
Control With . . . . . . . . . . . . . . . SECTION 3.09(d)
Covenant Not to Compete. . . . . . . . . . . SECTION 1.03
Damages. . . . . . . . . . . . . . . . . . . SECTION 7.02(a)
Deeds. . . . . . . . . . . . . . . . . . . . SECTION 2.02(a)(i)
Deferred Cash Purchase Price Payment . . . . SECTION 1.03(b)
Development Services Agreement . . . . . . . SECTION 6.05(c)
Direct Personnel Costs . . . . . . . . . . . SECTION 6.05(a)
Disclosure Schedule III. . . . . . . . . . . Article III Preamble
Due Diligence Review . . . . . . . . . . . . SECTION 5.07
Environmental Laws . . . . . . . . . . . . . SECTION 3.10(a)
ERISA. . . . . . . . . . . . . . . . . . . . SECTION 3.16
Expiration Date. . . . . . . . . . . . . . . SECTION 7.01
Governmental Entity. . . . . . . . . . . . . SECTION 3.01
Hazardous Materials. . . . . . . . . . . . . SECTION 3.10(a)
HOA Interests. . . . . . . . . . . . . . . . SECTION 1.01(b)(iv)
Improvements . . . . . . . . . . . . . . . . SECTION 1.01(b)(ii)
Indemnification Limit. . . . . . . . . . . . SECTION 7.02(a)
Indemnified Party. . . . . . . . . . . . . . SECTION 7.04(a)
Indemnifying Party . . . . . . . . . . . . . SECTION 7.04(a)
Kathryn G. Thompson. . . . . . . . . . . . . SECTION 6.04
Kathryn G. Thompson Construction . . . . . . SECTION 6.04
Kathryn G. Thompson Homes. . . . . . . . . . SECTION 6.04
KGTC . . . . . . . . . . . . . . . . . . . . Preamble

</TABLE>

(v)

<PAGE>

DEFINED TERM CROSS-REFERENCE
- ------------ ---------------
<S> <C>
KGTCC. . . . . . . . . . . . . . . . . . . . Preamble
KGTC Assets. . . . . . . . . . . . . . . . . SECTION 1.01(d)
KGTC Stock . . . . . . . . . . . . . . . . . SECTION 1.01(b)(iii)
KREG . . . . . . . . . . . . . . . . . . . . Preamble
KREG Guarantee . . . . . . . . . . . . . . . SECTION 1.03(g)
Land . . . . . . . . . . . . . . . . . . . . SECTION 1.01(b)(i)
Leases . . . . . . . . . . . . . . . . . . . SECTION 1.01(b)(v)
Legal Requirements . . . . . . . . . . . . . SECTION 3.09(d)
License Agreement. . . . . . . . . . . . . . SECTION 2.02(a)(xv)
Lien . . . . . . . . . . . . . . . . . . . . SECTION 3.09(b)
Major Agreement. . . . . . . . . . . . . . . SECTION 3.19
MHI. . . . . . . . . . . . . . . . . . . . . Preamble
MHI Option Agreement . . . . . . . . . . . . SECTION 1.01(b)(ix)
MOHI . . . . . . . . . . . . . . . . . . . . Preamble
NCP. . . . . . . . . . . . . . . . . . . . . SECTION 1.01(b)(ix)
Non-Foreign Person Certificate . . . . . . . SECTION 2.02(a)(xiv)
Note . . . . . . . . . . . . . . . . . . . . SECTION 1.03(f)
P,T,W,W&W Trust Account. . . . . . . . . . . SECTION 1.03(a)
Partnerships . . . . . . . . . . . . . . . . SECTION 1.01(d)
Partnership Assets . . . . . . . . . . . . . SECTION 1.01(d)
Partnership Interests. . . . . . . . . . . . SECTION 101(b)(iii)
Permits and Licenses . . . . . . . . . . . . SECTION 1.01(b)(iv)
Personal Property. . . . . . . . . . . . . . SECTION 1.01(b)(iii)
Personnel Policies Manual. . . . . . . . . . SECTION 3.16
Plans. . . . . . . . . . . . . . . . . . . . SECTION 3.16
Projects . . . . . . . . . . . . . . . . . . SECTION 1.01(d)
Real Estate. . . . . . . . . . . . . . . . . SECTION 1.01(b)(ii)
Residential Sub. . . . . . . . . . . . . . . Preamble
Retained Assets. . . . . . . . . . . . . . . SECTION 1.01(b)
Seller Indemnitees . . . . . . . . . . . . . SECTION 7.03(a)
Seller Indemnitors . . . . . . . . . . . . . SECTION 7.02(a)
Sellers. . . . . . . . . . . . . . . . . . . Preamble
Sellers Existing and Past Insurance Rights . SECTION 2.02(c)(i)
Sellers' Bringdown Certificate . . . . . . . SECTION 2.02(a)(xiii)
Shares . . . . . . . . . . . . . . . . . . . SECTION 1.03(d)
Street . . . . . . . . . . . . . . . . . . . SECTION 1.03
Tax. . . . . . . . . . . . . . . . . . . . . SECTION 3.04
Tax Election Forms . . . . . . . . . . . . . SECTION 6.11
Tax Payment. . . . . . . . . . . . . . . . . SECTION 1.03(b)
Thompson . . . . . . . . . . . . . . . . . . SECTION 1.03
Transition Period. . . . . . . . . . . . . . SECTION 6.05(a)
Use. . . . . . . . . . . . . . . . . . . . . SECTION 3.10(c)
Vistas I and II. . . . . . . . . . . . . . . SECTION 6.08(a)
Warrants . . . . . . . . . . . . . . . . . . SECTION 1.03(e)
</TABLE>

(vi)

<PAGE>

SECOND AMENDED AND RESTATED ASSET PURCHASE AGREEMENT

THIS SECOND AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
("Agreement") is entered into as of October 28, 1994, by and among KOLL REAL
ESTATE GROUP, INC., a Delaware corporation ("KREG"), KATHRYN G. THOMPSON
COMPANY, a Delaware corporation ("Residential Sub"), THE OCEANSIDE COMPANY, a
Delaware corporation ("Construction Sub"), KATHRYN G. THOMPSON CONSTRUCTION
COMPANY, a California corporation ("KGTCC"), MONTARA OCEANSIDE HOMES, INC.
("MOHI"), which is the sole shareholder of KATHRYN G. THOMPSON COMPANY, a
California corporation ("KGTC"), MYSTRA HOMES, INC., a California corporation
("MHI") (with respect to MHI's UCI Project), KATHRYN G. THOMPSON AND J. HAROLD
STREET. KREG, Residential Sub and Construction Sub are sometimes collectively
referred to herein as "Buyers", and KGTCC, MOHI and MHI are sometimes
collectively referred to herein as "Sellers."

RECITALS

A. Sellers and KGTC presently own and operate directly and through
partnerships a residential development and construction business in California.
Such business, including, without limitation, the purchase, development,
entitlement and sale of land (including land not used for residential purposes),
the construction and sale of residential units, all brokerage and financial
arrangements in connection therewith, and all related or incidental activities,
is hereinafter referred to as the "Business."

B. Sellers desire to sell and Buyers desire to purchase certain of the
assets associated with the Business, and Sellers desire to assign and delegate
to Buyers and Buyers will be willing to assume certain of the liabilities and
obligations associated with the Business, all upon the terms and conditions set
forth herein. The sale of such assets, and the assignment and assumption of
such liabilities and obligations, are hereinafter together referred to as the
"Acquisition."

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:

ARTICLE I
PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES

SECTION 1.01 PURCHASE AND SALE OF ASSETS.

(a) AGREEMENT TO PURCHASE AND SELL. On and subject to the terms and
conditions of this Agreement, Buyers agree to purchase from Sellers and Sellers
agree to sell, transfer, convey and deliver to Buyers, all of the Acquired
Assets at the Closing for the consideration specified herein.

-1-

<PAGE>

(b) ACQUIRED ASSETS AND RETAINED ASSETS. Other than the "Retained Assets"
set forth under separate headings with respect to each Seller on
SCHEDULE 1.01-A, the term "Acquired Assets" shall mean all right, title and
interest in and to all of the tangible and intangible assets owned as of the
Closing by Sellers which include, without limitation, the following (each of the
following Schedules have been prepared to list or describe the Acquired Assets
under separate headings with respect to each Seller):

(i) LAND. All right, title and interest to, or contractual
rights relating to, the real property described on SCHEDULE 1.01-B, and all
other real property owned by or subject to option or contract rights of
Sellers as of the Closing (which real property is hereinafter collectively
referred to as the "Land"). The Land shall include all interests relating
to appurtenant rights, easements and privileges appertaining or relating
thereto which are owned by Sellers, including, in each case to the extent
owned by Sellers and to the extent applicable to the particular parcel of
Land:

(A) all minerals, oil, gas and other hydrocarbon substances
thereon, access rights, air, water and ditch rights (including any water
and ditch stock), development rights, and all privileges, hereditaments and
appurtenances thereto;

(B) any land lying in the bed of any street, road or
avenue, open or proposed, adjoining the Land to the center line thereof;
and

(C) the use of appurtenant easements, whether or not of
record, strips and rights-of-way abutting, adjacent to, contiguous to or
adjoining the Land.

(ii) IMPROVEMENTS. All homes, residential units, model homes,
dwellings, buildings, amenities, development work (including, without
limitation, streets, roads, grading, surveying, curb, gutter and sidewalk,
and utility lines (including gas, water, electricity, telephone, cable TV,
fiber optics, sewer, and storm drain) and service lines of all types), and
other improvements located upon the Land (including Sellers' office
building located in Aliso Viejo, California), and described on
SCHEDULE 1.01-B to the extent owned by Sellers, and all fixtures and
equipment owned by Sellers and incorporated into such improvements so as to
become real property, including, without limitation, all installed
appliances and lighting and installed heating/air conditioning and plumbing
fixtures, equipment and machinery (collectively, "Improvements;" the Land
and Improvements are sometimes collectively referred to herein as the "Real
Estate").

(iii) PERSONAL PROPERTY. All tangible and intangible
personal property owned by Sellers, including all such property located in,
on or arising out of or in connection with the ownership, development,
construction, marketing, sale and/or operation of the Business, including,
without limitation, all of the capital stock of KGTC owned by MOHI which
represents all of the authorized, issued and outstanding

-2-

<PAGE>

capital stock of KGTC ("KGTC Stock") and, to the extent owned by Sellers,
any and all (A) building materials located upon or intended for use upon
the Land, (B) uninstalled appliances and lighting and uninstalled
heating/air conditioning and plumbing fixtures, equipment and machinery,
(C) furniture and furnishings, (D) landscaping and maintenance equipment,
(E) automobiles, other vehicles, trailers and modular equipment, (F)
computer hardware and software, (G) books, records, ledgers, documents,
correspondence and files, (H) preliminary, final and "as-built" plans,
specifications, studies, analyses, surveys and/or drawings,
(I) engineering, civil, soils, seismic, geologic, environmental, drainage
and architectural reports, studies, certificates and other documents
(including those which include comments by any building or safety engineer,
inspector or other person who regularly makes such inspections),
(J) supplies used in the marketing, sale and/or operation of the Land
and/or the Improvements, including consumable supplies, (K) rights to use
the names and marketing names of Sellers, (L) rights to all printing
styles, logos, trademarks, trade names, service marks and similar
promotional material used in the marketing, sale, operation and/or
management of the Business, (M) accounts and accounts receivable, (N)
chattel paper, (O) documents of title, (P) goods, (Q) instruments, (R)
inventory, (S) general intangibles, (T) partnership interests ("Partnership
Interests"), (U) goodwill of Sellers in connection therewith, and (V) the
proceeds from any of the foregoing (including proceeds of proceeds and cash
proceeds) (collectively, "Personal Property"), a list of all such items of
tangible Personal Property being set forth on SCHEDULE 1.01-C and a list of
all such trademarks and trade names being set forth on SCHEDULE 1.01-D.

(iv) PERMITS AND LICENSES. To the extent assignable or
transferable by Sellers, all authorizations, approvals, variances, permits,
licenses (including business, brokerage and contractor licenses),
California Department of Real Estate preliminary or final reports,
franchises, development agreements, grading permits, building permits,
conditional use permits, tentative and vested tentative and final
subdivision and parcel maps, coastal development permits, historic
preservation permits, environmental, wetlands or endangered species
permits, preliminary plans or final plats, land use entitlements, special
use, Mello-Roos, Integrated Financing or Community Facilities District
Agreements, traffic, bridge and thoroughfare and other road or circulation
agreements, water, school, library, fire, police, life safety or other
public benefit agreements or approvals, subdivision or improvement
agreements, declarations of covenants, conditions and restrictions
("CC&R's"), homeowner association articles of incorporation, bylaws and
interests ("HOA Interests"), cash and monetary deposits, and/or
certificates required or desirable for the ownership, development,
improvement, construction, marketing, sale, management or operation of the
Business, issued by or in favor of any federal, state, local, municipal or
other governmental, quasi-governmental, or private authorities, districts
or jurisdictions (including all applications and/or documents filed, and/or
fees paid, in connection therewith) (collectively, "Permits and Licenses"),
a list and description of such Permits and Licenses being set forth on
SCHEDULE 1.01-E.

-3-

<PAGE>

(v) LEASES. Sellers' interests as lessor, master lessor, lessee
or sublessee in, to and under leases, subleases, occupancy agreements,
concessions and licenses to which any of the Sellers is a party, including
any leases of model units (collectively, "Leases"), together with all
guaranties of tenants' obligations thereunder and all rents and rentals,
security deposits, receivables and other monetary items payable by tenants,
occupants or users of the Land or the Improvements, a list of such Leases
being set forth on SCHEDULE 1.01-F.

(vi) CONTRACTS. All (A) contracts for the sale of houses,
residential units, deposit receipts, escrow instructions, design/upgrade
contracts and other agreements related to the marketing, sale or leasing of
any of the Improvements, (B) general contractor, subcontractor, consulting,
brokerage, architectural, engineering, environmental, property management
or other service and materials and supply agreements, (C) personal property
leases and equipment leases, (D) maintenance contracts, (E) labor union
contracts, employment agreements and management agreements and (F) other
contracts and agreements of any kind which are in force and to which any of
the Sellers is a party or by which any of the Acquired Assets is bound
(collectively, "Contracts"), a list of such Contracts being set forth on
SCHEDULE 1.01-G.

(vii) MISCELLANEOUS REPORTS AND CLAIMS. With respect to the
Acquired Assets, any and all (A) pending or future award or payment made in
condemnation or in lieu or under the threat thereof, (B) award or payment
for damage to any Acquired Assets, (C) proceeds of claims or causes of
action for damage, injury or loss thereto or thereof and (D) unexpired
claims, warranties, guaranties and sureties in connection therewith.

(viii) OTHER ASSETS. All of Sellers outstanding receivables,
security and utility deposits, prepaid expenses and other assets as of the
Closing Date.

(ix) MHI OPTION AGREEMENT. An agreement in form and substance
reasonably satisfactory to Residential Sub, granting an option to Residential
Sub to acquire, for no additional consideration upon exercise, all of MHI's
right, title and interest in its .50% general partner partnership interest and
its 49.50% limited partner partnership interest in North Campus Partners L.P.
("NCP"), a California limited partnership ("MHI Option Agreement"). The
Residential Sub or an Affiliate or subsidiary thereof shall have the right to
exercise the option under the MHI Option Agreement during the term thereof
beginning thirty (30) days prior to the date upon which NCP and the University
of California at Irvine enter into a ground lease with respect to the Site (as
such term is defined in the Agreement of Limited Partnership of NCP dated as of
August 1, 1993). In connection with the exercise of the option under the MHI
Option Agreement, MHI shall, among other things, take all applicable actions of
Sellers set forth in Section 2.02(a) and Section 2.03.

(c) TRANSFER OF ASSETS. At the Closing, the Acquired Assets of MOHI shall
be transferred to Residential Sub and the Acquired Assets of KGTCC shall be
transferred to Construction Sub.

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(d) PARTNERSHIP ASSETS. Except for Retained Assets, Sellers shall provide
separate SCHEDULES 1.01-BI, 1.01-CI, 1.01-DI, 1.01-EI, 1.01-FI and 1.01-GI to
Buyers, which shall set forth in detail all of the assets (in each of the
categories of tangible and intangible property described above in clauses (i)
through (viii), inclusive of the items listed on SCHEDULE 1.01-H) that are
owned, leased or held (1) by any partnership, venture or association
("Partnerships") in which any of Sellers, KGTC, Thompson or Street is a partner,
venturer or member ("Partnership Assets") and (2) by KGTC ("KGTC Assets").
Sellers shall provide on SCHEDULE 1.01 HI a detailed list of each Partnership's
insurance policies, homeowners warranties and other items set forth in Section
2.02(c)(i), all of which shall also constitute Partnership Assets. As used in
this Agreement, "Projects" shall mean all of the Land, Improvements, Real
Estate, and Personal Property that the Partnerships plan to acquire, develop,
construct, entitle, market and sell as residential units and developments in
accordance with the Development Plans, Marketing Studies and Cash Flow and
Income Projections set forth on SCHEDULES 1.01-H attached hereto and
incorporated by reference herein.

SECTION 1.02 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, effective on the Closing Date, Construction Sub
will assume only the obligations and liabilities of KGTCC set forth on
SCHEDULE 1.02-A. Upon the exercise, if any, of the MHI Option Agreement,
Residential Sub or an Affiliate or subsidiary thereof will then assume only the
obligations and liabilities of MHI set forth on SCHEDULE 1.02-B. The
obligations and liabilities set forth on SCHEDULES 1.02-A AND B are collectively
referred to as the "Assumed Liabilities". Buyers shall not assume any
obligations or liabilities of the Sellers other than those specifically
described in this Section 1.02. Notwithstanding anything to the contrary
contained in this Agreement, KREG shall not assume or be liable in any manner
whatsoever with respect to any of the Assumed Liabilities (except if and only to
the extent KREG is required to execute the KREG Guarantee pursuant to Section
1.03(g)).

SECTION 1.03 PURCHASE PRICE. As and in consideration of the sale,
transfer, assignment, conveyance and delivery of the Acquired Assets and the
promises and agreements made by (i) each of the Sellers, and (ii) Ms. Kathryn G.
Thompson ("Thompson") and Mr. J. Harold Street ("Street") in that certain
covenant not to compete set forth in Section 6.08 herein ("Covenant Not to
Compete"), on the Closing Date, the Buyers shall deliver to or for the benefit
or for the account of the Sellers the following:

(a) Cash in the aggregate amount of $1,234,169.76 ("Cash Down Payment")
which shall be paid by Buyers to the trust account of Palmieri, Tyler,
Wiener, Wilhelm & Waldron ("P,T,W,W&W Trust Account") for the benefit and
account of Sellers, Thompson and Street at the Closing for disbursement
pursuant to the AV Disbursement Letter (as defined below).

(b) The balance of the cash portion of the purchase price in the amount
of $465,830.24 ("Deferred Cash Purchase Price Payment") shall be disbursed by
Buyers to or for the benefit and account of Sellers, Street and Thompson for:
(i) payment of MOHI, Street and Thompson's 1994, actual tax liability and tax
return preparation expenses ("Tax Payment") in accordance with the written
instruction of AV Partnership, Thompson and

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Street pursuant to those certain letter agreements (the "AV Disbursement
Letter") dated as of October 28, 1994, among Sellers, Thompson, Street, AV
Partnership and Buyers; and (ii) the balance ("Capital Notes Payment") of the
Deferred Cash Purchase Price Payment after payment of the Tax Payment shall be
paid by Buyers to AV Partnership as a prepayment of the capital contribution
notes of KGTC to AV Partnership in the aggregate principal amount outstanding
on the Closing Date (the "Capital Notes");

(d) 2,000,000 shares of KREG Class A Common Stock ("Shares") which, in
accordance with the instructions of MOHI, shall be issued as follows: 1,000,000
Shares to Thompson and 1,000,000 Shares to Street.

(e) Warrants for 2,000,000 Shares ("Warrants"), in form and substance
reasonably satisfactory to KREG and Sellers, which in accordance with the
instructions of MOHI, shall be issued as follows: Warrants for 1,000,000 Shares
to Thompson and Warrants for 1,000,000 Shares to Street. The per Share exercise
price for the Warrants will be $.25. The Warrants will be exercisable for a ten
(10) year period from the date of this Agreement, subject to vesting in equal
installments over the next five (5) years and certain cancellation rights of
KREG.

(f) Promissory note ("Note") to each of Thompson and Street in an amount
equal to one-half (1/2) of the amount of the Capital Notes Payment, which Notes
shall be in the form of EXHIBIT A attached hereto and shall be executed and
delivered by the Residential Sub concurrently with any Capital Note Payment by
Buyers.

(g) A guarantee by KREG and Residential Sub of the payment obligations
under the Capital Notes if, and only to the extent that, Thompson and Street are
released from their current guarantees with respect thereto ("KREG Guarantee").

SECTION 1.04 ALLOCATION OF PURCHASE PRICE. The parties agree to report
this transaction for tax purposes in accordance with the allocation of the
Purchase Price set forth on SCHEDULE 1.04, and to execute IRS Form 8594
reflecting the same, which form shall be appropriately filed with the Internal
Revenue Service as soon as practicable thereafter and in any event by the date
the same is due. If the parties are, however, unable to agree on such
allocations, each party shall be free to make such allocations as it reasonably
determines to be appropriate.

ARTICLE II
THE CLOSING

SECTION 2.01 THE CLOSING. The closing of the transactions contemplated by
this Agreement ("Closing") shall occur on or before November 15, 1994 (or such
earlier date as the third party consents are obtained), unless a later date is
agreed to by Buyers and Sellers

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("Closing Date"). At least two (2) Business Days prior to the Closing Date,
Sellers shall deliver all of the Schedules provided for in this Agreement in
form and substance reasonably satisfactory to Buyers. The Closing shall take
place at the offices of Brobeck, Phleger & Harrison, 4675 MacArthur Court, Suite
1000, Newport Beach, California 92660, commencing at 8:00 a.m. local time on
the Closing Date.

SECTION 2.02 ACTIONS TO BE TAKEN AT CLOSING. The following actions shall
be taken by the respective parties at the Closing:

(a) ACTIONS TO BE TAKEN BY SELLERS. Sellers shall take the following
actions and deliver the following to Buyers:

(i) DEEDS. Duly executed and acknowledged Grant Deeds in form and
substance reasonably satisfactory to Buyers ("Deeds") with respect to any
Land and title policies for the Land issued by title insurance companies
acceptable to Buyers.

(ii) BILLS OF SALE, ASSIGNMENTS AND STOCK CERTIFICATES. Duly
executed Bills of Sale and Assignments, including but not limited to
Assignments of Partnership Interests, with respect to all of the Personal
Property (other than with respect to the NCP Partnership Interests which
shall only be assigned upon the exercise of the MHI Option Agreement) and
the assignment and transfer of all of the KGTC Stock to Residential Sub,
including the delivery of duly executed certificates for all of the KGTC
Stock issued in the name of Residential Sub and properly reflected on the
books and records of KGTC, all in form and substance reasonably
satisfactory to Buyers.

(iii) ASSIGNMENT OF LEASES. Duly executed Assignments of Leases
in form and substance reasonably satisfactory to Buyers, together with the
originals of all Leases.

