<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
KILROY REALTY CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
KILROY REALTY CORPORATION
2250 EAST IMPERIAL HIGHWAY, SUITE 1200
EL SEGUNDO, CALIFORNIA 90245
March 30, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 annual meeting of stockholders
of KILROY REALTY CORPORATION to be held on May 17, 1999, at 10:00 a.m. at The
Beverly Hilton located at 9876 Wilshire Boulevard, Beverly Hills, California
90210.
Information about the meeting and the various matters on which the
stockholders will act is included in the Notice of Annual Meeting of
Stockholders and Proxy Statement which follow. Also included is a Proxy Card
and postage paid return envelope.
It is important that your shares be represented at the meeting. Whether or
not you plan to attend, we hope that you will complete and return your Proxy
Card in the enclosed envelope as promptly as possible.
Sincerely,
Richard E. Moran Jr.
Executive Vice President,
Chief Financial Officer and
Secretary
<PAGE>
KILROY REALTY CORPORATION
2250 EAST IMPERIAL HIGHWAY, SUITE 1200
EL SEGUNDO, CALIFORNIA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 1999
To the Stockholders of Kilroy Realty Corporation:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of Kilroy Realty Corporation, a Maryland corporation (the
"Company"), will be held at The Beverly Hilton located at 9876 Wilshire
Boulevard, Beverly Hills, California 90210 on May 17, 1999, at 10:00 a.m.,
local time, for the following purposes:
1. To elect two directors to the Company's Board of Directors to serve
until the annual meeting of stockholders in the year 2002 and until their
successors are duly elected and qualify; and
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 29, 1999 as
the record date (the "Record Date") for determining the stockholders entitled
to receive notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company,
which recommends that stockholders vote FOR the election of the nominees named
therein. Please refer to the attached Proxy Statement, which forms a part of
this Notice and is incorporated herein by reference, for further information
with respect to the business to be transacted at the Annual Meeting.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING.
By Order of the Board of Directors,
Richard E. Moran Jr.
Executive Vice President,
Chief Financial Officer and
Secretary
March 30, 1999
El Segundo, California
<PAGE>
KILROY REALTY CORPORATION
2250 EAST IMPERIAL HIGHWAY, SUITE 1200
EL SEGUNDO, CALIFORNIA 90245
----------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 1999
----------------
PROXY STATEMENT
----------------
INTRODUCTION
General
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Kilroy Realty Corporation, a Maryland corporation (the
"Company"), of proxies from the holders of the Company's issued and
outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), to be exercised at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on May 17, 1999 at The Beverly Hilton located at 9876
Wilshire Boulevard, Beverly Hills, California 90210 at 10:00 a.m. local time,
and at any adjournment(s) or postponement(s) thereof for the purposes set
forth in the accompanying Notice of Annual Meeting.
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following proposals (the "Proposals"):
1. The election of two directors to the Company's Board of Directors to
serve until the annual meeting of stockholders to be held in the year 2002
and until their successors are duly elected and qualify;
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Only the holders of record of the shares of Common Stock at the close of
business on March 29, 1999 (the "Record Date") are entitled to notice of and
to vote at the Annual Meeting. Each share of Common Stock is entitled to one
vote on all matters. As of the Record Date, 27,629,210 shares of Common Stock
were outstanding. This Proxy Statement and enclosed form of proxy are first
being mailed to the stockholders of the Company on or about March 30, 1999.
A majority of the shares of Common Stock outstanding must be represented at
the Annual Meeting in person or by proxy to constitute a quorum for the
transaction of business at the Annual Meeting. Shares represented by proxies
that reflect abstentions or "broker non-votes" will be counted as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. In order to be elected as a director, a nominee must receive a
plurality of all the votes cast at the Annual Meeting at which a quorum is
present. For purposes of calculating votes cast in the election of the
directors, abstentions or broker non-votes will not be counted as votes cast
and will have no effect on the result of the vote on the Proposal regarding
the election of the director nominees.
The shares of Common Stock represented by all properly executed proxies
returned to the Company will be voted at the Annual Meeting as indicated or,
if no instruction is given, FOR election of the two director nominees named
herein. As to any other business which may properly come before the Annual
Meeting, all properly executed proxies will be voted by the persons named
therein in accordance with their discretion. The Company does not presently
know of any other business which may come before the Annual Meeting. However,
if any
1
<PAGE>
other matter properly comes before the Annual Meeting, or any adjournment or
postponement thereof, which may properly be acted upon, unless otherwise
indicated the proxies solicited hereby will be voted on such matter in
accordance with the discretion of the proxy holders named therein. Any person
giving a proxy has the right to revoke it at any time before it is exercised
(i) by filing with the Secretary of the Company a duly signed revocation or a
proxy bearing a later date or (ii) by electing to vote in person at the Annual
Meeting. Mere attendance at the Annual Meeting will not revoke a proxy.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF
GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED AND THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
The cost of soliciting proxies will be paid by the Company. Proxies may be
solicited by directors, officers and employees of the Company in person or by
mail, telephone or facsimile transmission, but such persons will not be
specially compensated therefor.
The Company's executive offices are located at 2250 East Imperial Highway,
Suite 1200, El Segundo, California 90245, telephone (310) 563-5500. References
herein to the "Company" refer to Kilroy Realty Corporation and its
subsidiaries, unless the context otherwise requires.
----------------
The date of this Proxy Statement is March 30, 1999.
