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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
(MARK ONE)
[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                 THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
 
                                       OR
 
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
 
           FOR THE TRANSITION PERIOD FROM             TO
 
                        COMMISSION FILE NUMBER: 0-17189
 
                          KOLL REAL ESTATE GROUP, INC.
 
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                    DELAWARE                                02-0426634
          (STATE OR OTHER JURISDICTION                   (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)
             4343 VON KARMAN AVENUE
           NEWPORT BEACH, CALIFORNIA                          92660
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                (ZIP CODE)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 833-3030
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                 CLASS A COMMON STOCK, PAR VALUE $.05 PER SHARE
                                (TITLE OF CLASS)
 
                SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK,
                            PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)
 
       12% SENIOR SUBORDINATED PAY-IN-KIND DEBENTURES DUE MARCH 15, 2002
                                (TITLE OF CLASS)
 
           12% SUBORDINATED PAY-IN-KIND DEBENTURES DUE MARCH 15, 2002
                                (TITLE OF CLASS)
 
    INDICATE  BY CHECK  MARK WHETHER  THE REGISTRANT  (1) HAS  FILED ALL REPORTS
REQUIRED TO BE FILED BY  SECTION 13 OR 15(D) OF  THE SECURITIES EXCHANGE ACT  OF
1934  DURING  THE PRECEDING  12  MONTHS (OR  FOR  SUCH SHORTER  PERIOD  THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO  SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___
 
    INDICATE  BY CHECK MARK IF DISCLOSURE  OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S  KNOWLEDGE, IN DEFINITIVE  PROXY OR INFORMATION  STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [   ]
 
    THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 1, 1996 WAS $14,421,926.
 
    THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF MARCH 1, 1996
WAS 47,683,142.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
                                        NONE
 
--------------------------------------------------------------------------------
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<PAGE>
                                     PART I
 
ITEM 1.  BUSINESS
 
    Koll  Real  Estate Group,  Inc., a  Delaware corporation,  is a  real estate
development company  with properties  principally  in Southern  California.  The
principal  activities  of  Koll Real  Estate  Group, Inc.  and  its consolidated
subsidiaries  (the   "Company")  include:   (i)  obtaining   zoning  and   other
entitlements   for  land  it  owns  and   improving  the  land  for  residential
development; (ii) single and  multi-family residential construction in  Southern
California;  and (iii) providing commercial,  industrial, retail and residential
real  estate  development  services  to  third  parties,  including  feasibility
studies,  entitlement coordination,  project planning,  construction management,
financing, marketing, acquisition, disposition and asset management services  on
a  national and international basis,  through its offices throughout California,
and in Dallas,  Denver, Phoenix,  Seattle, Shanghai, China  and Taipei,  Taiwan.
Once the residential land owned by the Company 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
intends to  consider  additional  real  estate  acquisition  and  joint  venture
opportunities;  however, over the next year the Company's strategic goals are to
(i) obtain new financing for development of the Bolsa Chica mesa; (ii)  complete
the  secondary permitting for development of the Bolsa Chica mesa and secure all
federal permits for  development and  restoration of the  Bolsa Chica  lowlands;
(iii)  continue working with state and federal agencies in an effort to complete
the potential sale  of the Bolsa  Chica lowlands to  the California State  Lands
Commission,  as  described  below;  (iv) evaluate  and,  if  appropriate, pursue
recapitalization alternatives which deleverage the Company's capital  structure;
and  (v)  maintain  adequate  liquidity  to  cover  general  and administrative,
liability management and  interest costs.  There can  be no  assurance that  the
Company  will accomplish,  in whole or  in part,  all or any  of these strategic
goals.
 
    The Company's  executive offices  are  located at  4343 Von  Karman  Avenue,
Newport Beach, California 92660 (telephone: (714) 833-3030).
 
PRINCIPAL PROPERTIES
 
    The following sections describe the Company's principal properties.
 
    BOLSA  CHICA.   The Bolsa  Chica property is  the principal  property in the
Company's portfolio. The  Company owns  approximately 1,200 acres  of the  1,600
acres  of undeveloped Bolsa Chica land located  adjacent to the Pacific Ocean in
northwestern Orange County, California. Bolsa Chica is bordered on the north and
east by residential  development, to  the south  by open  space and  residential
development,  and to the west  by the Pacific Coast  Highway and the Bolsa Chica
State Beach. Bolsa Chica is one of the last large undeveloped coastal properties
in Southern California, and is located approximately 35 miles south of  downtown
Los  Angeles. In January 1996 the  California Coastal Commission approved Orange
County's Local  Coastal  Plan ("LCP")  for  up  to 3,300  units  of  residential
development  and a wetlands restoration plan  for this property, with only minor
modifications, which  remains  subject  to further  governmental  approvals,  as
further described below.
 
    The  planned community at  Bolsa Chica is  expected to offer  a broad mix of
home choices, including  single-family homes,  townhomes and  condominiums at  a
wide  range of prices. In December 1994,  the Orange County Board of Supervisors
unanimously approved the 3,300-unit LCP, which provides for development of up to
2,500 homes on  the mesa (high  ground) portion of  the property and  up to  900
homes  on the lowland portion of the property,  not to exceed 3,300 homes in the
aggregate. The related  Development Agreement  was unanimously  approved by  the
Orange  County Board of  Supervisors in April 1995.  The January 1996 California
Coastal Commission approval included two  suggested modifications, agreed to  in
principle  by the Company, which require: (1) a 50-foot buffer along the coastal
edge of the mesa and (2) an  agreement by the Company to dedicate  approximately
770 acres to a public agency if the Company does not pursue a federal 404 permit
for wetlands restoration and lowlands development. These suggested modifications
require  the approval of the  Orange County Board of  Supervisors prior to final
certification of the LCP by the California Coastal Commission, which the Company
expects to  obtain  during  the second  or  third  quarter of  1996.  Under  the
3,300-unit  LCP  the Company  is committed  to restoring  the wetlands  at Bolsa
 
                                       1
<PAGE>
Chica provided that federal agencies approve  development of up to 900 homes  in
the  lowlands.  Wetlands restoration  and  development on  the  lowlands remains
subject to approval by the U.S. Army  Corps of Engineers. The Company's goal  is
to  obtain such  approval by the  first quarter  of 1997, however,  the Corps of
Engineers could delay or decline its approval.
 
    In May 1995, the Company entered into an agreement, which has since  expired
prior   to  completion,  with   the  American  Land   Conservancy,  a  nonprofit
conservation organization, to  sell approximately  930 acres  of its  1,200-acre
Bolsa  Chica property, representing  substantially all of  the Company's lowland
ownership at the site. In August 1995,  the Ports of Long Beach and Los  Angeles
and  certain federal government agencies entered  into a Memorandum of Agreement
("MOA") specifying  the  terms under  which  the various  agencies  would  grant
mitigation credits, which are needed by the Ports to expand their facilities, in
exchange   for  $62  million  of  Ports'  funds  to  be  used  for  acquisition,
restoration, maintenance  and monitoring  of  the wetlands  in the  Bolsa  Chica
lowlands.  In  October 1995,  the Company  agreed  to a  reduced sales  price in
response to the U.S.  Department of the Interior  ("DOI")'s request in order  to
help bridge a funding shortfall, provided that the Ports would agree to increase
their  funding. The Company concluded at that  time that the reduced price would
be acceptable and in  the Company's best interests  because of the  government's
assumption  of responsibility  for wetlands  restoration (which  would be funded
primarily by funds from the Ports). In December 1995, both Ports obtained  Board
approval to increase their aggregate funding to $67 million.
 
    The  Company is actively  pursuing the secondary  permitting process for the
project, such as tract maps and grading plans, through the County of Orange,  as
well  as a  federal permit from  the U.S.  Army Corps of  Engineers for wetlands
restoration and development in the lowlands. This process is currently  expected
to  be completed within 18 months. In the meantime, the Company has continued to
work closely with the various state and federal agencies in an effort to resolve
the remaining contingencies and complete the proposed transaction. As a  result,
on  March 27, 1996 the Company entered into a letter of intent to sell the Bolsa
Chica lowlands to  the California  State Lands  Commission. The  ability of  the
Company   to  complete   any  such   transaction  remains   subject  to  various
contingencies, including: (i) finalizing  acquisition terms; (ii) completion  of
an  environmental site assessment which would be satisfactory to the State Lands
Commission; (iii) satisfactory completion of an appraisal and title report;  and
(iv) Coastal Commission and federal approval of the amount of mitigation credits
to  be granted  to the  Ports in exchange  for the  Ports funding  a $67 million
acquisition and wetlands restoration escrow account. Of course, there can be  no
assurance  that  a  definitive  agreement  will  be  entered  into  or  that any
transaction will be completed.
 
    With the approval by the Coastal Commission of the 3,300-unit LCP in January
1996, the  Company expects,  subject to  its ability  to obtain  financing on  a
commercially  reasonable  and timely  basis,  and subject  to  obtaining certain
secondary permits, to commence infrastructure construction on the mesa in  1997.
However, due to certain 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 start  of
construction  could be  delayed substantially.  In this  regard, on  January 13,
1995, two lawsuits challenging the Orange County Board of Supervisors'  approval
of  the Bolsa  Chica project  were filed  in Orange  County Superior  Court (the
"Court"). Although the lawsuits differed  in the particular issues they  raised,
generally  they each alleged,  among other things,  violations of the California
Environmental Quality  Act  and violations  of  the California  Government  Code
planning  and  zoning  laws.  One  lawsuit,  which  was  brought  by  the school
districts, has been  substantially settled  with an  agreement regarding  school
fees  to  be  paid  to  the plaintiff  districts.  In  the  other "environmental
lawsuit", the plaintiffs did  not seek monetary damages,  but instead asked  the
Court  to set aside the  approval of the Bolsa  Chica project. In February 1996,
the Court ruled  on the "environmental  lawsuit", rejecting all  but one of  the
arguments,  requiring  an additional  45-day  public review  and  comment period
regarding the tidal inlet portion of the wetlands restoration plan. The  Court's
decision  is not expected to further delay  final approvals by the Orange County
Board of  Supervisors and  the  California Coastal  Commission beyond  the  time
period  discussed  above. In  addition,  on March  6,  1996 and  March  11, 1996
lawsuits were filed against the Coastal Commission, the Company and other  Bolsa
Chica  landowners  as  real  parties  in  interest,  alleging  that  the Coastal
Commission's approval  of the  3,300-unit  LCP is  not  in compliance  with  the
Coastal Act and other statutory
 
                                       2
<PAGE>
requirements.  These lawsuits seek to set aside  the approval of the Bolsa Chica
project. The Company does not believe that these lawsuits will be successful  in
permanently  preventing  the Company  from completing  the Bolsa  Chica project,
however there can be no  assurance in this regard or  that these suits will  not
result in delays.
 
    In  accordance  with  Statement  of  Financial  Accounting  Standard  No. 67
"Accounting for Costs  and Initial  Rental Operations of  Real Estate  Projects"
("SFAS  67"), the Company carries real estate properties, including Bolsa Chica,
at the lower of cost or net realizable value, with net realizable value  defined
as the undiscounted estimated future cash flows from the project. As of December
31,  1995, the Company's  review of the  current estimated cash  flows for Bolsa
Chica indicated that a reserve of  approximately $113.6 million was required  to
adjust the carrying of Bolsa Chica to its current estimated net realizable value
of  $220 million pursuant  to SFAS 67. The  valuation reserve primarily reflects
management's decision in the fourth quarter  of 1995 (following the approval  of
additional  funding by the Ports) to make completing the sale of the lowlands to
a government  agency  a  strategic  goal of  the  Company,  along  with  updated
estimates  of future cash flows  for the mesa portion  of the project reflecting
recent market conditions. During 1995, the Southern California residential  real
estate  market continued to  decline, affecting estimated  sale pricing, housing
mix and number of units planned. The Company's decision to pursue a sale of  the
lowlands, if successfully completed, would materially reduce the number of units
which could be built, which has resulted in a significant reduction in projected
future   cash  flows  previously  anticipated  from  the  Bolsa  Chica  project.
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.
 
    RANCHO  SAN PASQUAL (formerly Eagle Crest).  In the City of Escondido in San
Diego County, approximately 30 miles north of downtown San Diego, the Company is
developing an  850-acre,  gated community  consisting  of 580  residential  lots
surrounding  an 18-hole championship golf course  which has been operating since
May 1993.  On-going infrastructure  construction is  partially financed  with  a
major  financial institution which  has provided a  $5 million construction loan
for the project  and includes  a one-time option  to reborrow  $5 million  after
repayment,  subject to certain  restrictions. In 1995,  the Company utilized the
construction  loan,   along  with   available  cash,   to  fund   infrastructure
construction  in anticipation of selling residential lots to homebuilders. Under
a March 1995 agreement, an  Orange County homebuilder, Akins Communities,  Inc.,
which  was  recently  acquired by  Catellus  and  changed its  name  to Catellus
Residential Group  ("Catellus"),  is  assisting  the  Company  in  managing  the
residential  development of  Rancho San  Pasqual and the  sale of  lots to other
homebuilders. The Company has executed letters of intent with four  homebuilders
related  to residential products currently offered for sale, which would include
first phase sales aggregating 122 lots for approximately $5.6 million,  however,
certain contingencies must be resolved before such sales can be completed.
 
    FAIRBANKS HIGHLANDS.  This property consists of approximately 390 acres near
the  communities of Fairbanks Ranch and Rancho  Santa Fe in the northern part of
the City of  San Diego.  In December  1995 the  Company received  approval of  a
vesting  tentative map from the  City of San Diego's  City Council. The approved
plan includes 93 single-family  residential lots averaging  1.34 acres each  and
approximately  215 acres of  open space. The Company  is currently marketing the
land for bulk sale to homebuilders.
 
    ALISO VIEJO.  Through its subsidiary,  the Kathryn G. Thompson Company,  the
Company  owns a 49% general partnership  interest in a 230-acre project, planned
for 1,345  single  family  residential  units in  southern  Orange  County.  The
property   is   well   located,  within   close   proximity   to  transportation
infrastructure, employment centers and  other attractions, including the  Orange
County  (John  Wayne)  Airport  (approximately  25  minutes),  the  San  Joaquin
Transportation Corridor  (a quarter  mile) and  Laguna Beach  (approximately  10
minutes). Homes are now offered for sale at five of ten planned communities, and
a  total  of  78 homes  have  sold  and 56  are  in  escrow. However,  due  to a
significant shortfall  in  sales  during 1995  versus  forecast,  the  financial
structure  of  the  partnership  and  the  significant  amount  of participating
mortgages with preference to the Company's equity interest, the Company does not
expect to receive a financial return from this partnership and has established a
reserve as discussed in Note 3 in Notes to Financial Statements on page F-14  to
F-15.
 
                                       3
<PAGE>
    OTHER PROPERTIES.  The Company owns land zoned for commercial/industrial use
in  Ontario  and  Signal  Hill, California  and  resort/residential  property in
Michigan. These  properties  are currently  held  for sale,  subject  to  market
conditions.
 
    PROPERTY  DISPOSITIONS.  See Item 7 "Management's Discussion and Analysis of
Financial Condition  and  Results  of  Operations"  for  a  description  of  the
Company's property dispositions during 1994 and 1995.
 
ENVIRONMENTAL AND REGULATORY MATTERS
 
    Before  the Company  can develop  a property,  it must  obtain a  variety of
discretionary approvals from local and state governments, as well as the federal
government in certain  circumstances, with  respect to such  matters as  zoning,
subdivision,  grading, architecture  and environmental  matters. The entitlement
approval process is often a lengthy and complex procedure requiring, among other
things, the submission  of development  plans and reports  and presentations  at
public  hearings. Because of  the provisional nature of  these approvals and the
concerns of  various  environmental and  public  interest groups,  the  approval
process  can be delayed by withdrawals or modifications of preliminary approvals
and by litigation and appeals  challenging development rights. Accordingly,  the
ability  of  the Company  to  develop properties  and  realize income  from such
projects could be delayed  or prevented due  to litigation challenging  recently
obtained governmental approvals.
 
    As  more  fully described  above, in  January  1996, the  California Coastal
Commission approved  Orange  County's  3,300-unit  residential  development  and
wetlands restoration plan for Bolsa Chica. Subject to the Orange County Board of
Supervisors' acceptance of the Coastal Commission's modifications to the LCP and
the Development Agreement and final certification by the Coastal Commission, the
Company  now has the necessary primary  approvals to proceed with development of
the Bolsa Chica  mesa. Secondary  approvals of  the details  of the  development
plan,  such as  tentative tract  maps and grading  approvals from  the County of
Orange's planning staff, as well as a master coastal development permit from the
California Coastal Commission, must  still be obtained.  As discussed under  the
heading  "Principal  Properties  --  Bolsa Chica,"  during  the  ongoing federal
entitlement process, the Company  will continue to work  with various state  and
federal  agencies that are interested in purchasing the lowlands utilizing funds
from the Ports and other sources for both acquiring and restoring the  wetlands.
While  a strategic goal of the Company is  to complete a sale of the Bolsa Chica
lowlands to a public agency, the Company  is continuing its efforts to obtain  a
404  permit from the U.S.  Army Corps of Engineers by  the first quarter of 1997
for a wetlands restoration plan to be financed by development of up to 900 units
in the lowlands  in the  event no  purchase occurs.  Nevertheless, the  approval
process  for the Bolsa Chica property, as  well as the lowland purchase, remains
subject to the uncertainties described above, and there can be no assurance that
such  approvals  or  lowland  purchase   will  not  be  legally  challenged   or
substantially delayed.
 
    The  Company has expended and will  continue to expend significant financial
and managerial  resources to  comply with  environmental regulations  and  local
permitting  requirements. Although the Company  believes that its operations are
in general compliance with  applicable environmental regulations, certain  risks
of  unknown costs  and liabilities  are inherent  in developing  and owning real
estate. However,  the Company  does not  believe  that such  costs will  have  a
material  adverse  effect on  its business,  financial  condition or  results of
operations,  including  the  potential  remediation  expenditures  proposed   in
connection  with  certain indemnity  obligations  discussed below  in "Corporate
Indemnification Matters."
 
CORPORATE INDEMNIFICATION MATTERS
 
    The Company and  its predecessors  have, through a  variety of  transactions
effected  since 1986, disposed  of several assets and  businesses, many of which
are unrelated  to the  Company's  current operations.  By  operation of  law  or
contractual  indemnity  provisions, the  Company  may have  retained liabilities
relating to  certain  of these  assets  and businesses,  including  certain  tax
liabilities.  See Note 8  "Income Taxes --  Tax Sharing Agreements"  in Notes to
Financial Statements on pages F-21 to F-22  of this Annual Report. Many of  such
liabilities  are supported  by insurance or  by indemnities from  certain of the
Company's predecessors  and currently  or previously  affiliated companies.  The
Company believes its balance sheet reflects adequate reserves for these matters.
 
                                       4
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    The  United States  Environmental Protection  Agency ("EPA")  has designated
Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party
("PRP") with respect to an area of  the Upper Peninsula of Michigan (the  "Torch
Lake Site") under the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor
in  interest to  one of  the companies that  conducted mining  operations in the
Torch Lake area and  an affiliate of  Allied Signal Inc.,  a predecessor of  the
Company.  The Company has not  been named as a PRP  at the site. However, Allied
Signal has, through  UOP, asserted a  contractual indemnification claim  against
the  Company for  all claims that  may be asserted  against UOP by  EPA or other
parties with respect to the site. EPA  has proposed a clean-up plan which  would
involve  covering certain  real property  both contiguous  and non-contiguous to
Torch Lake with soil and vegetation in  order to address alleged risks posed  by
copper  tailings and slag at an estimated  cost between $6 and $7.5 million. EPA
estimates that it  has spent between  $3 and  $4 million to  date in  performing
studies  of the site.  Under CERCLA, EPA  could assert claims  against the Torch
Lake PRPs, including UOP, to recover the cost of these studies, the cost of  all
remedial  action required at the site, and natural resources damages. An earlier
settlement in principle  with EPA  staff pursuant to  which UOP  would pay  $1.7
million  in exchange for a  release similar to those  normally granted by EPA in
such circumstances was  rejected by  certain other  governmental authorities  in
July  1993. In June 1995, EPA proposed a CERCLA settlement pursuant to which UOP
would pay between $2.6 and  $3.3 million in exchange  for a limited covenant  by
EPA  not  to  sue UOP  in  the future.  The  Company, without  admission  of any
obligation to UOP, has determined to  vigorously defend UOP's position that  the
EPA's   proposed  cleanup  plan   is  unnecessary  and   inconsistent  with  the
requirements of CERCLA given  that the EPA's own  Site Assessment and Record  of
Decision  found no immediate threat  to human health. In  the Company's view the
proposed remediation costs would be in excess of any resulting benefits.
 
EMPLOYEES
 
    As of March 29, 1996 the Company and its subsidiaries had approximately  130
employees.
 
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
    Certain  of the  foregoing information  as well  as certain  information set
forth in Item 3.  "Legal Proceedings" and Item  7. "Management's Discussion  and
Analysis of Financial Condition and Results of Operations" is forward looking in
nature  and involves risks and uncertainties that could significantly impact the
ability  of  the  Company  to  achieve  its  currently  anticipated  goals   and
objectives.  These  risks and  uncertainties include,  but  are not  limited to,
withdrawals, litigation or appeals of  regulatory approvals and availability  of
adequate  capital, financing  and cash flow.  In addition, future  values may be
adversely affected by  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 California's economy 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.  Other  significant  risks  and  uncertainties  are
discussed elsewhere in this Annual Report on Form 10-K.
 
                                       5
<PAGE>
                       EXECUTIVE OFFICERS OF THE COMPANY
 
    Certain of the executive officers of the Company are also executive officers
of  The Koll Company ("Koll") and  its affiliates. Accordingly, they will devote
less than all of their working time to the businesses of the Company. Set  forth
below is information with respect to each executive officer.
 