(iv) ESTOPPEL CERTIFICATES. A duly executed estoppel certificate
from each lender, partner and tenant of Sellers in form and substance
reasonably satisfactory to Buyers.

(v) ASSIGNMENTS OF CONTRACTS. Duly executed assignments of the
Contracts in form and substance reasonably satisfactory to Buyers.

(vi) CONSENTS. All of the governmental or third-party notices,
consents, waivers and approvals set forth on SCHEDULE 2.02, which are
required for the valid transfer of the Acquired Assets and the valid
assumption of the Assumed Liabilities in form and substance reasonably
satisfactory to Buyers.

(vii) PLANS AND SPECIFICATIONS. Copies of or a full list of and
prior access to all plans and specifications relating to the development or
marketing of the Land or Projects and/or the construction of the
Improvements or Projects.

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(viii) TENANT NOTICES. A notice to each of the tenants under a
Lease in form and substance reasonably satisfactory to Buyers.

(ix) TAX BILLS. Copies of or a full list of and prior access to
the real estate tax bills for KGTC, the Acquired Assets, Partnership
Assets, Projects and Business for the then current fiscal tax year.

(x) UTILITY BILLS. Copies of or a full list of and prior access
to the then current water, sewer, gas, electricity and other utilities
bills for KGTC, the Acquired Assets, Partnership Assets and Projects.

(xi) UCC CERTIFICATES. Certificates from the appropriate County
and State filing offices which indicate that, as of a date no earlier than
ten (10) days prior to the Closing Date, there are no filings under the
Uniform Commercial Code evidencing liens on any of the items of Personal
Property, except liens approved in writing by Buyer.

(xii) BOOKS AND RECORDS. All of Sellers' and KGTC's books,
records and files relating to the development, construction, operation and
maintenance of the Acquired Assets, Partnership Assets, Projects and
Business.

(xiii) SELLERS' CERTIFICATE. A duly executed certificate of
Sellers ("Sellers' Bringdown Certificate") in form and substance reasonably
satisfactory to Buyers.

(xiv) NON-FOREIGN PERSON CERTIFICATES. A Certificate ("Non-
Foreign Person Certificate") executed by all Sellers to facilitate Buyers'
compliance with Section 1445 of the Internal Revenue Code of 1986 and the
regulations promulgated thereunder, as amended from time to time ("Code")
in form and substance reasonably satisfactory to Buyers.

(xv) LICENSE AGREEMENT. Deliver to Buyers a License Agreement in
form and substance reasonably satisfactory to Buyers ("License Agreement")
with respect to the commercial use of the name "Kathryn G. Thompson".

(xvi) LICENSES AND PERMITS. Originals or copies of all Licenses
and Permits related to the Business and all Licenses and Permits related to
the Projects.

(xvii) TITLE POLICIES. Copies of Title Policies and endorsements
for the Projects owned by the Partnerships.

(xviii) TITLE POLICIES. Copies of all insurance policies, bonds,
guaranties, surety agreements, warranties and maintenance contracts.

(xix) COUNTY ACKNOWLEDGMENT. An acknowledgment from the Orange
County Environmental Management Agency that the Second Amendment to

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Development Agreement with Mission Viejo Company (Aliso Viejo Planned
Community) recorded October 4, 1991) is in full force and effect.

(xx) MHI OPTION AGREEMENT. A duly executed copy of the MHI Option
Agreement.

(xxi) TAX ELECTION FORMS. Tax Election Forms duly executed by
KGTC, MOHI, Thompson and Street, which shall be mailed for appropriate
filing with the IRS, on the Closing Date.

Anything in this Agreement to the contrary notwithstanding, this Agreement shall
not constitute the transfer or assignment of any property or property right or
any Contract, Lease, Permit or License or any claim, right or other agreement,
without the required prior notice to or consent, waiver or approval of any third
party thereto. In furtherance of the foregoing, any transfer or assignment to
Buyers of any property or property rights or of any Contract, Lease, Permit or
License, claim, right or other agreement set forth on SCHEDULES 1.01-C THROUGH H
which requires the prior notice to or consent, waiver or approval of a third
party following the Closing Date shall not be made until such prior notice,
consent, waiver or approval has been given or obtained. From and after the
Closing Date, Sellers shall account for and hold in trust for the benefit of
Buyers, all cash proceeds and other economic benefits received with respect to
the documents listed on SCHEDULES 1.01-C THROUGH G and on SCHEDULE 2.02-(c), all
of which shall be transferred to Buyers, on a document by document basis, when
the requisite notices, consents, waivers and approvals are given or obtained
with respect to each such document pursuant to the requirements of Section
2.02(a)(vi).

(b) ACTIONS TO BE TAKEN BY BUYERS. Buyers shall take the following
actions:

(i) CASH DOWN PAYMENT AND CAPITAL NOTES PAYMENT. Make the Cash Down
Payment and the Capital Notes Payment.

(ii) SHARES. Deliver duly executed certificates for the Shares.

(iii) WARRANTS. Deliver duly executed agreements for the
Warrants.

(iv) ASSUMPTION AGREEMENT. Deliver to Sellers a duly executed
Assumption Agreement in form and substance reasonably satisfactory to
Buyers; provided, however, in no event shall KREG be required to execute
any Assumption Agreement.

(v) KREG GUARANTEE. Deliver the duly executed KREG Guarantee if and
only to the extent required pursuant to Section 1.03(g).

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(vi) TAX ELECTION FORMS. Tax Election Forms duly executed by
Residential Sub, which shall be mailed for appropriate filing with the IRS,
on the Closing Date.

(i) INSURANCE. All action reasonably deemed necessary by Buyers and
Sellers to maintain for the benefit of Buyers all insurance policies,
homeowner warranties, construction warranties and reserves, performance,
grading and subdivision bonds and all rights (including rights to proceeds
and refund of premiums) and coverages thereunder, maintained by Sellers and
KGTC at any time prior to the Closing Date for periods ending before or
after the Closing Date, whether or not now in effect (all of which
policies, warranties, reserves, bonds, rights and coverages are hereinafter
together referred to as "Sellers Existing and Past Insurance Rights"), a
list of which shall be set forth on SCHEDULE 2.02-(c) to Buyers, including
the maintenance of such policies, coverages and at their currently existing
coverage amounts. Sellers and KGTC shall also add Buyers as additional
insured under such policies. Buyers shall add Sellers and KGTC as
additional insureds to Buyer insurance policies.

(ii) OTHER ACTIONS. Buyers and Sellers each shall do or cause to be
done such other matters and things, including the execution and delivery of
additional documents of assignment and assumption, as shall be necessary or
reasonably expeditious to close the transactions contemplated herein in the
manner contemplated herein. To the extent that a form of any document to
be delivered hereunder is not attached as a schedule hereto, the instrument
shall be in form and substance, and shall be executed and delivered in a
manner, reasonably satisfactory to the Buyers and Sellers.

SECTION 2.03 CONDITIONS TO OBLIGATION OF BUYERS. The obligation of Buyers
to consummate the Closing shall be subject to satisfaction of the following
conditions (any one or more of which may be waived by Buyers, but only in a
writing signed by Buyers):

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Article III shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect as if they
had been made on the Closing Date.

(b) COMPLIANCE WITH COVENANTS. Sellers shall have performed and complied
with all of their covenants hereunder in all material respects through the
period ending on the Closing Date.

(c) LEGAL RESTRAINT. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, commonwealth, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated

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by this Agreement to be rescinded following consummation, or (iii) affect
adversely the right of Buyers to own, operate, market, develop, sell or control
any of the Acquired Assets or adversely affect the Partnership's right to own,
operate, market, develop, sell or control any of the Partnership Assets or
Projects (and no such judgment, order, decree, stipulation, injunction, or
charge shall be in effect).

(d) COMPLIANCE CERTIFICATE. Thompson, Street and Sellers shall have
delivered to Buyers a certificate executed by Thompson, Street and Sellers'
President and Chief Financial Officer to the effect that the conditions
specified above in subsections (a)-(c) are satisfied in all respects which, in
the case of Thompson and Street shall be limited to their best knowledge after
reasonable inquiry.

(e) DUE DILIGENCE REVIEW. Buyers in their sole discretion shall be
satisfied with the results of its Due Diligence Review of the Acquired Assets,
Partnership Assets and Projects. Buyers' Due Diligence Review may include a
review and inspection of all aspects of the Acquired Assets, Partnership Assets
and Projects, including but not limited to their physical and environmental
condition, compliance with laws and financial feasibility.

(f) CONSENTS. Sellers shall have procured all of the third-party consents
specified in Section 2.02(a)(vi) above.

(g) CONDITION OF THE PROPERTY. Buyers shall have reviewed and approved in
their sole discretion of the value, physical condition and the feasibility of
marketing and developing the Acquired Assets, Partnership Assets and Projects.

(h) ILLEGALITY. No statute, rule, regulation, executive order or decree
shall have been enacted, promulgated or enforced (and not repealed, superseded
or otherwise made inapplicable) by any governmental authority or private person
or entity which prohibits the consummation of the transactions contemplated by
this Agreement or which would prohibit or impair the acquisition, marketing,
development and sale of the Acquired Assets, Partnership Assets and/or Projects.

(i) DEEDS OF PURCHASE AND SALE. Sellers shall have delivered to Buyers
good and sufficient general warranty deeds of purchase and sale, in form and
substance satisfactory to Buyers, conveying all of Sellers' right, title and
interest in and to all transferred Real Estate.

(j) ASSIGNMENT OF OTHER ASSETS. Sellers shall have delivered to Buyers
good and sufficient Warranty Bills of Sale and Assignments, which shall be in
form and substance satisfactory to Buyers, selling, delivering, transferring and
assigning to Buyers all of Sellers' right, title and interest to the Acquired
Assets, including but not limited to Sellers' rights in the Partnership
Interests.

(k) ASSIGNMENTS OF AGREEMENTS. Sellers shall have delivered to Buyers
good and sufficient assignments of the Leases, Partnership Interests and
Intellectual Property, if any, which shall be in form and substance satisfactory
to Buyers and shall include the written

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consents of all parties necessary in order to transfer all of Sellers' rights
thereunder and thereto to Buyer.

(l) OTHER ASSIGNMENT AND TRANSFER DOCUMENTATION. Sellers shall have
delivered to Buyers such other separate instruments of sale, assignment or
transfer that Sellers and Buyers may reasonably deem necessary or appropriate in
order to perfect, confirm or evidence in Buyers title to all or any part of the
Acquired Assets.

(m) FIRPTA AFFIDAVIT. Sellers shall have delivered to Buyers a
certificate, in form and substance reasonably satisfactory to Buyers, certifying
that Sellers are not "foreign persons" within the meaning of Section 1445(f)(3)
of the U.S. Internal Revenue Code of 1986, as amended.

(n) CERTIFIED BOARD RESOLUTIONS. Sellers shall have delivered to Buyers
copies of the resolutions adopted by Sellers' boards of directors approving the
execution of this Agreement and the consummation of the transactions
contemplated hereby, which resolutions shall be certified by the secretary of
Sellers.

(o) GOOD STANDING CERTIFICATES. Sellers shall have delivered to Buyers
good standing certificates as to Sellers and KGTC issued by the Secretary of
State of the State of California dated within five days prior to the Closing.

(p) APPROVAL OF DOCUMENTATION. All actions to be taken by Sellers in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to Buyers.

(q) INSOLVENCY. None of the parties constituting the Sellers or KGTC or
any partners or lenders of any of the Sellers or KGTC shall either voluntarily
or involuntarily become subject to a bankruptcy proceeding, or make a general
assignment for the benefit of their creditors or become insolvent.

(r) ACTIONS TAKEN AT CLOSING. Sellers shall have taken all of the actions
contemplated by Section 2.02(a) at the Closing and all actions required of
Sellers at the Closing under Section 2.02(c).

SECTION 2.04 CONDITIONS TO OBLIGATION OF SELLERS. The obligation of
Sellers to consummate the Closing shall be subject to satisfaction of the
following conditions (any one or more of which may be waived by Sellers, but
only in a writing signed by Sellers):

(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Article IV shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect as if they
had been made on the Closing Date.

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(b) COMPLIANCE WITH COVENANTS. Buyers shall have performed and complied
with all of their covenants hereunder in all material respects through the
period ending on the Closing Date.

(c) LEGAL RESTRAINT. No action, suit, or proceeding shall be pending or
overtly threatened before any court or quasi-judicial or administrative agency
of any federal, state, commonwealth, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(i) prevent consummation of any of the transactions contemplated by this
Agreement or (ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect).

(d) COMPLIANCE CERTIFICATE. Buyers shall have delivered to Sellers a
certificate executed by Buyer's Chief Executive Officer and Chief Financial
Officer to the effect that the conditions specified above in subsections (a)-(c)
are satisfied in all respects.

(e) ILLEGALITY. No statute, rule, regulation, executive order or decree
shall have been enacted, promulgated or enforced (and not repealed, superseded
or otherwise made inapplicable) by any governmental authority which prohibits
the consummation of the transactions contemplated by this Agreement.

(f) ASSUMPTION OF LIABILITY. Buyers shall have delivered to Sellers such
instruments of assumption that Sellers and Buyers may reasonably deem necessary
or appropriate in order to perfect, confirm or evidence the assumption by Buyers
of the Assumed Liabilities; provided, however, in no event shall KREG be
required to execute any Assumption Agreement relating to the Assumed Liabilities
other than the KREG Guarantee, if executed and delivered.

(g) CERTIFIED BOARD RESOLUTIONS. Buyers shall have delivered to Sellers
copies of the resolutions adopted by Buyers' Board of Directors approving the
execution of this Agreement and the consummation of the transactions
contemplated hereby, which resolutions shall be certified by the Secretary of
Buyers.

(h) GOOD STANDING CERTIFICATE. Buyers shall have delivered to Sellers
good standing certificates to Buyers issued by the Office of Secretary of State
of the State of Delaware dated within five days prior to the Closing.

(i) ACTIONS TAKEN AT CLOSING. Buyers shall have taken all of the actions
contemplated by Section 2.02(b) at the Closing and all actions required of
Buyers under Section 2.02(c).

(j) RELEASE FROM GUARANTEES. AV Partnership shall have fully and finally
released Thompson and Street from their personal and corporate guarantees of the
Capital Notes.

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS,
THOMPSON AND STREET

Sellers, Thompson and Street jointly and severally represent and warrant to
Buyers that the statements contained in this Article III are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article III), except
as set forth in the disclosure schedule accompanying this Agreement which shall
be prepared by Sellers, Thompson and Street and delivered to Buyers prior to the
Closing Date hereof ("Disclosure Schedule III"). DISCLOSURE SCHEDULE III will
be arranged in paragraphs corresponding to the Section numbers contained in this
Article III. The representations and warranties of Thompson and Street set
forth in this Article III are made on the basis of their best knowledge after
reasonable inquiry; provided, however, that none of the representations or
warranties of Sellers shall in any way be limited or qualified, except as may be
otherwise provided below.

SECTION 3.01 DUE ORGANIZATION, AUTHORIZATION, ETC. Each of Sellers and
KGTC is a corporation, duly organized and validly existing and in good standing
under the laws of the jurisdiction of its organization for formation. Each of
Sellers and KGTC is qualified to do business and is in good standing under the
laws of each state where such qualification is necessary in connection with the
Business. Each of Sellers has the right, power and authority to make and
perform its obligations under this Agreement, and the execution, delivery and
performance of this Agreement does not violate the articles of incorporation or
bylaws of any Seller or KGTC or any contract, agreement or commitment to which
any such Seller or KGTC is a party or by which any such Seller or KGTC or any of
the KGTC Assets, Acquired Assets, Partnership Assets or Projects is bound. The
execution and delivery of this Agreement and the performance by each Seller of
its obligations hereunder have been duly authorized by all necessary action on
the part of such Seller and its partners, shareholders and/or board of
directors, as applicable. This Agreement constitutes the valid and binding
obligations of Sellers, enforceable against each of the Sellers in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization and other similar laws of general applicability
relating to creditors' rights and to general equity principles. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency, commission, regulatory authority or
other governmental authority or instrumentality, whether domestic or foreign
(each a "Governmental Entity"), is required by or with respect to Sellers or
KGTC in connection with the execution, delivery and performance of this
Agreement which has not been obtained prior to execution of this Agreement.

SECTION 3.02 NO CONFLICT OR DEFAULT. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will violate any statute, regulation or ordinance of any governmental authority,
or conflict with or result in the breach of any provision of the certificate of
incorporation or bylaws of Sellers or KGTC or any HOA Interests or of any
material agreement, CC&R's, deed, contract, mortgage, indenture, writ, order,
decree or instrument to which any Seller or KGTC is a party or by

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which any Seller or KGTC or any of the KGTC Assets, Acquired Assets,
Partnership Assets or Projects are bound, or constitute a default (or an event
which, with the lapse of time or the giving of notice, or both, would constitute
a default) thereunder, or result in the creation or imposition of any lien,
charge or encumbrance, or restriction of any nature whatsoever with respect to
any of the KGTC Assets, Acquired Assets, Partnership Assets or Projects or give
to others any rights of termination, acceleration or cancellation in or with
respect to the Acquired Assets, Partnership Assets or Projects.

SECTION 3.03 COMPLIANCE WITH LAW. Sellers, KGTC, the Business, the KGTC
Assets, Acquired Assets, the Partnership Assets and the Projects are in
compliance in all material respects with all applicable federal, state,
commonwealth, local and foreign laws, statutes, ordinances, licensing
requirements, rules and regulations, and judicial or administrative decisions
applicable to them. As of the date of this Agreement, there has been no order
issued, investigation or proceeding pending, or to the knowledge of any of the
Sellers, threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, injunction, judgment, rule, regulation, decision
or requirement applicable to any of the Sellers, KGTC, the Business, the KGTC
Assets, the Acquired Assets, the Partnership Assets or the Projects.

SECTION 3.04 TAXES. Sellers, KGTC, the Business, Acquired Assets, KGTC
Assets, Partnership Assets and Projects have no Tax (as defined below),
deficiency or claim outstanding or assessed against any of them, or, to the
knowledge of any of the Sellers, proposed to be assessed against them, and, to
the knowledge of Sellers, there is no basis for any such deficiency or claim,
which is reasonably likely to result in the imposition of any lien, claim or
encumbrance on any of the Sellers, KGTC, KGTC Assets, Acquired Assets,
Partnership Assets, Projects, Business or against Buyers. For purposes of this
Agreement, "Tax" shall mean any federal, state, local, commonwealth, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax, exaction fee, assessment or charge of any kind whatsoever, or any
payment in lieu thereof, including any interest, penalty, or addition thereto,
whether disputed or not. Attached as SCHEDULE 3.04 is a list of all development
fees, exactions, charges, dedications, assessments and mitigation conditions
imposed as a condition of the approval of the development, marketing and sale of
the KGTC Assets, Acquired Assets, Partnership Assets and Projects.

SECTION 3.05 LITIGATION. There is no claim, litigation, arbitration,
action, suit or proceeding, administrative or judicial, pending or, to the
knowledge of any of the Sellers, threatened against any of the Sellers, KGTC,
the Business, the Partnership Assets, KGTC Assets, the Projects or any of the
Acquired Assets, at law or in equity. Attached hereto as SCHEDULE 3.05 is a
true, correct and complete list of contingent liabilities affecting Sellers, the
Partnerships, the Acquired Assets, KGTC Assets and the Partnership Assets,
including, without limitation, a description of any claims made against or known
to Sellers or the Partnerships with respect to common area improvements, single-
family homes, townhomes and condominium and residential units located on any of
the Real Property of Sellers, KGTC

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or the Partnerships sold or transferred to third parties. Included with such
listing is an estimate of the amount of such contingent liability and an
estimate of the likelihood of recovery.

SECTION 3.06 TANGIBLE ASSETS. Sellers own good and marketable title to
all tangible assets included within the Acquired Assets. The Partnerships own
good and marketable title to all of the tangible assets included within the
Partnership Assets. KGTC owns good and marketable title to all of the KGTC
Assets. To the knowledge of Sellers, each such tangible asset of the Sellers,
KGTC, and the Partnerships, including but not limited to the Acquired Assets,
KGTC Assets, Partnership Assets and the Projects, has been maintained in
accordance with normal industry practice and is in good operating condition and
repair, subject to normal wear and tear and is free from any construction
defects and has been constructed in compliance with all Legal Requirements.

SECTION 3.07 STATE OF FACTS. No Seller knows of any facts nor has any
Seller failed to disclose any fact that would prevent or materially impair
Buyers, KGTC or the Partnerships from using, developing, marketing and operating
the KGTC Assets, Acquired Assets, Partnership Assets or the Projects, as
applicable, in the normal manner for its intended purpose in accordance with the
approved Development Plans and Marketing Studies and Cash Flow and Income
Projections; and the financial and other information set forth in the materials
furnished by Sellers is accurate and complete. All information which Sellers
have provided to Buyers concerning the Acquired Assets, KGTC, KGTC Assets,
Business, Partnerships, Partnership Assets and Projects is accurate and complete
and does not contain any untrue statement of material fact nor does it omit to
state any material fact necessary to make the statements contained therein not
misleading. Attached hereto as SCHEDULE 3.07 is a true and complete list of all
obligations and liabilities of KGTC.

SECTION 3.08 ABSENCE OF DEFAULTS. Sellers, KGTC, Partnerships, KGTC
Assets, Acquired Assets, Partnership Assets, Projects and Business are not in
material default of any material obligations or liabilities pertaining to any of
them, nor is there any state of facts or circumstances or condition or event
which, after notice or lapse of time or both, would constitute or result in any
such material default. No Seller has received any notice or information that
any party to the Permits and Licenses, the Leases, or any of the Contracts of
any of the Sellers, KGTC or any of the Partnerships considers any material
breach or default to have occurred thereunder, nor to the knowledge of any
Sellers is there any event or circumstance which would result in a material
default in the future under any of the same by any party thereto.

SECTION 3.09 TITLE TO AND CONDITION OF KGTC ASSETS, ACQUIRED ASSETS AND
PARTNERSHIP ASSETS.

(a) The KGTC Assets, Acquired Assets and Partnership Assets include all
material assets of Sellers, KGTC and the Partnerships that are material to the
ownership, development, marketing and operation of the Business and Projects,
except for the Retained Assets. SCHEDULES 1.01-H AND 1.01-HI are a true,
correct and complete list of all policies effecting insurance coverage with
respect to the KGTC Assets, Acquired Assets, Partnership

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Assets, Sellers and KGTC, as well as all bonds and other instruments securing
third-party performance and warranties running to the benefit of Sellers, KGTC
or any of the Partnerships.

(b) Sellers, KGTC and the Partnerships have good and marketable title to,
or, in the case of leased properties and assets, valid leasehold interests in,
all of their respective assets including all of the KGTC Assets, Acquired Assets
and Partnership Assets, as applicable, free and clear of any Liens, except for
such imperfections of title and encumbrances, if any, which are not substantial
in character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use or contemplated development,
marketing and use of the property subject thereto or affected thereby. For
purposes of this Agreement, the term "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset. Sellers, KGTC and the Partnerships have possession
(either directly or through employees, agents, or consultants) of all of their
respective assets including all of their respective assets including all of the
KGTC Assets, Acquired Assets and Partnership Assets, except for such portions
thereof which, considered in the aggregate, do not represent a material portion
of their respective assets including all of the KGTC Assets, Acquired Assets or
Partnership Assets, as applicable, considered as a whole, the absence of which,
disappearance of which, or failure to have or otherwise possess which do not
materially interfere with the conduct, development or marketing of the Business
or Projects, as applicable, except as the Business or Projects may relate to the
Retained Assets.