2
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the Company's articles of incorporation, as amended (the
"Charter"), the Company's bylaws, as amended (the "Bylaws"), and the
resolutions adopted by the Board of Directors (the "Board"), the Board
presently consists of seven directors. Richard S. Allen, a director who had
been elected to a term expiring in 1999, resigned as a director on February
18, 1999. The Board has not yet identified a replacement for Mr Allen. The
Board is divided into three classes serving staggered three-year terms.
Pursuant to the Charter, at each annual meeting the successors to the class
of directors whose terms expire at such meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. Accordingly, at the Annual
Meeting, the nominees for election will be elected to hold office for a term
of three years until the annual meeting of stockholders to be held in the year
2002, and until their successors are duly elected and qualify. Except where
otherwise instructed, proxies solicited by this Proxy Statement will be voted
for the election of each of the nominees to the Board listed below. Each such
nominee has consented to be named in this Proxy Statement and to serve as a
director if elected.
The information below relating to the nominees for election as director and
to each of the other directors whose terms of office continue after the Annual
Meeting has been furnished to the Company by the respective individuals.
The Board recommends a vote FOR the election of John B. Kilroy, Sr. and
Matthew J. Hart to serve until the annual meeting of stockholders to be held
in the year 2002 and until their respective successors are duly elected and
qualify.
Nominees for Director
The following table sets forth certain current information with respect to
the nominees for directors to the Board of the Company:
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
John B. Kilroy, Sr. .................................... 76 1996
Matthew J. Hart......................................... 46 1997
</TABLE>
The following is a biographical summary of the experience of the nominees
for directors to the Board of the Company:
John B. Kilroy, Sr., has served as the Company's Chairman of the Board of
Directors since its incorporation in September 1996, and served in the same
capacity for Kilroy Industries since 1954. In 1947, Mr. Kilroy founded the
businesses which were incorporated in 1952 as the entity known as Kilroy
Industries ("KI"), the predecessor to the Company. Mr. Kilroy served as KI's
President from 1952 until 1981, and as its Chairman of its Board of Directors
from 1954 to 1997. Mr. Kilroy is a nationally recognized member of the real
estate community, providing the Company with strategic leadership and a
broadly-based network of relationships. Mr. Kilroy is a trustee of the
Independent Colleges of Southern California, serves on the Board of Directors
of Pepperdine University, and is a past trustee of Harvey Mudd College.
Matthew J. Hart, has been a member of the Board of Directors of the Company
since its inception as a public company in January 1997. Mr. Hart joined
Hilton Hotels Corporation in 1996 and presently serves as its Executive Vice
President, Chief Financial Officer and Treasurer. Prior to joining Hilton, Mr.
Hart was Senior Vice President and Treasurer of The Walt Disney Company from
1995 to 1996. From 1981 to 1995, Mr. Hart was employed by Host Marriott
Corporation (formerly known as Marriott Corporation), most recently as its
Executive Vice President and Chief Financial Officer. Before joining Marriott
Corporation, Mr. Hart had been a lending officer with Bankers Trust Company in
New York. Mr. Hart is a member of the board of directors of First Washington
Realty Trust, Inc., a real estate investment trust ("REIT") which invests
primarily in retail properties. Mr. Hart received his undergraduate degree
from Vanderbilt University and a Masters of Business Administration form
Columbia University.
3
<PAGE>
Directors Continuing in Office
Information concerning the other directors of the Company whose terms do not
expire at the Annual Meeting is set forth below.
<TABLE>
<CAPTION>
Name Age Position Term
---- --- -------- ----
<S> <C> <C> <C>
John B. Kilroy, Jr...... 50 President, Chief Executive Officer and Director 2000
John R. D'Eathe ........ 63 Director 2001
William P. Dickey ...... 56 Director 2001
Dale F. Kinsella ....... 50 Director 2000
</TABLE>
John B. Kilroy, Jr., has served as the Company's President, Chief Executive
Officer and Director since its incorporation in September 1996. Prior to
joining the Company, Mr. Kilroy served in the same capacity for KI and was
responsible for the overall management of all facets of KI and its various
affiliates since 1981. Mr. Kilroy has been involved in all aspects of
commercial and industrial real estate acquisition, sales, development,
construction, leasing, financing, and entitlement since 1967 and worked for KI
for over 30 years. Mr. Kilroy became President of KI in 1981 and was elected
Chief Executive Officer in 1991. Prior to that time he held positions as
Executive Vice President and Vice President--Leasing & Marketing. He is a
trustee of the El Segundo Employers Association, and a past trustee of
Viewpoint School, the Jefferson Center For Character Education and the
National Fitness Foundation. Mr. Kilroy holds a Bachelor of Science degree in
Economics from the University of Southern California.
John R. D'Eathe, has been a member of the Board of Directors of the Company
since October 1997. Mr. D'Eathe is a 30-year veteran of real estate
development and management in Canada, Europe and the United States. Since
1980, Mr. D'Eathe has been serving as the President of Freehold Development
Canada, which is primarily focused on commercial and industrial development in
western Canada. From 1970 to 1979, Mr. D'Eathe was President and Chief
Executive Officer of Canadian Freehold Properties Ltd., a Canadian-based
development company involved in commercial projects in both Canada and the
United States. From 1965 to 1969, he served as a director and senior vice
president of Grosvenor International, a private real estate group that owns
and develops property around the world. Since 1997, Mr. D'Eathe has been the
Chairman and President of Penreal Advisors Ltd., one of Canada's largest
pension fund real estate investment and advisory firms. In addition, he has
been the Chairman of Spark Music Inc., of Vancouver since 1992, and has been a
director of John Hancock's Maritime Life Assurance Company since 1995. Mr.