<TABLE>
<CAPTION>
        NAME AND TITLE          AGE*             BUSINESS EXPERIENCE
------------------------------  ----  ------------------------------------------
<S>                             <C>   <C>
Donald M. Koll                   63   Chairman of the Board of the Company since
 Chairman of the Board                March 1993. Managing Director -- President
                                      and  Director of the Company from prior to
                                      1991 to 1992.  Chairman of  the Board  and
                                      Chief  Executive Officer  of Koll (general
                                      contracting and international real  estate
                                      development   since  prior  to  1991)  and
                                      Chairman of the  Board of Koll  Management
                                      Services,   Inc.   ("KMS")   (real  estate
                                      management)  since   1991.   Director   of
                                      Fidelity  National  Financial,  Inc. since
                                      March 1995.
Ray Wirta                        52   Vice  Chairman  of  the  Board  and  Chief
 Vice Chairman of the Board           Executive  Officer  of  the  Company since
 and Chief Executive Officer          March 1993. President and Chief  Operating
                                      Officer  of Koll since prior to 1991. Vice
                                      Chairman of the Board and Chief  Executive
                                      Officer of KMS since 1991.
Richard M. Ortwein               54   President  of  the  Company  since October
 President                            1993.   President,   Southern   California
                                      Division of Koll from prior to 1991 to May
                                      1994. Executive Vice President of KMS from
                                      1991  to  1993, and  Director of  KMS from
                                      1992 to March 1994.
Raymond J. Pacini                40   Executive Vice President and Secretary  of
 Executive Vice President,            the  Company  since 1993;  Chief Financial
 Chief Financial Officer,             Officer and Treasurer of the Company since
 Treasurer and Secretary              1992. Managing  Director  of  the  Company
                                      from prior to 1991 to 1992. Executive Vice
                                      President  and Chief  Financial Officer of
                                      KMS from March to November 1993.
</TABLE>
 
------------------------
* As of March 29, 1996
 
                                       6
<PAGE>
ITEM 2.  PROPERTIES
 
    The Company's  principal executive  offices are  located in  Newport  Beach,
California.  The  Company  and  each  of  its  subsidiaries  believe  that their
properties are generally  well maintained,  in good condition  and adequate  for
their  present and  proposed uses.  The inability  to renew  any short-term real
property lease would not be  expected to have a  material adverse effect on  the
Company's results of operations.
 
    The  principal properties  of the  Company and  its subsidiaries,  which are
owned in fee unless otherwise indicated, are as follows:
 
<TABLE>
<CAPTION>
       PROPERTY                LOCATION        ACRES    PRESENT OR PLANNED USE
-----------------------  --------------------  -----  --------------------------
<S>                      <C>                   <C>    <C>
Newport Beach*           Newport Beach, CA      --    Headquarters
Bolsa Chica              Huntington Beach, CA  1,200  Oceanfront residential
                                                       community
Rancho San Pasqual       Escondido, CA           850  Golf/residential community
Fairbanks Highlands      San Diego, CA           390  Residential community
Aliso Viejo**            Aliso Viejo, CA         230  Residential community
Michigan Land            Upper Peninsula, MI   3,900  Resort/residential lots
Ontario                  Ontario, CA              11  Commercial/industrial land
Signal Hill              Signal Hill, CA           3  Commercial/industrial land
</TABLE>
 
------------------------
 * Leased
** Minority interest in partnership
 
ITEM 3.  LEGAL PROCEEDINGS
 
    On January 13,  1995, two lawsuits  challenging the Orange  County Board  of
Supervisors  approval of  the Bolsa  Chica project  were filed  in Orange County
Superior Court (the "Court"). Although  the lawsuits differed in the  particular
issues  they raised, generally they each alleged, among other things, violations
of the California  Environmental Quality  Act and violations  of the  California
Government  Code planning and zoning laws. One lawsuit, which was brought by the
school districts, has  been substantially  settled with  an agreement  regarding
school  fees to be paid to the  plaintiff districts. In the other "environmental
lawsuit", the plaintiffs did  not seek monetary damages,  but instead asked  the
Court  to set aside the  approval of the Bolsa  Chica project. In February 1996,
the Court ruled  on the "environmental  lawsuit", rejecting all  but one of  the
arguments,  and requiring an additional 45-day  public review and comment period
regarding the tidal inlet portion of the wetlands restoration plan. The  Court's
decision  is not expected to further delay  final approvals by the Orange County
Board of  Supervisors and  the  California Coastal  Commission beyond  the  time
period discussed above under "Principal Properties -- Bolsa Chica".
 
    On  March 6, 1996 and March 11, 1996 lawsuits were filed against the Coastal
Commission, the Company  and other  Bolsa Chica  landowners as  real parties  in
interest  alleging that the Coastal Commission's  approval of the 3,300-unit LCP
is not in  compliance with  the Coastal  Act and  other statutory  requirements.
These  lawsuits seek to set  aside the approval of  the Bolsa Chica project. The
Company does not believe that these  lawsuits will be successful in  permanently
preventing  the Company from  completing the Bolsa  Chica project, however there
can be  no assurance  in this  regard or  that these  suits will  not result  in
delays.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
                                       7
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The  following tables set  forth information with  respect to bid quotations
for the  Class A  Common  Stock of  the Company  for  the periods  indicated  as
reported  by  NASDAQ. These  quotations  are interdealer  prices  without retail
markup,  markdown  or  commission  and  may  not  necessarily  represent  actual
transactions.
 
<TABLE>
<CAPTION>
                                                                    HIGH    LOW
                                                                    -----  -----
<S>                                                                 <C>    <C>
1995
First Quarter.....................................................  $.500  $.344
Second Quarter....................................................   .469   .313
Third Quarter.....................................................   .594   .344
Fourth Quarter....................................................   .469   .250
1994
First Quarter.....................................................  $.531  $.250
Second Quarter....................................................   .406   .125
Third Quarter.....................................................   .344   .188
Fourth Quarter....................................................   .625   .281
</TABLE>
 
    The  number of holders of record of the Company's Class A Common Stock as of
March 1,  1996 was  approximately 26,000.  The  Company has  not paid  any  cash
dividends  on its Class A  Common Stock to date,  nor does the Company currently
intend to pay regular cash dividends on the Class A Common Stock. Such  dividend
policy  is and will continue to be subject to prohibitions on the declaration or
payment of dividends  contained in debt  agreements of the  Company. See Note  6
"Debt"  in Notes to  Financial Statements on  pages F-16 to  F-17 of this Annual
Report, which Note is incorporated herein by reference.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
    The Selected Financial Data with respect to the Company and its subsidiaries
are set forth on pages F-1 to F-2 of this Annual Report.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
    Management's Discussion and Analysis of  Financial Condition and Results  of
Operations is set forth on pages F-3 to F-6 of this Annual Report.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    Financial  statements, schedules and  supplementary data of  the Company and
its subsidiaries, listed under Item 14,  are submitted as a separate section  of
this Annual Report, commencing on page F-7.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
    None.
 
                                       8
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    DIRECTORS.  The Board of Directors of the Company consists of Donald M. Koll
(Chairman),  Ray Wirta, Harold A. Ellis, Jr., Paul C. Hegness, J. Thomas Talbot,
Kathryn G. Thompson,  and Marco F.  Vitulli. Under the  Restated Certificate  of
Incorporation  and the Amended By Laws of  the Company, the seven members of the
Board of Directors are divided into three classes with each class having a  term
of three years.
 
    Information about the directors is set forth below:
 
<TABLE>
<CAPTION>
          NAME             AGE*                BUSINESS EXPERIENCE
-------------------------  ----  -----------------------------------------------
<S>                        <C>   <C>
Donald M. Koll              63   See "Executive Officers of the Company" in Item
                                 1  of  this  Annual  Report.  Mr.  Koll's  term
                                 expires in 1996.
Ray Wirta                   52   See "Executive Officers of the Company" in Item
                                 1 of  this  Annual  Report.  Mr.  Wirta's  term
                                 expires in 1997.
Harold A. Ellis             64   Director  of  the Company  since  August 1993.,
                                 Managing Partner  of  Ellis Partners,  Inc.,  a
                                 real  estate  asset  management  and consulting
                                 firm since 1992.  Chairman and Chief  Executive
                                 Officer of Grubb & Ellis Company, a diversified
                                 real  estate service company from prior to 1991
                                 until 1992. Mr. Ellis's term expires in 1997.
Paul C. Hegness             49   Director  of  the  Company  since  March  1993.
                                 Partner  in  the  law  firm  of  Good, Wildman,
                                 Hegness & Walley  since prior to  1991. Also  a
                                 Director   of   Walter  Foster   Publishing,  a
                                 publisher and  marketer  of  art  instructional
                                 materials. Mr. Hegness's term expires in 1996.
J. Thomas Talbot            60   Director  of  the  Company  since  August 1993.
                                 Owner of The Talbot Company, an investment  and
                                 asset management company since July 1991. Chief
                                 Executive  Officer  of  HAL,  Inc.,  the parent
                                 company of Hawaiian Airlines from prior to 1991
                                 to July 1991.  Also a Director  of The  Baldwin
                                 Company,   a  developer   of  residential  real
                                 estate; The Hallwood  Group, Inc., a  corporate
                                 rescue   firm;  Showbiz  Pizza  Time,  Inc.,  a
                                 restaurant   chain;   and   Fidelity   National
                                 Financial,  Inc. a title  company. Mr. Talbot's
                                 term expires in 1998.
Kathryn G. Thompson         56   Director of the Company since November of 1994.
                                 Director and Chief Executive Officer of Kathryn
                                 G. Thompson  Holdings Company,  Inc. and  other
                                 direct  and indirect  wholly-owned subsidiaries
                                 of  the   Company  since   November  of   1994.
                                 President of Kathryn G. Thompson Development, a
                                 residential  real  estate  development  company
                                 from prior  to 1991  to 1993.  Chief  Executive
                                 Officer  of  Kathryn  G.  Thompson Construction
                                 Company, a residential real estate construction
                                 company, since 1991 and Chief Executive Officer
                                 of Kathryn G.  Thompson Company, a  residential
                                 real  estate  development  company  since April
                                 1994. Ms. Thompson's term expires in 1998.
Marco F. Vitulli            61   Director  of  the  Company  since  March  1993.
                                 President  of  Vitulli Ventures,  Ltd.,  a real
                                 estate development,  investment management  and
                                 consulting  services  company  since  prior  to
                                 1991. Chairman  of  Elk  River  Enterprises,  a
                                 lumber company, and Director of Pope Resources,
                                 a   land,  timber,   mineral  and  recreational
                                 properties company. Mr  Vitulli's term  expires
                                 in 1998.
</TABLE>
 
------------------------
* As of March 29, 1996
 
    EXECUTIVE  OFFICERS.  Information with respect to executive officers appears
under the caption "Executive Officers of the  Company" in Item 1 of this  Annual
Report.
 
                                       9
<PAGE>
COMPLIANCE WITH SECTION 16(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
    Section  16 of the Securities and Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of a registered class of the Company's equity securities to file various reports
with the  Securities and  Exchange Commission  and the  National Association  of
Securities Dealers concerning their holdings of, and transactions in, securities
of the Company. Copies of these filings must be furnished to the Company.
 
    Based  solely  on a  review of  the copies  of such  forms furnished  to the
Company and written  representations from the  Company's executive officers  and
directors,  the Company believes  that there was compliance  for the fiscal year
ended December 31, 1995 with all Section 16(a) filing requirements applicable to
the Company's officers, directors and greater than 10% beneficial owner.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
                           SUMMARY COMPENSATION TABLE
 
    The following table  summarizes the  compensation paid  during the  previous
three  fiscal  years to  the  Chief Executive  Officer  and the  Company's other
executive officers whose  salary and  bonus during 1995  exceeded $100,000  (the
"Named Executives") for services in all capacities to the Company.
 
<TABLE>
<CAPTION>
                                                                                                    LONG TERM
                                                                                               COMPENSATION AWARDS
                                                                                    ------------------------------------------
                                                                                                     1993
                                      ANNUAL COMPENSATION               OTHER       RESTRICTED       PLAN            ALL
                             -------------------------------------      ANNUAL         STOCK       OPTIONS          OTHER
         NAME AND                          SALARY        BONUS       COMPENSATION      AWARD        (# OF       COMPENSATION
    PRINCIPAL POSITION                     ($)(1)         ($)            ($)            ($)        SHARES)         ($)(2)
---------------------------             ------------  ------------  --------------  -----------  ------------  ---------------
<S>                          <C>        <C>           <C>           <C>             <C>          <C>           <C>
Donald M. Koll                 1995       325,000          --             --            --            --             --
 Chairman of the Board         1994       325,000          --             --            --            --             --
                               1993       162,500          --             --            --         2,400,000         --
Ray Wirta                      1995       225,000(3)       --             --            --            --             --
 Chief Executive Officer       1994       225,000          --             --            --            --             --
                               1993       110,417          --             --            --         2,000,000         --
Richard Ortwein                1995       359,858          --             --            --            --             --
 President                     1994       274,197        18,500           --            --            --             --
                               1993        52,426        15,603           --            --         2,400,000         --
Raymond J. Pacini              1995       268,000            --(4)        --            --            --             --
 Executive Vice President      1994       268,000       150,000           --            --            --             --
 and Chief Financial           1993       156,500       130,000         22,148(5)       --         1,800,000          5,925
 Officer
</TABLE>
 
--------------------------
(1)  Executive  officers salaries  for 1993  reflect  less than  a full  year as
    follows: Mr. Koll and Mr. Wirta commenced service with the Company on  March
    16,  1993; Mr. Ortwein's  service commenced October 1,  1993; and Mr. Pacini
    devoted 50% of his time  from March to November  1993 as the Executive  Vice
    President  and  Chief Financial  Officer of  Koll Management  Services, Inc.
    ("KMS"). Mr. Koll  and Mr.  Wirta are also  executive officers  of The  Koll
    Company  and its  affiliates and accordingly  devote less than  all of their
    working time to the Company's business matters. Includes amounts  electively
    deferred  by each  Named Executive  under the  Company's Savings  and Profit
    Sharing Plan and Executive Retirement and Savings Program.
 
(2) Reflects the  Company's contributions  to the Company's  Savings and  Profit
    Sharing  Plan and the savings plan component of the Executive Retirement and
    Savings Program.
 
(3) Reduced  to  $100,000  per  year  effective  April  1,  1996  to  reflect  a
    reallocation of responsibilities.
 
(4)  Mr. Pacini  voluntarily elected  to defer  consideration of  his 1995 bonus
    until either  the sale  of the  Bolsa  Chica lowlands  is completed  or  new
    financing  is  obtained  for  the  development  of  Bolsa  Chica,  given the
    Company's current liquidity situation.
 
(5)  Reflects  periodic   installment  payments  to   Mr.  Pacini  for   expense
    reimbursements  in  connection with  his relocation  to California  from New
    Hampshire in 1990.
 
                                       10
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END
OPTION/SAR VALUE
 
    The following table  sets forth  information for each  Named Executive  with
regard to the aggregate stock options exercised during the 1995 fiscal year, and
stock  options  held as  of December  31,  1995. On  December 31,  1995, options
exercisable by the Named Executives were for 1,680,000 shares, 1,400,000 shares,
1,680,000 shares and  1,660,000 shares  under options granted  to Messrs.  Koll,
Wirta,  Ortwein  and Pacini,  respectively.  No stock  appreciation  rights were
exercised by the  Named Executives  during the 1995  fiscal year,  nor did  such
individuals hold any stock appreciation rights at the end of such fiscal year.
 
<TABLE>
<CAPTION>
                                                           NUMBER OF SECURITIES        VALUE OF
                                                                UNDERLYING            UNEXERCISED
                                                                UNEXERCISED          IN-THE-MONEY
                        SHARES ACQUIRED        VALUE           OPTIONS/SARS          OPTIONS/SARS
        NAME            ON EXERCISE (#)   REALIZED ($)(1)        AT FY-END         AT FY-END ($)(2)
---------------------  -----------------  ---------------  ---------------------  -------------------
<S>                    <C>                <C>              <C>                    <C>
Donald M. Koll                --                --                2,400,000               37,500
Ray Wirta                     --                --                2,000,000               31,250
Richard Ortwein               --                --                2,400,000               31,500
Raymond J. Pacini             --                --                2,200,000               62,480
</TABLE>
 
------------------------
(1)  Market value of underlying securities  on exercise date, minus the exercise
    price.
 
(2) Based upon market value of $.3125  for the Class A Common Stock and  $.28125
    for the Series A Preferred Stock as of December 31, 1995, less the aggregate
    exercise  price payable for such shares. Includes the value of the 1,680,000
    shares, 1,400,000 shares, 1,680,000 shares  and 1,660,000 shares subject  to
    currently  exercisable options by  Messrs. Koll, Wirta,  Ortwein and Pacini,
    respectively.
 
EXECUTIVE RETIREMENT AND SAVINGS PROGRAM
 
    The Company  maintains  two  retirement benefit  programs:  a  tax-qualified
defined  benefit pension plan available generally to all employees (the "Pension
Plan") and  the Retirement  and Savings  Program, a  non-qualified  supplemental
benefit  plan pursuant  to which retirement  benefits are  provided to executive
officers and other eligible key management  employees who are designated by  the
Compensation  Committee,  which  determines  the  service  recognized  under the
program in calculating  a participant's  vested interest  and retirement  income
(the  "Supplemental Plan"  and, together with  the Pension  Plan the "Retirement
Program"). As of  December 31, 1993,  all benefits under  the Pension Plan  were
frozen,  and no  further compensation  or years  of service  will be  taken into
account for additional benefit accrual purposes, under the Pension Plan.
 
    The following table shows  as of the  date the Pension  Plan was frozen  the
total estimated annual benefits payable under the Retirement Program in the form
of a 50% joint and survivor annuity to hypothetical participants upon retirement
at  normal retirement age,  in the compensation  and years-of-service categories
indicated in the table.
 
<TABLE>
<CAPTION>
                        ESTIMATED ANNUAL BENEFITS
ANNUALIZED   -----------------------------------------------
  AVERAGE     10 YEARS     20 YEARS    30 YEARS    40 YEARS
 EARNINGS    OF SERVICE   OF SERVICE  OF SERVICE  OF SERVICE
-----------  -----------  ----------  ----------  ----------
<S>          <C>          <C>         <C>         <C>
 $ 100,000    $  15,000   $   30,000  $   45,000  $   60,000
   200,000       30,000       60,000      90,000     120,000
   400,000       60,000      120,000     180,000     240,000
</TABLE>
 
    The years  of  service recognized  under  the Retirement  Program  generally
included   all  service  with  the  Company   and  its  subsidiaries  and  their
predecessors. The only credited years of  service to the Named Executives as  of
the  date  the  Pension  Plan  was  frozen  were  seven  years  to  Mr.  Pacini.
Compensation recognized  under  the  Retirement  Program  generally  included  a
participant's  base  salary (including  any portion  deferred) and  annual bonus
compensation.
 
                                       11
<PAGE>
COMPENSATION OF DIRECTORS
 
    The non-employee  directors of  the  Company are  entitled to  receive  cash
compensation and compensation pursuant to the plans described below.
 
CASH COMPENSATION
 
    Non-employee  directors of the  Company receive compensation  of $30,000 per
year, with no  additional fees for  attendance at Board  or committee  meetings.
Employee  directors are not paid any fees or additional compensation for service
as members of the Board or any  of its committees. All directors are  reimbursed
for expenses incurred in attending Board and committee meetings. Pursuant to the
Deferred  Compensation Plan for Non-Employee  Directors, a non-employee director
may elect, generally prior to the commencement of any calendar year, to have all
or any portion of the director's compensation for such calendar year credited to
a deferred compensation account. Amounts credited to the director's account will
accrue interest based upon  the average quoted rate  for ten-year U.S.  Treasury
Notes. Deferred amounts will be paid in a lump sum or in installments commencing
on  the first business day of the calendar  year following the year in which the
director ceases to serve on the Board, or of a later calendar year specified  by
the director.
 
1993 STOCK OPTION/STOCK ISSUANCE PLAN
 
    The  Company's  1993  Stock  Option/Stock Issuance  Plan  (the  "1993 Plan")
contains three separate equity incentive programs in which members of the  Board
may  be eligible to participate: (i) a Discretionary Option Grant Program, under
which eligible  non-employee members  of  the Board,  along with  officers,  key
employees  and consultants,  may be  granted options  to purchase  shares of the
Company's Series A Preferred Stock and Class A Common Stock, (ii) a Director Fee
Program, under which each  non-employee member of the  Board may elect to  apply
all  or any portion of his or her annual retainer fee (currently $30,000) to the
acquisition of unvested  shares of  the Company's  Series A  Preferred Stock  or
Class  A Common Stock, and (iii) an  Automatic Option Grant Program, under which
option grants will be made to non-employee members of the Board.
 
    Options granted under the Discretionary  Option Grant Program may be  either
incentive  stock options designed to meet the requirements of Section 422 of the
Internal Revenue  Code or  non-statutory options  not intended  to satisfy  such
requirements.  All grants under the Automatic  Option Grant Program will be non-
statutory options.
 
    No individual participating in the 1993 Plan may be granted stock options or
separately exercisable stock appreciation rights for more than 5,000,000  shares
of  Class A Common Stock and Series A  Preferred Stock in the aggregate over the
term of the 1993 Plan.
 
  PLAN ADMINISTRATION
 
    The Discretionary Option Grant Program  is administered by the  Compensation
Committee  of the Board,  which is comprised  of two or  more non-employee Board
members  appointed  by   the  Board.  The   Compensation  Committee,  as   "Plan
Administrator,"  has complete discretion  (subject to the  express provisions of
the 1993 Plan) to authorize stock option grants. All grants under the  Automatic
Option  Grant and Director Fee  Programs are made in  strict compliance with the
express provisions  of  those  programs, and  no  administrative  discretion  is
exercised  by  the  Plan  Administrator  with respect  to  the  grants  or stock
issuances made under those programs.
 
  DISCRETIONARY OPTION GRANT PROGRAM
 
    The principal  features of  the Discretionary  Option Grant  Program may  be
summarized as follows:
 
    The  exercise price  per share of  the Series  A Preferred Stock  or Class A
Common Stock subject to a  stock option will not be  less than 100% of the  fair
market value per share of that security on the grant date. No option will have a
maximum  term in  excess of  ten years  measured from  the grant  date. The Plan
Administrator has complete discretion to grant options (i) which are immediately
exercisable for  vested  shares,  (ii) which  are  immediately  exercisable  for
unvested shares subject to the Company's repurchase
 
                                       12
<PAGE>
rights  or (iii) which become exercisable in installments for vested shares over
the optionee's period of service. Non-employee members of the Board who serve as
Plan Administrator are not eligible  to participate in the Discretionary  Option
Grant Program.
 