(c) The Acquired Assets, Partnership Assets and KGTC Assets (other than
the office building), considered as a whole, are in good condition and repair so
as to be appropriate for Sellers', KGTC's and the Partnership's use, development
and marketing and are free from any defects which would interfere with or impair
in a material way the proposed or intended use, development and marketing by or
for the benefit or account of Sellers, KGTC, the Partnerships or Buyers as
applicable. There are no defects in any of the KGTC Assets, Acquired Assets or
Partnership Assets. Attached hereto as SCHEDULE 3.09(c) is a true, correct and
complete list of all items of work requested by various residential unit owners
or others to be performed from and after the date hereof by or on behalf of
Sellers, KGTC or any of the Partnerships with respect to residential units or
common areas located on the Real Property of the Sellers, KGTC or Partnerships
after sale to third parties including the unit in which such work was to be
performed, the date of the request and the names of all subcontractors and
suppliers retained in connection with the performance of such work.

(d) Sellers, KGTC and Partnerships have complied with all applicable
federal, state and local laws, rules and regulations, including, without
limitation, zoning land use and Environmental Laws, all covenants, conditions
and restrictions and all contractual obligations any of them or any of their
Affiliates may have with respect to the KGTC Assets, the Acquired Assets, the
Projects and the Partnership Assets (collectively, "Legal Requirements"). The
term "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

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"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. Sellers, KGTC and the Partnerships have operated all
associations of homeowners of units located on any Real Property of Sellers,
KGTC or the Partnerships at such time as the boards thereof have been controlled
by Sellers, KGTC and/or the Partnerships in accordance with the declarations,
articles, by-laws and other governing documents of such associations and all
applicable federal, state and local laws, rules and regulations.

(e) Attached hereto as SCHEDULE 3.09(e) is a true, correct and complete
list of all bonds, letters of credit and other instruments securing the
performance of Sellers, KGTC or any of the Partnerships with respect to the KGTC
Assets, the Acquired Assets, the Projects or the Partnership Assets, including,
without limitation, bonds or other instruments held by governmental entities or
HOA's with respect to subdivision or infrastructure improvements or utilities
and fidelity bonds securing the performance by Sellers, KGTC the Partnerships or
boards of directors of condominium and homeowners' associations controlled by
Sellers, KGTC or any of the Partnerships in connection with the construction,
development, entitlement, management, marketing, operation or sale of any of the
KGTC Assets, Acquired Assets, Partnership Assets or Projects.

SECTION 3.10 HAZARDOUS MATERIALS.

(a) For purposes hereof, "Hazardous Materials" shall mean any and all
asbestos, radioactive material, hazardous waste, toxic substance, petroleum
products or by-products or related material, including but not limited to those
materials and substances defined as "hazardous substances," "hazardous
materials," "hazardous wastes" or "toxic substances" in the Environmental Laws.
For purposes hereof, "Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601, ET SEQ.; the Toxic Substances Control Act, 15 U.S.C. 2601, ET
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET
seq.; the Federal Clean Water Act, 33 U.S.C. Section 1251, ET SEQ.; the Porter-
Cologne Water Quality Act, California Water Code Section 13020, ET SEQ.; the
California Health and Safety Code, Section 25100, ET SEQ.; including all
amendments thereto, replacements thereof, and regulations and publications
promulgated pursuant thereto, and any other federal, state or local law, rule or
regulation relating to the environment (including the workplace) or regulating
Use of Hazardous Materials to the extent applicable to any of the Acquired
Assets, Partnership Assets, Projects or Business.

(b) None of the KGTC Assets, Acquired Assets, Partnership Assets, Projects
or Business are in violation of any Environmental Laws.

(c) There has been no use, presence, disposal, storage, generation or
release (as those terms are used in the Environmental Laws, and hereinafter
collectively referred to as "Use") of Hazardous Materials on, from or under or
within 2,000 feet of any of the Assets of KGTC, the Acquired Assets, Partnership
Assets, or Projects during the period that

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Sellers, KGTC or the Partnerships have owned the KGTC Assets, Acquired Assets,
Partnership Assets or Projects, as applicable or, to the best of Sellers'
knowledge, during any prior period.

(d) No enforcement action or litigation has been brought or, to the best
of any of the Sellers' knowledge threatened against, any of the Sellers, KGTC,
the Partnerships, the Partnership Assets, Projects, the KGTC Assets or the
Acquired Assets, during the period that Sellers or the Partnerships have owned
the Acquired Assets, Partnership Assets or Projects, as applicable, or, to the
best of any of Sellers' knowledge, during any prior period, nor any settlements
reached by Sellers, KGTC or the Partnerships or, to the best of Sellers'
knowledge, any prior owner of or other party having any interest in the KGTC
Assets, Acquired Assets, Partnership Assets or Projects, as applicable, with any
party or parties, alleging Use of any Hazardous Materials on, from or under the
KGTC Assets, Acquired Assets, Partnership Assets or Projects, as applicable.

(e) The scope of the representations and warranties set forth in
Sections 3.10(b), (c) and (d) shall not diminish in any respect any liability of
Sellers to Buyers which would otherwise exist under the Environmental Laws.

SECTION 3.11 SUBSEQUENT CHANGES. Sellers, Thompson and Street will
promptly give Buyers notice of any event or occurrence which would cause any of
Sellers', Thompson's or Street's above representations and warranties to cease
to be true or correct in any respect.

SECTION 3.12 FINANCIAL STATEMENTS. Sellers have delivered to Buyers the
financial statements and information, together with the notes thereto and the
reports thereon which are listed on SCHEDULE 3.12, such financial statements and
information of Sellers, KGTC, the Partnerships, the KGTC Assets, Acquired
Assets, Partnership Assets, the Projects and Business present fairly in
conformity with GAAP applied on a consistent basis, the consolidated financial
position of Sellers, KGTC, the Partnerships, Projects and Business, as
applicable, as of the dates thereof and their consolidated results of operations
and cash flows for the periods then ended.

SECTION 3.13 NO INFRINGEMENT. There is no infringement by any of the
Sellers, KGTC or the Partnerships upon the trademarks, trade names, patents,
service marks, trade secrets, copyrights or other intellectual property rights
of others, and no claim with respect thereto is pending or, to the knowledge of
any of the Sellers, threatened against any of the Sellers, KGTC, Partnerships,
Projects, KGTC Assets, Acquired Assets or Partnership Assets.

SECTION 3.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon Sellers, KGTC, the
Partnerships, Partnership Assets, Projects, KGTC Assets or Acquired Assets which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing the continuation by Buyers, after the Acquisition, of any
material business practice of Sellers or the Partnerships or the conduct of the
Business by Buyers with respect to KGTC, the

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Acquired Assets, KGTC Assets or the development or marketing of the Projects by
the Partnerships with respect to the Partnership Assets following the
Acquisition in the manner currently conducted by Sellers, KGTC and the
Partnerships.

SECTION 3.15 CERTAIN AGREEMENTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Sellers or KGTC under any Plan (as defined in Section 3.16),
agreement or otherwise, (b) materially increase any benefits otherwise payable
under any Plan or agreement, or (c) result in the acceleration of the time of
payment or vesting of any such benefits.

SECTION 3.16 PLANS. The KGTC Assets, the Acquired Assets and/or
Partnership Assets do not constitute assets of an employee benefit plan as
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). All employee benefit plans, programs, policies, commitments, payroll
practices, or other arrangements (whether or not set forth in a written
document) covering any active, former or retired employee or consultant of
Sellers are listed on SCHEDULE 3.16-A (the "Plans"). The Plan identified on
SCHEDULE 3.16-A as the Medical Insurance Plan complies with the requirements of
ERISA and the Code. No Plan is covered by Title IV of ERISA or Section 412 of
the Code. Neither Sellers, KGTC, the Partnerships nor any officer of Sellers,
KGTC or any partners of the Partnerships have incurred any liability or penalty
under Section 4975 through 4980 of the Code or Title 1 of ERISA. Except as
provided on SCHEDULE 3.16-B, each Plan has been maintained and administered in
all material respects in compliance with its terms and the Plan identified on
SCHEDULE 3.16-A as the Medical Insurance Plan has been maintained and
administered in all material respects in compliance with the requirements
prescribed by and all statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, which are applicable to such Plans, subject only
to deviations which, in the aggregate, are not material. No suit, action or
other litigation (excluding claims for benefits incurred in the ordinary course
of Plan activities) is pending, or, to the knowledge of any of the Sellers,
threatened, against or with respect to any such Plan. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Plans have been made or accrued. Sellers' and KGTC's Personnel
Policies Manual in the form previously delivered to Buyers (the "Personnel
Policies Manual") sets forth a complete summary of Sellers' standard employment
practices and policies, including vacation and sick pay accrual policies and
standard employment terms.

SECTION 3.17 LABOR MATTERS. Sellers, KGTC and the Partnerships are in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, verification of
immigration status, terms and conditions of employment and wages and hours and
occupational safety and health and employment practices, and are not engaged in
any unfair labor practice. Except with respect to unemployment compensation
claims, Sellers, KGTC and the Partnerships have not received any notice from any
governmental entity, and, to the knowledge of Sellers, there has not been
asserted before any governmental entity, any claim, action or proceeding to
which Sellers, KGTC or the

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Partnerships are a party or involving Sellers, KGTC or the Partnerships arising
out of or based upon any such employment laws, regulations or practices, there
is neither pending nor, to the knowledge of Sellers, threatened any
investigation or hearing concerning Sellers, KGTC or any Partnerships arising
out of or based upon any such employment laws, regulations or practices.

SECTION 3.18 EMPLOYEES AND LABOR RELATIONS.

(a) SCHEDULE 3.18-A lists the name of each full-time employee of Sellers
and KGTC and their positions and present compensation levels, exclusive of
bonuses and benefits.

(b) Except with respect to unemployment compensation claims and except as
provided on SCHEDULE 3.18-B, there are no pending or, to the knowledge of
Sellers, threatened claims against Sellers or KGTC by any employee or former
employee, and there are no material labor controversies pending or, to the
knowledge of Sellers, threatened between Sellers or KGTC and any of the
employees of Sellers or KGTC or any labor union or other collective bargaining
unit representing any of such employees, and Sellers are not aware of any basis
for such controversies.

(c) Neither Sellers nor KGTC are a party to any collective bargaining or
union contract in connection with its operation of the Business.

(d) Except as provided on SCHEDULE 3.18-C, Sellers and the Partnerships
are not a party to or bound by any consulting or employment contracts with any
of the persons employed by the Business.

SECTION 3.19 MAJOR CONTRACTS. Sellers, KGTC and the Partnerships are not
parties to any contract, agreement, arrangement or understanding other than
those disclosed elsewhere in this Agreement, including all Schedules (each a
"Major Agreement"), which would constitute any of the following:

(a) A union contract or any employment or consulting contract or
arrangement providing for future compensation, written or oral, with any
officer, consultant, director or employee which is not, by its terms, terminable
by Sellers, KGTC or the Partnerships on 30 days' notice or less without penalty
or obligation to make payments related to such termination.

(b) Except as provided in the Personnel Policies Manual and except for
agreements with and among Sellers', KGTC's or the Partnerships' salespeople and
hosts and hostesses, a plan, contract or arrangements whether written or oral,
providing for bonuses, pensions, deferred compensation, severance pay or
benefits, retirement payments, profit-sharing or the like.

(c) A joint venture contract or arrangement or any other agreement which
has involved or is expected to involve a sharing of profits with other persons.

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(d) A lease for real or personal property in which the amount of payments
which Sellers, KGTC or the Partnerships are required to make on an annual basis
exceeds $5,000.

(e) An instrument evidencing or related in any way to indebtedness
incurred by any of the Sellers, KGTC or any of the Partnerships in the
acquisition of companies or other entities or indebtedness of any of the
Sellers, KGTC or any of the Partnerships for borrowed money by way of direct
loan, sale of debt securities, purchase money obligation, conditional sale,
guarantee, leasehold obligations or otherwise.

(f) A material license agreement, either as licensor or licensee.

(g) A contract with third-parties containing covenants purporting to limit
the freedom of Sellers, KGTC or the Partnerships to compete in any line of
business in any geographic area.

(h) A material insurance policy or fidelity or surety bond in effect as of
the date hereof.

(i) An agreement of indemnification.

(j) An agreement, contract or commitment relating to capital expenditures
which require future payments individually or in the aggregate in excess of
$5,000 by Sellers, KGTC or the Partnerships.

(k) An agreement, contract or commitment relating to the disposition or
acquisition of any assets by Sellers, KGTC or the Partnerships which involve
payments individually or in the aggregate in excess of $5,000.

(l) A purchase order or contract for the purchase of raw materials which
involves payments by Sellers, KGTC or the Partnerships individually or in the
aggregate in excess of $5,000 each in excess of $25,000.

(m) Any other agreement, contract or commitment which is material to the
continued operation, development or marketing of the Business, Projects,
Partnership Assets, KGTC Assets or Acquired Assets.

Each Major Contract otherwise disclosed in this Agreement is valid and
binding on Sellers, KGTC and the Partnerships, and is in full force and effect,
and neither Sellers, KGTC nor the Partnerships, nor to the knowledge of any of
the Sellers, any other party thereto, have (except as has been corrected) in any
material way breached any provision of, or are in any material way in default
under the terms of any material provisions of any such Major Contract. There is
no provision under any of the Major Contracts that could potentially require
Sellers, KGTC or the Partnerships to make a payment of a material amount for any
liquidated damages or penalty. Except as is not material to the conduct of the
Business as to the KGTC Assets, Acquired Assets or the marketing and development
of the Projects as to the Partnership Assets and except as occurs in the
ordinary course of

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business, to the knowledge of any of the Sellers, no party to any such Major
Contract other than Sellers intends to cancel, withdraw, modify or amend such
Major Contract.

SECTION 3.20 DISCLOSURE. To the knowledge of Sellers, there are no facts
relating to the KGTC Assets, the Acquired Assets, Partnership Assets, Projects
or the Business that Sellers have failed to disclose in this Agreement
(including Schedules) that would prevent Buyers from using and operating the
KGTC Assets, the Acquired Assets after Closing in a manner consistent with
Sellers' past practices or that would prevent the Partnerships from the
development, completion and marketing of the Projects and Partnership Assets in
accordance with the approved Development Plans, Marketing Studies and Cash Flow
and Income Projections. To the knowledge of Sellers, the representations and
warranties contained in this Article III do not contain any material untrue
statement of a fact or omit to state any material fact necessary in order to
make the statements and information contained in this Article III not misleading
in any material way. The Schedules attached to this Agreement are accurate and
complete in all material respects.

SECTION 3.21 BROKERS, FINDERS. The transactions contemplated hereby were
not submitted to Sellers by any broker, finder or other person entitled to a
commission, fee or like payment thereon, and the actions of Sellers have not
given rise to any claim by any person against Buyers, the KGTC Assets, the
Acquired Assets, the Partnerships, Partnership Assets, Projects or Business for
a commission, fee or like payment.

SECTION 3.22 MHI OPTION AGREEMENT. MHI has full power and authority to
enter into the MHI Option Agreement, perform its obligations under the MHI
Option Agreement and consummate the transaction contemplated thereby. The MHI
Option Agreement has been duly authorized, executed and delivered and
constitutes valid and binding obligations of MHI, enforceable against MHI in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization and other similar laws of general
applicability relating to creditors' rights and to general equity principles.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to MHI in
connection with the execution, delivery and performance of the MHI Option
Agreement.

SECTION 3.23 KGTC CAPITALIZATION. The authorized Capital Stock of KGTC
consists of 100,000 shares of common stock of which 52,000 are issued and
outstanding. KGTC Stock represents all of the issued and outstanding equity
securities of KGTC. The KGTC Stock has been duly authorized by KGTC, has been
validly issued and is fully paid, non-assessable and free of preemptive or
similar rights, is subject to no Liens and is owned beneficially and of record
by MOHI. 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 KGTC and there are no voting
trusts or other agreements or understandings with respect to the voting of the
capital stock of KGTC.

SECTION 3.24 TITLE TO KGTC STOCK. MOHI is the record and beneficial owner
of, and has, and will convey to Residential Sub at the Closing, good, valid and
marketable title to, all of the KGTC outstanding Shares free and clear of all
Liens. Other than as

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contemplated by this Agreement, MOHI is not party to, or bound by, any
agreement, instrument, proxy or understanding restricting the transfer of the
Shares.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYERS

Buyers represent and warrant to Sellers that the statements contained in
this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).

SECTION 4.01 ORGANIZATION OF BUYERS. Each of Buyers is a corporation duly
organized and validly existing, and in good standing under the laws of the state
of its incorporation.

SECTION 4.02 AUTHORITY. Buyers have full power and authority to enter
into this Agreement, perform their obligations hereunder and thereunder and
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly authorized, executed and delivered and constitute valid and binding
obligations of Buyers, enforceable against Buyers in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization and other similar laws of general applicability
relating to creditors' rights and to general equity principles. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Buyers in
connection with the execution, delivery and performance of this Agreement.

SECTION 4.03 NO CONFLICT OR DEFAULT. Neither the execution and delivery
of this Agreement or the Escrow Agreement, nor the consummation of the
transactions contemplated hereby and thereby, will violate any statute,
regulation or ordinance of any governmental authority, or conflict with or
result in the breach of any provision of the charter or bylaws of Buyers or of
any material agreement, deed, contract, mortgage, indenture, writ, order, decree
or instrument to which either of the Buyers is a party or by which they are
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.

SECTION 4.04 LITIGATION. There is no claim, litigation, action, suit or
other administrative or judicial proceeding pending, and, to the knowledge of
Buyers, there is no material litigation, action, suit, or other administrative
or judicial proceeding threatened, against Buyers that would in any manner
impair Buyers' ability to close the Acquisition, acquire the Acquired Assets,
or that in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated hereby.

SECTION 4.05 DISCLOSURE. To the knowledge of Buyers, there are no facts
that Buyers have failed to disclose to Sellers that would prevent Buyers from
closing the Acquisition, acquiring the Acquired Assets, or assuming the Assumed
Liabilities. To the knowledge of Buyers, the representations and warranties
contained in this Article IV do not

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contain any material untrue statement of a fact or omit to state any material
fact necessary in order to make the statements and information contained
therein not misleading in any material way.

SECTION 4.06 BROKERS, FINDERS. The transactions contemplated hereby were
not submitted to Buyers by any broker, finder or other person entitled to a
commission, fee or like payment thereon, and the actions of Buyers have not
given rise to any claim by any person against Sellers for a commission, fee or
like payment.

SECTION 4.07 SHARES. The issuance and sale of the Shares have been duly
authorized by KREG. The Shares, when issued and paid for in accordance with
the terms of this Agreement, will be duly and validly issued, fully paid and
nonassessable and free of preemptive rights.

SECTION 4.08 WARRANTS. When issued to and paid for in accordance with
this Agreement, the Warrants will have been duly authorized, will be duly and
validly issued and will constitute the legal, valid and binding obligations of
KREG, enforceable against KREG in accordance with their terms subject to
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and
other similar laws of general applicability relating to creditors' rights and to
general equity principles. The Warrant Shares have been duly and validly
authorized and reserved for issuance upon exercise of the Warrants and, when
issued upon such exercise in accordance with the terms of the Warrants at the
price therein provided, will be duly and validly issued, fully paid and
nonassessable and free of preemptive rights.

ARTICLE V
PRE-CLOSING COVENANTS

The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:

SECTION 5.01 GENERAL. Each of the parties will use its reasonable good
faith efforts to take all action and to do all things consistent with the
provisions of this Agreement that are necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Article II).

SECTION 5.02 NOTICES AND CONSENTS.

(a) The parties will give any notices to third parties and governmental
authorities, and the parties will use their reasonable good faith efforts,
without cost or liability to such parties, to obtain any third-party and
governmental consents, that may be required in connection with the consummation
of the Acquisition.

(b) Each of the parties will take any additional action, consistent with
the provisions of this Agreement and without cost or liability to such parties,
that may be reason-

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ably necessary, proper or advisable in connection with any other notices to,
filings with, and authorizations, consents and approvals of governments,
governmental agencies and third parties that it may be required to give, make or
obtain.

SECTION 5.03 PRE-CLOSING OPERATION OF THE BUSINESS. Sellers shall operate
the Business and cause the Partnerships to operate the Projects in the ordinary
course consistent with Sellers', KGTC's and Partnerships' past practice and
maintain the Acquired Assets and Partnership Assets in normal operating
condition and repair in a manner consistent with Sellers' and the Partnerships'
past practice, with only such material deviations as shall be approved by
Buyers, which approval shall not be unreasonably withheld. Without limiting the
generality of the foregoing, during said period Sellers shall not do, and shall
not permit KGTC to do any of the following, unless otherwise consented to by
Buyers in writing, which consent shall not be unreasonably withheld:

(a) Transfer any of the KGTC Assets, Acquired Assets or Partnership Assets
or create or, except as existing on the date hereof, permit or suffer to exist
on any of the KGTC Assets, Acquired Assets or Partnership Assets any Liens,
except in each case in the ordinary course of business consistent with Sellers',
KGTC's and the Partnerships' past practice.

(b) Enter into, extend or renew any Major Contracts or any other contracts
or other commitments regarding the KGTC Assets, Acquired Assets, Partnership
Assets or the Assumed Liabilities of the type that would be required to be
disclosed under this Agreement in a Schedule, other than in the ordinary course
of business consistent with Sellers', KGTC's and the Partnerships' past
practice.

(c) Fail to keep in effect all insurance coverage described on
SCHEDULES 1.01-H AND 1.01-HI or fail to use reasonable and timely efforts to
comply with all reasonable requirements of the insurance companies and others
with respect to such coverage.

(d) Violate any Legal Requirements.

(e) Fail to make all payments of principal and interest due under loans
secured by the KGTC Assets, Acquired Assets and/or Partnership Assets or
otherwise willfully take action (other than the transfer of the Acquired Assets
at the Closing, the preparations to make such transfer, and the execution and
preparation of this Agreement) which would result in a default thereunder that
would permit the holder thereof to declare the indebtedness secured thereby to
be in default or accelerate the maturity thereof.

(f) Fail to pay before delinquency any Taxes levied, imposed or assessed
in connection with the ownership, occupancy, use or operation of the KGTC
Assets, Acquired Assets, and/or Partnership Assets, unless such Taxes are being
contested in good faith by Sellers and adequate provision shall have been made
with respect thereto in Sellers' financial statements.

(g) Take any action that would cause any of the Permits and Licenses of
Sellers, KGTC or the Partnerships to be terminated or revoked prior to
expiration except in the

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ordinary course of business and undertake in a timely manner all material
actions reasonably required in the ordinary course of business to extend and/or
renew the same.

(h) Adopt any employee bonus plan inconsistent with the arrangement
described in Section 3.16.