D'Eathe holds an honors Bachelor of Laws degree from London University, UK and
is an associate member of The Canadian Bar Association.
William P. Dickey, age 56, has been a member of the Board of Directors of
the Company since its inception as a public company in January 1997. Mr.
Dickey has been the President of The Dermot Company, Inc., a real estate
investment and management company since 1990. From 1986 to 1990, Mr. Dickey
was a Managing Director of Real Estate for CS First Boston Corporation. Prior
to 1986, Mr. Dickey was a partner at the New York law firm of Cravath, Swaine
& Moore, where he started as an associate beginning in 1974. Mr. Dickey is a
member of the board of directors of Horizon Group, Inc., a REIT which invests
primarily in factory outlet centers, and Mezzanine Capital Property Investors,
Inc., a REIT which invests primarily in East Coast office/mixed use space. Mr.
Dickey received his undergraduate degree from the United States Air Force
Academy, his Masters Degree from Georgetown University and his Juris Doctor
Degree from Columbia Law School.
Dale F. Kinsella, age 50, has been a member of the Board of Directors of the
Company since its inception as a public company in January 1997.Since 1990,
Mr. Kinsella has been a partner with the Los Angeles law firm of Kinsella,
Boesch, Fujikawa & Towle. Mr. Kinsella received his undergraduate degree from
the University of California, Santa Barbara and his Juris Doctor degree from
the University of California, Los Angeles.
4
<PAGE>
Board of Directors Meetings and Attendance
During the year ended December 31, 1998, the Board held eight meetings
including four special telephonic meetings. All but two directors attended
more than 75% of the aggregate of (i) the total number of meetings of the
Board while they were on the Board and (ii) the total number of meetings of
the committees of the Board on which such directors served. Mr. Kilroy Sr.
attended 50% and Mr. Kinsella attended 69% of the total meetings of the Board
and their respective committees.
Board Committees
The Board of Directors of the Company has an Audit Committee, an Independent
Committee, an Executive Committee and an Executive Compensation Committee.
Audit Committee. The Audit Committee consists of two Independent Directors
(as hereinafter defined), Mr. Hart, the Chairman, and Mr. D'Eathe. The Audit
Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the scope
and results of the audit engagement, approves professional services provided
by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees and reviews the adequacy of the Company's internal accounting controls.
The Audit Committee held four meetings during 1998.
Independent Committee. The Independent Committee consists of four
Independent Directors, Mr. Kinsella, the Chairman, and Messrs. Dickey, Hart
and D'Eathe. The Independent Committee has the authority to approve
transactions between the Company and its affiliates, including, without
limitation, John B. Kilroy, Sr. or John B. Kilroy, Jr. and their respective
affiliates. The Independent Committee held one meeting during 1998.
Executive Committee. The Executive Committee consists of Mr. Kilroy, Jr.,
the Chairman, and Messrs. Kilroy, Sr. and Kinsella. Subject to the Company's
conflict of interest policies, the Executive Committee has authority to
acquire and dispose of real property and the power to authorize, on behalf of
the full Board, the execution of certain contracts and agreements, including
those related to the borrowing of money by the Company (and, consistent with
the Agreement of Limited Partnership, as amended from time to time (the
"Partnership Agreement"), of Kilroy Realty, L.P. (the "Operating
Partnership"), to cause the Operating Partnership to take such actions). The
Executive Committee held no meetings during 1998.
Executive Compensation Committee. The Executive Compensation Committee
consists of two Independent Directors, Mr. Dickey, the Chairman, and Mr.
Kinsella. The function of the Executive Compensation Committee is to (i)
establish, review, modify, and adopt remuneration levels for executive
officers of the Company, and (ii) implement the Company's Stock Incentive Plan
and any other incentive programs. The Executive Compensation Committee held
four meetings during 1998.
Compensation of Directors
During 1998, the Company paid its Independent Directors annual compensation
of $12,000 for their services. In addition, each Independent Director received
$1,000 for each committee meeting chaired by such director. Each Independent
Director was also reimbursed for reasonable expenses incurred to attend
director and committee meetings. Officers of the Company who are directors
were not paid any directors' fees. In addition, under the Company's 1997 Stock
Option and Incentive Plan, upon his initial election to the Board, each
Independent Director was automatically granted options to purchase 10,000
shares of Common Stock which options vest pro rata in annual installments over
a three-year period, and on the anniversary of his election to the Board, each
Independent Director received an option to purchase 1,000 shares of Common
Stock which options also vest pro rata in annual installments over a three-
year period. All stock options were issued pursuant to the Stock Incentive
Plan at an exercise price equal to or greater than the fair market value of
the Common Stock at
5
<PAGE>
the date of grant. An "Independent Director" is a director who is not an
employee, officer or affiliate of the Company or a subsidiary or a division
thereof, or a relative of a principal executive officer, or who is not an
individual member of an organization acting as an advisor, consultant or legal
counsel, receiving compensation on a continuing basis from the Company in
addition to director's fees. On January 31, 1997, John B. Kilroy, Sr., who is
not an Independent Director, received options to purchase 15,000 shares of
Common Stock which options vest over a three-year period. As of December 31,
1998, Messrs. Dickey, Hart and Kinsella each held options to purchase 10,000
shares of Common Stock at an exercise price of $23.00 per share, of which
options to purchase 6,666 shares of Common Stock are currently exercisable,
and options to purchase 1,000 shares of Common Stock at an exercise price of
$27.69 per share of which 333 are currently exercisable. In addition, as of
December 31, 1998, Mr. D'Eathe held options to purchase 10,000 shares of
Common Stock at an exercise price of $27.25 per share, of which options to
purchase 3,333 shares are currently exercisable and options to purchase 1,000
shares of Common Stock at an exercise price of $20.56 per share, of which none
are currently exercisable.