    The  exercise price may be paid in cash or in shares of the Company's Series
A Preferred Stock or  Class A Common  Stock valued at fair  market value on  the
exercise  date. The  option may  also be exercised  for vested  shares through a
same-day sale program  pursuant to  which the purchased  shares are  to be  sold
immediately  and a portion  of the sale  proceeds applied to  the payment of the
exercise price for those shares on the settlement date.
 
    Any option held by  the optionee at  the time of  cessation of service  will
normally not remain exercisable beyond the limited period designated by the Plan
Administrator  (not to exceed 36 months) at the time of the option grant. During
that period, the  option will generally  be exercisable only  for the number  of
shares  in which the optionee is vested at the time of cessation of service. For
purposes of the 1993 Plan, an individual  will be deemed to continue in  service
for so long as that person performs services on a periodic basis for the Company
or any parent or subsidiary corporations, whether as an employee, a non-employee
member of the Board or an independent consultant or advisor.
 
    The  Plan  Administrator  has  complete  discretion  to  extend  the  period
following  the  optionee's  cessation  of  service  during  which  his  or   her
outstanding  options may be exercised and/or to accelerate the exercisability of
such options in whole or in part.  Such discretion may be exercised at any  time
while  the options  remain outstanding, whether  before or  after the optionee's
actual cessation of service.
 
    Any unvested shares of  the Company's Series A  Preferred Stock and Class  A
Common  Stock are subject to repurchase by the Company, at the original exercise
price paid per share, upon the optionee's cessation of service prior to  vesting
in  those shares. The Plan Administrator has complete discretion in establishing
the vesting schedule  for any  such unvested shares  and has  full authority  to
cancel  the Company's outstanding repurchase rights with respect to those shares
in whole or in part at any time.
 
    The optionee  is not  to have  any stockholder  rights with  respect to  the
option  shares until the option is exercised  and the exercise price is paid for
the purchased shares. Options are not  assignable or transferable other than  by
will  or by  the laws  of inheritance  following the  optionee's death,  and the
option may, during the optionee's lifetime, be exercised only by the optionee.
 
    The Plan Administrator  may grant  options with  stock appreciation  rights.
Stock  appreciation rights provide the holders with the right to surrender their
options for an appreciation distribution from the Company equal in amount to the
excess of (i) the fair market value of the vested shares of the Company's Series
A Preferred Stock or Class A Common Stock subject to the surrendered option over
(ii)  the  aggregate  exercise  price  payable  for  such  vested  shares.  Such
appreciation  distribution may, in the discretion  of the Plan Administrator, be
made in cash or in shares of the  Company's Series A Preferred Stock or Class  A
Common Stock.
 
  DIRECTOR FEE PROGRAM
 
    Under  the Director Fee  Program, each individual  serving as a non-employee
Board member is  eligible to elect  to apply all  or any portion  of the  annual
retainer fee otherwise payable in cash to such individual (currently $30,000) to
the  acquisition of unvested shares  of Series A Preferred  Stock and/or Class A
Common Stock. The non-employee Board member  must make the stock election  prior
to  the start of the calendar year for which the election is to be in effect. On
the first trading day in January of the calendar year for which the election  is
in  effect, the  portion of the  retainer fee  subject to such  election will be
applied to the acquisition  of the selected shares  of Series A Preferred  Stock
and/or Class A Common Stock by dividing the elected dollar amount by the closing
selling  price per share of Series A Preferred Stock or Class A Common Stock (as
the case may be) on that trading day.  The issued shares will be held in  escrow
by  the Company  until the  individual vests  in those  shares. The non-employee
Board member will have  full stockholder rights,  including voting and  dividend
rights, with respect to all issued shares held in escrow on his or her behalf.
 
                                       13
<PAGE>
    Upon  completion of each  calendar quarter of Board  service during the year
for which the election is in effect, the non-employee Board member will vest  in
one-fourth of the issued shares, and the stock certificate for those shares will
be  released from escrow. Immediate vesting in  all the issued shares will occur
in the event the individual dies or becomes disabled during his or her period of
Board service or  certain changes  in control or  ownership of  the Company  are
effected  during such  period. Should  the Board  member cease  service prior to
vesting in one or more quarterly  installments of the issued shares, then  those
installments  will be forfeited, and the individual  will not be entitled to any
cash payment from the Company with respect to the forfeited shares.
 
    In 1995 no shares were received in lieu of the cash retainer fee.
 
  AUTOMATIC OPTION GRANT PROGRAM
 
    Under the Automatic Option Grant Program, each individual who was serving as
a non-employee Board  member on  November 29,  1993 (the  "Effective Date")  was
automatically  granted  a non-statutory  option  to purchase  125,000  shares of
Series A Preferred Stock and a  non-statutory option to purchase 125,000  shares
of  Class  A Common  Stock. In  addition,  each individual  who first  becomes a
non-employee Board  member  on or  after  the Effective  Date,  whether  through
election  by the  Company's stockholders  or appointment  by the  Board, will be
automatically granted  at  the time  of  such  election or  appointment  a  non-
statutory  option to purchase 125,000  shares of Series A  Preferred Stock and a
non-statutory option  to  purchase  125,000  shares of  Class  A  Common  Stock.
However,  no non-employee Board member who has  previously been in the employ of
the Company or any parent or subsidiary corporation will be eligible to  receive
these automatic stock option grants.
 
    Each  option granted under the Automatic  Option Grant Program is subject to
the following terms and conditions:
 
        (1) The exercise  price per  share of the  Series A  Preferred Stock  or
    Class  A Common Stock subject to an  automatic option grant will be equal to
    100% of the fair market  value per share of  that security on the  automatic
    option grant date.
 
        (2)  Each option will have a maximum term of ten years measured from the
    grant date.
 
        (3) Each  option will  be  immediately exercisable  for all  the  option
    shares,  but  any purchased  shares  will be  subject  to repurchase  by the
    Company at the exercise price paid per share. Each option will vest, and the
    Company's repurchase right  will lapse as  to (i) 40%  of the option  shares
    upon  the optionee's completion  of one year of  Board service measured from
    the automatic grant date, and (ii) the remaining option shares in two  equal
    and  successive annual installments over  the optionee's period of continued
    Board service, with the first such  installment to vest two years after  the
    automatic option grant date.
 
        (4)  The option will remain exercisable for a six-month period following
    the optionee's cessation of Board service for any reason other than death or
    permanent disability. Should  the optionee  die while  holding an  automatic
    option  grant, then such  option will remain  exercisable for a twelve-month
    period following the optionee's death and  may be exercised by the  personal
    representative  of the optionee's estate or the  person to whom the grant is
    transferred by the optionee's will or the laws of inheritance. In no  event,
    however, may the option be exercised after the expiration date of the option
    term. During the applicable exercise period, the option may not be exercised
    for  more than the number of shares (if any) in which the optionee is vested
    at the time of cessation of Board service.
 
        (5) Should the optionee die or become permanently disabled while serving
    as a Board member, then the shares of the Company's Series A Preferred Stock
    and Class A Common Stock subject to any automatic option grant held by  that
    optionee  will  immediately vest  in full,  and those  vested shares  may be
    purchased at any time within the  twelve-month period following the date  of
    the optionee's cessation of Board service.
 
        (6)  The shares subject to each automatic option grant will vest in full
    upon the  occurrence of  certain  changes in  control  or ownership  of  the
    Company,  as  explained  in more  detail  below in  the  subsection entitled
    Option/Vesting Acceleration.
 
                                       14
<PAGE>
        (7) Upon  the  successful  completion  of a  hostile  tender  offer  for
    securities  possessing more  than 50%  of the  combined voting  power of the
    Company's outstanding securities, each automatic option grant which has been
    outstanding for at least six months may be surrendered to the Company for  a
    cash  distribution per  surrendered option share  in an amount  equal to the
    excess of  (i)  the  highest price  per  share  of the  Company's  Series  A
    Preferred  Stock or Class A Common Stock paid in such tender offer over (ii)
    the exercise price payable for such share.
 
        (8) The remaining  terms and conditions  of the option  will in  general
    conform  to  the terms  described  above for  option  grants made  under the
    Discretionary Option Grant Program and will be incorporated into the  option
    agreement evidencing the automatic option grant.
 
  FINANCIAL ASSISTANCE
 
    The  Plan Administrator may institute a loan  program in order to assist one
or more optionees in financing their  exercise of outstanding options under  the
Discretionary  Option Grant Program. The form in  which such assistance is to be
made available  (including loans  or installment  payments) and  the terms  upon
which  such  assistance  is  to  be provided  will  be  determined  by  the Plan
Administrator. However, the maximum amount of financing provided any  individual
may  not exceed the amount  of cash consideration payable  for the issued shares
plus all  applicable  Federal,  state  and local  income  and  employment  taxes
incurred  in connection with  the acquisition of the  shares. Any such financing
may be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the individual's period of service.
 
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
    The Compensation Committee, and  its members are named  below. No member  of
the Compensation Committee was at any time during the 1995 fiscal year or at any
other  time an officer or  employee of the Company.  No executive officer of the
Company serves as a member of  the board of directors or compensation  committee
of  any entity which has  one or more executive officers  serving as a member of
the Company's  Board  of Directors  or  Compensation Committee.  Good,  Wildman,
Hegness  &  Walley, a  law  firm with  which Mr.  Hegness  is a  senior partner,
provides legal services to the Company.
 
    THE  FOLLOWING  REPORT  OF  THE  COMPENSATION  COMMITTEE  AND  STOCK   PRICE
PERFORMANCE  COMPARISON GRAPH SHALL NOT BE  DEEMED TO BE SOLICITING MATERIAL AND
SHALL  NOT  BE  DEEMED  INCORPORATED  BY  REFERENCE  BY  ANY  GENERAL  STATEMENT
INCORPORATING  BY  REFERENCE  THIS PROXY  STATEMENT  INTO ANY  FILING  UNDER THE
SECURITIES ACT OF 1933 OR UNDER THE  SECURITIES EXCHANGE ACT OF 1934, AND  SHALL
NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
 
REPORT OF THE COMPENSATION COMMITTEE
 
    The  overall objectives of  the Company compensation  program are to attract
and retain the best possible executive  talent, to motivate these executives  to
achieve  the goals inherent in the  Company's business strategy, to maximize the
link between executive and  stockholder interests through  an equity based  plan
and to recognize individual contributions as well as overall business results.
 
    The  key elements of the Company's executive compensation program consist of
fixed compensation in the form of base salary, and variable compensation in  the
forms of annual incentive compensation and stock options. An executive officer's
annual  base salary  represents the fixed  component of  his total compensation;
however, variable compensation is intended to comprise a substantial portion  of
an  executive's total annual compensation. The Compensation Committee also takes
into account the fact that executives may also provide services to, and  receive
compensation   from,  other  entities.  In   addition,  while  the  elements  of
compensation  described  below  are  considered  separately,  the   Compensation
Committee  takes  into account  the full  compensation  package afforded  by the
Company  to  the  individual,  including  any  pension  benefits,   supplemental
retirement  benefits,  insurance and  other benefits,  as  well as  the programs
described below.
 
    BASE SALARIES.   Base  salaries  for executive  officers are  determined  by
evaluating  the responsibilities of the position  held and the experience of the
individual, and by reference to the competitive marketplace for executive talent
including, where  appropriate,  a comparison  to  base salaries  for  comparable
positions  at other companies,  and to historical  levels of salary  paid by the
Company and its predecessors. Current base
 
                                       15
<PAGE>
salaries for  the  Company's  executive  officers  are  at  or  below  the  75th
percentile  of the compensation data surveyed  during the first quarter of 1994.
Since then,  the only  executive  officer salary  increase  granted was  to  Mr.
Ortwein in order to bring his salary closer to comparable levels.
 
    Salary  adjustments are based on a periodic evaluation of the performance of
the Company  and of  each executive  officer,  and also  take into  account  new
responsibilities  as  well  as  changes in  the  competitive  market  place. The
Compensation  Committee,   where  appropriate,   also  considers   non-financial
performance measures.
 
    ANNUAL  INCENTIVE COMPENSATION  AWARDS.   The variable  compensation payable
annually to  executive officers  is intended  to consist  principally of  annual
incentive   compensation  awards,  based  on  various  factors,  including  both
corporate and individual performance, established by the Compensation  Committee
each  fiscal year. While Mr. Ortwein and Mr. Pacini's bonus awards are generally
based on  their  achievement of  specific  objectives  during the  year,  and  a
significant  number  of  these  objectives were  achieved  in  1995,  Mr. Pacini
volunteered to  defer consideration  of his  1995 incentive  compensation  award
until  either the sale of the Bolsa Chica lowlands is completed or new financing
is obtained for  the development  of Bolsa  Chica, given  the Company's  current
liquidity situation.
 
    OTHER  INCENTIVE COMPENSATION.  Participation of executives in equity- based
compensation programs  is reviewed  annually, and  awards under  such  programs,
primarily  in the  form of  stock option grants  under the  Company's 1993 Stock
Option/Stock Issuance Plan, are made periodically to the executives. Each option
grant is designed  to align the  interests of  the executive with  those of  the
stockholders  and provide each individual with a significant incentive to manage
the Company  from the  perspective  of an  owner with  an  equity stake  in  the
business.  The number of shares  subject to each option  grant is based upon the
executive's tenure,  level  of  responsibility  and  relative  position  in  the
Company.  The Compensation Committee has  established certain general guidelines
in making option  grants to the  executive officers  in an attempt  to target  a
fixed  number of  option shares  based upon  the individual's  position with the
Company and his existing holdings of unvested options. However, the Company does
not adhere strictly to  these guidelines and  will vary the  size of the  option
grant made to each executive officer as it feels the circumstances warrant. Each
grant  allows the officer  to acquire shares  of the Company's  stock at a fixed
price per share (the market price on the grant date) over a specified period  of
time  (up  to  10 years).  The  option  vests in  periodic  installments  over a
three-year period, contingent upon the executive officer's continued  employment
with the Company. Accordingly, the option will provide a return to the executive
officer  only if he remains in the Company's  employ and the market price of the
Company's Class A Common Stock and Series A Preferred Stock appreciates over the
option term.
 
    Option grants made during  1993 under the  1993 Stock Option/Stock  Issuance
Plan  reflected the decision of the Compensation Committee to have a significant
portion of the  overall compensation  payable to these  executive officers  tied
directly to the creation of stockholder value in the form of appreciation in the
market  price of  the Company's outstanding  stock. No  additional option grants
were made in  1995. The total  compensation package of  the Company's  executive
officers has been structured to be less in the form of guaranteed levels of base
salary  and  to  be  more  dependent upon  the  market  price  of  the Company's
outstanding securities.
 
    CEO COMPENSATION.   The  base  salary established  for the  Company's  Chief
Executive  Officer, Mr.  Wirta, reflects  the Committee's  policy to  maintain a
relative level  of stability  and certainty  with respect  to Mr.  Wirta's  base
salary  from  year to  year, and  there was  no intent  to have  this particular
component of compensation affected  to any significant  degree by the  Company's
performance factors. In setting Mr. Wirta's base salary, the Committee sought to
accomplish  three objectives: provide a level of base salary competitive to that
paid to other  chief executive officers  in the industry  (recognizing that  Mr.
Wirta  is an  executive officer of  affiliate companies  and accordingly devotes
less than all of his working  time to the Company's business matters),  maintain
internal  comparability and have his base salary play a less central role in his
overall compensation package by reason of the option grants made to him in  lieu
of  a more substantial increase in his level of base salary. Mr. Wirta's current
base salary is below the average of the surveyed compensation data for similarly
situated chief executive officers in the industry.
 
                                       16
<PAGE>
    TAX LIMITATION.  The cash compensation to  be paid to each of the  Company's
executive  officers  for the  1995 fiscal  year  is not  expected to  exceed the
$1,000,000 limit on  the tax  deductibility of such  compensation imposed  under
federal  tax legislation enacted  in 1993. In addition,  the Company's 1993 Plan
imposes a limit  on the maximum  number of  shares of the  Company's common  and
preferred  stock for which any one participant may be granted stock options over
the remaining term  of the plan.  Any compensation deemed  paid to an  executive
officer  upon the  exercise of  an outstanding option  under the  1993 Plan will
qualify as  performance-based compensation  which  will not  be subject  to  the
$1,000,000  limitation. No other changes to the Company's executive compensation
programs will be made  as a result  of the new  limitation until final  Treasury
Regulations are issued with respect to such limitation.
 
                                          The Compensation Committee
                                          of the Board of Directors:
 
                                          J. Thomas Talbot, Chairman
                                          Harold A. Ellis, Jr.
                                          Paul C. Hegness
                                          Marco F. Vitulli
 
                                       17
<PAGE>
STOCK PRICE PERFORMANCE COMPARISON
 
    The  following graph illustrates the return  during the past five years that
would have been realized on December  31 of each year (assuming reinvestment  of
dividends)  by an investor who invested $100 on December 31, 1990 in each of (i)
the Company's Class  A Common  Stock, (ii)  the Media  General Composite  Market
Value  Index  ("Media  General  Index"),  and  (iii)  the  Wilshire  Real Estate
Securities Index of Real Estate Operating Companies ("Real Estate Index")  which
consists of 12 real estate operating and development companies.
 
                  COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
             THE COMPANY, REAL ESTATE INDEX AND MEDIA GENERAL INDEX
 
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
 
<TABLE>
<CAPTION>
            THE COMPANY    REAL ESTATE INDEX  MEDIA GENERAL INDEX
<S>        <C>             <C>                <C>
12/31/90         $ 100.00           $ 100.00              $ 100.00
12/31/91          $ 34.38           $ 113.25              $ 129.09
12/31/92          $ 12.50           $ 102.62              $ 134.25
12/31/93          $ 21.88           $ 122.50              $ 154.11
12/31/94          $ 23.44           $ 115.69              $ 152.83
12/31/95          $ 15.63           $ 141.95              $ 198.15
</TABLE>
 
                                       18
<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The following table sets forth, as of March 1, 1996, the name and address of
each  person believed to  be a beneficial owner  of more than 5%  of the Class A
Common Stock, the  number of  shares beneficially  owned and  the percentage  so
owned. Except as set forth below, management knows of no person who, as of March
1,  1996, owned beneficially more  than 5% of the  Company's outstanding Class A
Common Stock.
 
<TABLE>
<CAPTION>
                                     NAME AND ADDRESS OF            AMOUNT AND NATURE OF    PERCENT OF
      TITLE OF CLASS                   BENEFICIAL OWNER             BENEFICIAL OWNERSHIP     CLASS (1)
---------------------------  ------------------------------------  ----------------------  -------------
<S>                          <C>                                   <C>                     <C>
Class A Common Stock         Bridge Partners, L.P.                   17,518,200 shares(2)        29.5(2)
                             115 East Putnam Avenue
                             Greenwich, CT 06830
Class A Common Stock         Wheelabrator Technologies Inc.           5,097,207 shares(3)        10.0(3)
                             Liberty Lane
                             Hampton, NH 03842
</TABLE>
 
------------------------
(1) These percentages are calculated  assuming the conversion of all  securities
    convertible within 60 days into the Company's Class A Common Stock which are
    held  by the individual beneficial owner of more than 5% listed in the table
    above, but not those held by others.
 
(2) According  to  Schedule 13D  dated  July 14,  1995  filed jointly  with  the
    Securities  and  Exchange  Commission  (the "SEC")  by  Mr.  John  W. Gildea
    ("Gildea"), Carson Street  Partners, Inc. ("Carson"),  and Bridge  Partners,
    L.P.  ("Bridge"). Carson is the  sole general partner of  Bridge and has the
    power to vote and dispose of shares. Gildea is the Chairman of the Board  of
    Directors, Chief Executive Officer, President and controlling stockholder of
    Carson.  As a  result, Gildea and  Carson may  be deemed to  be the indirect
    beneficial owners of the shares held by Bridge, a partnership whose  general
    partner  is controlled by  Gildea. Gildea disclosed  that through Bridge and
    Carson, as of that date, he was the beneficial owner of 17,518,200 shares of
    the Company's Class  A Common  Stock, as  to which  he had  sole voting  and
    dispositive  power.  This  number  includes 11,878,800  shares  of  Series A
    Convertible Redeemable Preferred Stock which shares are generally  nonvoting
    and  are currently convertible into shares of  the Class A Common Stock on a
    share-for-share basis.
 
(3) According to the  Company's records, including  shares held by  wholly-owned
    subsidiaries.  This number includes 3,339,198 shares of Series A Convertible
    Redeemable Preferred  Stock which  shares are  generally nonvoting  and  are
    currently  convertible into shares of  the Class A Common  Stock on a share-
    for-share basis.
 
    Information about the beneficial ownership of the Class A Common Stock as of
March 29, 1996 by each nominee, director, executive officer named in the Summary
Compensation Table  below,  and all  directors  and executive  officers  of  the
Company as a group is set forth below:
 
<TABLE>
<CAPTION>
                                                                     SHARES OF
                                                                      CLASS A        PERCENT OF
NAME OF BENEFICIAL OWNER                                         COMMON STOCK (1)     CLASS (2)
---------------------------------------------------------------  -----------------  -------------
<S>                                                              <C>                <C>
Donald M. Koll (3).............................................        2,076,701            4.2
Ray Wirta (4)..................................................        1,707,340            3.5
Harold A. Ellis, Jr. (5).......................................          293,263          *
Paul C. Hegness (5)............................................          360,571          *
J. Thomas Talbot (5)...........................................          252,000          *
Kathryn G. Thompson (6)........................................        1,200,000            2.5
Marco F. Vitulli (5)...........................................          371,000          *
Richard Ortwein (3)............................................        2,080,000            4.2
Raymond J. Pacini (7)..........................................        1,863,434            3.8
Directors and Executive Officers as a group
 (9 persons including the above named).........................       10,204,309           18.1
</TABLE>
 
                                       19
<PAGE>
------------------------
(1) Except as otherwise indicated in the notes below, the persons indicated have
    sole  voting and investment power with respect to shares listed. In addition
    to the specific  shares indicated  in the following  footnotes, this  column
    includes  shares held directly and shares subject to stock options which are
    currently exercisable or become exercisable within sixty days after March 1,
    1996.
 