(i) Take any action that would cause any of the representations and
warranties set forth in Article III to become untrue in any material way.

(j) Modify the current compensation of managers, officers, directors, or
employees.

SECTION 5.04 NOTICE OF DEVELOPMENTS. Sellers shall give prompt written
notice to Buyers of any material development affecting the KGTC Assets, Acquired
Assets, Partnership Assets, or Assumed Liabilities or affecting the business,
financial condition, operations, results of operations or future prospects of
the Business or Projects. Each party will give prompt written notice to the
others of any material development affecting the ability of the parties to
consummate the transactions contemplated by this Agreement. In addition to the
foregoing, Sellers will use reasonable efforts to notify Buyers as soon as
practicable if any person or entity makes any written proposal or offer of the
type referred to in Section 5.05 below and will inform Buyers as to the content
thereof. No disclosure by any party pursuant to this Section 5.04 shall,
however, be deemed to amend or supplement any Schedule delivered by Sellers
under this Agreement or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.

SECTION 5.05 EXCLUSIVITY. Sellers will not, and will not permit KGTC to
(i) take any action to solicit, initiate, encourage, or assist the submission of
any proposal, negotiation, or offer from any person or entity other than Buyers
for the acquisition, sale, or transfer of any of the equity interests or any
material part of the assets of Sellers, KGTC or the Partnerships (other than
sales in the ordinary course of business and except assets which are included in
Retained Assets); (ii) sell or transfer or offer to sell or transfer any of the
equity interests or any material part of the assets of Sellers, KGTC or
Partnerships (other than sales in the ordinary course of business and other than
assets which are included in Retained Assets) to any person or entity other than
Buyers; or (iii) disclose financial or other information relating to Sellers,
KGTC or the Partnerships to any person or entity other than Buyers for such
purpose. Buyers agree to suspend all material efforts to acquire other building
companies and shall not expend substantial efforts to investigate any such
acquisition or seek financing for any such acquisitions.

SECTION 5.06 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.

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SECTION 5.07 BUYERS' INVESTIGATION. Buyers shall be allowed to conduct an
examination of the Business, Acquired Assets, Projects and Partnership Assets,
and perform a due diligence inspection with respect thereto ("Due Diligence
Review") until the Closing Date. The scope of the Due Diligence Review shall be
determined at Buyers' sole discretion. Seller shall use reasonable good faith
efforts to facilitate Buyer's Due Diligence Review between the date hereof and
the Closing Date.

SECTION 5.08 MAINTENANCE OF INSURANCE BENEFITS. Sellers shall not
terminate or relinquish and shall not permit the Partnerships to terminate or
relinquish any of their insurance coverage except in the ordinary course of
business. To the extent that any insurance coverage carried by Sellers or the
Partnerships is cancelled or not renewed without the consent of Buyers, Sellers
and KGTC shall use reasonable efforts to replace such coverage with comparable
coverage.

ARTICLE VI
POST-CLOSING COVENANTS

The parties agree as follows with respect to the period following the
Closing:

SECTION 6.01 FURTHER ASSURANCES. In case at any time after the Closing
any further action is necessary or desirable to carry out the intent of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
party reasonably may request, all at the cost and expense of the requesting
party (unless the action requested is made the obligation of the requested party
pursuant to another provision of this Agreement); provided that nothing
contained in this Section 6.01 is intended to negate, impair, or diminish any
indemnification right or obligation under Article VII. In addition, after the
Closing Buyers and Sellers shall provide notice of the Acquisition to parties
with whom Sellers, KGTC and the Partnerships have contractual relationships
advising them of the Acquisition and of appropriate addresses for future notices
to Sellers and to Buyers.

SECTION 6.02 LITIGATION SUPPORT AND INSURANCE CLAIMS.

(a) In the event, and for so long as, any party is actively contesting or
defending against any charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand brought by any party other than another party to
this Agreement in connection with (i) any transaction contemplated under this
Agreement, (ii) the Business, (iii) any Retained Asset, Acquired Asset,
Partnership Assets, Assumed Liability or Assets of KGTC or (iv) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Business or Projects or the operation thereof
or the Acquired Assets, Assets of KGTC, or Partnership Assets, including tax
audits and preparation of tax returns, the other parties will cooperate with the
contesting or defending party and its counsel in the contest or defense, make
available their personnel to provide testimony or information, and provide
access to their books and records as shall be necessary in connection with the
contest or defense, all at

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the sole cost and expense of the contesting or defending party; provided that
nothing contained in this Section 6.02 shall be construed to negate, diminish or
impair any indemnification right or obligation under Article VII.

(b) Without limiting the provisions of subsection (a) above, Sellers agree
that they will reasonably facilitate and cooperate in the making of all claims
under the insurance policies included within Sellers' Past and Existing
Insurance Rights that Buyers may reasonably request with respect to Acquired
Assets, Assets of KGTC, Partnership Assets and Assumed Liabilities. In making
such claims, Sellers shall use diligent efforts and shall remain under the
direction of Buyers. Buyers shall reimburse Sellers for those expenses incurred
by Sellers at the request of Buyers in the pursuit of such claims.

SECTION 6.03 TRANSITION. Sellers will not take any action that primarily
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate connected with the operation of
the Business or Projects from maintaining the same business relationships with
Buyers after the Closing as it maintained with the Business prior to the
Closing.

SECTION 6.04 CONTINUED USE OF NAME. Sellers shall refrain from
commercially using the names "Kathryn G. Thompson Homes," "Kathryn G. Thompson
Construction" and "Kathryn G. Thompson" or any derivation or extrapolation
thereof in any way following the Closing other than in connection with the sale
or other disposition of any of the Retained Assets and the filing of any
required tax returns, unless such use shall have been consented to in advance by
Buyers. Upon the request of Buyers, KGTCC shall change its name after the
Closing.

SECTION 6.05 POST-CLOSING EMPLOYEE MATTERS AND TRANSITION PERIOD PAYMENTS.

(a) EMPLOYEES. All persons who are employed by Sellers as of the Closing
Date shall remain as employees of record of Sellers during the Transition Period
(unless terminated by Sellers). "Transition Period" shall mean the period
beginning on the Closing Date and ending up to 90 days thereafter or at such
later time as may be determined by Buyers as being necessary in connection with
the valid transfer of any of the Permits and Licenses. All direct Personnel
Costs and other costs of employing such persons during such portion of the
Transition Period as they remain employed by Sellers shall be paid by Sellers.
"Direct Personnel Costs" shall mean all wages and other compensation paid to or
earned by employees, the cost of medical, dental and all other employee health
insurance benefits, workers' compensation insurance premiums, and payroll taxes
paid or withheld on the employee's behalf. The Sellers retain decision making
authority regarding such employees during the Transition Period. Buyers (other
than KREG) and Sellers shall cooperate to identify those employees of the
Sellers who should become employees of Buyers or their Affiliates (other than
KREG) during or upon the expiration of the Transition Period in order to effect
an orderly transfer of management of the Business and the Acquired Assets to
Buyers (other than KREG). All Direct Personnel Costs and other costs of
employing such persons following the date such persons are employed by Buyers or
their Affiliates (other than KREG) shall be paid by Buyers or their Affiliates
(other than KREG). Sellers

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acknowledge and agree that the employees of Sellers associated with the Retained
Assets are not to be considered with respect to the calculation of Direct
Personnel Costs and such persons shall not become employees of Buyers after the
expiration of the Transition Period.

(b) CERTAIN EMPLOYEE BENEFITS. Buyers or their Affiliates shall be
responsible for any accrued wages, vacation, bonuses or severance obligations to
employees related to periods up to the earliest to occur of (a) the date on
which the employee is terminated, (b) the date on which the employee is employed
by Buyers or their Affiliates (other than KREG), and (c) the end of the
Transition Period, computed based upon the years of service and compensation
levels as of the end of such period. Buyers or their Affiliates (other than
KREG) shall be responsible for all wages, vacation, bonuses and severance
obligations to employees of Buyers or their Affiliates (other than KREG)
accruing with respect to periods following their employment by Buyers or their
Affiliates (other than KREG).

(c) TRANSITION PERIOD PAYMENTS. On a monthly basis during the Transition
Period, Buyers or their Affiliates shall pay to KGTCC such amounts of the
monthly payments received by Buyers or their Affiliates pursuant to Section 10
of that certain Development Services Agreement dated as of April 4, 1994,
originally by and between AV Partnership, KGTC, KGTCC, Thompson and Street (the
"Development Services Agreement") necessary to pay as they become due after the
Closing Date the Direct Personnel Costs and such other overhead costs and
expenses described in Section 10 of the Development Services Agreement.

SECTION 6.06 LIABILITY INSURANCE. Following the Closing, Sellers,
Thompson and Street shall continue to have responsibility for maintaining
Sellers' Existing and Past Insurance Rights (as listed on SCHEDULE 2.02-(c)).
In connection therewith, the corporate existence of KGTCC shall at all times be
maintained. All necessary steps will be taken by Sellers to cause Buyers to be
named as additional insureds under such policies at the Closing.

SECTION 6.07 SHARING OF CONTRACT RIGHTS. The parties recognize that
certain of Sellers' existing contracts, agreements and arrangements will relate
directly or indirectly to both Acquired Assets and Retained Assets.
Accordingly, the parties agree that they shall cooperate in good faith in the
post-Closing administration of such contracts, agreements and understandings
with a view toward allocating those rights and obligations thereunder relating
to the Acquired Assets to Buyers and allocating those rights and obligations
thereunder relating to the Retained Assets to Sellers.

SECTION 6.08 COVENANT NOT TO COMPETE.

(a) The Sellers, Thompson and Street acknowledge and agree that the
Sellers' and KGTC's reputation and goodwill are an integral part of its business
success. If Sellers, Thompson or Street deprives Buyers of any of Sellers' or
KGTC's goodwill or in any manner utilizes their reputation and goodwill in
competition with Buyers in violation of the terms of this Section 6.08, Buyers
will be deprived of the benefits they have bargained for pursuant to this
Agreement. Therefore, as an inducement for Buyers entering into this

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Agreement and consummate the Acquisition, (A) Sellers hereby agree that at all
times following the Closing Date, except with respect to (i) the continued
development of the existing projects of Ameracor Laguna Audubon Company referred
to as Vista I and II ("Vistas I & II"), and (ii) any contractual relationship
between the Sellers, Thompson or Street, and Buyers or any of Buyers'
Affiliates, Sellers will not, directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of, or be connected as a shareholder, director, officer, employee, partner,
consultant or otherwise with, any business, firm, entity or organization, which,
directly or indirectly, is engaged in any business that would be competitive
with the Business, the Projects or any business or operations of Buyers, the
Partnerships or any of their Affiliates (without regard to geographic proximity
or product type), and (B) each of Thompson and Street hereby agree that for a
period commencing on the date hereof and ending on the date that is in five (5)
years following the date upon which they respectively cease to be either an
officer or director of any of Buyers, they will not, except (i) with respect to
Vistas I & II, and (ii) as permitted above and except with respect to any
relationship between them and Buyer or any of Buyer's Affiliates, directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be connected as a shareholder, director,
officer, employee, partner, consultant or otherwise with, any business, firm,
entity or organization, which, directly or indirectly, is engaged in any
business that would be competitive with the Business, Projects or any business
or operations of Buyers, Partnerships or any of their Affiliates (without regard
to geographic proximity or product type). In the event that Thompson or Street
is terminated without cause from all forms of employment by Buyers and their
Affiliates, or if Buyers determine to no longer continue the Business or if the
annual base compensation of Thompson or Street, as the case may be, is reduced
below $240,000 without cause, then Thompson or Street, as the case may be, shall
no longer be bound by the provisions of this Section 6.08, and in the case of
Thompson, the License Agreement shall thereafter become a non-exclusive right to
use the name "Kathryn G. Thompson" and derivation or extrapolation thereof.

(b) The parties to this Covenant Not to Compete acknowledge and agree that
the time, scope and other provisions of this Section 6.08 have been specifically
negotiated by sophisticated, commercial parties and specifically hereby agree
that such time, scope and other provisions are reasonable under the
circumstances. Buyers, Sellers, Thompson and Street further agree that if, at
any time, despite the express agreement of the parties to this Covenant Not to
Compete, a court of competent jurisdiction holds that any portion of this
Section 6.08 is unenforceable by reason of its being too extensive in any
respect, it shall be interpreted to extend only over the maximum period of time
for which it may be enforceable and over the maximum geographical area as to
which it may be enforceable and to the maximum extent in all other respects as
to which it may be enforceable, all as determined by the court in any action.

(c) Sellers, Thompson and Street acknowledge that a breach of the covenant
contained in this Section 6.08 will cause irreparable damage to Buyers, the
exact amount of which will be difficult to ascertain, and that the remedies at
law for any such breach will be inadequate. Accordingly, Sellers, Thompson and
Street agree that in the event of a breach of the-covenant contained in this
Section 6.08, in addition to any other remedy which may be

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available at law or in equity, Buyers shall be entitled, in addition to any
other rights or remedies existing in its favor, to specific performance and
injunctive relief, without posting bond or other security.

SECTION 6.09 KREG BOARD REPRESENTATION. After the Closing Date, Sellers
shall be permitted to jointly nominate one (1) person for election to the Board
of Directors of KREG and one (1) additional director following the second
anniversary of the Closing Date.

SECTION 6.10 INCENTIVE COMPENSATION. To the extent Thompson and Street
become executive officers of Buyers or their Affiliates, an incentive
compensation plan shall be adopted to provide for the ability to receive 30% in
the aggregate of the annual net profits from the operations of the Business,
after Buyers have received a 20% cumulative annual preferred return on $2.2
million.

SECTION 6.11 TAX ELECTION FORMS. MOHI, KGTC, Thompson, Street and
Residential Sub agree (i) to jointly make an election and to prepare and deliver
for filing with the IRS on the Closing Date, election forms to treat the sale of
the KGTC Stock as an asset sale under Section 338(h)(10) of the Internal Revenue
Code of 1986 (such election forms are herein referred to as the "Tax Election
Forms," copies of which are attached hereto as EXHIBIT B); and (ii) to jointly
make an election and to prepare, and deliver for filing in connection with their
next annual California tax returns, such documents as are necessary in order to
make a corresponding election under the California Revenue and Taxation Code.

SECTION 6.12 NOTES. Residential Sub shall deliver the Notes pursuant to
Section 1.03(f) to each of Thompson and Street.

ARTICLE VII
INDEMNIFICATION

SECTION 7.01 SURVIVAL. All of the representations, warranties and
covenants of Buyers, Sellers, Thompson and Street contained in this Agreement
(other than the provisions of Sections 6.08, 7.02(b) and 7.03(c), which shall
survive and operate in accordance with their respective terms) shall survive the
Closing and continue in full force and effect until the end of the thirty-sixth
(36th) full month following the Closing Date (the "Expiration Date").

SECTION 7.02 INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYERS.

(a) In the event Sellers, Thompson or Street ("Seller Indemnitors") breach
any of their representations, warranties, and covenants contained in this
Agreement, and provided that Buyers make a written claim for indemnification
against Seller Indemnitors on or prior to the Expiration Date, then such of the
Seller Indemnitors that have breached their representations, warranties or
covenants agree to indemnify Buyers from and against the entirety of any Damages
Buyers may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by the
breach; provided, however, that the amount of such Damages either on a per
occurrence basis or in the aggregate for multiple occurrences is greater than or
equal to $10,000; and

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provided, further, that the aggregate amount of indemnification payable by
Thompson and Street shall be limited ("Indemnification Limit") to an aggregate
of (i) a return of the Shares together with an amount equal to the proceeds from
any sale or disposition of any of the Shares, (ii) a return of the Warrants
together with an amount equal to the proceeds from any sale or disposition of
any of the Warrants or the underlying Shares, (iii) the cancellation of the
Notes and the return of any amounts paid thereon, and (iv) the reduction of any
incentive compensation which may thereafter be payable to Thompson or Street
pursuant to any employment arrangement between them and any of Buyers or their
Affiliates. With respect to the Indemnification Limit, Buyers shall have full
discretion to decide which of items (i) through (iv) above shall be used to
satisfy, at any time, Seller Indemnitors' obligations pursuant to any provision
of Section 7.02(a) or (b). For purposes of this Agreement, "Damages" shall mean
all out-of-pocket charges, complaints, actions, suits, proceedings, hearings,
investigations, claims, demands, judgments, orders, decrees, stipulations,
injunctions, losses, damages, punitive damages, treble damages, dues,
deficiencies, penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses, interests, and fees, including all
fees, disbursements and expenses of counsel, experts and consultants and court
costs. To the extent that any representation or warranty contained in Article
III is not true and correct in all respects, Seller Indemnitors shall indemnify
Buyers (up to the Indemnification Limit) for the cost of any necessary or
desirable repair, clean-up, detoxification, closure or other remedial action
with respect to Use of Hazardous Materials on, from or under or in connection
with any Acquired Asset or Partnership Asset. Seller Indemnitors agree that
Buyers shall have the right to offset any Damages against the Shares, Notes,
Warrants and incentive compensation referred to above. Buyers agree that there
shall be no recourse to Thompson or Street for the breach by Sellers of Sellers'
obligations under this Agreement.

(b) Thompson and Street (up to the Indemnification Limit) and Sellers
(without limitation) agree at all times after the date of this Agreement to
indemnify, protect, defend and hold harmless Buyers from and against any and all
Damages directly or indirectly arising from any (i) misrepresentation of
Sellers, Thompson or Street contained herein to the extent Sellers, Thompson or
Street are responsible for such misrepresentations, (ii) breach of any warranty
or covenant of Sellers Thompson or Street contained herein to the extent
Sellers, Thompson or Street are responsible for such breach, or (iii) personal
injury, property damage, contractual or other claims in connection with the
Retained Assets, KGTC Assets, Acquired Assets or the Business; provided that
such claims for Damages are attributable to events or acts or omissions during
the period on or before Closing Date; and provided, further, that the amount of
such Damages either on a per occurrence basis or in the aggregate for multiple
occurrences is greater than or equal to $10,000.

SECTION 7.03 INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLERS.

(a) In the event Buyers breach any of their representations, warranties,
and covenants contained in this Agreement, and provided that Sellers, Thompson
or Street ("Seller Indemnitees") make a written claim for indemnification
against Buyers on or prior to the Expiration Date, then Buyers agree to
indemnify Seller Indemnitees from and against the entirety of any Damages Seller
Indemnitees may suffer through and after the date of the

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claim for indemnification resulting from, arising out of, relating to, in the
nature of, or caused by the breach; provided, however, that the amount of such
Damages either on a per occurrence basis or in the aggregate for multiple
occurrences is greater than or equal to $10,000.

(b) Buyers (other than KREG) agree to indemnify Seller Indemnitees from
and against any and all Damages Seller Indemnitees may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Assumed
Liability to the extent such damages have been caused solely by the acts or
omissions of Buyers (other than KREG) after the Closing Date; it being
understood and agreed by all parties hereto that KREG shall have no
responsibility, liability or obligation of any kind whatsoever with respect to
any of the Assumed Liabilities; provided, however, that the amount of such
Damages either on a per occurrence basis or in the aggregate for multiple
occurrences is greater than or equal to $10,000.

(c) KREG agrees at all times after the date of this agreement to indemnify
Seller Indemnitees from and against any and all Damages Seller Indemnitees may
suffer resulting from, arising out of, relating to, in the nature of, or caused
solely by the acts or omissions of KREG prior to or after the Closing Date; it
being understood and agreed by all parties hereto that KREG shall have no
responsibility, liability or obligation of any kind whatsoever with respect to
any of the Assumed Liabilities other than the KREG Guarantee if executed and
delivered; provided, however, that the amount of such Damages either on a per
occurrence basis or in the aggregate for multiple occurrences is greater than or
equal to $10,000.

SECTION 7.04 MATTERS INVOLVING THIRD PARTIES.

(a) If any third party shall notify any party hereto (the "Indemnified
Party") with respect to any matter which may give rise to a claim for
indemnification against the other party hereto (the "Indemnifying Party") under
this Article VII, then the Indemnified Party shall notify the Indemnifying Party
thereof promptly; PROVIDED, HOWEVER, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is damaged. In the event
the Indemnifying Party notifies the Indemnified Party within 15 days after the
Indemnified Party has given notice of the matter that the Indemnifying Party is
assuming the defense thereof, (i) the Indemnifying Party will defend the
Indemnified Party against the matter with counsel of the Indemnifying Party
choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified
Party may retain separate co-counsel at its sole cost and expense (except that
the Indemnifying Party will be responsible for the fees and expenses of the
separate co-counsel to the extent the Indemnified Party reasonably concludes
that the counsel the Indemnifying Party has selected has a conflict of
interest), (iii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld unreasonably), and
(iv) the Indemnifying Party will not consent to the entry of any judgment with
respect to the matter, or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written

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consent of the Indemnified Party (not to be withheld unreasonably). In the
event the Indemnifying Party fails to notify the Indemnified Party within 15
days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, the Indemnified Party may
defend against, or enter into any settlement with respect to, the matter in any
manner it reasonably may deem appropriate.

(b) With respect to those third party claims referred to in Section
7.02(b) above, Sellers and Buyers agree that, in furtherance of the principles
set forth in Section 7.02, they shall work together to coordinate their defense
efforts; PROVIDED, HOWEVER, that such agreement shall in no way restrict the
ability of Buyers to take any necessary action to cause Sellers to be added as a
co-defendant to any legal action. If Damages shall at any time be assessed
against Buyers in connection with any such third-party claim and as a result
thereof Sellers shall make an indemnification payment to Buyers pursuant to
Section 7.02(b) above, then Buyers agree that it shall take all necessary action
to cause Sellers to be subrogated to Buyers' rights as against third parties
with respect to such claim, including rights to equitable contribution, up to an
amount equal to the amount of the indemnification payment actually made by
Sellers.

ARTICLE VIII
TERMINATION

SECTION 8.01 TERMINATION OF AGREEMENT. This Agreement may be terminated
prior to Closing in the manner provided below:

(i) Buyers and Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing.

(ii) If Buyers are not in material breach of their obligations under
this Agreement, Buyers may terminate this Agreement by giving written
notice to Sellers at any time prior to the Closing in the event that
Sellers are in breach of any material representation, warranty or covenant
contained in this Agreement in any material respect and such breach has not
been promptly cured after such notice has been delivered, which notice
shall be in reasonable detail.

(iii) If Sellers are not in material breach of its obligations
under this Agreement, Sellers may terminate this Agreement by giving
written notice to Buyer at any time prior to Closing in the event that
Buyer is in breach of any material representation, warranty or covenant
contained in this Agreement in any material respect and such breach has not
been promptly cured after such notice has been delivered, which notice
shall be in reasonable detail.

(iv) Buyers may terminate this Agreement at any time prior to the
Closing Date if Buyers disapprove the Due Diligence Review in Buyers' sole
discretion.

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<PAGE>

(v) Either of Buyers or Sellers may terminate this Agreement by
giving written notice to the other if the Closing shall not have occurred
on or prior to the Closing Date.