In February 1999, the Board approved a recommendation by management to
modify and increase the Board's compensation structure to a level which the
Board believes is comparable to the Company's peers. Under the new structure
adopted by the Company, all non-employee directors (including those who are
deemed "inside" directors) are paid annual cash compensation of $20,000 for
their services and $1,000 for each Board meeting attended by such director.
Each non-employee director also receives annual compensation of $2,000 for
their services as chairman of any committee of the Board and each non-employee
director receives $1,000 for each committee meeting attended by such director.
In addition, the annual grant of options to purchase shares to each non-
employee director was increased from options to purchase 1,000 shares, to
options to purchase 5,000 shares. The options vest pro rata in annual
installments over a three-year period. The new structure provides that all
future option grants to Board members will be made on a common annual date,
rather than the respective anniversary dates of each Board member's election
to the Board.
Vote Required
The election of each director requires the plurality of the votes cast by
the holders of the shares of Common Stock entitled to vote thereon present in
person or by proxy at the Annual Meeting. The Board recommends a vote FOR the
election of John B. Kilroy, Sr. and Matthew J. Hart to serve until the annual
meeting of stockholders to be held in the year 2002 and until their respective
successor is duly elected and qualifies.
CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
The following table sets forth certain current information with respect to
the executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John B. Kilroy, Sr. .... 76 Chairman of the Board
John B. Kilroy, Jr. .... 50 President, Chief Executive Officer and Director
Steven L. Black......... 44 Executive Vice President and Chief Development Officer
Campbell Hugh Greenup... 45 Executive Vice President, Los Angeles
Jeffrey C. Hawken....... 40 Executive Vice President and Chief Operating Officer
Richard E. Moran Jr. ... 47 Executive Vice President, Chief Financial Officer and Secretary
</TABLE>
6
<PAGE>
The following is a biographical summary of the experience of the executive
and senior officers of the Company:
John B. Kilroy, Sr. has served as Chairman of the Board since its
incorporation in September 1996. Biographical information regarding Mr. Kilroy
is set forth under "Proposal 1: Election of Directors--Nominees for Director."
John B. Kilroy, Jr. has served as the President and Chief Executive Officer
of the Company since it commenced operations in January 1997. Biographical
information regarding Mr. Kilroy is set forth under "Proposal 1: Election of
Directors--Directors Continuing in Office."
Steven L. Black has served as Executive Vice President and Chief Development
Officer since June 1998 and Executive Vice President since November 1997. Mr.
Black joined the Company from The Allen Group ("TAG"), a group of affiliated
real estate development and investment companies based in San Diego,
California, where he was an equity owner and served as president since January
1994. From January 1988 to December 1993, Mr. Black operated his own real
estate development and management company, Centremark. Prior to 1988, Mr.
Black was president of The Sickels Group of San Diego and practiced public
accounting with Deloitte & Touche LLP. Mr. Black is a member of the Urban Land
Institute and a board member of both the National Association of Industrial
and Office Parks and the Building Industry Association. Mr. Black holds a
Bachelor of Science degree in accounting from San Diego State University.
Campbell Hugh Greenup is currently an Executive Vice President of the
Company and has been with the Company since it commenced operations in January
1997. Prior to that time, Mr. Greenup was employed at KI since 1986 as
Assistant General Counsel and was also President of Kilroy Technologies
Company, LLC. Mr. Greenup is a member of the American Bar Association, the
Urban Land Institute, the National Association of Corporate Real Estate
Executives and the Los Angeles County Beach Advisory Commission. Mr. Greenup
holds a Juris Doctor from Hastings College of Law and a Bachelor of Arts
degree in History from the University of California, Los Angeles.
Jeffrey C. Hawken has served as the Executive Vice President and Chief
Operating Officer of the Company since it commenced operations in January
1997. Prior to that time, Mr. Hawken served in the same capacity for KI and
was responsible for the management and operations of KI's real estate
portfolio. He also served on KI's acquisitions and executive committees. Mr.
Hawken joined KI in 1980, as a Senior Financial Analyst, and has been involved
in property and asset management with the Company since May 1983. Mr. Hawken
holds a Bachelor of Science degree in Business Administration from the
University of Southern California. Since that time, he attained the
designation of Real Property Administrator through the Building Owner's and
Manager's Association ("BOMA"), and currently serves as a director on the
board of BOMA of Greater Los Angeles.
Richard E. Moran Jr. has served as the Company's Executive Vice President,
Chief Financial Officer and Secretary since December 1996. Prior to that time,
Mr. Moran was Executive Vice President, Chief Financial Officer and Secretary
of Irvine Apartment Communities, Inc. from 1993 to 1996. Prior to that, Mr.