(2) These percentages are calculated  assuming the conversion of all  securities
    convertible  within 60 days  into the Company's Class  A Common Stock, which
    are held by  the executive officer  or director listed  above but not  those
    held by others. Asterisks indicate beneficial ownership of 1% or less of the
    class.
 
(3)  Includes options to purchase 1,020,000 shares  each of Class A Common Stock
    and Series A Convertible Preferred  Stock granted pursuant to the  Company's
    1993  Stock  Option/Stock Issuance  Plan and  which  options are  subject to
    certain restrictions on vesting and disposition.
 
(4) Includes options to purchase 850,000 shares each of Class A Common Stock and
    Series A Convertible Preferred Stock granted pursuant to the Company's  1993
    Stock  Option/Stock Issuance Plan  and which options  are subject to certain
    restrictions on vesting and disposition.
 
(5) Includes  2,000 shares  of Class  A  Common Stock  granted pursuant  to  the
    Company's  Restricted Stock Plan for  Non-Employee Directors, and options to
    purchase  125,000  shares  each  of  Class  A  Common  Stock  and  Series  A
    Convertible  Preferred  Stock granted  pursuant  to the  Company's Automatic
    Option Grant  Program  which  shares  and options  are  subject  to  certain
    restrictions on vesting and disposition.
 
(6)  In  November 1994,  the Company  completed a  transaction through  which it
    acquired the residential development and construction operations of  Kathryn
    G.  Thompson Company ("KGTC")  and Kathryn G.  Thompson Construction Company
    through two  newly  created wholly-owned  subsidiaries  of the  Company  for
    consideration  to  Ms.  Thompson  which  included  1,000,000  shares  of the
    Company's Class  A Common  Stock and  warrants for  an additional  1,000,000
    shares  at a per  share exercise price  of $.25, exercisable  for a ten year
    period and subject to vesting in equal installments over a five year period.
    Ms. Thompson has pledged  to the Company all  of these shares, the  warrants
    and  the shares  underlying the  warrants, as  security for  any liabilities
    which may arise from certain discontinued KGTC insurance coverage. See  Note
    10 to the Financial Statements.
 
(7) Includes options to purchase 920,000 shares each of Class A Common Stock and
    Series  A Convertible Preferred Stock granted pursuant to the Company's 1993
    Stock Option/Stock  Issuance  Plan  which options  are  subject  to  certain
    restrictions on vesting and disposition.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Information  in answer  to this  item appears  in Note  10 to  the Financial
Statements included in this Annual Report.
 
                                       20
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
 
    (a)(1) Financial Statements:
 
    The following financial statements and supplementary data of the Company are
included in a separate section of this Annual Report on Form 10-K commencing  on
the page numbers specified below:
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Selected Financial Data...................................................   F-1
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   F-3
Independent Auditors' Report..............................................   F-7
Balance Sheets as of December 31, 1994 and 1995...........................   F-8
Statements of Operations for the Years Ended December 31, 1993, 1994 and
 1995.....................................................................   F-9
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
 1995.....................................................................  F-10
Statements of Changes in Stockholders' Equity for the Three Years Ended
 December 31, 1995........................................................  F-11
Notes to Financial Statements.............................................  F-12
</TABLE>
 
    (2) Financial Statement Schedules:
 
    All schedules have been omitted since they are not applicable, not required,
or the information is included in the financial statements or notes thereto.
 
    (3) Listing of Exhibits:
 
<TABLE>
<C>       <S>
   3.01   Restated Certificate of Incorporation of the Registrant, incorporated
          by  reference to  Exhibit 3.01 to  the Registrant's  Annual Report on
          Form 10-K for 1992.
   3.02   Amended By-Laws  of  the  Registrant, incorporated  by  reference  to
          Exhibit 3.02 to the Registrant's Annual Report on Form 10-K for 1992.
   4.01   Restated  Certificate of  Incorporation of  the Registrant  (filed as
          Exhibit 3.01).
   4.02   Amended By-Laws of the Registrant (filed as Exhibit 3.02).
   4.03   Indenture dated  as of  July  15, 1992  for 12%  Senior  Subordinated
          Pay-In-Kind  Debentures  Due  March  15,  2002  ("Senior Subordinated
          Debentures"), issued  by the  Registrant in  the aggregate  principal
          amount  of $127,550,000, incorporated by reference to Exhibit 4.08 to
          the Registrant's Annual Report on Form 10-K for 1992.
   4.04   Indenture dated as of July 15, 1992 for 12% Subordinated  Pay-In-Kind
          Debentures Due March 15, 2002, ("Subordinated Debentures"), issued by
          the  Registrant  in the  aggregate  principal amount  of $75,688,000,
          incorporated by reference to Exhibit 4.09 to the Registrant's  Annual
          Report on Form 10-K for 1992.
   4.05   Form of Senior Subordinated Debentures (included in Exhibit 4.03).
   4.06   Form of Subordinated Debentures (included in Exhibit 4.04).
   4.07   Letter of Credit and Reimbursement Agreement dated as of December 20,
          1994  between  the Registrant  and  Nomura Asset  Capital Corporation
          ("Nomura"),  incorporated  by  reference  to  Exhibit  4.07  to   the
          Registrant's Annual Report on Form 10K for 1994.
   4.07A  Amendment to Letter of Credit and Reimbursement Agreement dated as of
          September 12, 1995 between the Registrant and Nomura, incorporated by
          reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1995.
   4.08   Construction Loan Agreement dated as of December 20, 1994 between the
          Registrant  and Nomura, incorporated by  reference to Exhibit 4.08 to
          the Registrant's Annual Report on Form 10K for 1994.
</TABLE>
 
                                       21
<PAGE>
<TABLE>
<C>       <S>
   4.08A  Amendment to Construction  Loan Agreement dated  as of September  12,
          1995  between Registrant, Signal Landmark and Nomura, incorporated by
          reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1995.
   4.09   Construction Loan Agreement  dated as  of December  29, 1994  between
          Great Island Trust Partnership and The First National Bank of Boston,
          incorporated  by reference to Exhibit 4.09 to the Registrant's Annual
          Report on Form 10K for 1994.
   4.09A  Second Amendment to Construction Loan Agreement dated as of April 28,
          1995 between Great  Island Trust Partnership  and The First  National
          Bank  of  Boston, incorporated  by reference  to  Exhibit 4.1  to the
          Registrant's Quarterly Report on Form 10Q for the quarter ended  June
          30, 1995.
   4.10   Unconditional  Guaranty  of  Payment  and  Performance  dated  as  of
          December 29, 1994 between the Registrant and the First National  Bank
          of   Boston,  incorporated  by  reference  to  Exhibit  4.10  to  the
          Registrant's Annual Report on Form 10K for 1994.
  10.01   Tax Sharing  Agreement dated  as of  December 18,  1989, between  the
          Registrant  and The Henley Group, Inc. ("Henley Group"), incorporated
          by reference to Exhibit  10.03 to the  Registrant's Annual Report  on
          Form 10-K for 1989.
  10.02   Tax  Sharing  Agreement  dated  as  of  December  15,  1988,  between
          Wheelabrator Technologies,  Inc.  (formerly The  Wheelabrator  Group,
          Inc.)  ("WTI")  and  the Registrant  ("WTI  Tax  Sharing Agreement"),
          incorporated by reference to Exhibit 10.02 to Amendment No. 3 on Form
          8 to the Registrant's Registration Statement on Form 10.
  10.02A  Amendment No. 1 to WTI Tax Sharing Agreement dated February 14, 1994,
          incorporated by  reference  to  Exhibit 10.02A  to  the  Registrant's
          Annual Report on Form 10-K for 1993.
  10.03   1993  Stock Option/Stock Issuance Plan,  incorporated by reference to
          Exhibit 10.03A to  the Registrant's  Annual Report on  Form 10-K  for
          1993.
  10.04   Deferred   Compensation  Plan  for   Non-Employee  Directors  of  the
          Registrant,  incorporated  by  reference  to  Exhibit  10.14  to  the
          Registrant's Registration Statement on Form 10.
  10.05   Retirement   Plan  for  Non-Employee  Directors  of  the  Registrant,
          incorporated by  reference  to  Exhibit  10.15  to  the  Registrant's
          Registration Statement on Form 10.
  10.06   Retirement  Plan  of  the Registrant,  incorporated  by  reference to
          Exhibit 10.16  to Amendment  No.  3 on  Form  8 to  the  Registrant's
          Registration Statement on Form 10.
  10.06A  Amendment  to  Retirement Plan  of the  Registrant dated  December 8,
          1993, incorporated by reference to Exhibit 10.07A to the Registrant's
          Annual Report on Form 10-K for 1993.
  10.07   The Koll Company 401(k) Plus Plan  and Trust Agreement dated July  1,
          1989 under which the Registrant elected to participate as an employer
          effective as of October 1, 1993, incorporated by reference to Exhibit
          10.08 to the Registrant's Annual Report on Form 10-K for 1993.
  10.08   Restated  Environmental Matters Agreement dated  as of July 28, 1989,
          among a predecessor to  the Registrant, Allied-Signal, New  Hampshire
          Oak,   Fisher  Scientific   Group  Inc.  ("Fisher   Group")  and  the
          Registrant,  incorporated  by  reference  to  Exhibit  10(b)  to  the
          Registrant's Quarterly Report on Form 10-Q for the quarter ended June
          30, 1989 as amended by the Assignment, Assumption and Indemnification
          Agreement dated as of December 21, 1989, among the Registrant, Henley
          Group,  New  Hampshire  Oak,  Fisher  Group,  WTI  and Allied-Signal,
          incorporated by reference to Exhibit 10.21 to the Registrant's Annual
          Report on Form 10-K for 1989.
</TABLE>
 
                                       22
<PAGE>
<TABLE>
<C>       <S>
  10.09   Environmental Expenditures Agreement dated as of July 28, 1989, among
          the Registrant, WTI, New Hampshire Oak and Fisher Group, incorporated
          by reference to Exhibit 10(b) to the Registrant's quarterly report on
          Form 10-Q  for  the  quarter  ended  June  30,  1989  as  amended  by
          Assignment  and  Assumption Agreement  dated as  of January  1, 1990,
          among the Registrant, Henley Group, New Hampshire Oak, Fisher  Group,
          WTI  and Henley Holdings, Inc.,  incorporated by reference to Exhibit
          10.22 to the Registrant's Annual Report on Form 10-K for 1989.
  10.10   Transition  Agreement  dated  as   of  July  16,  1992   ("Transition
          Agreement"),  among  the  Registrant,  Henley  Group  and  Abex Inc.,
          incorporated by reference to Exhibit 10.14 to the Registrant's Annual
          Report on Form 10-K for 1992.
  10.10A  Amendment to Transition Agreement  dated April 1, 1993,  incorporated
          by  reference to Exhibit 10.12A to  the Registrant's Annual Report on
          Form 10-K for 1993.
  10.11   Tax Sharing Agreement dated as of June 10, 1992, between Henley Group
          and Abex  Inc., incorporated  by reference  to Exhibit  10.15 to  the
          Registrant's Annual Report on Form 10-K for 1992.
  10.12   Conditional Guarantee dated as of July 9, 1992, among the Registrant,
          Abex  Inc., Henley Group and Allied-Signal, incorporated by reference
          to Exhibit 10.16 to the Registrant's  Annual Report on Form 10-K  for
          1992.
  10.13   Reimbursement  Agreement  dated  as  of  July  16,  1992,  among  the
          Registrant, Henley Group and Abex Inc., incorporated by reference  to
          Exhibit  10.17 to  the Registrant's  Annual Report  on Form  10-K for
          1992.
  10.14   Pension Agreement dated as  of July 16,  1992, among the  Registrant,
          Henley  Group  and Abex  Inc., incorporated  by reference  to Exhibit
          10.18 to the Registrant's Annual Report on Form 10-K for 1992.
  10.15   Asset Purchase Agreement  ("Asset Agreement") dated  as of  September
          30, 1993 between the Registrant and The Koll Company, incorporated by
          reference  to Exhibit  10.2 to  the Registrant's  Quarterly Report on
          Form 10-Q for the quarter ended September 30, 1993.
  10.15A  Amendment No. 1 to the Asset Agreement dated as of December 29, 1993,
          incorporated by  reference  to  Exhibit 10.18A  to  the  Registrant's
          Annual Report on Form 10-K for 1993.
  10.16   Stock  Purchase Agreement ("Stock Agreement") dated December 17, 1993
          between the Registrant, certain of its subsidiaries and Libra  Invest
          &  Trade Ltd. ("Libra") incorporated by reference to Exhibit 10.19 to
          the Registrant's Annual Report on Form 10-K for 1993.
  10.16A  Amendment No. 1 to the Stock Agreement dated as of February 15, 1994,
          incorporated by  reference  to  Exhibit 10.19A  to  the  Registrant's
          Annual Report on Form 10-K for 1993.
  10.17   Exchange  Agreement dated  December 17, 1993,  between the Registrant
          and  Libra,  incorporated  by  reference  to  Exhibit  10.20  to  the
          Registrant's Annual Report on Form 10-K for 1993.
  10.18   Financing and Accounting Services Agreement dated as of September 30,
          1993  between the  Registrant and  The Koll  Company, incorporated by
          reference to Exhibit 10.21 to the Registrant's Annual Report on  Form
          10-K for 1993.
  10.19   Management Information Systems and Human Resources Services Agreement
          dated  as  of  September 30,  1993  between the  Registrant  and Koll
          Management Services, Inc., incorporated by reference to Exhibit 10.22
          to the Registrant's Annual Report on Form 10-K for 1993.
  10.20   License Agreement dated  September 30, 1993  between the  Registrant,
          The Koll Company and Mr. Donald M. Koll, incorporated by reference to
          Exhibit  10.3 to Registrant's  Quarterly Report on  Form 10-Q for the
          quarter ended September 30, 1993.
</TABLE>
 
                                       23
<PAGE>
<TABLE>
<C>       <S>
  10.21   Sublease Agreement dated  September 30, 1993  between the  Registrant
          and  the Koll Company, incorporated by  reference to Exhibit 10.24 to
          the Registrant's Annual Report on Form 10-K for 1993.
  10.22   Netting Agreement 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 therewith,  incorporated by reference to  Exhibit
          10.1  to Registrant's Quarterly  Report on Form  10-Q for the quarter
          ended June 30, 1994.
  10.23   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 therewith, incorporated
          by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1994.
  10.24   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 therewith, incorporated
          by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1994.
  10.25   Second Amended  and Restated  Asset Purchase  Agreement dated  as  of
          October  28,  1994  between  the  Company  and  Kathryn  G.  Thompson
          Construction Company  and affiliates,  incorporated by  reference  to
          Exhibit  10.1 to Registrant's  Quarterly Report on  Form 10-Q for the
          quarter ended September 30, 1994.
  10.26   Promissory Note Agreement dated as  of December 16, 1994 between  the
          Registrant  and AV Partnership, incorporated  by reference to Exhibit
          10.27 to the Registrant's Annual Report on Form 10K for 1994.
  10.27   Promissory Note Agreement dated April 29, 1995 between the Registrant
          and AV  Partnership, incorporated  by reference  to Exhibit  10.1  to
          Registrant's  Quarterly  Report on  Form 10-Q  for the  quarter ended
          March 31, 1995.
  21.01   Subsidiaries of the Registrant.*
  27.01   Financial Data Schedule.*
</TABLE>
 
------------------------
* Filed herewith.
 
    (b) Reports on Form 8-K: None
 
                                       24
<PAGE>
                                   SIGNATURES
 
    Pursuant to  the requirements  of  Section 13  or  15(d) of  the  Securities
Exchange  Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
 
Date: March 29, 1996            KOLL REAL ESTATE GROUP, INC.
 
                                By:             /s/ RAYMOND J. PACINI
                                      -----------------------------------------
                                                  Raymond J. Pacini
                                            EXECUTIVE VICE PRESIDENT AND
                                               CHIEF FINANCIAL OFFICER
 
    Pursuant to the requirements  of the Securities Exchange  Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the date indicated.
 
             SIGNATURE                         TITLE                  DATE
-----------------------------------  -------------------------  ----------------
 
        /S/ DONALD M. KOLL
-----------------------------------  Chairman of the Board       March 29, 1996
         (Donald M. Koll)
 
                                     Vice Chairman of the
           /S/ RAY WIRTA              Board and Chief
-----------------------------------   Executive Officer          March 29, 1996
            (Ray Wirta)               (Principal Executive
                                      Officer)
 
                                     Executive Vice President
       /s/ RAYMOND J. PACINI          and Chief Financial
-----------------------------------   Officer (Principal         March 29, 1996
        (Raymond J. Pacini)           Financial Officer)
 
     /s/ HAROLD A. ELLIS, JR.
-----------------------------------  Director                    March 29, 1996
      (Harold A. Ellis, Jr.)
 
        /s/ PAUL C. HEGNESS
-----------------------------------  Director                    March 29, 1996
         (Paul C. Hegness)
 
       /s/ J. THOMAS TALBOT
-----------------------------------  Director                    March 29, 1996
        (J. Thomas Talbot)
 
      /s/ KATHRYN G. THOMPSON
-----------------------------------  Director                    March 29, 1996
       (Kathryn G. Thompson)
 
       /s/ MARCO F. VITULLI
-----------------------------------  Director                    March 29, 1996
        (Marco F. Vitulli)
 
                                       25
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                            SELECTED FINANCIAL DATA
 
    The  following selected financial  data of Koll Real  Estate Group, Inc. and
its consolidated subsidiaries (the "Company") should be read in conjunction with
the financial statements  included elsewhere herein.  For further discussion  of
the  formation of  the Company and  the basis  of presentation see  the Notes to
Financial Statements.
 
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                    -----------------------------------------------------
                                                                      1991       1992       1993       1994       1995
                                                                    ---------  ---------  ---------  ---------  ---------
                                                                           (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                 <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
  Cash, cash equivalents and short-term investments (a)...........  $     7.8  $    41.6  $    43.5  $    13.0  $     4.9
  Total assets (a)................................................      472.9      486.1      436.0      414.0      272.4
  Senior bank debt (b)............................................       82.4       65.4        7.0     --           16.6
  Nonrecourse debt (b)............................................       24.9     --         --         --         --
  Subordinated debentures (b).....................................      184.7      165.1      134.9      152.9      173.2
  Total stockholders' equity (c)..................................      101.3      149.6      163.5      145.5       29.6
  Fully diluted shares outstanding at end of year (g).............       20.0       86.4       91.4      102.5      102.4
  Book value per fully diluted share..............................       5.07       1.73       1.79       1.42        .29
Statement of Operations Data:
  Revenues (d),(e)................................................       34.7       28.3       16.7       21.4       34.0
  Income (loss) from continuing operations (e),(f)................     (105.5)     (41.9)     (20.1)     (18.7)    (116.9)
  Net income (loss) (f)...........................................     (106.7)     (38.4)      14.3      (18.0)    (116.9)
Per common share:
  Income (loss) from continuing operations (c),(e),(f)............      (5.27)     (1.44)      (.24)      (.43)     (2.48)
  Net income (loss) (f),(g).......................................      (5.33)     (1.32)       .17       (.41)     (2.48)
Weighted average shares outstanding (g)...........................       20.0       29.0       83.0       43.8       47.1
</TABLE>
 
------------------------
(a) The increase in cash, cash equivalents and short-term investments and  total
    assets  at December 31, 1992 is primarily  attributable to the July 16, 1992
    merger with The Henley Group, Inc. (the "Merger"; Note 1), partially  offset
    by  the  elimination of  hotel assets  from the  Company's balance  sheet in
    connection  with  the  Long  Beach  Airport  Marriott  Hotel  (the  "Hotel")
    foreclosure.  The decrease in total assets at December 31, 1993 is primarily
    due to the disposition of the Company's investment in Deltec Panamerica S.A.
    ("Deltec") and the sale of Lake Superior Land Company ("Lake Superior"; Note
    3). The decrease in total assets  and cash, cash equivalents and  short-term
    investments at December 31, 1994 is primarily attributable to the funding of
    project  development costs and general  and administrative expenses, as well
    as funds deposited into  a restricted cash account  to secure a $25  million
    letter  of credit facility related  to the Abex litigation  (Notes 6 and 8).
    The decrease  in  cash,  cash  equivalents and  short  term  investments  at
    December  31,  1995  is primarily  attributable  to the  funding  of project
    development  and  infrastructure  costs   and  general  and   administrative
    expenses,  offset by sales of real estate  held for development or sale. The
    decrease in total assets at December 31, 1995 is primarily due to the  asset
    revaluation  of  Bolsa Chica  (Note 5)  and the  decrease in  cash described
    above.
 
(b) The  decreases in  debt at  December  31, 1992  reflect the  elimination  of
    nonrecourse  debt from  the Company's balance  sheet in  connection with the
    Hotel foreclosure and the reduction of subordinated debentures and principal
    repayments on senior bank  debt in connection with  the Merger (Notes 1  and
    6).  The decrease in debt at December 31, 1993 reflects principal repayments
    on  senior  bank  debt  and  the  exchange  of  subordinated  debentures  in
    connection  with the sale of  Lake Superior and the  issuance of 3.4 million
    shares of Class A Common Stock of  the Company to Libra Invest & Trade  Ltd.
    ("Libra")  (Note  3). The  increase in  debt at  December 31,  1995 reflects
    borrowings under new  credit agreements  to settle the  Abex litigation  and
    construct infrastructure improvements at Rancho San Pasqual (Note 6).
 
                                      F-1
<PAGE>
(c)  The  increase in  equity at  December  31, 1992  reflects the  1992 Merger,
    partially offset by the net  loss for the year  then ended. The increase  in
    equity  at December 31, 1993 primarily reflects net income for the year then
    ended. The decrease in equity at December 31, 1995 reflects the net loss for
    the year then ended,  including the asset revaluation  of Bolsa Chica  (Note
    5).
 
(d)  The decrease in 1992 revenues was  principally due to the commencement of a
    foreclosure against the Hotel  in September 1992  and lower Hotel  operating
    revenues  prior to that  date. The decrease in  1993 revenues is principally
    due to a decrease in land sales and the absence of Hotel revenues, partially
    offset by revenues from the Eagle Crest golf course which opened in May 1993
    and development  fees  generated by  the  business acquired  from  The  Koll
    Company  in September 1993 (Note 3). The increase in 1995 revenues is due to
    an increase in land  sales and Wentworth By  The Sea residential and  marina
    sales.
 