SECTION 8.02 EFFECT OF TERMINATION. If any party shall terminate this
Agreement pursuant to Section 8.01 above, all obligations of the parties
hereunder shall terminate, except as set forth in Section 5.06. Notwithstanding
the foregoing, in the event of a breach of this Agreement by any party hereto,
nothing herein shall limit the remedies at law or in equity of the other parties
with respect thereto.

ARTICLE IX
MISCELLANEOUS

SECTION 9.01 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person or entity other than the actual
parties hereto, the partners of Sellers, and their respective successors and
permitted assigns.

SECTION 9.02 ENTIRE AGREEMENT. This Agreement (together with the
Schedules hereto) constitute the entire understanding and agreement of the
parties with respect to the subject matter hereof and thereof and supersede the
Letter of Intent dated August 15, 1994, and all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto except the
Confidentiality Agreement, which shall continue in full force and effect.

SECTION 9.03 SUCCESSION AND ASSIGNMENT. Buyers shall not assign their
rights under this Agreement without Sellers' prior written consent, which
Sellers shall not unreasonably withhold as to an assignment to a wholly owned
subsidiary of Buyer, PROVIDED that no such assignment shall relieve Buyers of
any obligation hereunder and Buyers shall continue to be fully liable and
responsible therefor. Sellers shall not assign their respective rights and
obligations under this Agreement without Buyers' prior written consent. Any
other attempted transfer or assignment of this Agreement shall be null and void.

SECTION 9.04 HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

SECTION 9.05 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if it is sent
by registered or certified mail, postage prepaid, or sent by prepaid overnight
courier or confirmed telecopier, and addressed to the intended recipient as set
forth below:

If to Sellers: c/o Kathryn G. Thompson Company
95 Argonaut, Suite 200
Aliso Viejo, California 92656
Attention: Kathryn G. Thompson and J. Harold Street

-36-

<PAGE>

with copy to: Palmieri, Tyler, Wiener, Wilhelm & Waldron
2603 Main Street
East Tower, Suite 1300
Irvine, California 92714
Attention: Dennis G. Tyler, Esq.

If to Buyers: Koll Real Estate Group
4343 Von Karman Avenue
Newport Beach, California 92660
Attention: Raymond J. Pacini

with copy to: Brobeck, Phleger & Harrison
4675 MacArthur Court
Suite 1000
Newport Beach, California 92660
Attention: Gregory W. Preston, Esq.

Such communications shall be effective when they are received by the addressee
thereof. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other party notice in the manner herein set forth.

SECTION 9.06 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.

SECTION 9.07 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyers and Sellers. No waiver by any party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.

SECTION 9.08 SEVERABILITY. Any provision of this Agreement which is found
by a court of competent jurisdiction to be illegal, invalid or unenforceable
shall be deemed severed from the Agreement and shall not affect the continuing
legality, validity or enforceability of the remaining terms and provisions.

SECTION 9.09 CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party. Any
reference to any federal, state, commonwealth, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Nothing in the Schedules
attached to and made part of this Agreement shall be deemed adequate to disclose
an exception to a representation or warranty made herein unless a reasonable
person would conclude that the particular Schedule relating to such warranty or
representation identifies the exception with sufficient detail and particularity
to give reasonable notice thereof or, if the

-37-

<PAGE>

disclosure is made in a different Schedule and not in the particular Schedule
relating to such warranty or representation, such Schedule identifies such
exception with sufficient particularity so that a reasonable person reading
this Agreement and Schedules with the keen interest that could normally be
attributed to someone making a commitment as substantial as that the Buyers will
be making by closing based on the terms of this Agreement and Schedules hereto
would recognize the matter as an exception to such warranty and representation.
The parties intend that each representation, warranty, and covenant contained
herein shall have independent significance.

SECTION 9.10 INCORPORATION OF SCHEDULES. The Schedules identified in this
Agreement are incorporated herein by reference and made part hereof.

SECTION 9.11 TIME OF THE ESSENCE. Time is of the essence of every
provision of this Agreement.

SECTION 9.12 ATTORNEYS' FEES. In the event of any litigation between
Buyers and Sellers arising under or relating to this Agreement or the
transactions contemplated hereby, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and court costs incurred, including but
not limited to attorneys' fees after the award, and prior to the payment, of any
judgment or other settlement.

SECTION 9.13 BUSINESS DAY. The term "Business Day" shall mean any day
other than a Saturday, Sunday or day on which banks in California are authorized
to be closed for business.

SECTION 9.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

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

KOLL REAL ESTATE GROUP, INC.

By:/s/ RAYMOND J. PACINI
-----------------------
Raymond J. Pacini
Executive Vice President and Chief
Financial Officer

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<PAGE>

KATHRYN G. THOMPSON COMPANY, a Delaware
corporation

By:/s/ RAYMOND J. PACINI
-----------------------
Raymond J. Pacini
Executive Vice President and Chief
Financial Officer

THE OCEANSIDE COMPANY

By:/s/ RAYMOND J. PACINI
-----------------------
Raymond J. Pacini
Executive Vice President and Chief
Financial Officer

KATHRYN G. THOMPSON CONSTRUCTION COMPANY, a
California corporation

By:/s/ KATHRYN G. THOMPSON
-------------------------
Kathryn G. Thompson
Chief Executive Officer

MONTARA OCEANSIDE HOMES, INC., a California
corporation

By:/s/ KATHRYN G. THOMPSON
-------------------------
Kathryn G. Thompson
Chief Executive Officer

By:/s/ J. HAROLD STREET
----------------------
J. Harold Street
President

-39-

<PAGE>

MYSTRA HOMES, INC., a California corporation

By:/s/ KATHRYN G. THOMPSON
-------------------------
Kathryn G. Thompson
Chief Executive Officer

/s/ KATHRYN G. THOMPSON
-------------------------
KATHRYN G. THOMPSON

/s/ J. HAROLD STREET
----------------------
J. HAROLD STREET

-40-

<PAGE>

AGREEMENT RESPECTING VESTING OF RIGHTS

THIS AGREEMENT RESPECTING VESTING OF RIGHTS ("Agreement") is entered
into effective as of ___________________, 199_, by and between KREG-OC, INC., a
Delaware corporation, or any successor entity who is the employer of Employee
(as hereafter defined) ("KREG"), KREG-OC, L.P., a California limited partnership
(the "Partnership") and _____________________, an individual ("Employee").

R E C I T A L S :

A. Employee is an employee of KREG.

B. Employee has acquired a limited partnership interest in the
Partnership. The Partnership was formed pursuant to, and is governed by, that
certain Agreement of Limited Partnership of KREG-OC, L.P., as amended from time
to time (the "Partnership Agreement"). The Partnership was formed for the
purpose of acquiring, developing, owning, managing, operating, holding for
investment, selling and otherwise realizing the economic benefits of, real
property and/or interests in general partnerships, limited partnerships,
corporations and/or any other entities holding interest in real property
(collectively, the "Project Interests" and individually, a "Project Interest").
Employee as a limited partner in the Partnership has, and may hereafter acquire,
percentage interest(s) in the profits, losses and cash distributions of the
Partnership related to one (1) or more of the Project Interests (collectively,
the "Project Percentages" and individually, a "Project Percentage").

C. Some of the Project Interests (collectively, the "Single-Phase
Development Project Interests" and individually, a "Single Phase Development
Project Interest") are single-phase development projects so that the development
of the real property will occur in one Phase (as hereinafter defined). Other
Project Interests (collectively, the "Multi-Phase Project Interests" and
individually, a "Multi-Phase Project Interest") are multi-phase projects so that
the development or land sales of the real property will occur in two or more
phases, although in certain instances an entity in which the Partnership holds a
Multi-Phase Project Interest or the Partnership, where the Multi-Phase Project
Interest held by the Partnership is a direct interest in the real property, may
transfer Phase(s) to a separate and distinct entity(ies) (a "Spin-Out Entity")
in which the Partnership holds an ownership interest (collectively, the "Spin-
Out Project Interests" and individually, a "Spin-Out Project Interest"). Any
real property which is originally a part of a Multi-Phase Project Interest and
is not transferred to a Spin-Out Entity shall be considered as part of a Multi-
Phase Project Interest even if only one Phase of development or sale remains.
For purposes of this Agreement, the term "Phase" shall mean (i) a building or
buildings (together with the underlying fee or leasehold) designed to be
constructed in a continuous time period as determined by the Executive Committee
in its sole and absolute discretion with respect to Multi-Phase Project
Interests the purpose of which is the development of improved real property and
(ii) separate legal parcels designed to be subdivided and sold in a continuous
time period as

<PAGE>

determined by the Executive Committee in its sole and absolute discretion with
respect to Multi-Phase Project Interests the purpose of which is the sale of
unimproved (other than infrastructure improvements) real property.

D. Other Project Interests are real property improved with a
building or buildings, or entities holding such improved real property, acquired
for the purpose of holding such improved real property for investment and/or
selling such improved real property, which may include rehabilitation of such
improved real property (the "Acquisition Project Interests").

E. KREG and Employee desire to formalize their Agreement with
respect to the vesting of Employee's rights in Employee's Project Percentages.

NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

1. VESTING OF EMPLOYEE'S PROJECT PERCENTAGE IN SINGLE-PHASE
DEVELOPMENT PROJECT INTERESTS. If Employee is hereafter granted a Project
Percentage in a Single-Phase Development Project Interest and Employee's
employment with KREG is terminated for any reason, with or without cause, during
the first five (5) years following Employee's acquisition of such Project
Percentage, then Employee's vested percentage interest in such Project
Percentage shall be equal to the product of such Project Percentage multiplied
by the fraction, the numerator of which is the number of full calendar months
that Employee was employed by KREG during such five (5) year period and the
denominator of which is sixty (60); provided, however, notwithstanding the
foregoing, Employee shall be one hundred percent (100%) vested in such Project
Percentage from and after the date the real property owned by the entity in
which the Partnership holds such Single Phase Development Project Interest or
owned by the Partnership, where such Single Phase Development Project Interest
is a direct interest in the real property, is eighty-five percent (85%) or more
occupied by rent-paying tenants pursuant to executed tenancy agreements.

2. VESTING OF EMPLOYEE'S PROJECT PERCENTAGE IN ACQUISITION PROJECT
INTERESTS. If Employee is hereafter granted a Project Percentage in an
Acquisition Project Interest and Employee's employment with KREG is terminated
for any reason, with or without cause, during the first two (2) years following
Employee's acquisition of such Project Percentage, then Employee's vested
percentage interest in such Project Percentage shall be equal to the product of
such Project Percentage multiplied by the fraction, the numerator of which is
the number of full calendar months that Employee was employed by KREG during
such two (2) year period and the denominator of which is twenty-four (24);
provided, however, notwithstanding the foregoing, Employee shall be one hundred
percent (100%) vested in such Project Percentage from and after the date the
real property owned by the entity in which the Partnership holds such
Acquisition Project Interest or owned by the Partnership, where such Acquisition
Project Interest is a direct interest in the real property, is eighty-five
percent (85%) or more occupied by rent-paying tenants pursuant to executed
tenancy agreements.

<PAGE>

3. VESTING OF EMPLOYEE'S PROJECT PERCENTAGE IN MULTI-PHASE PROJECT
INTERESTS AND SPIN-OUT PROJECT INTERESTS. If Employee is hereafter granted a
Project Percentage in a Multi-Phase Project Interest, such Project Percentage,
or Employee's Project Percentage in a Spin-Out Project Interest held by the
Partnership in a Spin-Out Entity to which a Phase may be transferred, shall vest
as provided below:

(a) If Employee's employment with KREG is terminated for any
reason, with or without cause, and, as of the date of such termination,
construction of a building on a Phase of real property comprising part of
such Multi-Phase Project Interest has not commenced, then Employee's vested
percentage interest in Employee's Project Percentage in such Multi-Phase
Project Interest as it relates to such Phase shall be equal to one-half
(1/2) of the product of such Project Percentage multiplied by the fraction,
the numerator of which is the number of full calendar months that Employee
was employed by KREG during the five (5) year period commencing with
Employee's acquisition of such Project Percentage and the denominator of
which is sixty (60).

(b) If Employee's employment with KREG is terminated for any
reason, with or without cause, and, as of the date of such termination,
construction of a building on a Phase of real property comprising part of
such Multi-Phase Project Interest has commenced, then Employee's vested
percentage interest in Employee's Project Percentage in such Multi-Phase
Project Interest as it relates to such Phase shall be equal to the sum of
(i) one-third (1/3) of the product of such Project Percentage multiplied by
the fraction, the numerator of which is the number of full calendar months
during the period commencing with Employee's acquisition of such Project
Percentage and ending on the date of recordation of a construction loan
with respect to such building and the denominator of which is sixty (60)
plus (ii) the product of such Project Percentage less the percentage
interest calculated pursuant to clause (i) of this Paragraph 3(b)
multiplied by the fraction, the numerator of which is the number of full
calendar months that Employee was employed by KREG during the five (5) year
period commencing with the date of recordation of such construction loan
and the denominator of which is sixty (60).

(c) If Employee's employment with KREG is terminated for any
reason, with or without cause, and, as of the date of such termination, a
Phase of real property originally comprising part of a Multi-Phase Project
Interest has been transferred to a Spin-Out Entity, then Employee's vested
percentage interest in Employee's Project Percentage in the Partnership's
Spin-Out Project Interest in such Spin-Out Entity shall be equal to the sum
of (i) one-third (1/3) of the product of such Project Percentage multiplied
by the fraction, the numerator of which is the number of full calendar
months during the period commencing with Employee's acquisition of
Employee's Project Percentage in the Multi-Phase Project Interest of which
the Phase transferred to such Spin-Out Entity was originally a part and
ending on the date of recordation of the deed conveying title to such Phase
to such Spin-Out Entity and the denominator of which is sixty (60) plus
(ii) the product of such Project Percentage less the percentage interest
calculated pursuant to clause (i) of this Paragraph 3(c) multiplied by the
fraction, the numerator of which is the number of full calendar months that
Employee has been employed by KREG during the

<PAGE>

five (5) year period commencing with the date of recordation of such deed
and the denominator of which is sixty (60).

(d) For purposes of this Paragraph 3, construction of a building
on a Phase shall be deemed to have occurred as of the date of receipt of a
building permit for the foundation for such building.

4. TERMINATION OF EMPLOYMENT. In the event Employee's employment
with KREG is terminated for any reason, with or without cause, and Employee's
Project Percentage for a particular Project Interest has not completely vested,
the unvested portion of Employee's Project Percentage for such Project Interest
shall automatically terminate and be of no further force or effect. Employee
shall execute any and all documentation to effect such termination. To the
extent that Employee's Project Percentage is decreased by the operation of this
Agreement, the unvested portion of Employee's Project Percentage shall be
allocated among the other partners in the Partnership who hold Project
Percentages in such Project Interest including, without limitation, KREG, and/or
any other employee of KREG, as determined by the Executive CommitteePresident of
KREG. For purposes of this Agreement, Employee's employment prior to the
effective date of this Agreement with The Koll Company and/or Koll Management
Services, Inc. shall be considered as employment with KREG.

5. OBLIGATION TO RESTORE NEGATIVE CAPITAL ACCOUNT. Nothing set
forth in this Agreement shall be deemed to limit, modify or amend Employee's
obligation, if any, to restore his negative capital account in the Partnership,
which obligation is more particularly set forth in the Partnership Agreement.

6. NET PROFITS, NET LOSSES AND DISTRIBUTIONS. During Employee's
employment with KREG, the net profits, net losses and cash distributions
(including, without limitation, the distribution of net operating cash flow or
the proceeds from the sale or refinancing of partnership property) for the
various Project Interests in which Employee has a Project Percentage shall be
allocated and distributed to Employee based on his Project Percentage and
without regard to the vesting provisions of Paragraphs 1, 2 and 3 above (but
subject to the provisions of that certain Netting Agreement by and between KREG
and Employee). However, effective upon the date Employee's employment with KREG
is terminated for any reason, with or without cause, the net profits, net losses
and cash distributions which shall thereafter be allocated or distributed to
Employee shall be based on the vested portion of his Project Percentages as
provided in Paragraphs 1, 2 and 3 above.

7. EXECUTIVE COMMITTEE. The Executive Committee shall be composed
of three (3) members, the President of KREG and two (2) KREG corporate officers
selected by KREG. Decisions of the Executive Committee shall be made by a
majority thereof, each member casting one (1) vote.

8. PROJECT PERCENTAGES IN OTHER PROJECT INTERESTS. In the event
Employee is hereafter granted a Project Percentage in a Project Interest which
is not covered by the standard vesting guidelines of Paragraph 1, 2 or 3 as
evidenced by a negative response to the standard vesting guidelines inquiry on
the applicable Project Interest exhibit to the Partnership Agreement,

<PAGE>

then, concurrently with the grant of such Project Percentage, the Executive
Committee and Employee shall agree on a vesting schedule for such Project
Percentage.

9. EVIDENCE OF ACQUISITION OF PROJECT PERCENTAGE. For purposes of
this Agreement, the acquisition of a Project Percentage shall be evidenced only
and conclusively by Employee's execution of the applicable Project Interest
exhibit to the Partnership Agreement.

10. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing, and shall be delivered or sent, as the
case may be, by any of the following methods: (i) personal delivery, (ii)
overnight commercial carrier, (iii) registered or certified mail, postage
prepaid, return receipt requested, or (iv) telegraph, telex, telecopy or cable.
Any such notice or other communication shall be deemed received and effective
upon the earlier of (a) if personally delivered, the date of delivery to the
address of the person to receive such notice; (b) if delivered by overnight
commercial carrier, one day following the receipt of such communication by such
carrier from the sender as shown on the sender's delivery invoice from such
carrier; (c) if mailed, two (2) business days after the date of posting by the
United States post office; (d) if given by telegraph or cable, when delivered to
the telegraph company with charges prepaid; or (e) if given by telex or
telecopy, when sent. Any notice or other communication sent by cable, telex or
telecopy must be confirmed within forty-eight (48) hours by letter mailed or
delivered in accordance with the foregoing. Any reference herein to the date of
receipt, delivery, or giving, or effective date, as the case may be, of any
notice or other communication shall refer to the date such communication becomes
effective under the terms of this Paragraph 10. Any such notice or other
communication so delivered shall be addressed to the party to be served at the
address set forth below:

To KREG: KREG-OC, INC.
4343 Von Karman Avenue
Newport Beach, California 92660
Attention: President
With a copy to: Chief Financial Officer

To Employee: ____________________________
____________________________
____________________________
Attention:__________________

Notice of change of address shall be given by written notice in the manner
detailed in this Paragraph 10. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to constitute receipt of the notice or communication sent.

11. ENTIRE AGREEMENT. This Agreement supersedes any prior
agreements, including, without limitation, any prior vesting agreements and
amendments thereto entered into by the parties, negotiations and communications,
oral or written, and contains the entire agreement between KREG and Employee as
to the subject matter hereof. No subsequent agreement, representation or
promise made by either party hereto, or by or to an employee,

<PAGE>

officer, agent or representative of either party shall be of any effect unless
it is in writing and executed by the party to be bound thereby.

12. LEGAL FEES. In the event of the bringing of any action or suit
by a party hereto against another party hereunder by reason of any breach of any
of the covenants or agreements or any inaccuracies in any of the representations
and warranties on the part of the other party arising out of this Agreement,
then in that event, the prevailing party in such action or dispute, whether by
final judgment or out of court settlement, shall be entitled to have and recover
of and from the other party all costs and expenses of suit, including actual
attorneys' fees.

13. TIME OF ESSENCE. Time is of the essence of each and every term,
condition, obligation and provision hereof.

14. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument. The signature of any
party hereto to any counterpart hereof shall be deemed a signature to, and may
be appended to, any other counterpart hereof.

15. CAPTIONS. Any captions to, or headings of, the paragraphs or
subparagraphs of this Agreement are solely for the convenience of the parties
hereto, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.

16. NO OBLIGATIONS TO THIRD PARTIES. Except as otherwise expressly
provided herein, the execution and delivery of this Agreement shall not be
deemed to confer any rights upon, nor obligate any of the parties thereto, to
any person or entity other than the parties hereto.

17. AMENDMENT TO THIS AGREEMENT. The terms of this Agreement may not
be modified or amended except by an instrument in writing executed by each of
the parties hereto.

18. WAIVER. The waiver or failure to enforce any provision of this
Agreement shall not operate as a waiver of any future breach of any such
provision or any other provision hereof.

19. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

20. SEVERABILITY. If any part of this Agreement for any reason is
declared invalid, such decision shall not affect the validity of any remaining
portion, which remaining portion shall remain in force and effect as if the
Agreement had been executed with the invalid portion thereof eliminated.

21. POWER OF ATTORNEY. Employee hereby makes, constitutes and
appoints KREG with power of substitution, Employee's true and lawful attorney-
in-fact for Employee and in Employee's name, place and stead and for Employee's
benefit, to execute any and all documents necessary to reflect a reduction in
Employee's Project Percentage in a Project Interest pursuant to

<PAGE>

the terms of this Agreement. The power of attorney granted hereby shall be
deemed to be coupled with an interest and shall be irrevocable and shall survive
Employee's death or disability.

22. FEES AND OTHER EXPENSES. Except as otherwise provided herein,
each of the parties shall pay its own fees and expenses in connection with this
Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

KREG: KREG-OC, INC., a Delaware corporation

By:___________________________________
Raymond E. Wirta,
Chief Executive Officer

Partnership: KREG-OC, L.P., a California limited partnership

By: KREG Operating Co., a Delaware
corporation,
General Partner

By:__________________________________
Raymond E. Wirta,
Chief Executive Officer

Employee: ____________________________________

<PAGE>

SCHEDULE 10.2

<PAGE>

AGREEMENT OF LIMITED PARTNERSHIP

KREG - OC, L.P.

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), IN RELIANCE
UPON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 4(2) OF THE ACT AND
REGULATION D PROMULGATED THEREUNDER AND SECTION 3(A)(11) OF THE ACT AND
REGULATION 147 PROMULGATED THEREUNDER. IN ADDITION, THE ISSUANCE OF THIS
SECURITY WAS NOT QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF
1968, AS AMENDED (THE "CALIFORNIA LAW"), IN RELIANCE UPON THE EXEMPTION FROM
QUALIFICATION PROVIDED BY SECTION 25102(f) OF THE CALIFORNIA LAW. IT IS UNLAWFUL
TO CONSUMMATE A SALE OR OTHER TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN
TO, OR TO RECEIVE ANY CONSIDERATION THEREFOR FROM, ANY PERSON WITHOUT THE
OPINION OF COUNSEL FOR THE PARTNERSHIP THAT THE PROPOSED SALE OR OTHER TRANSFER
OF THIS SECURITY DOES NOT AFFECT THE AVAILABILITY TO THE PARTNERSHIP OF SUCH
EXEMPTIONS FROM REGISTRATION AND QUALIFICATION, AND THAT SUCH PROPOSED SALE OR
OTHER TRANSFER IS IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES
LAWS. THE TRANSFER OF THIS SECURITY IS FURTHER RESTRICTED UNDER THE TERMS OF THE
PARTNERSHIP AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE PARTNERSHIP. THIS
SECURITY MAY NOT BE RESOLD TO ANY PERSON OTHER THAN A RESIDENT OF THE STATE OF
CALIFORNIA FOR A PERIOD OF NINE (9) MONTHS FROM THE DATE OF THE SALE OF ANY
SECURITIES OF THE PARTNERSHIP THAT ARE PART OF THE SAME ISSUE.