Moran was Executive Vice President, Corporate Finance and Treasurer of The
Irvine Company where he was employed from 1977 to 1993. Previously, he was a
certified public accountant with Coopers & Lybrand LLP. He is a member of the
Urban Land Institute. Mr. Moran received his Master of Business Administration
degree from the Harvard University Graduate School of Business Administration
and a Bachelor of Science degree in Accounting from Boston College.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the salary rates and other compensation paid
for the fiscal year ended December 31, 1998 and for the period from the
Company's inception as a public company, January 31, 1997 through December 31,
1997 to the Chief Executive Officer and each of the Company's other executive
officers (the "Named Executive Officers"). The Company has entered into
employment agreements with each of its executive officers as described below.
See "--Employment Agreements."
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------ ---------------------
Restricted Securities
Stock Underlying
Name and Principal Salary Other Annual Award Options
Position Year ($) Bonus ($)(1) Compensation ($) ($)(2) Granted(3)
------------------ ---- -------- ------------ ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John B. Kilroy, Jr...... 1998 $350,000 $510,000 250,000
Director, President and
Chief 1997 $180,769(4) $200,000 (7) -- 250,000
Executive Officer
Steven L. Black......... 1998 $200,000 $325,000 (7) -- 350,000
Executive Vice
President and 1997 $ 33,333(5)
Chief Development
Officer
Jeffrey C. Hawken....... 1998 $225,000 $325,000 150,000
Executive Vice
President and 1997 $158,173(4) $200,000 (7) -- 150,000
Chief Operating Officer
Richard E. Moran Jr. ... 1998 $225,000 $325,000 150,000
Executive Vice 1997 $180,769(4) $200,000(6) (7) $2,299,000 150,000
President, Chief
Financial Officer and
Secretary
Campbell Hugh Greenup... 1998 $200,000 $200,000
Executive Vice
President 1997 $149,135(4) $200,000 (7) -- 100,000
</TABLE>
- --------
(1) The amount of any such bonus was determined by the Executive Compensation
Committee of the Board of Directors. On March 9, 1998, the Executive
Compensation Committee approved and authorized amendments to the
employment agreements for the executive officers of the Company providing
for total annual executive incentive compensation, including annual
bonuses, commencing with fiscal year ended December 31, 1997, to be
awarded to the executive officers of the Company at the discretion of the
Executive Compensation Committee.
(2) Pursuant to Mr. Moran's employment agreement, concurrent with the
consummation of the Company's initial public offering of Common Stock (the
"IPO"), he received 100,000 restricted shares of Common Stock under the
Stock Incentive Plan with an aggregate value at January 31, 1997, the date
of issuance, of $2.3 million against the payment of $1,000 therefor. The
restricted shares of Common Stock vest in equal annual installments pro
rata over a five-year period, subject to certain acceleration provisions.
Mr. Moran is entitled to receive distributions in respect of such
restricted stock.
(3) Options to purchase an aggregate of 2,344,000 shares of Common Stock have
been granted to directors, executive officers and other employees of the
Company as of the date of this Proxy Statement. Such options vest pro rata
in annual installments over a three-year period. An additional 556,000
shares of Common Stock are reserved for issuance under the Stock Incentive
Plan, as of the date of this Proxy Statement.
(4) The salary, which was paid to the Named Executive Officer during the
fiscal year ended December 31, 1997, commenced on February 1, 1997.
(5) The salary, which was paid to the Named Executive Officer during the
fiscal year ended December 31, 1997, commenced on November 1, 1997.
(6) Mr. Moran was paid a bonus of $200,000 upon consummation of the IPO on
January 31, 1997 which was an obligation of, and was paid by, the
principals of KI.
(7) The aggregate amount of the perquisites and other personal benefits,
securities or property for each Named Executive Officer is less than the
lesser of $50,000 or 10% of the total 1998 salary and bonus for such Named
Executive Officer.
8
<PAGE>
Option Grants in Last Fiscal Year
The following table shows certain information relating to options to
purchase shares of Common Stock granted to the Named Executive Officers during
1998.
<TABLE>
<CAPTION>
Individual Grants(1) Potential Realizable
---------------------------------- Value at Assumed
Percent of Annual Rates of Stock
Number of Shares Total Options Price Appreciation
of Common Stock Granted to Exercise for Option Term(2)
Underlying Employees in Price per Expiration ---------------------
Name Options Granted (#) Fiscal Year Share Date 5% 10%
---- ------------------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John B. Kilroy, Jr. .... 250,000 18.7% $22.13 12/30/08 $3,478,573 $8,815,388
Steven L. Black......... 200,000(3) 14.9% 25.81 11/01/07 3,589,751 8,123,187
150,000 11.2% 22.13 12/30/08 2,087,144 5,289,233
Jeffrey C. Hawken....... 150,000 11.2% 22.13 12/30/08 2,087,144 5,289,233
Richard E. Moran Jr. ... 150,000 11.2% 22.13 12/30/08 2,087,144 5,289,233
</TABLE>
- --------
(1) Except as noted below, all options granted in 1998 become exercisable in
three equal installments beginning on the first anniversary of the date of
grant and have a term of ten years subject to earlier termination in
certain events related to termination of employment. The option exercise
price is equal to the fair market value of the Common Stock on the date of
grant.
(2) Assumed annual rates of stock price appreciation for illustrative purposes
only. Actual stock prices will vary from time to time based upon market
factors and the Company's financial performance. No assurances can be
given that these appreciation rates will be achieved.