(e)  Amounts  have been  reclassified  to present  Lake  Superior and  Deltec as
    discontinued operations.
 
(f) The loss from continuing operations, net loss and loss per common share  for
    the  year ended December 31, 1991  includes approximately $65 million ($3.24
    per  share)  of  charges  related  to  asset  revaluations.  The  loss  from
    continuing operations, net loss and loss per common share for the year ended
    December  31,  1992 reflect  lower interest  expense  related to  lower debt
    outstanding as a result of the 1992 Merger and concurrent prepayment of  $15
    million  of senior bank debt, along with lower interest rates. The loss from
    continuing operations for the  year ended December  31, 1993 reflects  lower
    interest  expense related to lower debt outstanding, as well as nonrecurring
    income of $3  million received upon  termination of a  put option  agreement
    with  Abex Inc.  and a $2  million insurance reimbursement  related to costs
    incurred in  1992. Net  income and  net  income per  common share  for  1993
    reflect  gains on the dispositions of Lake  Superior and Deltec (Note 3) and
    an extraordinary gain on debt extinguishment (Notes 3 and 6). The loss  from
    continuing operations, net loss and loss per common share for the year ended
    December 31, 1995 reflect approximately $121.1 million of charges related to
    real estate property revaluations, including Bolsa Chica.
 
(g)  In July 1992, approximately 19.7 million shares of Class A Common Stock and
    42.5 million shares of  Series A Preferred Stock  were issued in  connection
    with  the Merger. The Series  A Preferred Stock is  not included in the loss
    per share calculations except for 1993 since the effect is antidilutive.  In
    December  1993, the Company issued 3.4 million  shares of its Class A Common
    Stock in  exchange  for  all  of  Libra's  approximately  $10.6  million  in
    aggregate  principal amount plus accrued interest of subordinated debentures
    issued by  the  Company  (Notes  3  and 6).  The  1993  earnings  per  share
    calculation  includes these  newly issued  shares, along  with the  Series A
    Preferred Stock and stock options outstanding. In November 1994, the Company
    issued 2.0  million shares  (along  with warrants  for  the purchase  of  an
    additional  2.0 million  shares) of its  Class A Common  Stock in connection
    with the acquisition of the Kathryn G. Thompson Company (Note 3).
 
                                      F-2
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
    The principal activities of  the Company include:  (i) obtaining zoning  and
other  entitlements  for land  it owns  and improving  the land  for residential
development; (ii) single and  multi-family residential construction in  Southern
California;  and (iii) 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
and  international  basis, through  its  offices throughout  California,  and in
Dallas, Denver, Phoenix, Seattle, Shanghai,  China and Taipei, Taiwan. Once  the
residential  land  owned  by  the  Company 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
intends  to  consider  additional  real  estate  acquisition  and  joint venture
opportunities; however, over the next year the Company's strategic goals are  to
(i)  obtain new financing for development of the Bolsa Chica mesa; (ii) complete
the secondary permitting for development of the Bolsa Chica mesa and secure  all
federal  permits for  development and restoration  of the  Bolsa Chica lowlands;
(iii) continue working with state and federal agencies in an effort to  complete
the  potential sale of  the Bolsa Chica  lowlands to the  California State Lands
Commission, as described in  Note 5; (iv) evaluate  and, if appropriate,  pursue
recapitalization  alternatives which deleverage the Company's capital structure;
and (v)  maintain  adequate  liquidity  to  cover  general  and  administrative,
liability  management and  interest costs.  There can  be no  assurance that the
Company will accomplish,  in whole or  in part,  all or any  of these  strategic
goals.
 
    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 based on undiscounted cash flows  (see Note 2). The Company's real  estate
properties  are subject to a number of uncertainties which can affect the future
values of those assets. These  uncertainties include withdrawals, litigation  or
appeals  of regulatory approvals and availability of adequate capital, financing
and cash flow. In addition, future values may be adversely affected by 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  California's
economy  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. However, over the past year, the number of potential purchasers  and
capital sources interested in Southern California residential properties appears
to have increased.
 
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.
 
    In  February 1995, the Company entered into an agreement with Abex, Inc. and
Wheelabrator Technologies, Inc. which settled litigation (the "Abex litigation")
regarding certain tax sharing agreements. Under the terms of the agreement,  the
Company  paid an aggregate of $22 million,  $15.5 million of which was funded by
borrowings under a  financing agreement  with Nomura  Asset Capital  Corporation
("Nomura") and the balance of $6.5 million was funded from restricted cash.
 
    During  1995,  the Company  generated  an aggregate  of  approximately $22.5
million in  cash from  asset  sales, principally  through sales  of  residential
homes, residential land under development and the marina at its Wentworth By The
Sea  project in  New Hampshire  ("Wentworth"), along  with the  sale of wharfage
rights
 
                                      F-3
<PAGE>
in Coronado,  California,  and the  sale  of industrial  property  in  Murrieta,
California.  Approximately $4.2 million  of Wentworth proceeds  were utilized to
make required  prepayments  of  senior  debt.  At  December  31,  the  Company's
unrestricted  cash and cash  equivalents aggregated $4.9  million and restricted
cash of $2.5 million  was available to fund  infrastructure improvements at  the
Company's Rancho San Pasqual project.
 
    Historically,  sources  of  capital  have  included  bank  lines  of credit,
specific property  financings, asset  sales and  available internal  funds.  The
Company has reported losses since 1991, with the exception of 1993 results which
included gains on dispositions and extinguishment of debt, and expects to report
losses  in the foreseeable future. While a significant portion of such losses is
attributable to non-cash asset revaluations and non-cash interest expense on the
Company's  subordinated  debentures,  the  Company's  capital  expenditures  for
project  development  and  infrastructure  are  significant.  The  Company  will
continue to  be  dependent  primarily  on  real  estate  asset  sales,  existing
financing  arrangements (see  Note 6) and  cash and cash  equivalents on-hand to
fund infrastructure construction costs at Rancho San Pasqual, a minimum level of
project development costs for  Bolsa Chica, cash  interest payments and  general
and  administrative expenses during 1996. In  addition, with the recent approval
of the Bolsa Chica project by the California Coastal Commission, the Company  is
also  seeking  new  financing  for development  of  Bolsa  Chica  and evaluating
recapitalization alternatives.
 
FINANCIAL CONDITION
 
  DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994
 
    Cash and  cash equivalents  aggregated  $4.9 million  at December  31,  1995
compared  with $13.0 million at December 31, 1994. The decrease in cash and cash
equivalents primarily reflects continued investments  in Bolsa Chica and  Rancho
San  Pasqual along with general and administrative expenses, partially offset by
proceeds from asset sales, as well as other activity presented in the Statements
of Cash Flows.  Restricted cash of  $2.5 million at  December 31, 1995  reflects
funds  deposited into escrow accounts for funding infrastructure costs at Rancho
San Pasqual. Restricted cash of $7.5 million at December 31, 1994 reflects funds
on deposit to secure a $25 million letter of credit facility arranged to finance
the settlement of the Abex litigation described above (see Notes 6 and 8).
 
    The $5.6 million  decrease in real  estate held for  development or sale  is
primarily  due to the sale  of all residential property  at Wentworth, offset by
investments in Rancho San Pasqual  infrastructure. The $4.5 million decrease  in
operating  properties, net is primarily due to  the sale of the Wentworth marina
in December 1995.
 
    The $105.8  million  decrease in  land  held for  development  reflects  the
revaluation  of the Bolsa  Chica property resulting  primarily from management's
decision in the fourth quarter of 1995 (following approval of additional funding
by the Ports) to make completing the sale  of the lowlands to a public agency  a
strategic goal of the Company, along with updated estimates of future cash flows
for the mesa portion of the project reflecting recent market conditions.
 
    The   $12.6  million  decrease  in   other  assets  primarily  reflects  the
revaluation of the  Company's investment  in AV  Partnership (see  Note 3),  the
March   1995  collection  of   a  note  receivable   from  AV  Partnership,  the
reclassification of a  note receivable to  real estate held  for development  or
sale upon acquisition of title to industrial property in Ontario, California and
the  refund of a  deposit upon termination  of a purchase  contract for property
adjacent to the Bolsa Chica site.
 
    The $23.2  million  decrease in  accounts  payable and  accrued  liabilities
primarily  reflects the $22 million settlement of the Abex litigation (see Notes
6 and 8) in February 1995.
 
    The $16.6 million  increase in senior  bank debt reflects  the borrowing  of
$15.5  million to fund the Abex settlement (see  Note 8) and $1.1 million of net
borrowings to fund infrastructure construction at Rancho San Pasqual.
 
    The $39.4  million  decrease in  other  liabilities primarily  reflects  the
recognition  of $25.4 million of deferred tax  benefits and a reduction of $10.0
million of other tax liabilities during 1995.
 
                                      F-4
<PAGE>
  DECEMBER 31, 1994 COMPARED WITH DECEMBER 31, 1993
 
    Cash, cash equivalents and short  term investments aggregated $13.0  million
at  December 31,  1994 compared  with $43.5  million at  December 31,  1993. The
decrease in cash, cash equivalents and short term investments primarily reflects
the funding of restricted cash described above, project development and  general
and administrative costs, as well as the activity presented in the Statements of
Cash Flows.
 
RESULTS OF OPERATIONS
 
    The  nature of the  Company's business is  such that individual transactions
often cause significant fluctuations in operating results from year to year.
 
  1995 COMPARED WITH 1994
 
    The $12.6 million increase in revenues from  $21.4 in 1994 to $34.0 in  1995
and the increase in cost of sales from $20.2 million in 1994 to $31.9 million in
1995  was primarily due  to the sale  of residential property  and the marina at
Wentworth, along with the sale  of industrial property in Murietta,  California,
and the sale of wharfage rights in Coronado, California.
 
    The  write-down of real estate properties of $121.1 million in 1995 reflects
the  valuation  adjustments  recorded  to  reflect  current  estimates  of   net
realizable  value for the Company's Bolsa Chica property (see Note 5) as well as
the Wentworth project and the golf course at Rancho San Pasqual.
 
    The change in other  expense (income), net from  $2.1 million of expense  in
1994  to $3.1 million of  expense for 1995 primarily  reflects a loss reserve of
approximately $3 million related to  the Company's investment in AV  Partnership
(see Note 3).
 
    The  improvement in  provision (benefit) for  income taxes  of $25.2 million
primarily reflects  the  benefit  related  to  the  write-down  of  real  estate
properties (see Note 8).
 
  1994 COMPARED WITH 1993
 
    The  $4.7 million increase in  revenues from $16.7 million  in 1993 to $21.4
million in 1994 and the increase in cost of sales from $16.3 million in 1993  to
$20.2  million  in  1994 were  both  principally  related to  operations  of the
domestic real  estate development  business acquired  from The  Koll Company  in
September  1993, as well as  residential home sales and  the golf course sale at
the Company's Wentworth By The Sea project during 1994, offset by the absence in
1994 of the Company's November  1993 sale of two  office buildings in La  Jolla,
California.
 
    The decrease in interest expense from $24.4 million in 1993 to $19.4 million
in  1994  reflects  both  the reductions  in  outstanding  subordinated  debt in
connection with the Libra transaction in December 1993 and prepayments of senior
bank debt principally during 1993 (see Note 6).
 
    The change in  other expense (income),  net from $2.4  million of income  in
1993  to $2.1 million of expense for 1994 primarily reflects nonrecurring income
of $3.0 million received in August 1993 in connection with the termination of  a
put  option agreement with Abex  a former subsidiary of  The Henley Group, Inc.,
and a $2.0 million insurance reimbursement received in February 1993, offset  by
$.7  million of carrying costs related to the two La Jolla office buildings sold
in November 1993.
 
    The gain on disposition of discontinued  operations, net of income taxes  in
1994  reflects the  receipt of  cash for  the February  1994 termination  of the
contingent payment provision of a December 1993 agreement with 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. (see Note 3).
 
  1993 COMPARED WITH 1992
 
    The $11.6 million decrease in revenues  from $28.3 million in 1992 to  $16.7
million  in 1993 and the decrease in cost of sales from $26.5 million in 1992 to
$16.3 million in 1993 were both  principally related to the Company's 1992  sale
of  California properties  in Ontario, Long  Beach and Coronado,  along with the
February 1993 foreclosure sale of the  Long Beach Marriott hotel (the  "Hotel"),
offset by the Company's sale in November 1993 of two office buildings located in
La    Jolla,    California    and    revenues    from    golf    operations   at
 
                                      F-5
<PAGE>
the Company's  Eagle Crest  project  and the  domestic real  estate  development
business  acquired from The Koll Company in September 1993. The pro forma impact
of this acquisition assuming it had occurred on January 1, 1993, would have been
to increase the Company's revenues and income from continuing operations  before
income  taxes and  amortization of goodwill  by $10.0 million  and $2.4 million,
respectively.
 
    The $1.8 million decrease in general and administrative expenses for 1993 as
compared with 1992 was primarily  attributed to reduced personnel and  occupancy
costs.
 
    The decrease in interest expense from $31.2 million in 1992 to $24.4 million
in  1993 primarily reflects the reduction in outstanding subordinated debentures
and senior  bank debt  in connection  with the  July 1992  Merger and  the  1993
prepayments of senior bank debt.
 
    The  improvement in other expense (income), net from $2.9 million of expense
for 1992 to  $2.4 million  of income for  1993 primarily  reflects $3.0  million
received  in 1993 in connection  with the termination of  a put option agreement
with Abex and a $2.0 million insurance reimbursement received in 1993 related to
prior year environmental litigation costs.
 
    The Company adopted  Financial Accounting Standard  No. 109 "Accounting  for
Income  Taxes," in the  first quarter of  1993, resulting in  an increase in its
deferred tax liability of $36.0 million through  a charge to income at the  time
of adoption (see Notes 2 and 8). Under this new accounting standard, the Company
also  recognized $10.4 million, $10.3 million  and $25.4 million of tax benefits
on continuing operations for the years  ended December 31, 1993, 1994 and  1995,
respectively.
 
                                      F-6
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
To The Board of Directors and Stockholders
of Koll Real Estate Group, Inc.:
 
    We  have audited the accompanying balance  sheets of Koll Real Estate Group,
Inc. as of December 31, 1995 and 1994, and the related statements of operations,
cash flows and changes in  stockholders' equity for each  of the three years  in
the  period  ended  December  31,  1995.  These  financial  statements  are  the
responsibility of the Company's management. Our responsibility is to express  an
opinion on these financial statements based on our audits.
 
    We  conducted  our audits  in  accordance with  generally  accepted auditing
standards. Those standards require that we plan and perform the audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also  includes
assessing  the  accounting principles  used  and significant  estimates  made by
management, as well as evaluating the overall financial statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In  our opinion, the financial statements  referred to above present fairly,
in all material respects, the financial position of Koll Real Estate Group, Inc.
at December 31, 1995 and  1994, and the results of  its operations and its  cash
flows  for each  of the three  years in the  period ended December  31, 1995, in
conformity with generally accepted accounting principles.
 
    The Company  carries its  real estate  properties at  the lower  of cost  or
estimated  net realizable value. As discussed  in Note 2, the estimation process
is inherently uncertain and relies to a considerable extent on future events and
market conditions. As  discussed in  Note 5,  the development  of the  Company's
Bolsa  Chica project is dependent  upon obtaining various governmental approvals
and various economic factors. Accordingly,  the amount ultimately realized  from
such  project may differ materially from  the current estimate of net realizable
value.
 
    As discussed in  Note 8, the  Company changed its  method of accounting  for
income taxes in 1993.
 
DELOITTE & TOUCHE LLP
 
Costa Mesa, California
March 27, 1996
 
                                      F-7
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                    DECEMBER 31,
                                                                                                --------------------
                                                                                                  1994       1995
                                                                                                ---------  ---------
                                                                                                   (IN MILLIONS)
<S>                                                                                             <C>        <C>
ASSETS
Cash and cash equivalents.....................................................................  $    13.0  $     4.9
Restricted cash...............................................................................        7.5        2.5
Real estate held for development or sale......................................................       33.7       28.1
Operating properties, net.....................................................................       10.2        5.7
Land held for development.....................................................................      325.8      220.0
Other assets..................................................................................       23.8       11.2
                                                                                                ---------  ---------
                                                                                                $   414.0  $   272.4
                                                                                                ---------  ---------
                                                                                                ---------  ---------
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Accounts payable and accrued liabilities....................................................  $    31.8  $     8.6
  Senior bank debt............................................................................     --           16.6
  Subordinated debentures.....................................................................      152.9      173.2
  Other liabilities...........................................................................       83.8       44.4
                                                                                                ---------  ---------
    Total liabilities.........................................................................      268.5      242.8
                                                                                                ---------  ---------
Commitments and Contingencies
Stockholders' equity:
  Series A (convertible redeemable nonvoting) Preferred Stock -- $.01 par value; 42,505,504
   shares authorized; 41,255,340 and 40,290,735 shares outstanding, respectively..............         .4         .4
  Class A (voting) Common Stock -- $.05 par value; 625,000,000 shares authorized; 46,569,867
   and 47,534,472 shares outstanding, respectively............................................        2.3        2.4
  Class B (convertible nonvoting) Common Stock -- $.05 par value; 25,000,000 shares authorized
   and no shares outstanding..................................................................     --         --
Capital in excess of par value................................................................      230.5      229.9
Deferred proceeds from stock issuance.........................................................       (1.6)      (1.1)
Minimum pension liability.....................................................................       (2.0)      (1.0)
Accumulated deficit...........................................................................      (84.1)    (201.0)
                                                                                                ---------  ---------
    Total stockholders' equity................................................................      145.5       29.6
                                                                                                ---------  ---------
                                                                                                $   414.0  $   272.4
                                                                                                ---------  ---------
                                                                                                ---------  ---------
</TABLE>
 
              See the accompanying notes to financial statements.
 
                                      F-8
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                           FOR THE YEARS ENDED
                                                                                              DECEMBER 31,
                                                                                     -------------------------------
                                                                                       1993       1994       1995
                                                                                     ---------  ---------  ---------
                                                                                              (IN MILLIONS
                                                                                        EXCEPT PER SHARE AMOUNTS)
<S>                                                                                  <C>        <C>        <C>
Revenues:
  Asset sales......................................................................  $    11.1  $    11.1  $    23.5
  Operations.......................................................................        5.6       10.3       10.5
                                                                                     ---------  ---------  ---------
                                                                                          16.7       21.4       34.0
                                                                                     ---------  ---------  ---------
Costs of:
  Asset sales......................................................................       11.1       10.7       21.6
  Operations.......................................................................        5.2        9.5       10.3
                                                                                     ---------  ---------  ---------
                                                                                          16.3       20.2       31.9
                                                                                     ---------  ---------  ---------
Gross operating margin.............................................................         .4        1.2        2.1
General and administrative expenses................................................        8.9        8.7        7.7
Interest expense...................................................................       24.4       19.4       22.6
Write-down of real estate properties...............................................     --         --          121.1
Other expense (income), net........................................................       (2.4)       2.1        3.1
                                                                                     ---------  ---------  ---------
Loss from continuing operations before income taxes................................      (30.5)     (29.0)    (152.4)
Provision (benefit) for income taxes...............................................      (10.4)     (10.3)     (35.5)
                                                                                     ---------  ---------  ---------
Loss from continuing operations....................................................      (20.1)     (18.7)    (116.9)
Discontinued operations:
  Income from operations, net of income taxes of $3.1..............................        5.8     --         --
  Gains on dispositions, net of income taxes of $1.4 and $.3, respectively.........       41.0         .7     --
                                                                                     ---------  ---------  ---------
Income (loss) before extraordinary gain and cumulative effect of accounting
 change............................................................................       26.7      (18.0)    (116.9)
Extraordinary gain on extinguishment of debt, net of income taxes of $12.5.........       23.6     --         --
Cumulative effect of accounting change.............................................      (36.0)    --         --
                                                                                     ---------  ---------  ---------
Net income (loss)..................................................................  $    14.3  $   (18.0) $  (116.9)
                                                                                     ---------  ---------  ---------
                                                                                     ---------  ---------  ---------
Earnings (loss) per common share:
  Continuing operations............................................................  $   (0.24) $   (0.43) $   (2.48)
  Discontinued operations..........................................................       0.56       0.02     --
  Extraordinary gain...............................................................       0.28     --         --
  Cumulative effect of accounting change...........................................      (0.43)    --         --
                                                                                     ---------  ---------  ---------
Net income (loss) per common share.................................................  $    0.17  $   (0.41) $   (2.48)
                                                                                     ---------  ---------  ---------
                                                                                     ---------  ---------  ---------
</TABLE>
 
              See the accompanying notes to financial statements.
 