<PAGE>

AGREEMENT OF LIMITED PARTNERSHIP OF KREG-OC, L.P.

TABLE OF CONTENTS

PAGE

ARTICLE I FORMATION AND AGREEMENT OF LIMITED
PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.01 Formation. . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Certificate of Limited Partnership . . . . . . . . . . . 1
1.03 Name of Partnership. . . . . . . . . . . . . . . . . . . 1
1.04 Principal Executive Office . . . . . . . . . . . . . . . 1
1.05 Nature of Business . . . . . . . . . . . . . . . . . . . 2
1.06 Fiduciary Duties . . . . . . . . . . . . . . . . . . . . 2
1.07 Names and Addresses of the Partners. . . . . . . . . . . 3
1.08 Term of Partnership. . . . . . . . . . . . . . . . . . . 3

ARTICLE II MANAGEMENT OF THE PARTNERSHIP BY
THE GENERAL PARTNER. . . . . . . . . . . . . . . . . . . . . . . 4

2.01 Powers of the General Partner. . . . . . . . . . . . . . 4
2.02 Liability of the General Partner . . . . . . . . . . . . 4
2.03 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 4
2.04 Restrictions and Limitations on the Limited Partners . . 5
2.05 Reimbursed Expenses. . . . . . . . . . . . . . . . . . . 5

ARTICLE III PARTNERS' CONTRIBUTIONS TO
PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.01 Initial Contributions by the Partners. . . . . . . . . . 6
3.02 Interim Financing. . . . . . . . . . . . . . . . . . . . 6
3.03 Contributions on Liquidation of Project Interest . . . . 7
3.04 Capital Contributions in General . . . . . . . . . . . . 8

ARTICLE IV ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTION OF CASH FLOW. . . . . . . . . . . . . . . . . . . . 8

4.01 Net Losses . . . . . . . . . . . . . . . . . . . . . . . 8

"-i-"

<PAGE>

4.02 Net Profits. . . . . . . . . . . . . . . . . . . . . . . 8
4.03 Special Allocations. . . . . . . . . . . . . . . . . . . 8
4.05 Differing Tax Basis; Tax Allocation. . . . . . . . . . . 9

ARTICLE V DISTRIBUTION OF CASH FLOW. . . . . . . . . . . . . . . 9

5.01 Distribution of Cash Flow. . . . . . . . . . . . . . . . 9
5.02 In-Kind Distribution . . . . . . . . . . . . . . . . . . 9

ARTICLE VI RESTRICTIONS ON TRANSFERS OF
PARTNERSHIP INTERESTS. . . . . . . . . . . . . . . . . . . . . . 9

6.01 Limitations on Transfer. . . . . . . . . . . . . . . . . 9
6.02 Right of First Refusal . . . . . . . . . . . . . . . . .10
6.03 Permitted Transfers. . . . . . . . . . . . . . . . . . .10
6.04 Admission of Substituted Partners. . . . . . . . . . . .11
6.05 Restrictions on Assignees. . . . . . . . . . . . . . . .11
6.06 Election . . . . . . . . . . . . . . . . . . . . . . . .12
6.07 Allocations Between Transferor and Transferee. . . . . .12
6.08 Partition. . . . . . . . . . . . . . . . . . . . . . . .12
6.09 Waiver of Sections 15042 and 15664 . . . . . . . . . . .12

ARTICLE VII REPRESENTATIONS AND WARRANTIES . . . . . . . . . . .13

7.01 Securities Laws Exemption. . . . . . . . . . . . . . . .13
7.02 No Tax Ruling. . . . . . . . . . . . . . . . . . . . . .13
7.03 Familiarity with Business. . . . . . . . . . . . . . . .13
7.04 Knowledge and Experience . . . . . . . . . . . . . . . .14
7.05 Information. . . . . . . . . . . . . . . . . . . . . . .14
7.06 Speculative Investment . . . . . . . . . . . . . . . . .14
7.07 No Sale. . . . . . . . . . . . . . . . . . . . . . . . .15
7.08 Beneficial Ownership . . . . . . . . . . . . . . . . . .15
7.09 Securities Laws Restrictions on Transfer . . . . . . . .15
7.10 Authorization to do Business . . . . . . . . . . . . . .15
7.11 Residence and Age. . . . . . . . . . . . . . . . . . . .16
7.12 Indemnification by Limited Partners. . . . . . . . . . .16
7.13 Additional Right of Rescission . . . . . . . . . . . . .16

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<PAGE>

ARTICLE VIII DISSOLUTION AND WINDING UP OF THE
PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . .16

8.01 Cessation to Serve of General Partner. . . . . . . . . .16
8.02 Events Causing Dissolution of the Partnership. . . . . .17
8.03 Winding Up of the Partnership. . . . . . . . . . . . . .17
8.04 Negative Capital Account Restoration . . . . . . . . . .18

ARTICLE IX BOOKS AND RECORDS . . . . . . . . . . . . . . . . . .18

9.01 Books of Account . . . . . . . . . . . . . . . . . . . .18
9.02 Inspection . . . . . . . . . . . . . . . . . . . . . . .19
9.03 Tax Returns. . . . . . . . . . . . . . . . . . . . . . .19
9.04 Accounting . . . . . . . . . . . . . . . . . . . . . . .19
9.05 Bank Accounts. . . . . . . . . . . . . . . . . . . . . .19
9.06 Tax Matters Partner. . . . . . . . . . . . . . . . . . .19

ARTICLE X MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . .19

10.01 Appointment of General Partner as Attorney-in-Fact.. . .19
10.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . .20
10.03 Construction of Agreement. . . . . . . . . . . . . . . .21
10.04 Successors and Assigns . . . . . . . . . . . . . . . . .21
10.05 Counterparts and Execution . . . . . . . . . . . . . . .21
10.06 No Third-Party Beneficiary . . . . . . . . . . . . . . .21
10.07 Other Acts . . . . . . . . . . . . . . . . . . . . . . .21
10.08 Severability . . . . . . . . . . . . . . . . . . . . . .21
10.09 Waiver . . . . . . . . . . . . . . . . . . . . . . . . .22
10.10 Equitable Remedies; Remedies Cumulative. . . . . . . . .22
10.11 Entire Agreement . . . . . . . . . . . . . . . . . . . .22

ARTICLE XI DEFINITIONS . . . . . . . . . . . . . . . . . . . . .22

11.01 Act. . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.02 Affiliate. . . . . . . . . . . . . . . . . . . . . . . .22
11.03 Agreement. . . . . . . . . . . . . . . . . . . . . . . .23
11.04 Capital Account. . . . . . . . . . . . . . . . . . . . .23
11.05 Cash Flow. . . . . . . . . . . . . . . . . . . . . . . .23

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11.06 Code . . . . . . . . . . . . . . . . . . . . . . . . . .24
11.07 General Partner. . . . . . . . . . . . . . . . . . . . .24
11.08 GP Loan. . . . . . . . . . . . . . . . . . . . . . . . .24
11.09 KREG, Inc. . . . . . . . . . . . . . . . . . . . . . . .24
11.10 Limited Partners; Limited Partner. . . . . . . . . . . .24
11.11 Liquidation. . . . . . . . . . . . . . . . . . . . . . .24
11.12 Liquidator . . . . . . . . . . . . . . . . . . . . . . .25
11.13 Net Profits and Net Losses . . . . . . . . . . . . . . .25
11.14 Partner(s) . . . . . . . . . . . . . . . . . . . . . . .25
11.15 Partnership. . . . . . . . . . . . . . . . . . . . . . .25
11.16 Partnership Interest . . . . . . . . . . . . . . . . . .25
11.17 Project and Projects . . . . . . . . . . . . . . . . . .25
11.18 Project Interest and Project Interests . . . . . . . . .25
11.19 Project Percentage . . . . . . . . . . . . . . . . . . .26
11.20 Securities Act . . . . . . . . . . . . . . . . . . . . .26
11.21 Successor General Partner. . . . . . . . . . . . . . . .26
11.22 Treasury Regulation. . . . . . . . . . . . . . . . . . .26

EXHIBITS
- --------

EXHIBIT "A" Names, Addresses and Project Percentages of the Limited
Partners

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<PAGE>

AGREEMENT OF LIMITED PARTNERSHIP

KREG-OC, L.P.

THIS AGREEMENT OF LIMITED PARTNERSHIP OF KREG-OC, L.P., is
entered into effective as of October 1, 1993, by and among KREG OPERATING CO., a
Delaware corporation, as general partner, and the individuals and/or entities
listed on Exhibit "A" attached hereto, as limited partners. The capitalized
terms used herein shall have the respective meanings assigned to such terms in
Article XI.

ARTICLE I

FORMATION AND AGREEMENT OF
LIMITED PARTNERSHIP

1.01 FORMATION

The Partners do hereby form a limited partnership pursuant to the
provisions of the Act.

1.02 CERTIFICATE OF LIMITED PARTNERSHIP

In addition to the execution of this Agreement, the General
Partner shall execute one (1) or more copies of a Certificate of Limited
Partnership pursuant to the provisions of Section 15621 of the California
Corporations Code, which shall be duly filed in the Office of the California
Secretary of State, and certified copies of which may be, in the General
Partner's sole discretion, recorded in the Office of the Recorder of any County
within or outside the State of California.

1.03 NAME OF PARTNERSHIP

The name under which the Partnership is to be conducted is "KREG-
OC, L.P.," or if that name is not available, any other name the General Partner
may choose that is in compliance with the Act.

1.04 PRINCIPAL EXECUTIVE OFFICE

The principal executive office of the Partnership shall be at 4343 Von
Karman Avenue, Newport Beach, California 92660, or shall be at such other place
or places as the General Partner may from time to time determine after giving
written notice thereof to the Limited Partners.

<PAGE>

1.05 NATURE OF BUSINESS

The express, limited and only purposes for which the Partnership
is to exist are (i) to acquire interests (individually, a "PROJECT INTEREST" and
collectively, the "PROJECT INTERESTS") in various real properties (individually,
a "PROPERTY" and collectively, the "PROPERTIES"), directly or indirectly,
through ownership in partnerships holding such Properties, incentive management
contracts with owners of such Properties or otherwise, developing and
constructing various improvements upon one (1) or more of the Properties, and
thereafter, owning, operating, managing, maintaining, marketing, leasing,
holding for investment, selling and otherwise realizing the economic benefit
from the Properties and the improvements thereon (individually, a "PROJECT" and
collectively, the "PROJECTS"), (ii) to discharge the Partnership's obligations
under the partnership agreements, incentive management agreements and/or other
contracts governing the Project Interests, and (iii) to conduct such other
activities with respect to the Project Interests as are appropriate to carrying
out the foregoing purposes and to do all things incidental to or in furtherance
of the above-enumerated purposes.

1.06 FIDUCIARY DUTIES

(a) While employed by KREG-OC, Inc., an Affiliate of the
General Partner, the General Partner or any other Affiliate of the General
Partner, each Limited Partner hereby agrees that such Partner shall devote
substantially all of such Partner's working time and efforts to the
business and affairs of KREG-OC, Inc., the Partnership, the General Partner
and/or any other Affiliate of the General Partner and no such Limited
Partner shall be actively involved in any other business activity except in
accordance with the terms and conditions of this Section 1.06. In
furtherance of the foregoing, no Limited Partner shall either directly or
indirectly (as an owner, partner, shareholder, employee, independent
contractor, consultant or otherwise, other than through such Partner's
ownership interest in the Partnership and/or its employment status or
ownership interest in KREG-OC, Inc., the General Partner or an Affiliate of
the General Partner) engage in any Competing Activity within the United
States at any time such Limited Partner is employed by KREG-OC, Inc., the
General Partner or any other Affiliate of the General Partner.

(b) If a Limited Partner engages in any of the activities
proscribed above in Section 1.06(a) in violation of any provision contained
therein, then, in addition to any and all other rights or remedies the
General Partner and/or the Partnership may have against such violating
Limited Partner at law or in equity, such violating Limited Partner shall
be accountable to, and shall hold in trust for, the Partnership, any
income, compensation or profit that such violating Limited Partner may
derive from engaging in such activities.

(c) If any provision set forth in this Section 1.06
and/or the application of any such provision to any party or circumstances
shall be determined by a court of competent jurisdiction to be invalid
and/or unenforceable to any extent, then the remaining provisions of this
Section 1.06 (other than those which are so determined to be invalid or
unenforceable) shall be valid and shall be enforceable to the fullest
extent permitted by law.

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<PAGE>

(d) As used herein, the term "COMPETING ACTIVITY" means
(i) the purchase, lease, acquisition, management, improvement and/or
development, directly or indirectly, of any real property, or (ii) any
other activity that competes with the business or affairs of the
Partnership. Notwithstanding the foregoing, a Competing Activity shall not
include (A) any activity in which a Limited Partner (and/or any Affiliate
thereof) holds an ownership interest of five percent (5%) or less, provided
such Limited Partner does not materially participate in the management of
such activity; (B) acting as a director or in other similar capacity of an
entity in which the Limited Partner (and/or an Affiliate thereof) has no
direct or indirect ownership interest except as a minority shareholder
(holding five percent (5%) or less of the issued and outstanding shares) of
a company whose shares are traded on a public securities exchange; (C)
acquiring an ownership interest in one (1) or more residences for the
personal use of the Limited Partner acquiring such residence(s); (D) any
activity in which a Limited Partner (and/or any Affiliate thereof) holds an
ownership interest as of the date of such Partner's admission into the
Partnership; or (E) any other activity approved in writing by the General
Partner, which approval may be withheld in the General Partner's sole and
absolute discretion.

(e) Subject to the foregoing provisions of this Section
1.06, no Partner shall have any fiduciary obligation with respect to the
Partnership or to the other Partners insofar as making other investment
opportunities available to the Partnership or to the other Partners.
Subject to the foregoing provisions of this Section 1.06, each Partner may
engage in whatever activities such Partner may choose, whether the same are
competitive with the Partnership or otherwise, without having or incurring
any obligation to offer any interest in such activities to the Partnership
or to the other Partners.

1.07 NAMES AND ADDRESSES OF THE PARTNERS

(a) The name and address of the General Partner are as
follows:

KREG Operating Co.
4343 Von Karman Avenue
Newport Beach, California 92660
Attention: President
With a copy to: Chief Financial Officer

(b) The names and addresses of the Limited Partners are
set forth on EXHIBIT "A" attached hereto.

1.08 TERM OF PARTNERSHIP

The Partnership shall commence as of the later of the date this
Agreement is executed or the date the Certificate of Limited Partnership for the
Partnership is filed in the Office of the California Secretary of State and
shall continue until December 31, 2033, unless terminated sooner as a result of
the dissolution and winding up of the Partnership in accordance with Article
VIII hereof or unless extended by the unanimous agreement of the Partners.

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<PAGE>

ARTICLE II

NAMAGEMENT OF THE PARTNERSHIP
BY THE GENERAL PARTNER

2.01 POWERS OF THE GENERAL PARTNER

In addition to the specific rights and powers herein granted, the
General Partner shall possess, enjoy and may exercise all of the rights and
powers of a general partner as more particularly provided by the Act. Except as
otherwise provided herein, the General Partner alone shall have the full and
complete charge of all aspects of the affairs of the Partnership, and the
management and control of the Partnership's business shall rest exclusively with
the General Partner, subject to the terms and conditions of this Agreement. All
conveyances of title to Partnership property or any interest therein, and any
and all other matters and documents affecting or relating to the business of the
Partnership may be executed on the Partnership's behalf by the General Partner
alone and without execution by any Limited Partner. The General Partner shall be
entitled to charge the Partnership a fee for its services rendered to the
Partnership including, without limitation, a development fee, a property
management fee, a land management fee, a financing fee, a construction fee, an
acquisition and disposal fee and an accounting overhead fee, provided such fee
is reasonable in amount and a customary charge for the type of services rendered
in the then current real estate industry. The General Partner shall use the
General Partner's reasonable efforts to carry out the business of the
Partnership and shall devote such time to the Partnership as is necessary, in
the reasonable discretion of the General Partner, for the efficient operation of
the Partnership's business. Nothing contained herein shall prevent the General
Partner or any of the General Partner's affiliates or representatives from
devoting time to other businesses, whether or not similar in nature to the
business of the Partnership.

2.02 LIABILITY OF THE GENERAL PARTNER

The General Partner shall not be liable or accountable in damages
or otherwise to the Partnership or to any Limited Partner for any error of
judgment or any mistake of fact or law or for anything that the General Partner
may do or refrain from doing hereafter except in the case of willful misconduct
or gross negligence.

2.03 INDEMNITY

The Partnership does hereby indemnify and agree to hold the
General Partner wholly harmless from and against any loss, expense or damage
suffered by such Partner by reason of anything which such Partner may do or
refrain from doing hereafter for and on behalf of the Partnership and in
furtherance of its interest; provided, however, that the Partnership shall not
be required to indemnify the General Partner from any loss, expense or damage
which such Partner may suffer as a result of such Partner's fraud, willful
misconduct or gross negligence in performing or in failing to perform such
Partner's duties hereunder; and provided, further, that any such indemnification
shall be recoverable only from the assets of the Partnership and not from the
assets of any Limited Partner.

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<PAGE>

2.04 RESTRICTIONS AND LIMITATIONS ON THE LIMITED PARTNERS

The Limited Partners have no right, power or authority to act for
or bind the Partnership. The Limited Partners shall take no part in the conduct
or control of the Partnership business, except that the Limited Partners shall
have the right to vote upon the following matters and only the following
matters:

(a) The amendment of this Agreement as it relates to a
particular Project Interest;

(b) The admission of an additional general partner
exclusive of the admission of a transferee of the General Partner's
Partnership Interest pursuant to the provisions of Article VI; and

(c) The admission of a Successor General Partner if the
General Partner for any reason ceases to act exclusive of the admission of
a transferee of the General Partner's Partnership Interest pursuant to the
provisions of Article VI.

The matter set forth in Section 2.04(a) must receive the
affirmative vote of the General Partner and a majority of the Limited Partners
(in terms of Project Percentages) holding Project Percentages with respect to
such Project Interest, and the matters set forth above in Sections 2.04(b) and
2.04(c) must receive the affirmative vote of the General Partner and a majority
of the Limited Partners (in terms of number of Limited Partners and not in terms
of Project Percentages). The Limited Partners expressly waive the right to vote
upon any and all of the matters set forth in Section 15632(b) of the California
Corporations Code (exclusive of matters set forth in Sections 15632(b)(5)(H),
15632(b)(5)(I) and 15632(b)(5)(J)). The noticing of, voting with respect to and
the procedural aspects of, meetings of the Partners shall be in accordance with
the Act, except that (i) with respect to a vote which affects a particular
Project Interest, a majority of the Limited Partners (in terms of Project
Percentages) holding Project Percentages with respect to such Project Interest
represented in person or by proxy shall constitute a quorum, and (ii) with
respect to a vote which affects the Partnership generally, a majority of the
Limited Partners (in terms of number of Limited Partners and not in terms of
Project Percentages) represented in person or by proxy shall constitute a
quorum.

2.05 REIMBURSED EXPENSES

The Partnership shall reimburse the General Partner for any and
all reasonable costs and expenses incurred by the General Partner on behalf of
the Partnership that directly relate to the business of the Partnership and/or
any Project Partnership. Any such costs and expenses shall be reimbursed from
the first available funds of the Partnership, and the General Partner's Capital
Account shall not be reduced by any amounts reimbursed to such Partner pursuant
to this Section 2.05.

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<PAGE>

ARTICLE III

PARTNERS' CONTRIBUTIONS TO PARTNERSHIP

3.01 INITIAL CONTRIBUTIONS BY THE PARTNERS

None of the Partners shall be required to make an initial
contribution to the capital of the Partnership.

3.02 INTERIM FINANCING

(a) Subject to the provisions of Section 3.02(b), if the
General Partner determines, in such Partner's sole discretion, that funds
are necessary for the Partnership to meet its current or projected
financial requirements with respect to any Project Interest including,
without limitation, funds to finance capital which a Limited Partner(s)
fails to contribute pursuant to Section 3.02(b), and/or to otherwise
finance the business of the Partnership, then the General Partner and/or
any Affiliate of the General Partner shall have the right, but not the
obligation, to advance to the Partnership, in cash, an amount equal to such
necessary funds as a recourse loan ("GP LOAN") by such Partner (and/or such
Affiliate) to the Partnership. Any and all GP Loans made to the Partnership
by the General Partner (and/or any Affiliate thereof) pursuant to this
Section 3.02(a) shall bear interest at the lesser of (i) the prevailing
Wells Fargo Bank commercial reference (prime) lending rate plus two (2)
percentage points, adjusted and compounded on the first day of each month
during the term of such loan(s), or (ii) the maximum, nonusurious rate then
permitted by law for such loan(s), and such loan(s) shall be due and
payable on demand. Any and all GP Loans shall be advanced and repaid on a
Project Interest-by-Project Interest basis and, accordingly, any such GP
Loans shall be allocated among the Project Interests pursuant to any
accounting method selected by the General Partner taking into account which
Project Interest receives the proceeds of any such GP Loan. In the event
that any GP Loan is not directly attributable to any particular Project
Interest, then such GP Loan shall be allocated among the Project Interests
pursuant to any reasonable accounting method selected by the General
Partner. Notwithstanding the provisions of Articles V and VIII, until any
and all GP Loans allocable to any particular Project Interest are repaid in
full, the Partners shall draw no further distributions from the Partnership
that are attributable to any such Project Interest and all cash or property
otherwise distributable with respect to the Partnership Interests of the
Partners that are attributable to such Project Interest shall be paid to
the General Partner and/or any Affiliate of the General Partner, as the
case may be, as a reduction of the outstanding balance of any such loan
with such funds being applied first to reduce any interest accrued thereon,
and then to reduce the principal amount thereof.

(b) If the General Partner determines, in such Partner's
sole discretion, that funds are necessary for the Partnership to meet its
current or projected financial requirements with respect to any Project
Interest, and the Limited Partners holding Project Percentages with respect
to such Project Interest have agreed to contribute capital to the

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<PAGE>

Partnership on a current basis to meet such current or projected financial
requirements by their signature to a page in the form of Exhibit "A"
attached hereto, which page sets forth a current capital obligation, then
within ten (10) days following written request therefor by the General
Partner, each Partner shall be obligated to contribute to the capital of
the Partnership, in cash, an amount equal to such Partner's Project
Percentage (for such Project Interest) of such current or projected
financial requirements. In the event any Partner ("Non-Contributing
Partner") fails to contribute all or any portion of any amount required to
be contributed by such Partner to the capital of the Partnership pursuant
to this Section 3.02(b) (the "Delinquent Contribution"), then the other
Partners who are not Non-Contributing Partners shall have the right, but
not the obligation, to contribute to the capital of the Partnership, in
cash within ten (10) days following the due date of such Delinquent
Contribution and in proportion to the respective Project Percentages (for
such Project Interest) (or in such different proportion as they may
otherwise agree), an amount equal to the Delinquent Contribution. In the
event of a contribution by one (1) or more Partners ("Contributing
Partners") pursuant to this Section 3.02(b), the Project Percentage (for
such Project Interest) of the Non-Contributing Partner shall be decreased
by one (1) percentage point for every Five Thousand Dollars ($5,000.00) of
Delinquent Contribution (or portion thereof) and the Project Percentages of
the Contributing Partner(s) shall be increased, in the aggregate, by a like
amount in proportion to the portion of the Delinquent Contribution
contributed by each such Contributing Partner to the capital of the
Partnership pursuant to this Section 3.02(b); provided, however, such
Contributing Partner(s) shall in no event succeed to all or any portion of
the Capital Account or unreturned capital contributions of the Non-
Contributing Partner by operation of this Section 3.02(b). In the event the
Partners other than the Non-Contributing Partner fail to contribute all of
the Delinquent Contribution to the capital of the Partnership on behalf of
the Non-Contributing Partner, then the Partnership may pursue any and all
rights and remedies available at law and/or in equity against such Non-
Contributing Partner, including, without limitation, instituting a legal
action against such Partner to collect such funds. Any and all amounts
contributed to the capital of the Partnership by any Partner pursuant to
this Section 3.02(b) shall be credited to the Capital Account of each such
Partner (as and when such contribution is made).