(3) The options to purchase 200,000 shares of Common Stock granted to Mr.
Black in 1998 become exercisable in three equal installments beginning on
the anniversary of the date of the commencement of his employment,
November 1, 1997. The options have a term of ten years subject to earlier
termination in certain events related to termination of employment. The
option exercise price is equal to the fair market value of the Common
Stock on the date of grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information concerning exercised and
unexercised options held by the Named Executive Officers at December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
December 31, 1998 December 31, 1998
Shares Acquired Value ------------------------- -----------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable (1)
---- --------------- ------------ ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John B. Kilroy, Jr. .... -- N/A 83,333 416,667 -- $218,750
Steven L. Black......... -- N/A -- 350,000 -- 131,250
Jeffrey C. Hawken....... -- N/A 50,000 250,000 -- 131,250
Richard E. Moran Jr. ... -- N/A 50,000 250,000 -- 131,250
Campbell Hugh Greenup... -- N/A 33,333 66,667 --
</TABLE>
- --------
(1) Based on closing price of $23.00 per share of Common Stock on December 31,
1998, as reported by the New York Stock Exchange.
401(k) Plan
The Company has a Section 401(k) Savings/Retirement Plan (the "401(k) Plan")
to cover eligible employees of the Company and any designated affiliate. The
401(k) Plan permits eligible employees of the Company to defer up to 20% of
their annual compensation, subject to certain limitations imposed by the
Internal Revenue Code (the "Code"). The employees' elective deferrals are
immediately vested and non-forfeitable upon contributions to the 401(k) Plan.
The Company currently makes matching contributions to the 401(k) Plan in an
amount equal to fifty-cents for each one dollar of participant contributions
up to a maximum of five percent of
9
<PAGE>
the participant's annual salary up to certain limits. Participants vest
immediately in the amounts contributed by the Company. Employees of the
Company are eligible to participate in the 401(k) Plan after one year of
credited service with the Company. For the year ended December 31, 1998, the
Company's contribution to the 401(k) Plan was $160,000. The 401(k) Plan
qualifies under Section 401 of the Code so that contributions by employees to
the 401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan.
Employment Agreements
Each of John B. Kilroy, Jr., Steven L. Black, Jeffrey C. Hawken, Richard E.
Moran Jr, and Campbell Hugh Greenup have entered into an employment agreement
with the Company which became effective on January 31, 1997 or, in the case of
Mr. Black, November 1, 1997. The employment agreements have an initial term of
three years and are subject to automatic one-year extensions following the
expiration of the initial term. On March 8, 1998, the Executive Compensation
Committee approved amendments to the employment agreements effective for the
year ended December 31, 1997 to provide for annual base compensation with the
amount of any bonus to be determined at the discretion of the Executive
Compensation Committee. Prior to such amendments, annual bonuses were limited
to 100% of base compensation.
The employment agreements entitle the executives to participate in the
Company's Stock Incentive Plan and to receive certain other insurance
benefits. The employment agreements also provide that in the event of death,
the executive's estate will receive monthly payments of the executive's annual
salary, plus one-twelfth of any bonus to be received, for a period equal to
the lesser of the term remaining under the employment agreement or one year.
In addition, in the event of a termination by the Company without "cause," a
termination of employment resulting from "disability," a termination by the
executive for "good reason," or, in the case of Mr. Kilroy and Mr. Moran, a
termination pursuant to a "change of control" of the Company (as such terms
are defined in the respective employment agreements) the terminated executive
will be entitled to (i) severance (the "Severance Amount") and except in the
event of a termination of employment resulting from the "disability" of Mr.
Black (ii) continued receipt of certain benefits including medical insurance,
life and disability insurance and the receipt of other customary benefits
established by the Company for its executive employees for two years following
the date of termination (collectively, the "Severance Benefits"). The
Severance Amount is equal to the sum of two times the executive's average
annual base compensation and two times the highest annual bonus received
during the preceding 36-month period.
Under the employment agreements, "Disability" means a physical or mental
disability or infirmity which, in the opinion of a physician selected by the
Board, renders the executive unable to perform his duties for six consecutive
months or for shorter periods aggregating 180 business days in any 12-month
period (but only to the extent that such definition does not violate the
Americans with Disabilities Act). "Cause," as defined under the terms of the
respective employment agreements, means (i) the executive's conviction for
commission of a felony or a crime involving moral turpitude, (ii) the
executive's willful commission of any act of theft, embezzlement or
misappropriation against the Company or (iii) the executive's willful and
continued failure to substantially perform the executive's duties (other than
such failure resulting from the executive's incapacity due to physical or
mental illness), which is not remedied within a reasonable time. "Good reason"
means (i) the Company's material breach of any of its obligations under the
employment agreement (subject to certain notice and cure provisions) or (ii)
any removal of the executive from one or more of the appointed offices or any
material alteration or diminution in the executive's authority, duties or
responsibilities, without "cause" and without the executive's prior written
consent. "Change of Control" means (i) the event by which the individuals
constituting the Board as of the date of the IPO cease for any reason to
constitute at least a majority of the Company's Board; provided, however, that
if the election, or nomination for election by the Company's stockholders of
any new director was approved by a vote of at least a majority of the members
of the original Board of Directors, such new director shall be considered a
member of the original Board of Directors; (ii) an acquisition of any voting
securities of the Company by any "person" (as the term "person" is used for
purposes of Section 13(d) or Section 14(d) of the Exchange Act, immediately
after which such person has "beneficial ownership" (within the
10
<PAGE>
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%, or in the
case of Mr. Black 40%, or more of the combined voting power of the Company's
then outstanding voting securities unless such acquisition was approved by a
vote of at least one more than a majority of the original Board of Directors;
or (iii) approval by the stockholders of the Company of (a) a merger,
consolidation, share exchange or reorganization involving the Company, unless
the stockholders of the Company, immediately before such merger,
consolidation, share exchange or reorganization, own, directly or indirectly
immediately following such merger, consolidation, share exchange or
reorganization, at least 80% of the combined voting power of the outstanding
voting securities of the corporation that is the successor in such merger,
consolidation, share exchange or reorganization in substantially the same
proportion as their ownership of the voting securities immediately before such
merger, consolidation, share exchange or reorganization; (b) a complete
liquidation or dissolution of the Company; or (c) an agreement for the sale or
other disposition of all or substantially all of the assets of the Company.