                                      F-9
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                             FOR THE YEARS ENDED
                                                                                                DECEMBER 31,
                                                                                       -------------------------------
                                                                                         1993       1994       1995
                                                                                       ---------  ---------  ---------
                                                                                                (IN MILLIONS)
<S>                                                                                    <C>        <C>        <C>
Cash flows from operating activities:
  Income (loss) before extraordinary gain and cumulative effect of accounting
   changes...........................................................................  $    26.7  $   (18.0) $  (116.9)
  Adjustments to reconcile to cash used by operating activities:
    Depreciation and amortization....................................................        1.2        1.2        1.2
    Non-cash interest expense........................................................       21.9       18.0       20.5
    Write-down of real estate properties.............................................     --         --          121.1
    Gains on asset sales.............................................................     --            (.4)      (1.9)
    Gains on dispositions of discontinued operations.................................      (41.0)       (.7)    --
    Proceeds from asset sales, net...................................................       10.4       10.5       22.5
    Investments in real estate held for development or sale..........................       (3.8)      (6.1)     (18.2)
    Investment in land held for development..........................................       (7.3)      (9.9)      (7.8)
    Decrease (increase) in other assets..............................................      (10.0)       (.6)      11.9
    Decrease in accounts payable, accrued and other liabilities......................      (14.9)      (9.7)     (61.8)
    Other, net.......................................................................        (.2)       (.1)    --
                                                                                       ---------  ---------  ---------
      Cash used by operating activities..............................................      (17.0)     (15.8)     (29.4)
                                                                                       ---------  ---------  ---------
Cash flows from investing activities:
  (Purchase) sale of short-term investments..........................................      (21.7)      21.7     --
  Proceeds from disposition of discontinued operation................................     --            1.0     --
  Acquisitions.......................................................................       (9.8)      (1.2)       (.3)
  Sale of equity investment..........................................................       43.7     --         --
                                                                                       ---------  ---------  ---------
      Cash provided by investing activities..........................................       12.2       21.5        (.3)
                                                                                       ---------  ---------  ---------
Cash flows from financing activities:
  Borrowings of senior bank debt.....................................................      (58.4)      (7.0)      21.6
  Repayments of senior bank debt.....................................................     --         --           (5.0)
  Net proceeds from nonrecourse debt.................................................       43.4     --         --
  Use of Restricted Cash.............................................................     --         --           10.0
  Deposits of Restricted Cash........................................................     --           (7.5)      (5.0)
                                                                                       ---------  ---------  ---------
      Cash provided (used) by financing activities...................................      (15.0)     (14.5)      21.6
                                                                                       ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents.................................      (19.8)      (8.8)      (8.1)
Cash and cash equivalents -- beginning of year.......................................       41.6       21.8       13.0
                                                                                       ---------  ---------  ---------
Cash and cash equivalents -- end of year.............................................  $    21.8  $    13.0  $     4.9
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
              See the accompanying notes to financial statements.
 
                                      F-10
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1995
 
<TABLE>
<CAPTION>
                                                                             DEFERRED
                                                               CAPITAL IN    PROCEEDS     MINIMUM
                                          PREFERRED   COMMON   EXCESS OF    FROM STOCK    PENSION     ACCUMULATED
                                            STOCK     STOCK    PAR VALUE     ISSUANCE    LIABILITY      DEFICIT       TOTAL
                                          ---------   ------   ----------   ----------   ----------   -----------   ---------
                                                                             (IN MILLIONS)
<S>                                       <C>         <C>      <C>          <C>          <C>          <C>           <C>
Balance December 31, 1992...............  $     .4    $ 2.0    $   228.7    $  --        $    (1.1)   $    (80.4)   $   149.6
  Net income............................     --        --         --           --           --              14.3         14.3
  Minimum pension liability.............     --        --         --           --              (.4)       --              (.4)
  Deferred proceeds from stock
   issuance.............................     --          .2          2.0         (2.2)      --            --           --
  Valuation adjustment to deferred
   proceeds from stock issuance.........     --        --            (.7)          .7       --            --           --
                                          ---------   ------   ----------       -----        -----    -----------   ---------
Balance December 31, 1993...............        .4      2.2        230.0         (1.5)        (1.5)        (66.1)       163.5
  Net loss..............................     --        --         --           --           --             (18.0)       (18.0)
  Minimum pension liability.............     --        --         --           --              (.5)       --              (.5)
  Valuation adjustment to deferred
   proceeds from stock issuance.........     --        --             .1          (.1)      --            --           --
  Issuance of stock related to
   acquisition..........................     --          .1           .4       --           --            --               .5
                                          ---------   ------   ----------       -----        -----    -----------   ---------
Balance December 31, 1994...............        .4      2.3        230.5         (1.6)        (2.0)        (84.1)       145.5
  Net loss..............................     --        --         --           --           --            (116.9)      (116.9)
  Minimum pension liability.............     --        --         --           --              1.0        --              1.0
  Valuation adjustment to deferred
   proceeds from stock issuance.........     --        --            (.5)          .5       --            --           --
  Conversion of preferred to common.....     --          .1          (.1)      --           --            --           --
                                          ---------   ------   ----------       -----        -----    -----------   ---------
Balance December 31, 1995...............  $     .4    $ 2.4    $   229.9    $    (1.1)   $    (1.0)   $   (201.0)   $    29.6
                                          ---------   ------   ----------       -----        -----    -----------   ---------
                                          ---------   ------   ----------       -----        -----    -----------   ---------
</TABLE>
 
              See the accompanying notes to financial statements.
 
                                      F-11
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 -- FORMATION AND BASIS OF PRESENTATION
    The   principal  activities  of  Koll  Real   Estate  Group,  Inc.  and  its
consolidated subsidiaries  (the "Company",  formerly known  as The  Bolsa  Chica
Company  and Henley  Properties, Inc.) include:  (i) obtaining  zoning and other
entitlements  for  land  it  owns   and  improving  the  land  for   residential
development;  (ii) single and multi-family  residential construction in Southern
California; and (iii) providing  commercial, industrial, retail and  residential
real  estate  development  services  to  third  parties,  including  feasibility
studies, entitlement  coordination, project  planning, construction  management,
financing,  marketing, acquisition, disposition and asset management services on
a national and international basis,  through its offices throughout  California,
and  in Dallas, Denver, Phoenix and Seattle.  Once the residential land owned by
the Company  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.
 
    On December 31, 1989, The Henley Group, Inc. separated its business into two
public  companies  through a  distribution to  its  Class A  and Class  B common
stockholders of all of the common  stock of a newly formed Delaware  corporation
to  which The Henley Group, Inc. had contributed its non-real estate development
operations, assets and related liabilities. The new company was named The Henley
Group,  Inc.  ("Henley  Group")  immediately  following  the  distribution.  The
remaining  company was renamed Henley  Properties Inc. ("Henley Properties") and
consisted of the real  estate development business and  assets of Henley  Group,
including its subsidiary Signal Landmark.
 
    On  July 16, 1992,  a subsidiary of  Henley Properties merged  with and into
Henley Group (the "Merger") and Henley Group became a wholly owned subsidiary of
Henley Properties. In the  Merger, Henley Properties,  through its Henley  Group
subsidiary,  received net  assets having  a book  value as  of July  16, 1992 of
approximately $45.3  million,  consisting  of approximately  $103.6  million  of
assets,  including $58.3 million of cash and a 44% interest in Deltec Panamerica
S.A. ("Deltec"),  and  $58.3 million  of  liabilities. In  connection  with  the
Merger, Henley Properties was renamed The Bolsa Chica Company.
 
    On  September 30, 1993, a subsidiary of The Bolsa Chica Company acquired the
domestic real  estate  development  business  and related  assets  of  The  Koll
Company.  In  connection  with this  acquisition,  The Bolsa  Chica  Company was
renamed Koll Real Estate Group, Inc.
 
    The accompanying financial  statements include the  accounts of the  Company
and  its wholly-owned  subsidiaries. All  significant intercompany  accounts and
transactions have been  eliminated. Certain  amounts have  been reclassified  to
conform with the current year presentation.
 
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
 
  CASH AND CASH EQUIVALENTS
 
    The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
 
  REAL ESTATE
 
    Real estate held for development or sale and land held for development (real
estate  properties) are carried at the lower of cost or estimated net realizable
value based on undiscounted cash flows.  The estimation process involved in  the
determination  of net realizable value is inherently uncertain since it requires
estimates as to  future events  and market conditions.  Such estimation  process
assumes  the Company's ability  to complete development and  dispose of its real
estate properties  in the  ordinary  course of  business based  on  management's
present  plans  and intentions.  Economic,  market, environmental  and political
conditions may affect management's development and marketing plans. In addition,
the implementation of such development and marketing plans could be affected  by
the availability of future financing for
 
                                      F-12
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development   and  construction   activities.  Accordingly,   the  ultimate  net
realizable values of  the Company's  real estate properties  are dependent  upon
future  economic and market  conditions, the availability  of financing, and the
resolution of political, environmental and other related issues.
 
    In March 1995, the Financial Accounting Standards Board issued Statement No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of" ("SFAS 121"), which requires an impaired asset (real property or
intangible) to be written down to fair value. If an impairment occurs, the  fair
value  of an asset for purposes of SFAS 121 is deemed to be the amount a willing
buyer would pay a  willing seller for  such asset in  a current transaction.  As
required,  the Company will adopt  SFAS 121 during the  quarter ending March 31,
1996. The Company does  not believe that  the adoption of SFAS  121 will have  a
material effect on its financial statements. Any potential future revaluation of
the  Bolsa Chica property that could result if a recapitalization is implemented
by the Company would be based on the facts and circumstances at that time.
 
    The cost of  sales of multi-unit  projects is generally  computed using  the
relative  sales value method, with direct  construction costs and property taxes
accumulated by phase, using the specific identification method. Interest cost is
capitalized to real  estate projects during  their development and  construction
period.
 
    Operating  properties are generally  depreciated utilizing the straight-line
method over estimated lives ranging principally  from 5 to 7 years.  Accumulated
depreciation  amounted  to  $9.7 million,  $10.4  million, and  $1.1  million at
December 31, 1993, 1994, and 1995 respectively.
 
  INTANGIBLE ASSETS
 
    Goodwill, which represents the  difference between the  purchase price of  a
business  acquired in 1993 and the related fair value of net assets acquired, is
amortized on a straight-line basis over  15 years. Goodwill of $8.5 million  and
$7.9  million as  of December  31, 1994, and  1995 respectively,  is included in
other assets. The carrying value of  goodwill is reviewed periodically based  on
projected  cash flows to be received  from related operations over the remaining
amortization period of the goodwill. If such projected cash flows were less than
the carrying  value  of  the  goodwill,  the  difference  would  be  charged  to
operations.
 
  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
 
    The  Company accounted for  the cost of  post-retirement benefits other than
pensions, which are primarily health care related, during each employee's active
working career under a plan which was  frozen in 1993. As of December 31,  1994,
and  1995  the accrued  unfunded costs  totaled $1.4  million, and  $1.3 million
respectively.
 
  INCOME TAXES
 
    In February 1992, the Financial Accounting Standards Board issued  Statement
of  Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 supersedes both APB Opinion No. 11 and SFAS No. 96,  "Accounting
for  Income Taxes." With the adoption of SFAS  109 in the first quarter of 1993,
the Company changed  to the  liability method  of accounting  for income  taxes,
which resulted in an increase in its deferred tax liability of approximately $36
million, through a charge to income (Note 8).
 
  RECOGNITION OF REVENUES
 
    Sales  are recorded  using the  full accrual method  when title  to the real
estate sold is passed to the buyer and the buyer has made an adequate  financial
commitment.  When it  is determined  that the  earning process  is not complete,
income is  deferred  using  the  installment, cost  recovery  or  percentage  of
completion methods of accounting.
 
                                      F-13
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  ACCOUNTING FOR STOCK-BASED COMPENSATION
 
    In  October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial  Accounting  Standards   No.  123,  "Accounting  for   Stock-Based
Compensation,"  ("SFAS  123") which  requires  the Company  to  adopt disclosure
provisions for stock-based compensation effective January 1, 1996. The  standard
defines  a fair value  method of accounting  for stock options  and other equity
instruments. Under the fair value method, compensation is measured at the  grant
date  based on the  fair value of the  award and is  recognized over the service
period, which is  usually the  vesting period. This  standard encourages  rather
than  requires  adoption of  the fair  value method  of accounting  for employee
stock-based transactions. Companies  are permitted  to continue  to account  for
such  transactions  under Accounting  Principles Board  ("APB") Opinion  No. 25,
"Accounting for Stock Issued to Employees," but will be required to disclose  in
a note to the financial statements pro forma net income and net income per share
as  if the new method of accounting had been applied. The Company has elected to
continue to  apply APB  Opinion No.  25  in its  financial statements  and  will
disclose in future reports the required pro forma information in a footnote.
 
  EARNINGS PER COMMON SHARE
 
    The  weighted average  numbers of  common shares  outstanding for  the years
ended December 31, 1993, 1994 and 1995 were 83.0 million, 43.8 million, and 47.1
respectively. The Series A Preferred Stock, as well as outstanding stock options
are not included in the loss per share calculation for 1994 and 1995 because the
effect is antidilutive.  The 1993  earnings per share  calculation includes  the
Series  A Preferred  Stock and the  effect of  5.7 million shares  of common and
preferred stock granted under the 1988 Stock Option Plan (Note 13). The 1994 and
1995 earnings per  share calculations  both include  the effect  of 2.0  million
shares  of Class A Common  Stock issued on November  9, 1994, in connection with
the acquisition of the Kathryn G. Thompson  Company (Note 3). The 1994 and  1995
earnings  per share calculations reflect the conversion of 1.2 and an additional
1.0 million shares, respectively, of Series A Preferred Stock to an equal number
of shares of Class A Common Stock.
 
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
    In November  1994 the  Company acquired  the stock  of Kathryn  G.  Thompson
Company  and related assets  ("KGTC"). 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 a  49%  general partnership  interest in  a  230-acre
project  planned for 1,345  residential units in Aliso  Viejo in southern Orange
County ("AV Partnership") and  a 40% general partnership  interest in a  30-acre
project  approved for 92  single family detached homes  in Oceanside in northern
San Diego County ("Oceanside  Hills"). 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 to purchase an additional 2  million
shares.   The  Company   guaranteed  approximately   $4.8  million   of  capital
contribution notes related to the Aliso Viejo partnership interest, which  notes
are  primarily payable  out of  positive net  cash flow  to be  generated by the
partnership interest and are not due until the earlier of the completion of  the
project  or April 1999. In  addition, in November 1994,  KGTC and Ms. Kathryn G.
Thompson who was appointed as a director of the Company, entered into  covenants
not to compete with the Company with respect to real estate development, subject
to  certain limited exceptions. The KGTC covenant is perpetual in duration while
the covenant of Ms.  Thompson is limited to  the five-year period following  her
ceasing to be either an officer or director of the Company.
 
                                      F-14
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED)
    Summarized  financial information  of AV  Partnership is  presented below at
December 31, 1994 and 1995 and for the years then ended (in millions):
 
<TABLE>
<CAPTION>
                                                       UNAUDITED    UNAUDITED
                                                         1994         1995
                                                      -----------  -----------
<S>                                                   <C>          <C>
Balance Sheet Data:
  Total assets......................................   $    67.7        111.9
  Total project debt and other liabilities..........        63.8        107.9
                                                           -----   -----------
  Partners' capital.................................   $     3.9          4.0
                                                           -----   -----------
                                                           -----   -----------
Statement of Operations Data:
  Net loss..........................................   $     (.8)        (4.1)
                                                           -----   -----------
                                                           -----   -----------
</TABLE>
 
    The Company  uses the  equity method  to account  for its  investment in  AV
Partnership  and accordingly, the statement of operations includes a $.1 million
loss for the period from the acquisition  date through December 31, 1994, and  a
2.0  million loss  for the year  ended December  31, 1995. Due  to a significant
shortfall in sales during 1995 versus  forecast, the financial structure of  the
partnership   and  the  significant  amount   of  participating  mortgages  with
preference to the  Company's equity  interest, the  Company does  not expect  to
receive  a  financial return  from  this partnership  and  has reserved  for its
guaranty of $4.8 million of capital contribution notes. The Company's investment
in this partnership of $1.0 million and $(4.8) million at December 31, 1994  and
1995  respectively is  included in  other assets.  The Company  consolidates its
investment in  Oceanside  Hills since  this  partnership is  controlled  by  the
Company.
 
    In  August 1993, the Company  disposed of its entire  44% interest in Deltec
for $43.7 million in  net cash proceeds,  resulting in a  gain of $1.9  million.
Discontinued operations for 1993 includes $4.2 million of net income through the
date  of disposition.  The Company  used $23.8 million  of the  proceeds to make
principal prepayments  in accordance  with  term loan  agreements with  Bank  of
America and Bank of Boston. The Company also terminated its put option agreement
with  Abex (Note  9) in August  1993 and received  $3 million in  cash from Abex
which was used to prepay senior bank debt.
 
    In September 1993, the Company acquired the domestic real estate development
business and related assets of The Koll Company ("Koll"). In connection with the
acquisition, the Company paid $9 million  in cash, including $4.25 million  paid
in December 1993 for the termination of an earn-out provision, and approximately
$1 million in reimbursement for investments in transferred development projects.
In  addition, in  September 1993, Koll  and Mr.  Donald M. Koll  (an officer and
director of the Company and owner of Koll) entered into covenants not to compete
with the Company with  respect to domestic real  estate development, subject  to
certain limited exceptions. The Koll covenant is perpetual in duration while the
covenant of Mr. Koll is limited to the five-year period following his ceasing to
be either an officer, director or stockholder of the Company.
 
    In  December 1993, the Company completed a transaction with Libra whereby it
exchanged the Company's Lake Superior Land Company subsidiary for  approximately
$42.4 million in aggregate face amount of Senior Subordinated Debentures held by
Libra,  and net cash proceeds to be generated  by Libra's periodic sale of up to
approximately 3.4 million shares of the  Company's Class A Common Stock held  by
Libra  through a  series of  transactions to  be effected  in an  orderly manner
within a three-year period.  Accordingly, the statement  of operations for  1993
presents  Lake  Superior  Land  Company as  a  discontinued  operation. Revenues
related to the  discontinued operation  were $10.6  million for  the year  ended
December  31,  1993  through  the  date  of  disposition.  Net  income  for  the
discontinued operation  for  1993, through  the  date of  disposition  was  $1.6
million.  The  Company  also  completed a  separate  transaction  with  Libra in
December 1993, whereby  the Company  exchanged approximately  3.4 million  newly
issued  shares of its  Class A Common  Stock for approximately  $10.6 million in
aggregate face amount of Subordinated Debentures held
 
                                      F-15
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS (CONTINUED)
by Libra.  In  connection  with  these transactions,  the  Company  recorded  an
after-tax gain of $39.1 million on the disposition of Lake Superior Land Company
and an after-tax extraordinary gain on extinguishment of the Debentures of $23.6
million  (Note 6).  The shares  issued to  Libra were  deposited in  a custodial
account for periodic sale in accordance  with instructions from the Company.  In
February  1994, the Company received  $1 million in cash  from Libra in exchange
for the  immediate  termination  of  the contingent  payment  provision  of  the
December 1993 transaction with Libra.
 
NOTE 4 -- REAL ESTATE HELD FOR DEVELOPMENT OR SALE
    Real  estate  held for  development  or sale  consists  of the  following at
December 31 (in millions):
 
<TABLE>
<CAPTION>
                                                        1994       1995
                                                      ---------  ---------
<S>                                                   <C>        <C>
Residential.........................................  $    32.3  $    26.3
Commercial/industrial...............................        1.4        1.8
                                                      ---------  ---------
                                                      $    33.7  $    28.1
                                                      ---------  ---------
                                                      ---------  ---------
</TABLE>
 
NOTE 5 -- LAND HELD FOR DEVELOPMENT
    Land held for  development consists  of approximately 1,200  acres known  as
Bolsa Chica located in Orange County, California, adjacent to the Pacific Ocean,
surrounded  by the City of Huntington Beach  and approximately 35 miles south of
downtown Los Angeles  ("Bolsa Chica").  In January 1996  the California  Coastal
Commission  approved Orange County's Local Coastal  Plan ("LCP") for up to 3,300
units of  residential  development and  a  wetlands restoration  plan  for  this
property,  with  only  minor  modifications, which  remains  subject  to further
governmental approvals, as further described below.
 
    The planned community at  Bolsa Chica is  expected to offer  a broad mix  of
home  choices, including  single-family homes,  townhomes and  condominiums at a
wide range of prices. In December  1994, the Orange County Board of  Supervisors
unanimously approved the 3,300-unit LCP, which provides for development of up to
2,500  homes on  the mesa (high  ground) portion of  the property and  up to 900
homes on the lowland portion of the  property, not to exceed 3,300 homes in  the
aggregate.  The related  Development Agreement  was unanimously  approved by the
Orange County Board of  Supervisors in April 1995.  The January 1996  California
Coastal  Commission approval included two  suggested modifications, agreed to in
principle by the Company, which require: (1) a 50-foot buffer along the  coastal
edge  of the mesa and (2) an  agreement by the Company to dedicate approximately
770 acres to a public agency if the Company does not pursue a federal 404 permit
for wetlands restoration and lowlands development. These suggested modifications
require the approval of  the Orange County Board  of Supervisors prior to  final
certification of the LCP by the California Coastal Commission, which the Company
expects  to  obtain  during the  second  or  third quarter  of  1996.  Under the
3,300-unit LCP the Company is committed to restoring the wetlands at Bolsa Chica
provided that federal  agencies approve development  of up to  900 homes in  the
lowlands.  Wetlands restoration and development  on the lowlands remains subject
to approval by the U.S. Army Corps of Engineers. The Company's goal is to obtain
such approval by  the first  quarter of 1997,  however, the  Corps of  Engineers
could delay or decline its approval.
 
    In  May 1995, the Company entered into an agreement, which has since expired
prior  to  completion,   with  the  American   Land  Conservancy,  a   nonprofit
conservation  organization, to  sell approximately  930 acres  of its 1,200-acre
Bolsa Chica property,  representing substantially all  of the Company's  lowland
ownership  at the site. In August 1995, the  Ports of Long Beach and Los Angeles
and certain federal government agencies  entered into a Memorandum of  Agreement
("MOA")  specifying  the  terms under  which  the various  agencies  would grant
mitigation credits, which are needed by the Ports to expand their facilities, in
exchange  for  $62  million  of  Ports'  funds  to  be  used  for   acquisition,
restoration,  maintenance  and monitoring  of the  wetlands  in the  Bolsa Chica
lowlands. In  October 1995,  the Company  agreed  to a  reduced sales  price  in
response  to the U.S. Department  of the Interior ("DOI")'s  request in order to
help bridge a funding
 
                                      F-16
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5 -- LAND HELD FOR DEVELOPMENT (CONTINUED)
shortfall, provided that the  Ports would agree to  increase their funding.  The
Company concluded at that time that the reduced price would be acceptable and in
the   Company's  best  interests  because  of  the  government's  assumption  of
responsibility for  wetlands restoration  (which would  be funded  primarily  by
funds  from the Ports). In December 1995,  both Ports obtained Board approval to
increase their aggregate funding to $67 million.
 