3.03 CONTRIBUTIONS ON LIQUIDATION OF PROJECT INTEREST

In the event that on final dissolution and liquidation and/or
termination of a Project Interest and receipt by the Partnership of all cash
flow from such Project Interest to which the Partnership is entitled, any
principal of, and/or accrued interest on, any GP Loan that is allocated to such
Project Interest in accordance with the provisions of Section 3.02(a) above
remains outstanding, then within ten (10) days following written request
therefor by the General Partner, each Partner shall be obligated to contribute
to the capital of the Partnership, in cash, an amount equal to such Partner's
Project Percentage (for such Project Interest) of such outstanding amount. In
the event any Partner fails to contribute all or any portion of any amount
required to be contributed by such Partner to the capital of the Partnership
pursuant to this Section 3.03, then the Partnership may pursue any and all
rights and remedies available at law and/or in equity against such non-
contributing Partner, including, without limitation, instituting a legal action
against such Partner to collect such funds. Any and all amounts contributed to
the capital of the

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<PAGE>

Partnership by any Partner pursuant to this Section 3.03 shall be credited to
the Capital Account of each such Partner (as and when such contribution is made)
and shall be concurrently paid by the Partnership to the General Partner as a
reduction of the outstanding balance of the applicable GP Loan with any such
amounts being applied first to reduce any interest accrued thereon, and then to
reduce the principal amount thereof.

3.04 CAPITAL CONTRIBUTIONS IN GENERAL

Except as otherwise expressly provided in this Agreement or as
otherwise agreed to in writing by all of the Partners (a) no part of the
contributions of any Partner to the capital of the Partnership may be withdrawn
by such Partner, (b) no Partner shall be entitled to receive interest on such
Partner's contributions to the capital of the Partnership, (c) no Partner shall
have the right to demand or receive property other than cash in return for such
Partner's contribution to the Partnership, and (d) no Partner shall be required
or be entitled to contribute additional capital to the Partnership other than as
permitted or required by this Article III and/or Section 8.04.

ARTICLE IV

ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTION OF CASH FLOW

4.01 NET LOSSES

Net Losses shall be determined separately for each Project
Interest pursuant to any accounting method reasonably selected by the General
Partner and shall be allocated to the Partners in proportion to their respective
Project Percentages for each such Project Interest. Any Net Losses that are not
directly attributable to any Project Interest shall be allocated among the
Project Interests pursuant to any accounting method reasonably selected by the
General Partner.

4.02 NET PROFITS

Net Profits shall be determined separately for each Project
Interest pursuant to any accounting method reasonably selected by the General
Partner and shall be allocated to the Partners in proportion to their respective
Project Percentages for each such Project Interest. Any Net Profits that are not
directly attributable to any Project Interest shall be allocated among the
Project Interests pursuant to any accounting method reasonably selected by the
General Partner.

4.03 SPECIAL ALLOCATIONS

Notwithstanding any other provision in this Article IV, (i) any
and all "nonrecourse deductions" (as defined in Treasury Regulation Section
1.704-2(b)(1)) of the Partnership that are attributable to any Project Interest
shall be allocated to the Partners in proportion to their respective Project
Percentages for such Project Interest, and (ii) each Partner shall be specially
allocated items of Partnership income and gain in accordance with the minimum
gain chargeback requirements set forth in Treasury Regulation Sections 1.704-
2(f).

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<PAGE>

4.05 DIFFERING TAX BASIS; TAX ALLOCATION

The General Partner shall cause depreciation and/or cost recovery
deductions and gain or loss with respect to each item of property to be
allocated among the Partners for federal income tax purposes in accordance with
the principles of Section 704(c) of the Code and the Treasury Regulations
promulgated thereunder, and for state income tax purposes under comparable
provisions of the California Revenue & Taxation Code, as amended, and the
regulations promulgated thereunder.

ARTICLE V

DISTRIBUTION OF CASH FLOW

5.01 DISTRIBUTION OF CASH FLOW

Subject to Section 8.03, Cash Flow of the Partnership realized
from (or allocable to) any Project Interest shall be distributed to the Partners
in the following order of priority:

(a) First, to the Partners in proportion to, and to the
extent of, any unreturned capital contributed to the Partnership by such
Partners with respect to such Project Interest pursuant to Section 3.02(b);
and

(b) Thereafter, to the Partners in proportion to their
respective Project Percentages for such Project Interest.

5.02 IN-KIND DISTRIBUTION

A Project Interest shall not be distributed in kind to the
Partners without the prior approval of all of the Partners holding Project
Percentages with respect to such Project Interest.

ARTICLE VI

RESTRICTIONS ON TRANSFERS OF
PARTNERSHIP INTERESTS

6.01 LIMITATIONS ON TRANSFER

Subject to compliance with Section 6.04, the General Partner
shall be entitled to sell, exchange, assign, transfer, or otherwise dispose of,
pledge, hypothecate, encumber or otherwise grant a security interest in all or
any part of its Partnership Interest, including, without limitation, all or any
part of the Partnership Interest of a Limited Partner transferred to the General
Partner pursuant to Section 6.03. In the event of the termination of employment
of a Limited Partner with KREG, Inc. for any reason, the General Partner shall
transfer any unvested portion of such Limited Partner's Project Percentage(s) to
the other Partners who hold Project Percentages in the applicable Project
Interest(s) including, without limitation, the General Partner,

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and/or any other employee of KREG, Inc., as directed by KREG, Inc., provided
such unvested Project Percentage is accepted by such Partner and/or other
employee. Subject to compliance with Sections 6.02 and 6.04, a Limited Partner
shall be entitled to sell, exchange, assign, transfer, or otherwise dispose of
all or any part of such Partner's Partnership Interest. No Limited Partner shall
be entitled to pledge, hypothecate, encumber, or otherwise grant a security
interest in all or any part of its Partnership Interest. Any transfer in
violation of the restrictions against transfer contained in this Article VI
shall be null and void AB INITIO.

6.02 RIGHT OF FIRST REFUSAL

If any Limited Partner (the "SELLING PARTNER") desires to
transfer or otherwise dispose of all or any portion of such Partner's
Partnership Interest (the "OFFERED INTEREST"), then the Selling Partner shall
give written notice (the "OFFERING NOTICE") to the General Partner of the
Selling Partner's intention to so transfer. The Offering Notice shall specify
the Offered Interest to be transferred, the consideration to be received
therefor, the identity of the proposed purchaser, and the terms upon which the
Selling Partner intends to so transfer. For a period of thirty (30) days
following the effective date of the Offering Notice, the General Partner shall
have the right, but not the obligation, to purchase all, but not less than all,
of the Offered Interest for the price and on the terms stated in the Offering
Notice. If the General Partner, timely and validly elects to so purchase all of
the Offered Interest in accordance with the provisions of this Section 6.02,
then the purchase of the Offered Interest by the General Partner shall be closed
and consummated at the principal executive office of the Partnership within
ninety (90) days following the effective date of the purchase-election notice
delivered by the General Partner pursuant to this Section 6.02. If the General
Partner fails to timely and validly offer to purchase the entire Offered
Interest, then the Selling Partner may, within one hundred twenty (120) days
following the effective date of the Offering Notice, transfer the Offered
Interest to the person or entity identified in the Offering Notice on the same
terms and conditions, and at the same price, specified in the Offering Notice.
If the Selling Partner fails to so transfer the Offered Interest within such one
hundred twenty (120)-day period, then, prior to transferring the Offered
Interest, the Selling Partner must resubmit an Offering Notice to the General
Partner and again comply with the foregoing provisions of this Section 6.02.

6.03 PERMITTED TRANSFERS

Any Limited Partner may transfer all or any portion of such
Partner's Partnership Interest to the General Partner or any designee thereof or
to a trust for the benefit of such Limited Partner, such Limited Partner's
spouse and/or such Limited Partner's lineal descendants, provided such Limited
Partner is a trustee thereof, without complying with the provisions of
Sections 6.01 and 6.02. Any such permitted transferee shall receive and hold
such Partnership Interest or portion thereof subject to the terms of this
Agreement and to the obligations hereunder of the transferor Partner and there
shall be no further transfer of such Partnership Interest, or portion thereof
except to a person or entity to whom such permitted transferee could have
transferred such permitted transferee's Partnership Interest in accordance with
this Section 6.03 had such permitted transferee originally been named as a
Partner hereunder. No transfer described in this Section 6.03 shall be permitted
if the consummation of such transfer would result in a breach or violation of
any agreement governing any Project Interest and/or any loan documentation
relative

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to any indebtedness encumbering all or any portion of any Project and/or any
Project Interest, and such transfer restrictions are not waived by the General
Partner, the parties to such governing agreement, and/or any applicable lender,
as the case may be.

6.04 ADMISSION OF SUBSTITUTED PARTNERS

In the event the General Partner and/or any Limited Partner
sells, assigns, transfers or conveys such Partner's Partnership Interest to a
transferee in accordance with Sections 6.01, 6.02 or 6.03, or in the event of
the death, incapacity or bankruptcy of a Limited Partner, such transferee or
such Limited Partner's successor-in-interest, as applicable, shall be entitled
to be admitted to the Partnership as a substituted general partner or limited
partner, as the case may be, and this Agreement shall be amended in accordance
with the Act to reflect such admission, provided that the following conditions
are complied with:

(a) The General Partner shall approve of the form and
content of the instrument of transfer;

(b) The transferor and transferee named therein execute
and acknowledge such other instrument or instruments as the General Partner
may deem necessary or desirable to effectuate such admission;

(c) The transferee in writing accepts and adopts all of
the terms and conditions of this Agreement, as the same may have been
amended;

(d) The transferor pays, as the General Partner may
reasonably determine, all reasonable expenses incurred in connection with
such admission, including, without limitation, legal fees and costs;

(e) The filing with the Partnership, if required by the
General Partner, of such proof of the age of the transferee as the General
Partner may deem necessary. In no event shall a Partnership Interest, or
any portion thereof, be assigned or transferred to a person under the age
of eighteen (18) years; and

(f) If required by the General Partner, an opinion of
counsel to the Partnership, which counsel and opinion are satisfactory to
the General Partner, that an exemption from registration or qualification
under the Securities Act of 1933, as amended, and under all applicable
statutes, rules or laws of any state which may be applicable thereto is
available.

6.05 RESTRICTIONS ON ASSIGNEES

An assignee of a Partnership Interest who does not become a
substituted partner shall have no right to require any information or account of
the Partnership's transactions, to inspect the Partnership books, or to vote on
any of the matters as to which a Partner would be entitled to vote under this
Agreement. An assignee shall only be entitled to receive the share of the
profits or other compensation by way of income, or the return of its
contributions, to which its assignor would otherwise be entitled.

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6.06 ELECTION

In the event of a transfer of the Partnership Interest of any
Partner, the death of a Partner or the distribution of any property of the
Partnership to a Partner, the Partnership may file, in the sole discretion of
the General Partner, an election in accordance with applicable Treasury
Regulations, to cause the basis of the Partnership property to be adjusted for
federal income tax purposes as provided by Sections 734 and 743 of the Code.
Subject to the provisions of Treasury Regulation Section 1.704-1(b), adjustments
to the adjusted tax basis of Partnership property under Section 743 and 732(d)
of the Code shall not be reflected in the Capital Account of the transferee
Partner or on the books of the Partnership, and subsequent Capital Account
adjustments for distributions, depreciation, amortization, and gain or loss with
respect to such property shall disregard the effect of such basis adjustment.

6.07 ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE

Upon the transfer of all or any part of the Partnership Interest
of a Partner as hereinabove provided, Net Profits and Net Losses shall be
allocated between the transferor and transferee on the basis of the computation
method which in the sole discretion of the General Partner is in the best
interests of the Partnership, provided such method is in conformity with the
methods prescribed by Section 706 of the Code and Treasury Regulation Section
1.706-1(c)(2)(ii). Distributions of Cash Flow shall be made to the holder of
record of the Partnership Interest on the date of distribution. Any transferee
of a Partnership Interest shall succeed to the Capital Account of the transferor
Partner to the extent such account relates to the transferred interest;
provided, however, that if such transfer causes a termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code, the Capital Accounts of all
Partners, including the transferee, shall be redetermined as of the date of such
termination in accordance with Treasury Regulation Section 1.704-1(b).

6.08 PARTITION

No Partner shall have the right to partition any assets of the
Partnership, any Project or any interest therein, nor shall a Partner make
application or proceeding for a partition thereto and, upon any breach of the
provisions of this Section 6.07 by any Partner, the other Partners (in addition
to all rights and remedies afforded by law or equity) shall be entitled to a
decree or order restraining or enjoining such application, action or proceeding.

6.09 WAIVER OF SECTIONS 15042 AND 15664

Each Partner hereby waives any of the rights or remedies that may
be available to such Partner (or such Partner's successor(s)-in-interest)
pursuant to Sections 15042, in the case of the General Partner, and/or 15664, in
the case of any Limited Partner, of the California Corporation Code, as amended,
to have the interest of such Partner purchased upon the withdrawal or retirement
of such Partner.

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ARTICLE VII

REPRESENTATIONS AND WARRANTIES

7.01 SECURITIES LAWS EXEMPTION

Each Limited Partner hereby covenants that such Partner
understands that in forming the Partnership and offering and issuing Partnership
Interests therein, the Partnership, in reliance upon an exemption from the
registration and prospectus delivery requirements of the federal Securities Act
of 1933, as amended, and/or the federal rules and regulations promulgated
thereunder (collectively, "SECURITIES ACT"), and the qualification requirements
of applicable California law has not registered the offering of the Partnership
Interests with the Securities and Exchange Commission nor qualified the offering
of the Partnership Interests with any California governmental body, agency, or
other authority. Each Limited Partner hereby covenants that such Partner
understands that such exemptions require that the Partnership Interests be
offered and issued only in transactions not involving a public offering. Each
Limited Partner hereby covenants that such Partner understands that the
representations, warranties, and covenants such Partner makes herein have been
and will be relied upon by the General Partner in concluding that the offer and
issuance of the Partnership Interests are being made only in transactions not
involving a public offering. Each Limited Partner further hereby covenants that
such Partner understands that neither the Securities and Exchange Commission nor
any California governmental authority has reviewed the Partnership or made any
findings with respect to the offer or sale of the Partnership Interests or the
fairness of the investment.

7.02 NO TAX RULING

Each Limited Partner hereby covenants that such Partner
understands that the Partnership has not requested a tax ruling from the
Internal Revenue Service nor an opinion of counsel with respect to the tax
status of the Partnership or as to the treatment of expenditures of the
Partnership, and no assurances have been made that the treatment which the
Partnership intends to or does use with respect to such items will be accepted
by the Internal Revenue Service upon examination and audit.

7.03 FAMILIARITY WITH BUSINESS

Each Limited Partner hereby represents, warrants, and covenants
that such Partner is familiar with the business and affairs of the Partnership
and such Partner and/or such Partner's attorney, accountant, and/or other
advisor(s) have access to the books and records of the Partnership and all such
other information as may be necessary or desirable for the purpose of evaluating
the risk of investment and making an informed investment decision concerning the
purchase of a Partnership Interest by such Partner. Each Limited Partner further
hereby represents, warrants, and covenants that, with respect to individual and
partnership tax and other economic considerations involved in connection with
the Partnership and/or such Partner's investment in such Partner's Partnership
Interest in the Partnership, (i) such Limited Partner is not relying on the
Partnership, the General Partner, or any other person or entity; (ii) such
Limited

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Partner has carefully considered and has, to the extent such Limited Partner
believes such discussion necessary, discussed with professional legal, tax, and
financial advisors the suitability of such Limited Partner's investment in such
Limited Partner's Partnership Interest in the Partnership, taking into account
such Limited Partner's particular tax and financial situation; and (iii) such
Limited Partner has determined that such Limited Partner's Partnership Interest
is a suitable investment for such Limited Partner.

7.04 KNOWLEDGE AND EXPERIENCE

Each Limited Partner hereby represents, warrants, and covenants
that: (i) such Partner has such business or financial knowledge and experience,
or the business or financial knowledge and experience of his or her professional
advisors, and that such Partner or his or her professional advisors are capable
of evaluating the merits and risks of such Partner's proposed investment in such
Partner's Partnership Interest in the Partnership and of making an informed
investment decision; and (ii) such Partner is financially able to bear the
economic risk of such Partner's proposed investment in such Partner's
Partnership Interest in the Partnership for an indefinite period of time.

7.05 INFORMATION

Each Limited Partner hereby represents, warrants, and covenants
that: (i) such Partner and such Partner's advisors have obtained and examined
such information as may be necessary, appropriate, or desirable in connection
with such Partner's decision concerning whether to invest in a Partnership
Interest in the Partnership; and (ii) the Partnership has made available and
continues to make available to such Partner and such Partner's advisors the
opportunity (A) to ask questions of and receive answers concerning the business
and affairs of the Partnership and the proposed investment in such Limited
Partner's Partnership Interest and (B) to obtain all additional information
necessary to verify the accuracy of the information used to evaluate the merits
and risks of the proposed investment in such Limited Partner's Partnership
Interest. Each Limited Partner hereby represents, warrants, and covenants that
no representations have been made, and no information (whether oral or written)
has been furnished, to such Partner with respect to the Partnership, the
possible benefits available to investors in the Partnership, or any other matter
or thing. Each Limited Partner further hereby represents, warrants, and
covenants that such Partner understands that any and all assumptions, budgets,
and forecasts set forth in any and all documents and/or other information
provided to such Partner have been furnished for purposes of illustration only,
and that no assurance of any nature whatsoever has been or is given that actual
results will correspond with the results projected by said assumptions, budgets,
and forecasts.

7.06 SPECULATIVE INVESTMENT

Each Limited Partner hereby covenants that such Partner
understands that such Partner's investment in such Partner's Partnership
Interest in the Partnership is, by its nature, speculative, and that because of
the speculative nature thereof, such Partner could sustain a loss of one hundred
percent (100%) of such Partner's investment in such Partner's Partnership
Interest in the Partnership. Each Limited Partner hereby covenants that such
Partner further understands

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that (i) the investment in such Partner's Partnership Interest, because of the
severe restrictions on transfer imposed upon the Partnership Interests by United
States and state securities laws and this Agreement, is an investment with
limited liquidity, and (ii) such Partner may not be able to quickly liquidate
such Partner's investment in case of emergency or receive fair value therefor in
a forced sale and, consequently, may be required to hold such Partner's
Partnership Interest for an unlimited period.

7.07 NO SALE

Each Limited Partner hereby represents, warrants, and covenants
that such Partner has not offered for sale or sold such Partner's Partnership
Interest within the meaning of the Securities Act or state securities laws.

7.08 BENEFICIAL OWNERSHIP

Each Limited Partner hereby represents, warrants, and covenants
that such Partner is acquiring such Partner's Partnership Interest in the
Partnership for such Partner's own account with the intent of holding such
Partnership Interest for investment (i.e., without the intent of participation
by any other person in any part of the purchase) and without the intent of
participating directly or indirectly in a distribution of such Partnership
Interest.

7.09 SECURITIES LAWS RESTRICTIONS ON TRANSFER

Notwithstanding any other provision in this Agreement, each
Limited Partner hereby understands, covenants, and agrees that such Partner's
Partnership Interest may not be sold, offered for sale, assigned, pledged,
hypothecated, or otherwise transferred to any person or entity except (i)
pursuant to an effective registration statement with respect to such Partnership
Interest under the Securities Act and any applicable state securities laws
(including, without limitation, any state rules and regulations promulgated
thereunder), or (ii) in a transaction as to which the Partnership has received
an opinion of counsel, which counsel and opinion are reasonably satisfactory to
the General Partner, to the effect that such transaction is exempt from
registration under the Securities Act and such state laws or is otherwise in
compliance with the Securities Act and such state laws. Each Limited Partner
hereby understands, covenants, and agrees that (i) only the Partnership can take
action to register such Partnership Interest under the Securities Act or under
any state securities laws (including, without limitation, any state rules and
regulations promulgated thereunder), (ii) the Partnership is not obligated and
does not propose to attempt to do so, and (iii) the Partnership does not propose
to make any other method available for resale of such Partnership Interest by
such Partner.

7.10 AUTHORIZATION TO DO BUSINESS

Any Limited Partner that is an entity hereby represents and
warrants that such Partner (i) is authorized and duly qualified to acquire and
hold such Partner's Partnership Interest, and (ii) the person(s) executing this
Agreement on behalf of such Partner hereby represent that such person(s) is
(are) duly authorized to execute this Agreement on behalf of such Partner.

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7.11 RESIDENCE AND AGE

Any Limited Partner that is a natural person hereby represents,
warrants and covenants that such partner is a permanent resident and domiciliary
of the State of California, and that such Partner has attained the age of
eighteen (18) years as of the effective date hereof.

7.12 INDEMNIFICATION BY LIMITED PARTNERS

Each Limited Partner hereby acknowledges, covenants, and agrees
that such Partner understands the meaning and legal consequences of the
representations, warranties, and covenants made by such Partner that are set
forth in this Agreement and that the Partnership and the General Partner have
relied upon such representations, warranties, and covenants. Each Limited
Partner hereby indemnifies, defends, protects and holds wholly free and harmless
the Partnership, the General Partner, and the General Partner's respective
agents, employees, and representatives from and against any and all losses,
damages, claims, expenses, or liabilities due to or arising out of a breach or
the falseness and/or inaccuracy, as the case may be, of any such representation,
warranty, and/or covenant made by such indemnifying Partner. Notwithstanding the
foregoing, no representation, warranty, acknowledgment, or agreement made herein
by any Limited Partner shall in any manner be deemed to constitute a waiver of
any rights granted to the General Partner under the Securities Act or any state
securities laws (including, without limitation, any state rules and regulations
promulgated thereunder). All representations, warranties, and covenants
contained above in this Article VII, and the indemnification contained in this
Section 7.12, shall survive the execution of this Agreement, the formation of
the Partnership, and the liquidation of the Partnership.