Executive Compensation Interlocks and Insider Participation
There are no Executive Compensation Committee interlocks and no employees of
the Company participate on the Executive Compensation Committee.
Executive Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
developing, administering and monitoring the executive compensation plans and
programs of the Company. The names of the Compensation Committee members are
set forth below this report.
General Policies Regarding Compensation of Executive Officers
In establishing compensation for executive officers, the Committee seeks to:
(1) attract and retain individuals of superior ability and managerial talent,
(2) motivate--individual contributions to the achievement of the Company's
business objectives. To these ends, the Company's executive compensation
package consists of salary, variable annual cash compensation (bonus) and
stock-based long-term incentive awards.
Base Salary. Salary levels of executive officers are established after a
subjective review of REIT issuers and other real estate companies deemed
comparable to the Company. Individual performance was rewarded with incentives
and bonuses. The Committee, with the assistance of an independent compensation
consultant, generally compares the Company's performance with that of other
REITs and real estate companies engaged in activities similar to those engaged
in by the Company.
Annual Bonus. The Committee's practice with regard to awarding annual
bonuses to executive officers is to take into account whatever measures of
performance the Committee determines in its sole discretion to be appropriate
under the circumstances, and assigning such weight to any such factors as it
determines to be appropriate. In addition, the Committee may from time to time
pay bonuses to selected individuals on an ad hoc basis in connection with
special events or projects.
Long-Term Incentive Compensation. Stock-based incentives constitute the
long-term portion of the Company's executive compensation package. Stock
options granted at 100% of the stock's fair market value on the grant date
provide an incentive for executives to increase the Company's stock price and,
therefore, the return to the Company's shareholders. Stock options were
granted in 1997 and 1998 to the Company's executive officers. In granting
stock-based awards, the Committee took into account such factors as it
determined to be appropriate under the circumstances, including without
limitation the extent of an executive's equity ownership in the Company and
the amounts and value of long-term compensation and stock-based compensation
received by similarly situated executives at competitor firms.
Chief Executive Officer Compensation. The compensation of John B. Kilroy,
Jr. for the year ended December 31, 1998 was determined on the same general
basis as discussed above. In 1997, Mr. Kilroy received
11
<PAGE>
a base salary of $200,000 which was 37% lower than the average base
compensation paid to chief executive officers of other REITs and real estate
companies engaged in activities similar to those engaged in by the Company. In
order to bring Mr. Kilroy's salary in line with the market, the Committee
increased his base compensation during 1998 to $350,000. In determining the
amount of cash bonus paid and the options issued to Mr. Kilroy, the Committee
considered the performance of the Company for 1998 as compared to other REITs
and real estate companies engaged in activities similar to those engaged in by
the Company. Specifically, the Committee considered the achievement of the
Company's goals for growth in FFO, improved performance of its operating
portfolio and the execution of its development plans.
Limitation on Deductibility of Executive Compensation. Section 162(m) of the
Internal Revenue Code limits the deductibility of compensation paid to certain
executive officers of the Company. To qualify for deductibility under Section
162(m), compensation in excess of $1,000,000 per year paid to the Chief
Executive Officer and the four other most highly compensated executive officers
at the end of such fiscal year generally must be "performance-based"
compensation as determined under Section 162(m).
The Committee generally intends to comply with the requirements for full
deductibility of executive compensation under Section 162(m). However, the
Committee will balance the costs and burdens involved in such compliance
against the value to the Company and its shareholders of the tax benefits to be
obtained by the Company thereby, and may in certain instances pay compensation
that is not fully deductible if in its determination such costs and burdens
outweigh such benefits. The Committee believes that the nondeductible amounts
of compensation paid to its executives will not be material to the Company.
March 30, 1999 Executive Compensation Committee
William P. Dickey
Dale F. Kinsella
12
<PAGE>
PERFORMANCE GRAPH
As a part of the rules concerning executive compensation disclosure, the
Company is obligated to provide a chart comparing the yearly percentage change
in the cumulative total stockholder return on the Company's Common Stock over
a five-year period. However, since the Company's Common Stock has been
publicly traded only since January 28, 1997, such information is provided from
that date through December 31, 1998.