    The Company is actively  pursuing the secondary  permitting process for  the
project,  such as tract maps and grading plans, through the County of Orange, as
well as a  federal permit from  the U.S.  Army Corps of  Engineers for  wetlands
restoration  and development in the lowlands. This process is currently expected
to be completed within 18 months. In the meantime, the Company has continued  to
work closely with the various state and federal agencies in an effort to resolve
the  remaining contingencies and complete the proposed transaction. As a result,
on March 27, 1996 the Company entered into a letter of intent to sell the  Bolsa
Chica  lowlands  to the  California State  Lands Commision.  The ability  of the
Company  to  complete   any  such   transaction  remains   subject  to   various
contingencies,  including: (i) finalizing acquisition  terms; (ii) completion of
an environmental site assessment which would be satisfactory to the State  Lands
Commission;  (iii) satisfactory completion of an appraisal and title report; and
(iv) Coastal Commission and federal approval of the amount of mitigation credits
to be granted  to the  Ports in  exchange for the  Ports funding  a $67  million
acquisition  and wetlands restoration escrow account. Of course, there can be no
assurance that  a  definitive  agreement  will  be  entered  into  or  that  any
transaction will be completed.
 
    With the approval by the Coastal Commission of the 3,300-unit LCP in January
1996,  the Company  expects, subject  to its  ability to  obtain financing  on a
commercially reasonable  and  timely basis,  and  subject to  obtaining  certain
secondary  permits, to commence infrastructure construction on the mesa in 1997.
However, due to certain 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 start of
construction could  be delayed  substantially. In  this regard,  on January  13,
1995,  two lawsuits challenging the Orange County Board of Supervisors' approval
of the  Bolsa Chica  project were  filed in  Orange County  Superior Court  (the
"Court").  Although the lawsuits differed in  the particular issues they raised,
generally they each alleged,  among other things,  violations of the  California
Environmental  Quality  Act and  violations  of the  California  Government Code
planning and  zoning  laws.  One  lawsuit,  which  was  brought  by  the  school
districts,  has been  substantially settled  with an  agreement regarding school
fees to  be  paid  to  the plaintiff  districts.  In  the  other  "environmental
lawsuit",  the plaintiffs did  not seek monetary damages,  but instead asked the
Court to set aside the  approval of the Bolsa  Chica project. In February  1996,
the  Court ruled on  the "environmental lawsuit",  rejecting all but  one of the
arguments, requiring  an  additional 45-day  public  review and  comment  period
regarding  the tidal inlet portion of the wetlands restoration plan. The Court's
decision is not expected to further  delay final approvals by the Orange  County
Board  of  Supervisors and  the California  Coastal  Commission beyond  the time
period discussed  above.  In addition,  on  March 6,  1996  and March  11,  1996
lawsuits  were filed against the Coastal Commission, the Company and other Bolsa
Chica landowners  as  real  parties  in  interest,  alleging  that  the  Coastal
Commission's  approval  of the  3,300-unit  LCP is  not  in compliance  with the
Coastal Act and other statutory requirements.  These lawsuits seek to set  aside
the approval of the Bolsa Chica project. The Company does not believe that these
lawsuits   will  be  successful  in  permanently  preventing  the  Company  from
completing the Bolsa Chica  project, however there can  be no assurance in  this
regard or that these suits will not result in delays.
 
    In  accordance  with  Statement  of  Financial  Accounting  Standard  No. 67
"Accounting for Costs  and Initial  Rental Operations of  Real Estate  Projects"
("SFAS  67"), the Company carries real estate properties, including Bolsa Chica,
at the lower of cost or net realizable value, with net realizable value  defined
as the undiscounted estimated future cash flows from the project. As of December
31, 1995, the Company's review
 
                                      F-17
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5 -- LAND HELD FOR DEVELOPMENT (CONTINUED)
of  the current estimated cash flows for Bolsa Chica indicated that a reserve of
approximately $113.6 million was required to adjust the carrying value of  Bolsa
Chica  to its current estimated net realizable value of $220 million pursuant to
SFAS 67. The valuation reserve  primarily reflects management's decision in  the
fourth  quarter of  1995 (following  the approval  of additional  funding by the
Ports) to make  completing the sale  of the  lowlands to a  government agency  a
strategic goal of the Company, along with updated estimates of future cash flows
for  the mesa portion of the project reflecting recent market conditions. During
1995, the  Southern  California  residential real  estate  market  continued  to
decline,  affecting  estimated sale  pricing, housing  mix  and number  of units
planned.  The  Company's  decision  to  pursue  a  sale  of  the  lowlands,   if
successfully  completed, would materially reduce the number of units which could
be built, which has resulted in a significant reduction in projected future cash
flows previously anticipated from  the Bolsa Chica  project. 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 6 -- DEBT
 
  SENIOR BANK DEBT
 
    In  December  1994,  the  Company  entered  into  a  letter  of  credit  and
reimbursement agreement with Nomura Asset Capital Corporation ("Nomura") to fund
payment of the settlement of the Abex litigation in excess of $7.5 million to be
funded by the Company. In  February 1995, the Company  paid an aggregate of  $22
million  to  settle  the  litigation,  of  which  $15.5  million  was  funded by
borrowings under  the  letter of  credit  and reimbursement  agreement  and  the
balance  of  $6.5  million  from  restricted cash,  of  which  $7.5  million was
reflected as  restricted  cash  at  December  31,  1994.  Since  this  financing
agreement  was solely for  the purpose described above,  no additional funds are
available under this facility. Also in December 1994, the Company entered into a
$5  million  construction   loan  agreement  with   Nomura  to  partially   fund
infrastructure    construction   at   Rancho    San   Pasqual,   the   Company's
golf/residential property in San Diego County. This loan agreement allows for  a
one-time  right  to reborrow  $5 million  after repayment  of the  initial loan,
subject to  certain  restrictions.  As  required  under  the  construction  loan
agreement,  the Company deposited  $5 million into an  escrow account in January
1995 to be used solely for  the funding of infrastructure construction costs  at
Rancho  San Pasqual, of which $2.5 remains as restricted cash as of December 31,
1995. There were no borrowings under  either agreement during 1994. The  Company
borrowed  $15.5 million  and $1.4  million through  December 31,  1995 under the
letter  of  credit  and  reimbursement  agreement  and  the  construction   loan
agreement,  respectively,  and  repaid  $.3  million  of  borrowings  under  the
construction loan agreement.
 
    Both loans are principally secured by  deeds of trust on Rancho San  Pasqual
and  Fairbanks Highlands, the Company's residential  property in the City of San
Diego.  Amounts  outstanding  under  the  letter  of  credit  and  reimbursement
agreement and the construction loan agreement bear interest at 30 Day LIBOR plus
4%,  which was 9.75% as  of December 31, 1995.  The agreements initially require
principal prepayments equal to 80% of the net proceeds from any sales at  Rancho
San  Pasqual and Fairbanks Highlands, and  principal prepayments equal to 50% of
the net proceeds  from Rancho  San Pasqual  assessment district  reimbursements.
After  March 12, 1996, the agreements  require principal repayments equal to 90%
of the net proceeds from any sales at Rancho San Pasqual and Fairbanks Highlands
with any remaining  amounts due  on December  20, 1996.  The agreements  contain
certain restrictive covenants that limit, among other things, (i) the incurrence
of  indebtedness,  (ii) the  making  of investments  and  (iii) the  creation or
incurrence of liens on existing and future assets of the Company. The agreements
also contain various  financial covenants  and events of  default customary  for
such  agreements. The Company has been informed by Nomura that Nomura will waive
or  modify  the  net  worth  maintenance  requirements  to  make  allowance  for
adjustments  in deferred taxes related to  the revaluation of the carrying value
of the Bolsa Chica property.
 
                                      F-18
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6 -- DEBT (CONTINUED)
    In December 1994, the Company entered into a $6.5 million construction  loan
agreement with the Bank of Boston, principally secured by resort and residential
property in New Hampshire ("Wentworth"). The Company borrowed $4.8 million under
this  loan  agreement  and  applied  $4.2  million  in  proceeds  from  sales of
residential homes from Wentworth to  satisfy required prepayments, resulting  in
an outstanding balance of $.6 million on November 2, 1995, when the Company sold
all of its interest in the Wentworth residential land to its development manager
for  $4.1 million in cash plus the buyer's prepayment of the outstanding balance
under the  Bank  of  Boston  credit  agreement,  which  terminated  this  credit
facility.
 
  SUBORDINATED DEBENTURES
 
    Immediately  prior to the July 1992  Merger, Henley Group distributed to its
stockholders among other consideration (the "Distribution"), in respect of  each
share  of its  outstanding common stock  (the "Henley Group  Common Stock"): (i)
$6.00 aggregate  principal  amount  of the  Company's  12%  Senior  Subordinated
Pay-In-Kind   Debentures   due  March   15,   2002  (the   "Senior  Subordinated
Debentures"); and (ii) $1.50 aggregate principal amount of the 12%  Subordinated
Pay-In-Kind  Debentures due March  15, 2002 (the  "Subordinated Debentures", and
together  with   the   Senior  Subordinated   Debentures,   the   "Debentures").
Approximately  $159.4 million aggregate principal  amount of the Debentures were
distributed in  the  Distribution  and  approximately  $43.8  million  aggregate
principal  amount of the Debentures were  retained by the Company's Henley Group
subsidiary in the Merger.
 
    The Debentures  were  comprised of  the  following  as of  December  31  (in
millions):
 
<TABLE>
<CAPTION>
                                                        1994       1995
                                                      ---------  ---------
<S>                                                   <C>        <C>
Senior Subordinated Debentures......................  $   123.0  $   138.2
Subordinated Debentures.............................       30.7       34.6
                                                      ---------  ---------
  Total face amount.................................      153.7      172.8
Less unamortized discount...........................       (6.2)      (5.6)
Plus accrued interest...............................        5.4        6.0
                                                      ---------  ---------
                                                      $   152.9  $   173.2
                                                      ---------  ---------
                                                      ---------  ---------
</TABLE>
 
    The  Debentures give the Company the right  to pay interest in-kind, in cash
or, subject  to  certain  conditions,  in the  Company's  common  stock.  It  is
currently  anticipated that interest on the Debentures will be paid in-kind. The
Debentures, which  are due  March 15,  2002,  do not  require any  sinking  fund
payments  and may be  redeemed by the  Company at any  time in cash  only, or at
maturity in  cash  or  stock,  subject to  certain  conditions.  The  Debentures
prohibit  the payment of  any dividends or other  distributions on the Company's
equity securities.
 
    As a result  of the transactions  with Libra  in December 1993  (Note 3)  in
which  approximately  $42.4  million  in aggregate  principal  amount  of Senior
Subordinated Debentures  and  $10.6 million  in  aggregate principal  amount  of
Subordinated  Debentures held  by Libra  were retired,  the Company  recorded an
extraordinary gain of $23.6 million, net  of an applicable income tax  provision
of $12.5 million, in the 1993 statement of operations.
 
    At  December 31,  1995 the estimated  aggregate fair value  of the Company's
Debentures was within a range of approximately $75 million to $90 million  based
on  quotes from certain bond traders making a market in the Debentures. However,
due to  the low  trading volume  and illiquid  market for  the Debentures,  such
quotes  may not be meaningful indications of  value. The carrying amount for all
other debt of the Company approximates market primarily as a result of  floating
interest rates.
 
                                      F-19
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6 -- DEBT (CONTINUED)
  INTEREST
 
    The  Company made  cash payments  for interest on  senior bank  debt of $2.5
million, $1.4 million and  $1.4 million for the  years ended December 31,  1993,
1994 and 1995, respectively.
 
NOTE 7 -- OTHER LIABILITIES
    Other  liabilities were  comprised of  the following  as of  December 31 (in
millions):
 
<TABLE>
<CAPTION>
                                                        1994       1995
                                                      ---------  ---------
<S>                                                   <C>        <C>
Net deferred tax liabilities (Note 8)...............  $    35.4       10.0
Other tax liabilities (Note 8)......................       14.5        4.5
Accrued pensions and benefits.......................       11.9       10.7
Accrued indemnity obligations.......................       18.3       15.0
Majority interest and other liabilities of
 consolidated partnership (Note 3)..................        3.7        4.2
                                                      ---------  ---------
                                                      $    83.8  $    44.4
                                                      ---------  ---------
                                                      ---------  ---------
</TABLE>
 
NOTE 8 -- INCOME TAXES
    Effective January  1,  1993,  the Company  adopted  Statement  of  Financial
Accounting  Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
SFAS 109, deferred income taxes are  determined based on the difference  between
the  financial statement and tax bases  of assets and liabilities, using enacted
tax rates in  effect in the  years in  which these differences  are expected  to
reverse.  At January 1, 1993, the Company recorded the cumulative effect of this
change in accounting for income taxes as a $36 million charge to earnings in the
statement of operations.
 
    The tax  effects of  items that  gave rise  to significant  portions of  the
deferred  tax  accounts are  as  follows for  the  years ended  December  31 (in
millions):
 
<TABLE>
<CAPTION>
                                                        1994       1995
                                                      ---------  ---------
<S>                                                   <C>        <C>
Deferred tax assets:
  Real estate held for development or sale and
   operating properties (due to asset revaluations
   and interest capitalized for tax purposes).......  $    30.4  $    25.8
  Accruals not deductible until paid................        6.7        6.6
  Net operating loss carryforwards..................       52.0       64.7
  Other.............................................        2.8        1.7
  Valuation allowance...............................      (23.3)     (51.6)
                                                      ---------  ---------
                                                      $    68.6  $    47.2
                                                      ---------  ---------
                                                      ---------  ---------
Deferred tax liabilities:
  Land held for development,
   (principally due to accounting for a prior
   business combination, partially offset by the
   asset revaluation in 1995).......................  $   101.6  $    55.0
  Other.............................................        2.4        2.2
                                                      ---------  ---------
                                                      $   104.0  $    57.2
                                                      ---------  ---------
                                                      ---------  ---------
</TABLE>
 
    Net deferred tax liabilities at December 31, 1995 are comprised entirely  of
state net deferred tax liabilities.
 
                                      F-20
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8 -- INCOME TAXES (CONTINUED)
    At  December  31, 1995,  the Company  had available  tax net  operating loss
carryforwards of  approximately $202  million  which expire  in the  years  2003
through  2010 if not utilized. The Internal Revenue Code (the "Code") imposes an
annual limitation on  the use of  loss carryforwards upon  the occurrence of  an
"ownership  change" (as defined in  Section 382 of the  Code). Such an ownership
change  occurred  in  connection  with  the   Merger  in  1992.  As  a   result,
approximately $24 million of the Company's net operating loss carryforwards will
generally  be limited to the extent  that Henley Properties and its subsidiaries
recognize certain gains in the  five-year period following the ownership  change
which ends July 16, 1997.
 
    The  following is a summary of the income tax provision (benefit) applicable
to losses  from  continuing operations  for  the  years ended  December  31  (in
millions):
 
<TABLE>
<CAPTION>
                                                        1993       1994       1995
                                                      ---------  ---------  ---------
<S>                                                   <C>        <C>        <C>
Income Tax Provision (Benefit):
  Current...........................................  $    (2.9) $     (.3) $   (10.1)
  Deferred..........................................       (7.5)     (10.0)     (25.4)
                                                      ---------  ---------  ---------
                                                      $   (10.4) $   (10.3) $   (35.5)
                                                      ---------  ---------  ---------
                                                      ---------  ---------  ---------
</TABLE>
 
    Cash  payments for federal, state and  local income taxes were approximately
$7.8 million, $.6 million and $.3 million for the years ended December 31, 1993,
1994 and 1995, respectively. Tax refunds  received for the years ended  December
31,  1993, 1994 and  1995 were approximately  $5.1 million, $.8  million and $.4
million, respectively.
 
    The principal  items  accounting  for  the difference  in  taxes  on  income
computed  at the  statutory rate and  as recorded  are as follows  for the years
ended December 31 (in millions):
 
<TABLE>
<CAPTION>
                                                        1993       1994       1995
                                                      ---------  ---------  ---------
<S>                                                   <C>        <C>        <C>
Provision (benefit) for income taxes at statutory
 rate...............................................  $   (10.7) $   (10.2) $   (53.3)
State income taxes, net.............................        (.6)       (.1)        .6
Increase in valuation allowance.....................     --         --           28.3
Reduction in other tax liabilities..................     --         --          (10.0)
Effect of tax rate increase.........................         .9     --         --
All other items, net                                     --         --           (1.1)
                                                      ---------  ---------  ---------
                                                      $   (10.4) $   (10.3) $   (35.5)
                                                      ---------  ---------  ---------
                                                      ---------  ---------  ---------
</TABLE>
 
  TAX SHARING AGREEMENTS
 
    Henley Group and Abex, a former  subsidiary of Henley Group whose stock  was
distributed  to stockholders of  Henley Group in  July 1992, entered  into a tax
sharing agreement in 1992 prior to  the Distribution to provide for the  payment
of  taxes for periods  during which Henley  Group and Abex  were included in the
same consolidated  group for  federal  income tax  purposes, the  allocation  of
responsibility  for the filing of tax returns, the cooperation of the parties in
realizing certain tax benefits,  the conduct of tax  audits and various  related
matters.
 
    1989-1992   INCOME   TAXES.     The  Company   is  generally   charged  with
responsibility for all of its federal, state, local or foreign income taxes  for
this period and, pursuant to the tax sharing agreement with Abex, all such taxes
attributable  to Henley Group and their consolidated subsidiaries, including any
additional liability resulting from  adjustments on audit  (and any interest  or
penalties  payable with respect thereto), except  that Abex is generally charged
with responsibility for all such taxes  attributable to it and its  subsidiaries
for  1990-1992.  In addition,  under a  separate  tax sharing  agreement between
Henley Group  and  a  former  subsidiary  of  Henley  Group,  Fisher  Scientific
International  Inc. ("Fisher"), Fisher is  generally charged with responsibility
for its own income tax liabilities for this period. The Internal Revenue Service
("IRS") has
 
                                      F-21
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8 -- INCOME TAXES (CONTINUED)
completed  its  examinations  of  the  tax  returns  of  the  Company  and   its
consolidated subsidiaries, including formerly affiliated entities, for the years
ended  December 31, 1989, 1990  and 1991. With respect  to each examination, the
IRS has  proposed material  audit adjustments.  The Company  disagrees with  the
positions  taken by the IRS  and has filed a protest  with the IRS to vigorously
contest  the  proposed   adjustments.  After  review   of  the  IRS's   proposed
adjustments, the Company estimates that, if upheld, the adjustments could result
in  Federal tax liability, before interest, of approximately $17 million (net of
amounts which  may be  payable  by former  affiliates  pursuant to  tax  sharing
agreements).  The  IRS  proposed  adjustments,  if  upheld,  could  result  in a
disallowance  of  up   to  $147   million  of  available   net  operating   loss
carryforwards,  of  which approximately  $2 million  has been  recognized, after
consideration of the valuation  allowance as of December  31, 1995. The  Company
has  not determined  the extent  of potential  accompanying state  tax liability
adjustments should the proposed IRS adjustments be upheld. The Company's protest
was filed in  August 1995 and  has not yet  been considered by  the IRS  Appeals
Division.  Management  currently  believes  that the  IRS's  positions  will not
ultimately result  in  any  material  adjustments  to  the  Company's  financial
statements.  The Company is prepared to  pursue all available administrative and
judicial appeal procedures with regard to this matter and the Company is advised
that its dispute with the IRS could take up to five years to resolve.
 
    PRE-1989 INCOME TAXES.  Under tax sharing agreements with WTI and Abex,  the
parties  are charged with sharing responsibility  for paying any increase in the
federal, state  or  local income  tax  liabilities (including  any  interest  or
penalties  payable  with  respect  thereto) for  any  consolidated,  combined or
unitary tax group which included WTI, Henley Group or any of their  subsidiaries
for tax periods ending on or before December 31, 1988. Under the agreements, the
Company was charged with the responsibility for paying $25 million, plus amounts
payable  with respect  to liabilities which  are attributable to  certain of the
Company's subsidiaries. The Company's $25 million limitation amount was  accrued
in  the Company's financial statements in  December 1989, and following payments
made in the  first quarter  of 1993,  $22 million  remained and  is included  in
accounts payable and accrued liabilities as of December 31, 1994.
 
    In  January  1993, the  IRS  completed its  examination  of the  Federal tax
returns of WTI for  the periods May  1986 through December  1988 and asserted  a
material  deficiency relating to  the tax basis  of a former  subsidiary of WTI.
WTI, Abex and the Company disagreed with  the position taken by the IRS and  WTI
filed  a petition with the U.S. Tax Court. In March 1994, prior to the June 1994
trial date,  WTI and  the IRS  entered  into a  Stipulation of  Settlement  that
resulted in a tax payable together with interest of approximately $72 million.
 
    In  April 1994,  the Company contested  the alleged  obligation and asserted
various defenses to making any payment  under these agreements and Abex and  WTI
filed suit in Delaware Chancery Court ("the 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, plus pre-judgment  interest and  attorneys' fees.  The Company  vigorously
defended  its position with respect to the nonpayment of the alleged tax sharing
obligation, filing suit in the  Supreme Court of the  state of New York  against
WTI and Abex. In December 1994, the Court decided against the Company, prompting
the  Company to file  an appeal in  January 1995. In  February 1995, the Company
entered into an  agreement with WTI  and Abex  to settle both  state actions  in
order  to  avoid  the  ongoing  cost  of  litigation.  Under  the  terms  of the
settlement, the Company paid an aggregate of $22 million, of which $15.5 million
was funded by  borrowings under  a financing  agreement with  a major  financial
institution  (Note 6)  and $6.5 million  was funded by  the Company's restricted
cash. The Company also settled other disputes with Abex as described in Note 9.
 
                                      F-22
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
    Pursuant to a 1992 transition agreement, amended in March 1993, each of Abex
and the Company provided  to the other  certain administrative support  services
until  March 31, 1994. The amendment provided for the Company to pay $.5 million
quarterly for  such  services and  for  the  termination of  the  New  Hampshire
facilities  lease on  March 31, 1993.  Accordingly, the  Company reimbursed Abex
approximately $1.8 million for  the year ended December  31, 1993. Fees  accrued
but  not  paid in  the fourth  quarter of  1993  and the  first quarter  of 1994
totaling $1.0 million were waived by  Abex in connection with the February  1995
settlement with Abex described in Note 8.
 
    In  connection  with  the Merger,  the  Company  entered into  a  put option
agreement with Abex, through December 31,  1995, which provided the Company  the
right  to  require Abex  to purchase  certain assets  of the  Company at  85% of
appraised value, subject to an annual limitation of no more than $50 million and
an aggregate limitation  of $75  million for such  assets. In  August 1993,  the
Company  received $3.0 million from Abex in exchange for the termination of this
agreement.
 