7.13 ADDITIONAL RIGHT OF RESCISSION

In the event that the General Partner discovers any breach and/or
inaccuracy of any of the representations, warranties, and/or covenants set forth
in this Article VII by any Limited Partner, the General Partner may, at such
Partners' election, rescind the issuance of such Limited Partner's Partnership
Interest to such Limited Partner. Upon any such rescission by the General
Partner, any such Limited Partner shall be conclusively presumed to have
immediately withdrawn from the Partnership as a partner therein. In the event of
any such rescission by the General Partner, the capital contributions and/or
other funds of such Limited Partner held by the Partnership or the General
Partner may, at the election of the General Partner, be retained and applied in
satisfaction of the indemnification obligation of such Limited Partner set forth
in Section 7.12 above.

ARTICLE VIII

DISSOLUTION AND WINDING UP OF THE PARTNERSHIP

8.01 CESSATION TO SERVE OF GENERAL PARTNER

The retirement, withdrawal, bankruptcy or other cessation to
serve as a general partner of the Partnership by the General Partner shall not
dissolve the Partnership, but the

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business of the Partnership shall be continued by the transferee of the General
Partner's Partnership Interest pursuant to the provisions of Article VI or, when
there is no such transferee, a successor general partner ("SUCCESSOR GENERAL
PARTNER") to be selected by the unanimous affirmative vote of the remaining
Partners within ninety (90) days of such retirement, withdrawal, bankruptcy or
other cessation to serve. The admission of new partners into the Partnership in
accordance with this Agreement shall not dissolve the Partnership.

8.02 EVENTS CAUSING DISSOLUTION OF THE PARTNERSHIP

The Partnership shall be dissolved upon the first to occur of any
of the following events:

(a) The expiration of the term of the Partnership unless
such term has been extended by the unanimous agreement of the Partners;

(b) The termination and liquidation of the last existing
Project Interest and the collection by the Partnership of any and all Cash
Flow derived therefrom;

(c) The retirement, withdrawal, bankruptcy or other
cessation to serve by the General Partner other than in connection with the
transfer of the General Partner's Partnership Interest pursuant to the
provisions of Article VI followed by the failure of the remaining Partners
to select a Successor General Partner within ninety (90) days thereafter in
accordance with Section 8.01; or

(d) The affirmative election of the General Partner and a
majority of the Limited Partners (in terms of number of Limited Partners
and not in terms of Project Percentages) to dissolve the Partnership.

8.03 WINDING UP OF THE PARTNERSHIP

Upon the Liquidation of the Partnership caused by other than the
termination of the Partnership under Section 708(b)(1)(B) of the Code (in which
latter case the Partnership shall remain in existence in accordance with the
provisions of such Section of the Code), the Liquidator shall proceed to the
winding up of the affairs of the Partnership. During such winding up process,
the Net Profits, Net Losses and Cash Flow distributions shall continue to be
shared by the Partners in accordance with this Agreement. The assets shall be
liquidated as promptly as consistent with obtaining a fair value therefor, and
the proceeds therefrom, to the extent available, shall be applied and
distributed by the Partnership on or before the end of the taxable year of such
Liquidation or, if later, within ninety (90) days after such Liquidation, in the
following order:

(a) First, to creditors including Partners who are
creditors, in the order of priority as provided by law;

(b) Second, to the setting up of any reserves which the
Liquidator deems necessary in its sole discretion for any contingent or
unforeseen liabilities or obligations of the Partnership; and

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(c) Thereafter, to the Partners in proportion to, and to
the extent of, the positive balance in each such Partner's Capital Account
(after taking into account all Capital Account adjustments for the taxable
year of such Liquidation).

Any amounts withheld for reserves pursuant to Section 8.03(b)
shall be distributed to the Partners as soon as practicable, as determined in
the sole discretion of the Liquidator, in proportion to the Partners' respective
positive Capital Account balances.

8.04 NEGATIVE CAPITAL ACCOUNT RESTORATION

Upon the Liquidation of the Partnership or upon the Liquidation
of any Partner's Partnership Interest, each Partner (or the liquidated Partner
if the Partnership is not in Liquidation) shall be obligated to contribute to
the capital of the Partnership an amount equal to the negative balance, if any,
standing in such Partner's Capital Account (after taking into account all
Capital Account adjustments for all taxable years, including the year such
Liquidation occurs, and after adding a positive sum to such negative balance
(but only until such balance is increased to zero (0)) equal to the amount of
such Partner's allocable share of minimum gain (as determined in accordance with
the provisions of Treasury Regulation Section 1.704-2(g)), on or before the end
of the taxable year of such Liquidation or, if later, within ninety (90) days
after such Liquidation in compliance with Treasury Regulation Sections 1.704-
1(b) and 1.704-2.

ARTICLE IX

BOOKS AND RECORDS

9.01 BOOKS OF ACCOUNT

The Partnership shall maintain at its principal executive office
all of the following:

(a) A current list of the full name and last known
business or residence address of each Partner set forth in alphabetical
order together with the contribution and the Project Percentages of each
Partner for each Project Interest;

(b) A copy of the certificate of limited partnership and
all certificates of amendment, together with executed copies of any powers
of attorney pursuant to which any certificate has been executed;

(c) Copies of the Partnership's federal, state and local
income tax or information returns and reports, if any, for the six (6) most
recent taxable years;

(d) Copies of this Agreement and all amendments thereto;

(e) Financial statements of the Partnership for the six
(6) most recent fiscal years; and

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(f) The Partnership's books and records for at least the
current and past three (3) fiscal years.

9.02 INSPECTION

All the books and records listed in Section 9.01 shall at all
times be maintained at the principal executive office of the Partnership and
shall be open during reasonable business hours for the reasonable inspection,
examination and copying by any Limited Partner or such Partner's representatives
at such Partner's sole cost and expense.

9.03 TAX RETURNS

Within ninety (90) days after the close of each fiscal year, the
General Partner shall cause to be prepared and timely filed and distributed to
each Partner, at the expense of the Partnership, all required federal and state
partnership tax returns, including information returns reflecting each Partner's
distributive share of tax items.

9.04 ACCOUNTING

(a) The books of account of the Partnership shall be kept
on an accrual basis.

(b) The fiscal year and the taxable year of the
Partnership shall be the year ending December 31.

9.05 BANK ACCOUNTS

All receipts, funds, and income of the Partnership shall be
deposited in a bank or banks selected by the General Partner. Disbursements from
such account or accounts may be made only upon the signature of the General
Partner or an authorized representative thereof.

9.06 TAX MATTERS PARTNER

The General Partner is hereby designated as the "tax matters
partner" of the Partnership as determined in accordance with the provisions of
Section 6231(a)(7) of the Code and the Treasury Regulations promulgated
thereunder and is authorized to represent the Partnership (at the Partnership's
expense) in connection with all examinations of the Partnership's affairs by tax
authorities.

ARTICLE X

MISCELLANEOUS

10.01 APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT

Each Limited Partner hereby makes, constitutes, and appoints the
General Partner as such Limited Partner's true and lawful attorney-in-fact with
full power of substitution to sign,

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execute, certify, acknowledge, swear to, file, publish and/or record any and all
documents and/or agreements which the General Partner may deem reasonably
necessary or appropriate to amend this Agreement to reflect (i) the exercise by
the General Partner of any power granted to such Partner under this Agreement,
(ii) the transfer of any Partner's Partnership Interest in accordance with the
terms hereof, (iii) the admission of any person and/or entity as a substituted
limited partner of the Partnership in accordance with the terms hereof, (iv) the
withdrawal of any person or entity as a limited partner of the Partnership in
accordance with the terms hereof, and (v) the Project Percentages for each
Partner with respect to any Project Interest hereafter acquired by the
Partnership. Each Limited Partner hereby authorizes the General Partner to take
any further action which the General Partner shall consider necessary or
advisable in connection with any of the foregoing, and hereby gives the General
Partner full power and authority to do and perform each and every act or thing
whatsoever requisite or advisable to be done in connection with the foregoing as
fully and completely as if such Limited Partner were acting personally, and
hereby ratifies and confirms any and all actions that the General Partner may
take by virtue of the foregoing provisions of this Section 10.01. The foregoing
special power of attorney is coupled with an interest and is irrevocable and
shall survive the death, disability, legal incapacity, bankruptcy, insolvency,
dissolution or cessation of existence of each Limited Partner and shall survive
the delivery of any assignment by any Limited Partner of all or any portion of
such Partner's Partnership Interest.

10.02 NOTICES

All notices or other communications required or permitted
hereunder shall be in writing, and shall be delivered or sent, as the case may
be, by any of the following methods: (i) personal delivery, (ii) overnight
commercial carrier, (iii) registered or certified mail, postage prepaid, return
receipt requested, or (iv) telegraph, telex, telecopy, or cable. Any such notice
or other communication shall be deemed received and effective upon the earlier
of (a) if personally delivered, the date of delivery to the address of the
person to receive such notice; (b) if delivered by overnight commercial carrier,
one day following the receipt of such communication by such carrier from the
sender, as shown on the sender's delivery invoice from such carrier; (c) if
mailed, on the date of delivery as shown by the sender's registry or
certification receipt; (d) if given by telegraph or cable, when delivered to the
telegraph company with charges prepaid; or (e) if given by telex or telecopy,
when sent. Any notice or other communication sent by cable, telex, or telecopy
must be confirmed within forty-eight (48) hours by letter mailed or delivered in
accordance with the foregoing. Any reference herein to the date of receipt,
delivery, or giving, or effective date, as the case may be, of any notice or
communication shall refer to the date such communication becomes effective under
the terms of this Section 10.02. Any such notice or other communication so
delivered shall be addressed to the party to be served at the address set forth
in Section 1.04 in the case of the Partnership and at the addresses set forth in
Section 1.07 in the case of any of the Partners. Such addresses may be changed
by giving written notice to the other parties in the manner set forth in this
Section 10.02. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall be deemed to
constitute receipt of notice or other communication sent.

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10.03 CONSTRUCTION OF AGREEMENT

The Article and Section headings of this Agreement are used
herein for reference purposes only and should not govern, limit, or be used in
construing this Agreement or any provision hereof. Each of the Exhibits attached
hereto is incorporated herein by reference and expressly made a part of this
Agreement for all purposes. References to any Exhibit made in this Agreement
shall be deemed to include this reference and incorporation. Where the context
so requires, the use of the neuter gender shall include the masculine and
feminine genders, the masculine gender shall include the feminine and neuter
genders, and the singular number shall include the plural and vice versa. Time
is of the essence of this Agreement. The provisions of this Agreement shall be
construed and enforced in accordance with the law of the State of California.

10.04 SUCCESSORS AND ASSIGNS

Subject to the restrictions set forth in Articles VI and VII,
this Agreement shall inure to the benefit of and shall bind the parties hereto
and their respective personal representatives, successors, and assigns.

10.05 COUNTERPARTS AND EXECUTION

This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original Agreement, but all of which shall constitute
one (1) Agreement, binding upon the parties hereto. The signature of any party
hereto to any counterpart hereof shall be deemed a signature to, and may be
appended to, any other counterpart hereof.

10.06 NO THIRD-PARTY BENEFICIARY

Any agreement to pay any amount and any assumption of liability
herein contained, express or implied, shall be only for the benefit of the
Partners and their respective successors and assigns, and such Agreements and
assumptions shall not inure to the benefit of the obligees of any indebtedness
or any other party, whomsoever, deemed to be a third-party beneficiary of this
Agreement.

10.07 OTHER ACTS

Each Partner covenants, on behalf of such Partner and such
Partner's successors and assigns, to execute, with acknowledgment, verification,
or affidavit, if required, any and all documents and writings, and to perform
any and all other acts, that may be necessary or desirable to implement,
accomplish, and/or consummate the formation of the Partnership, the achievement
of the Partnership's purposes, or any other matter contemplated under this
Agreement.

10.08 SEVERABILITY

Every provision of this Agreement is intended to be severable. If
any term or provision hereof is illegal or invalid for any reason whatsoever,
then such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.

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<PAGE>

10.09 WAIVER

No consent or waiver, express or implied, by a Partner to or of
any breach or default by any other Partner in the performance by such other
Partner of such other Partner's obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such other Partner hereunder. Failure on the part of a Partner to
complain of any act or failure to act of any other Partner or to declare any
other Partner in default, irrespective of how long such failure continues, shall
not constitute a waiver by such non-complaining or non-declaring Partner of the
latter's rights hereunder.

10.10 EQUITABLE REMEDIES; REMEDIES CUMULATIVE

Except as otherwise provided in this Agreement, each Partner, in
addition to all other rights provided herein or as may be provided by law, shall
be entitled to all equitable remedies, including, without limitation, those of
specific performance and injunction, to enforce such Partner's rights hereunder.
Except as otherwise provided herein, each right, power, and remedy provided for
herein or now or hereafter existing at law or in equity, by statute or
otherwise, shall be cumulative and concurrent and shall be in addition to every
other right, power, or remedy provided for herein or now or hereafter existing
at law or in equity, by statute or otherwise, and the exercise, the commencement
of the exercise, or the forbearance of the exercise by any party of any one or
more of such rights, powers, or remedies shall not preclude the simultaneous or
later exercise by such party of any or all of such other rights, powers, or
remedies.

10.11 ENTIRE AGREEMENT

This Agreement contains the entire understanding among the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior or other contemporaneous understanding, correspondence, negotiations
or agreements between them respecting the subject matter hereof. No alterations,
modifications or interpretations hereof shall be binding unless in writing and
signed by all of the Partners.

ARTICLE XI

DEFINITIONS

11.01 ACT

The term "ACT" means the California Revised Limited Partnership
Act, as set forth in Title 2, Chapter 3 of the California Corporation Code, as
amended.

11.02 AFFILIATE

The term "AFFILIATE" means any person or entity which, directly
or indirectly through one (1) or more intermediaries, controls or is controlled
by or is under common control with another person or entity. The term "control"
as used herein (including the terms

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<PAGE>

"controlling," "controlled by," and "under common control with") means the
possession, direct or indirect, of the power to (i) vote fifty percent (50%) or
more of the outstanding voting securities of such person or entity, or
(ii) otherwise direct management policies of such person by contract or
otherwise.

11.03 AGREEMENT

The term "AGREEMENT" means this Agreement of Limited Partnership
of KREG-OC, L.P.

11.04 CAPITAL ACCOUNT

The term "CAPITAL ACCOUNT" means with respect to each Partner the
amount of money contributed by such Partner to the capital of the Partnership,
INCREASED by the aggregate fair market value (as mutually determined by the
Partners) of all property contributed by such Partner to the capital of the
Partnership (net of liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Section 752 of the
Code), the aggregate amount of all Net Profits allocated to such Partner, and
all items of Partnership income or gain specially allocated to such Partner
pursuant to Section 4.03, and DECREASED by the amount of money distributed to
such Partner by the Partnership (exclusive of a guaranteed payment within the
meaning of Section 707(c) of the Code paid to such Partner), the aggregate fair
market value (as mutually determined by the Partners) of all property
distributed to such Partner by the Partnership (net of liabilities secured by
such distributed property that such Partner is considered to assume or take
subject to under Section 752 of the Code), the amount of any Net Losses charged
to such Partner and the amount of any "nonrecourse deductions" specially
allocated to such Partner pursuant to Section 4.03. For purposes of Section 4.03
only, each Partner's Capital Account shall be further adjusted in the manner set
forth in the second and third sentences of Treasury Regulation Section 1.704-
1(b)(2)(ii)(d) and shall be INCREASED for (i) such Partner's allocable share of
minimum gain (as determined pursuant to Treasury Regulation Section 1.704-2(g))
and (ii) the amount such Partner is unconditionally obligated to contribute to
the capital of the Partnership pursuant to this Agreement. The foregoing Capital
Account definition and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury Regulation
Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a
manner consistent with such Regulations.

11.05 CASH FLOW

The term "CASH FLOW" means the excess, if any, of all cash
receipts of the Partnership that are attributable or allocable to any particular
Project Interest as of any applicable determination date in excess of the sum of
(i) all cash disbursements that are attributable or allocable to such Project
Interest (inclusive of any guaranteed payment within the meaning of Section
707(c) of the Code paid to any Partner, and any payments made to the General
Partner and applied to reduce the outstanding balance of any GP Loan (including
any interest accrued thereon) that is attributable to such Project Interest (but
not any GP Loan that is attributable to any other Project Interest), but
exclusive of distributions to the Partners in their capacities as such) of the
Partnership prior to that date, plus (ii) any reserve, determined in the sole
discretion

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<PAGE>

of the General Partner, for anticipated cash disbursements that will have to be
made with respect to such Project Interest or with respect to the Partnership
which are attributable or allocable to such Project Interest before additional
cash receipts from third parties will provide the funds therefor. Cash Flow
shall be distributed quarterly or at such other times as the General Partner
determines that funds are available therefor. Cash Flow shall be determined
separately for each Project Interest pursuant to any accounting method
reasonably selected by the General Partner. Any cash receipts and/or cash
disbursements that are not directly attributable to any particular Project
Interest shall be allocated among the Project Interests pursuant to any
accounting method reasonably selected by the General Partner.

11.06 CODE

The term "CODE" means the Internal Revenue Code of 1986, as
heretofore and hereafter amended from time to time (and/or any corresponding
provision of any superseding revenue law).

11.07 GENERAL PARTNER

The term "GENERAL PARTNER" means KREG Operating Co., a Delaware
corporation.

11.08 GP LOAN

The term "GP LOAN" is defined in Section 3.02(a).

11.09 KREG, INC.

The term "KREG, INC." means KREG-OC, Inc., a Delaware
corporation.

11.10 LIMITED PARTNERS; LIMITED PARTNER

The term "LIMITED PARTNERS" means all of the individuals and/or
entities listed on Exhibit "A" attached hereto, collectively; the term "LIMITED
PARTNER" means any one (1) of the Limited Partners.

11.11 LIQUIDATION

The term "LIQUIDATION" means, (i) in respect to the Partnership
the earlier of the date upon which the Partnership is terminated under Section
708(b)(1) of the Code or the date upon which the Partnership ceases to be a
going concern (even though it may continue in existence for the purpose of
winding up its affairs, paying its debts and distributing any remaining balance
to its Partners), and (ii) in respect to a Partner wherein the Partnership is
not in Liquidation, means the liquidation of a Partner's interest in the
Partnership under Treasury Regulation Section 1.761-1(d).

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<PAGE>

11.12 LIQUIDATOR

The term "LIQUIDATOR" means the General Partner at the time of
the dissolution of the Partnership, or if KREG Operating Co., a Delaware
corporation, is no longer the General Partner at the time of the dissolution of
the Partnership and a trustee is appointed, then the trustee.

11.13 NET PROFITS AND NET LOSSES

The terms "NET PROFITS" and "NET LOSSES" mean, for each fiscal
year or other period, an amount equal to the Partnership's taxable income or
loss, as the case may be, for such year or period, determined in accordance with
Section 703(a) of the Code (for this purpose, all items of income, gain, loss
and deduction required to be stated separately pursuant to Section 703(a)(1) of
the Code shall be included in taxable income or loss); provided, however, for
purposes of computing such taxable income or loss, (i) such taxable income or
loss shall be adjusted by any and all adjustments required to be made in order
to maintain Capital Account balances in compliance with Treasury Regulation
Sections 1.704-1(b); and (ii) any and all "nonrecourse deductions" and/or items
of Partnership income and gain specially allocated to any Partner pursuant to
Section 4.03 shall not be taken into account in computing such taxable income or
loss.

11.14 PARTNER(S)

The term "PARTNERS" means the General Partner and the Limited
Partners, collectively; the term "PARTNER" means any one (1) of the Partners.

11.15 PARTNERSHIP

The term "PARTNERSHIP" means the partnership created pursuant to
this Agreement and the filing of a Certificate of Limited Partnership with the
California Secretary of State.

11.16 PARTNERSHIP INTEREST

The term "PARTNERSHIP INTEREST" means in respect to any Partner,
all of such Partner's right, title and interest in and to the Net Profits, Net
Losses, Cash Flow and capital of the Partnership, and any other interest
therein.

11.17 PROJECT AND PROJECTS

The terms "PROJECT" and "PROJECTS" are defined in Section 1.05.

11.18 PROJECT INTEREST AND PROJECT INTERESTS

The terms "PROJECT INTEREST" and "PROJECT INTERESTS" are defined
in Section 1.05.

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<PAGE>

11.19 PROJECT PERCENTAGE

The term "PROJECT PERCENTAGE" means with respect to the General
Partner for each Project Interest fifty percent (50%) and with respect to each
Limited Partner for each Project Interest, the percentage set forth opposite
such Partner's name with respect to such Project Interest on EXHIBIT A" attached
hereto. Within ninety (90) days following the acquisition of any additional
Project Interest by the Partnership, the Project Percentage for each Partner
with respect to such newly-acquired Project Interest shall be determined by the
attachment to this Agreement of a page in the form of EXHIBIT A" attached
hereto, which shall be signed by each Partner.

11.20 SECURITIES ACT

The term "SECURITIES ACT" is defined in Section 7.01.

11.21 SUCCESSOR GENERAL PARTNER

The term "SUCCESSOR GENERAL PARTNER" is defined in Section 8.01.

11.22 TREASURY REGULATION

The term "TREASURY REGULATION" means any proposed, temporary,
and/or final federal income tax regulation promulgated by the United States
Department of the Treasury as heretofore and hereafter amended from time to time
(and/or any corresponding provisions of any superseding revenue law and/or
regulation).

IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands on the day and year first above written.

"General Partner" KREG OPERATING CO., a Delaware corporation

By:__________________________________________
Raymond E. Wirta,
Chief Executive Officer
"Limited Partners"

Dated:_____________ ---------------------------------------------

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<PAGE>

Dated:_____________ ---------------------------------------------

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<PAGE>

NAMES, ADDRESSES AND
PROJECT PERCENTAGE INTERESTS

Name of Project: _________________________
Description of Project: _________________________
_________________________
_________________________

CURRENT CAPITAL OBLIGATION UNDER SECTION
3.02(b) OF THE AGREEMENT? / / / /
Yes No
STANDARD VESTING GUIDELINES? / / / /
Yes No

By each Partner's execution below, each Partner agrees to be bound by the terms
and provisions of the Agreement of Limited Partnership of KREG-OC, L.P., in
general and as such Agreement relates to the Project which is the subject of
this Exhibit.

NAME AND ADDRESS
OF PARTNER PROJECT PERCENTAGE SIGNATURE
----------------- ------------------ ---------

KREG Operating Co. 48.98% KREG Operating Co., a
4343 Von Karman Avenue Delaware corporation
Newport Beach, CA 92660
By:___________________
Name:______________
Title:_____________

_____________________ _____________________ _____________________
_____________________
_____________________

_____________________ _____________________ _____________________

_____________________
_____________________

_____________________ _____________________ _____________________
_____________________
_____________________
100.00%
-------
-------

EXHIBIT "A"
-----------
<PAGE>

SCHEDULE 10.3

Five (5) other Limited Partnership Agreements each dated as of October 1,
1993 between an executive officer of the Registrant and different
subsidiaries and limited partnerships of the Registrant.

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 382
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 433
<CURRENT-LIABILITIES> 0
<BONDS> 148
<COMMON> 2
0
0
<OTHER-SE> 148
<TOTAL-LIABILITY-AND-EQUITY> 433
<SALES> 8
<TOTAL-REVENUES> 17
<CGS> 8
<TOTAL-COSTS> 16
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> (21)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (14)
<DISCONTINUED> 1
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)

</TABLE>