  LEGAL PROCEEDINGS
 
    See Note 5  for a discussion  of certain litigation  relating to the  Orange
County  Board of Supervisors'  and California Coastal  Commission's approvals of
the Bolsa Chica project.
 
    There are various other lawsuits and claims pending against the Company  and
certain  subsidiaries.  In the  opinion  of the  Company's  management, ultimate
liability, if any,  will not  have a material  adverse effect  on the  Company's
financial condition or results of operations.
 
  CORPORATE INDEMNIFICATION MATTERS
 
    The  Company and  its predecessors have,  through a  variety of transactions
effected since 1986, disposed  of several assets and  businesses, many of  which
are  unrelated  to the  Company's  current operations.  By  operation of  law or
contractual indemnity provisions, the Company has retained liabilities  relating
to  certain  of  these  assets  and businesses.  Many  of  such  liabilities are
supported  by  insurance  or  by  indemnities  from  certain  of  the  Company's
predecessor  and  currently  or  previously  affiliated  companies.  The Company
believes its balance sheet reflects adequate reserves for these matters.
 
    The United  States Environmental  Protection Agency  ("EPA") has  designated
Universal Oil Products ("UOP"), among others, as a Potentially Responsible Party
("PRP")  with respect to an area of  the Upper Peninsula of Michigan (the "Torch
Lake Site") under the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"). UOP is allegedly the successor
in interest to  one of  the companies that  conducted mining  operations in  the
Torch  Lake area and  an affiliate of  Allied Signal Inc.,  a predecessor of the
Company. The Company has not  been named as a PRP  at the site. However,  Allied
Signal  has, through UOP,  asserted a contractual  indemnification claim against
the Company for  all claims that  may be asserted  against UOP by  EPA or  other
parties  with respect to the site. EPA  has proposed a clean-up plan which would
involve covering certain  real property  both contiguous  and non-contiguous  to
Torch  Lake with soil and vegetation in  order to address alleged risks posed by
copper tailings and slag at an estimated  cost between $6 and $7.5 million.  EPA
estimates  that it  has spent between  $3 and  $4 million to  date in performing
studies of the  site. Under CERCLA,  EPA could assert  claims against the  Torch
Lake  PRPs, including UOP, to recover the cost of these studies, the cost of all
remedial action required at the site, and natural resources damages. An  earlier
settlement  in principle  with EPA  staff pursuant to  which UOP  would pay $1.7
million in exchange for a  release similar to those  normally granted by EPA  in
such  circumstances was  rejected by  certain other  governmental authorities in
July 1993. In June 1995, EPA proposed a CERCLA settlement pursuant to which  UOP
pay  approximately  between $2.6  and  $3.3 million  in  exchange for  a limited
covenant by EPA not to sue UOP in the future. The Company, without admission  of
any  obligation to UOP, has determined  to vigorously defend UOP's position that
the EPA's proposed
 
                                      F-23
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
cleanup plan is  unnecessary and  inconsistent with the  requirements of  CERCLA
given  that  the EPA's  own  Site Assessment  and  Record of  Decision  found no
immediate threat to human health. In the Company's view the proposed remediation
costs would be in excess of any resulting benefits.
 
NOTE 10 -- RELATED PARTY TRANSACTIONS
 
  MANAGEMENT AGREEMENT
 
    In June 1990, the Company entered into a management agreement with Koll.  In
September  1993, in  connection with the  Company's acquisition  of the domestic
real estate development business  and related assets of  Koll, the Company  paid
Koll  $325,000 to  terminate the management  agreement in lieu  of continuing to
receive and pay for duplicative services  during the 90-day notice period  which
would  otherwise have  been required under  the management  agreement. Under the
terms of the management agreement, the Company was obligated to pay a  quarterly
management fee equal to .125% of the average book value of its assets managed by
Koll  and  to reimburse  Koll for  certain personnel  costs and  other expenses.
Additionally, Koll was generally entitled to a disposition fee of 1% of the  net
sale proceeds (as defined) upon the sale of any real estate property (other than
the  Bolsa Chica  and Wentworth  properties) managed  by Koll.  During 1993, the
Company incurred management fees  and reimbursable costs  of $1.5 million  under
this management agreement.
 
  CONSTRUCTION MANAGEMENT AGREEMENTS
 
    In  1993, the Company entered into  a construction management agreement with
Koll Construction, a wholly owned subsidiary of Koll, for demolition of  bunkers
at Bolsa Chica. In 1995, the Company also entered into a construction management
agreement  with Koll Construction for  infrastructure construction at Rancho San
Pasqual. During  1993,  1994 and  1995  the Company  incurred  fees  aggregating
approximately  $.1 million, $.1  million and $.5  million, respectively, to Koll
Construction in consideration for these services and related reimbursements.
 
  SERVICE AGREEMENTS
 
    In September  1993, the  Company  entered into  a Financing  and  Accounting
Services   Agreement  to  provide  Koll  with  financing,  accounting,  billing,
collections and other related  services until 30 days'  prior written notice  of
termination  is given  by one company  to the  other. Fees earned  for the years
ended December  31, 1993,  1994 and  1995 were  approximately $.1  million,  $.4
million and $.1 million, respectively.
 
    The  Company also  entered into a  Management Information  Systems and Human
Resources Services Agreement  in September 1993  with Koll Management  Services,
Inc.  ("KMS"), a company 36%  owned by Koll. Under  this agreement, KMS provides
computer programming, data organization  and retention, record keeping,  payroll
and other related services until 30 days' prior written notice of termination is
given  by one  company to  the other.  Fees and  related reimbursements incurred
during the years ended December 31,  1993, 1994 and 1995 were approximately  $.1
million, $.2 million, and $.2 million, respectively.
 
  SUBLEASE AGREEMENTS
 
    In  September  1993,  the  Company entered  into  a  month-to-month Sublease
Agreement with Koll to sublease a portion of a Koll affiliate's office  building
located  in  Newport  Beach, California.  The  Company also  entered  into lease
agreements on a month-to-month basis for office space in Northern California and
San Diego, California  with KMS  and Koll  Construction, respectively.  Combined
annual  lease  costs  on  these month-to-month  leases  during  the  years ended
December 31, 1993, 1994, and 1995  were approximately $.1 million, $.4  million,
and $.4 million, respectively.
 
  DEVELOPMENT FEES
 
    For the three month period ended December 31, 1993, the years ended December
31,  1994 and 1995  the Company earned  fees of approximately  $.7 million, $3.5
million, and $2.7 million, respectively, for real estate
 
                                      F-24
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- RELATED PARTY TRANSACTIONS (CONTINUED)
development and disposition services provided to partnerships in which Koll  and
certain  directors and  officers of the  Company have an  ownership interest. In
addition, the Company paid  $.3 million to, and  received $.1 million from  Koll
Construction  for  services  provided  to each  other  in  conjunction  with two
separate development service transactions for the year ended December 31,  1994.
The Company paid $.1 million to Koll Construction in the year ended December 31,
1995 for development services.
 
  JOINT BUSINESS OPPORTUNITY AGREEMENT
 
    The  Company and Koll entered into  an agreement to jointly develop business
opportunities in the Pacific Rim effective February 1, 1994. Effective  February
1, 1995 Koll assigned its interests under this agreement to KMS. Under the terms
of  the agreement, the Company and KMS share on  a 50% - 50% basis all costs and
expenses  incurred  in  connection  with  identifying  and  obtaining   business
opportunities   and  will  share  in  all   revenues  generated  from  any  such
opportunities on a 50% - 50%  basis. Expenses exceeded revenues for both  years,
therefore  the Company's share of such net  expenses was $.2 and $.3 million for
the years ended December 31, 1994  and 1995, respectively. One service  contract
entered  into under this  agreement in 1995  included construction services from
Koll Construction, for which the venture  paid $.1 million to Koll  Construction
for services rendered during the year ended December 31, 1995.
 
    In  March 1995, the  Company and Koll  entered into an  agreement to jointly
develop commercial development business opportunities in Mexico. Under the terms
of the agreement, the Company and Koll share on a 50% - 50% basis all costs  and
expenses   incurred  in  connection  with  identifying  and  obtaining  business
opportunities and will share in  all revenues generated from such  opportunities
on a 50% - 50% basis. The Company's share of such net costs and expenses was $.3
million  for the 10 months ended December  31, 1995. During the first quarter of
1996, the Company determined that, given current economic conditions in  Mexico,
it  could more efficiently  service opportunities in Mexico  from its offices in
California and Dallas and closed its  Mexico City office. Koll has informed  the
Company  that effective March 1, 1996 it  will no longer fund costs and expenses
related to the pursuit  of commercial development  opportunities in Mexico,  and
Koll's interest will be diluted accordingly.
 
    Effective  April 1, 1994, the  Company and KMS entered  into an agreement to
combine operations in  the Northwest Region  in order to  become a full  service
real  estate company in that region. Operating profits and losses are split on a
50% - 50% basis at the end of each calendar year. The Company's share of profits
was $.5 and $.6 million for the nine months ended December 31, 1994 and the year
ended December 31, 1995, respectively.
 
  STOCK PLEDGE BY DIRECTOR
 
    In December of 1995, the Company accepted pledges of all of the common stock
and warrants  convertible into  the common  stock of  the Company  owned by  Ms.
Kathryn  G. Thompson  as security  against any  potential construction liability
which could be asserted against the Company as a result of the 1994  acquisition
by  the Company of KGTC  and in exchange for  the Company releasing Ms. Thompson
from a covenant to maintain insurance with respect to such potential liability.
 
  EXECUTIVE OFFICER OF SUBSIDIARY
 
    Ms. Thompson, a  director of  the Company,  also serves  as chief  executive
officer of KGTC, a wholly-owned subsidiary of the Company. During the year ended
December  31, 1995, Ms. Thompson received  aggregate compensation of $.3 million
for her services rendered as an officer of this subisidiary.
 
                                      F-25
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- RELATED PARTY TRANSACTIONS (CONTINUED)
  NOTE RECEIVABLE
 
    In December 1994, the  Company entered into a  promissory note agreement  to
lend  up to $6 million to AV Partnership (Note 3). The note, secured principally
by an interest in  AV Partnership, bore interest  on the outstanding balance  at
12%  per annum.  The note  balance of  $2 million  as of  December 31,  1994 was
included in other assets and was repaid along with additional advances on  March
15, 1995, the maturity date.
 
  OTHER TRANSACTIONS
 
    See  Notes 3, 8 and 9 for  descriptions of other transactions and agreements
with Koll, Libra, Abex and WTI.
 
NOTE 11 -- RETIREMENT PLANS
    The Company has  noncontributory defined benefit  retirement plans  covering
substantially  all employees of the Company prior  to September 30, 1993 who had
completed one year of continuous employment.  Net periodic pension cost for  the
years ended December 31 consisted of the following (in millions):
 
<TABLE>
<CAPTION>
                                                        1993       1994       1995
                                                      ---------  ---------  ---------
<S>                                                   <C>        <C>        <C>
Service cost........................................  $      .1  $      .0  $      .0
Interest cost.......................................         .5         .5         .5
Actual return on assets.............................        (.2)        .1       (1.4)
Net amortization and deferral.......................        (.3)       (.5)       1.0
Curtailment loss....................................         .8         --         --
                                                            ---        ---  ---------
Net periodic pension cost...........................  $      .9  $      .1  $      .1
                                                            ---        ---  ---------
                                                            ---        ---  ---------
</TABLE>
 
    The  benefit accrual  for all  participants was  terminated on  December 31,
1993. The curtailment loss in 1993 resulted from the freeze of benefit  accruals
for former participants in April 1993.
 
    The funded status and accrued pension cost at December 31, 1994 and 1995 for
defined benefit plans were as follows (in millions):
 
<TABLE>
<CAPTION>
                                                        1994       1995
                                                      ---------  ---------
<S>                                                   <C>        <C>
Actuarial present value of benefit obligations:
  Vested............................................  $    (7.4) $    (6.9)
  Nonvested.........................................         --         --
                                                      ---------  ---------
Accumulated benefit obligation......................  $    (7.4) $    (6.9)
                                                      ---------  ---------
                                                      ---------  ---------
Projected benefit obligation........................  $    (7.4) $    (6.9)
Plan assets at fair value...........................        5.5        5.9
                                                      ---------  ---------
Projected benefit obligation in excess of plan
 assets.............................................       (1.9)      (1.0)
Unrecognized net loss...............................        2.0        1.0
Adjustment required to recognize additional minimum
 liability..........................................       (2.0)      (1.0)
                                                      ---------  ---------
Accrued pension cost................................  $    (1.9) $    (1.0)
                                                      ---------  ---------
                                                      ---------  ---------
</TABLE>
 
    The  development  of  the  projected benefit  obligation  for  the  plans at
December 31,  1993, 1994,  and 1995  is based  on the  following assumptions:  a
discount  rate of 7%, a rate of increase  in employee compensation of 0%, and an
expected long-term rate  of return  on assets  of 9%.  Assets of  the plans  are
invested primarily in stocks, bonds, short-term securities and cash equivalents.
 
                                      F-26
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 12 -- CAPITAL STOCK
 
  COMMON STOCK
 
    Under  its restated certificate of  incorporation, the Company has authority
to issue up to  750 million shares  of common stock, par  value $.05 per  share,
subject  to  approval of  the Board  of  Directors (the  "Board"), of  which 625
million shares of Class A Common Stock  and 25 million shares of Class B  Common
Stock are initially authorized for issuance and an additional 100 million shares
may be issued in one or more series, and have such voting powers or other rights
and  limitations as the Board  may authorize. During 1994  and 1995, 1.2 million
and 1.0 million shares, respectively, of Series A Preferred Stock were converted
into an equal number of shares of Class A Common Stock.
 
    In December 1993 the Company issued 3.4 million shares of its Class A Common
Stock in exchange for  all of Libra's approximately  $10.6 million in  aggregate
principal amount of Subordinated Debentures plus accrued interest. In connection
with  the Company's sale  of Lake Superior  Land Company to  Libra, the net cash
proceeds from the sale  of 3.4 million  shares of Class A  Common Stock held  by
Libra  will be forwarded to the Company.  The estimated amount of proceeds to be
received from such sale is reflected in the equity section of the balance  sheet
as deferred proceeds from stock issuance.
 
    In  November 1994 the Company issued 2  million shares of its Class A Common
Stock and  warrants  for the  purchase  of an  additional  2 million  shares  in
connection with the acquisition of the Kathryn G. Thompson Company. The warrants
have  an exercise price of $.25, are exercisable over a ten year period, vest in
equal installments  over five  years  and are  subject to  certain  cancellation
rights of the Company.
 
    Under  the Company's Indentures for the  Debentures (Note 6), the Company is
prohibited from purchasing shares of its common stock.
 
  PREFERRED STOCK
 
    Under its restated certificate of  incorporation, the Company has  authority
to issue 150 million shares of preferred stock, par value $.01 per share, in one
or  more series, with such  voting powers and other  rights as authorized by the
Board. Effective  July  16, 1992,  in  connection  with the  Merger,  the  Board
authorized  approximately 42.5 million shares of Series A Preferred Stock, which
have a liquidation preference of $.75 per share, participate in any dividend  or
distribution  paid on the Class  A Common Stock on a  share for share basis, and
have no voting rights, except as required by law (Notes 1 and 2).
 
    The Series A Preferred  Stock is redeemable at  the Company's option, on  30
days'  notice given at any time after the second anniversary of issuance, at the
liquidation preference of  $.75 per  share, in cash  or generally  in shares  of
Class  A Common Stock. Each share of the Series A Preferred Stock is convertible
at the holder's option,  at any time after  the second anniversary of  issuance,
generally into one share of Class A Common Stock.
 
NOTE 13 -- STOCK PLANS
 
  1993 STOCK OPTION/STOCK ISSUANCE PLAN
 
    The  1993 Stock Option/Stock Issuance Plan ("1993 Plan") was approved at the
1994 Annual Meeting of Stockholders as the successor equity incentive program to
the Company's 1988  Stock Plan. Outstanding  options under the  1988 Stock  Plan
were incorporated into the 1993 Plan upon its approval. Under the 1993 Plan, 7.5
million shares each (including 3 million shares each originally authorized under
the  1988 Stock Plan) of Series A Preferred  Stock and Class A Common Stock were
reserved for issuance to officers, key employees and consultants of the  Company
and  its  subsidiaries  and  the  non-employee  members  of  the  Board. Options
generally become exercisable for 40% of the option shares upon completion of one
year of  service and  become exercisable  for the  balance in  two equal  annual
installments thereafter.
 
                                      F-27
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 13 -- STOCK PLANS (CONTINUED)
    The  1993 Plan includes an automatic option grant program, pursuant to which
each individual serving as a non-employee Board member on the November 29,  1993
effective date of the 1993 Plan received an option grant for 125,000 shares each
of  Series A Preferred Stock and Class A  Common Stock with an exercise price of
$.4063 per share, equal to the fair market value of the underlying securities on
the grant date.  Each individual  who first joins  the Board  as a  non-employee
director  after such effective date will receive  a similar option grant. Of the
shares subject to  each option, 40%  will vest  upon completion of  one year  of
Board  service measured from  the grant date,  and the balance  will vest in two
equal annual installments thereafter. Each  automatic grant will have a  maximum
term  of 10 years, subject to  earlier termination upon the optionee's cessation
of Board service.
 
    Each non-employee Board member may also elect to apply all or any portion of
his or  her  annual retainer  fee  to the  acquisition  of shares  of  Series  A
Preferred  Stock  or Class  A  Common Stock  which  vest incrementally  over the
individual's period of Board service during  the year for which the election  is
in  effect. During the  years ended December  31, 1994 and  1995, 126,856 and no
shares, respectively, were issued under this provision.
 
    A summary of the status  of the Company's stock  option plans for the  three
years ended December 31, 1995, follows:
 
<TABLE>
<CAPTION>
                                                                  NUMBER OF SHARES          PRICE PER SHARE
                                                              ------------------------  ------------------------
                                                                CLASS A     SERIES A      CLASS A     SERIES A
                                                                COMMON      PREFERRED     COMMON      PREFERRED
OPTIONS OUTSTANDING                                              STOCK        STOCK        STOCK        STOCK
------------------------------------------------------------  -----------  -----------  -----------  -----------
<S>                                                           <C>          <C>          <C>          <C>
December 31, 1992...........................................    2,060,000    2,060,000          .23          .14
  Granted...................................................    6,340,000    6,340,000    .25 - .41    .28 - .41
  Exercised.................................................      --           --           --           --
  Cancelled.................................................   (2,050,000)  (2,050,000)   .23 - .25    .14 - .28
                                                              -----------  -----------  -----------  -----------
December 31, 1993...........................................    6,350,000    6,350,000    .23 - .41    .14 - .41
  Granted...................................................      --           --           --           --
  Exercised.................................................      --           --           --           --
  Cancelled.................................................      --           --           --           --
                                                              -----------  -----------  -----------  -----------
December 31, 1994...........................................    6,350,000    6,350,000    .23 - .41    .14 - .41
  Granted...................................................      --           --           --           --
  Exercised.................................................      --           --           --           --
  Cancelled.................................................      (75,000)     (75,000)         .41          .41
                                                              -----------  -----------  -----------  -----------
December 31, 1995...........................................    6,275,000    6,275,000   $.23 - .41   $.14 - .41
                                                              -----------  -----------  -----------  -----------
                                                              -----------  -----------  -----------  -----------
Options exercisable at December 31, 1995....................    4,452,500    4,452,500   $.23 - .41   $.14 - .41
Options available at December 31, 1995......................    1,098,144    1,225,000
</TABLE>
 
                                      F-28
<PAGE>
                          KOLL REAL ESTATE GROUP, INC.
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 14 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
    The  following is a summary of  quarterly financial information for 1994 and
1995 (in millions, except per share amounts):
 
<TABLE>
<CAPTION>
                                                                      FIRST      SECOND       THIRD     FOURTH     FULL YEAR
                                                                    ---------  -----------  ---------  ---------  -----------
<S>                                                                 <C>        <C>          <C>        <C>        <C>
1995
  Revenues (a)....................................................  $     6.4   $     5.7   $     6.8  $    15.1   $    34.0
  Cost of sales (a)...............................................        7.3         5.2         5.9       13.5        31.9
  Loss from continuing operations (b).............................       (5.7)       (2.6)       (8.5)    (100.1)     (116.9)
  Net loss (b)....................................................       (5.7)       (2.6)       (8.5)    (100.1)     (116.9)
  Loss per common share...........................................       (.12)       (.06)       (.18)     (2.11)      (2.48)
  Weighted average common shares outstanding (c)..................       46.6        47.0        47.3       47.5        47.1
1994
  Revenues (d)....................................................  $     3.4   $     4.8   $     8.4  $     4.8   $    21.4
  Cost of sales (d)...............................................        3.2         4.8         7.9        4.3        20.2
  Loss from continuing operations.................................       (4.7)       (4.5)       (4.4)      (5.1)      (18.7)
  Net loss........................................................       (4.0)       (4.5)       (4.4)      (5.1)      (18.0)
  Loss per common share...........................................       (.09)       (.11)       (.10)      (.11)       (.41)
  Weighted average common shares outstanding (c)..................       43.3        43.3        43.3       45.2        43.8
</TABLE>
 
------------------------
(a) The  Company recorded  revenues  and cost  of  sales of  approximately  $8.0
    million  and $8.1 million, respectively, in  the fourth quarter of 1995 from
    the sale of  residential land and  the marina  at its Wentworth  By The  Sea
    project in New Hampshire.
 
(b)  The Company recorded asset revaluations of $7.5 million and $116.6 million,
    which were partially offset by income tax benefits of $2.6 million and $24.0
    million, respectively, in the third and fourth quarters of 1995.
 
(c) The Series A Preferred Stock is not included in the calculation of  weighted
    average shares outstanding because the effect is antidilutive.
 
(d)  The  Company recorded  revenues  and cost  of  sales of  approximately $3.3
    million and $3.1 million,  respectively, in the third  quarter of 1994  from
    the  sale of  the golf  course at its  Wentworth By  The Sea  project in New
    Hampshire.
 
                                      F-29