The following line graph compares the change in the Company's cumulative
total stockholder return on its shares of Common Stock to the cumulative total
return of the NAREIT Equity REIT Total Return Index ("NAREIT Equity Index")
and the Standard & Poor's 500 Stock Index ("S&P 500 Index") from January 31,
1997, the closing date of the Company's initial public offering, to December
31, 1998. The line graph starts at January 28, 1997, the date that the
Company's shares of Common Stock commenced trading on the New York Stock
Exchange; however, the beginning value of each of the NAREIT Equity Index and
the S&P 500 Index is as of January 31, 1998, as each index is calculated only
on a monthly basis. The graph assumes the investment of $100 in the Company
and each of the indices on January 28, 1997 and as required by the Commission,
the reinvestment of all distributions. The return shown on the graph is not
necessarily indicative of future performance.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement
Period
(Fiscal
Year
Covered) Kilroy Realty Corp. NAREIT Equity Index(1) S&P 500 Index(1)
----------- ------------------- ---------------------- ----------------
<S> <C> <C> <C>
1/28/97 100 100 100
12/31/97 132 120 133
12/31/98 113 99 171
</TABLE>
- --------
(1) Beginning value of each of the NAREIT Equity Index and the S&P 500 Index
is as of January 31, 1997, as each index is calculated only on a monthly
basis.
13
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of December 31, 1998,
regarding the beneficial ownership of Common Stock (or Common Stock for which
limited partnership interests in the Operating Partnership (the "Units") are
exchangeable beginning on January 31, 1999) for (i) each person known by the
Company to be the beneficial owner of five percent or more of the Company's
outstanding Common Stock (or Common Stock for which the Units are
exchangeable), (ii) each director and each Named Executive Officer and (iii)
the directors and such Named Executive Officers of the Company as a group.
Except as indicated below, all of such Common Stock is owned directly, and the
indicated person has sole voting and investment power with respect to all of
the shares of Common Stock beneficially owned by such person. The Company has
relied upon information supplied by its officers, directors and certain
stockholders and upon information contained in filings with the Commission.
<TABLE>
<CAPTION>
Number of Shares Percentage of
of Common Stock Outstanding Shares
Name of Beneficial Owner(1) Beneficially Owned of Common Stock(2)
--------------------------- ------------------ ------------------
<S> <C> <C>
John B. Kilroy, Sr. ................. 1,303,016(3) 4.1%
John B. Kilroy, Jr. ................. 1,472,890(4) 4.6%
Steven L. Black...................... 488,704(5) 1.5%
Jeffrey C. Hawken.................... 100,000(6) *
Richard E. Moran Jr. ................ 190,000(7) *
Campbell Hugh Greenup................ 66,667(8) *
John R. D'Eathe...................... 3,333(9) *
William P. Dickey.................... 8,667(10) *
Matthew J. Hart...................... 11,667(11) *
Dale F. Kinsella..................... 6,667(12) *
European Investors Incorporated...... 2,239,043(13) 7.0%
Nike Securities L.P. ................ 1,825,247(14) 5.7%
All directors and executive officers
as a group (10 persons)............. 3,651,609 11.3%
</TABLE>
- --------
*Represents less than 1.0% of outstanding shares of Common Stock.
(1) Unless otherwise indicated, the address for each of the persons listed is
c/o Kilroy Realty Corporation, 2250 East Imperial Highway, Suite 1200, El
Segundo, CA 90245.
(2) Assumes the exchange of 4,200,868 common limited partnership Units
outstanding as of December 31, 1998 into shares of Common Stock on a one-
for-one basis and includes shares of Common Stock subject to options held
by such beneficial owner that are exercisable within 60 days of December
31, 1998, the date as of which information in the table is presented.
(3) Includes (i) 10,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998 and (ii)
1,293,016 shares of Common Stock issuable on or after January 31, 1999
upon the exchange of common limited partnership Units of the Operating
Partnership (including Units beneficially owned by KI and Kilroy
Technologies Company, LLC, a California limited liability company
("Kilroy Technologies"), and allocated to Mr. Kilroy as one of its two
shareholders).
(4) Includes (i) 166,667 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998, (ii) 1,305,623
shares of Common Stock issuable on or after January 31, 1999 upon the
exchange of common limited partnership Units of the Operating Partnership
(including Units beneficially owned by KI and Kilroy Technologies, and
allocated to Mr. Kilroy as one of its two shareholders) and (iii) 600
shares of Common Stock beneficially owned by Mr. Kilroy.
(5) Includes (i) 422,037 shares of Common Stock that may be issued upon the
exchange, on or after October 31, 2000, of all of Mr. Black's partnership
units in Kilroy Realty, L.P. and (ii) 66,667 shares of Common Stock
issuable upon the exercise of options exercisable within 60 days of
December 31, 1998.
14
<PAGE>
(6) Includes 100,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998.
(7) Includes (i) 100,000 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998, (ii) 10,000
shares of Common Stock held directly and (ii) 80,000 restricted shares of
Common Stock held directly.
(8) Includes 66,667 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998.
(9) Includes 3,333 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998.
(10) Includes (i) 6,667 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days as of December 31, 1998 and (ii) 2,000
shares of Common Stock beneficially owned by Mr. Dickey.
(11) Includes (i) 6,667 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days as of December 31, 1998 and (ii) 5,000
shares of Common Stock beneficially owned by Mr. Hart.
(12) Includes 6,667 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days as of December 31, 1998.
(13) Based on information provided in a Schedule 13G filed on February 12,
1999 by European Investors Incorporated ("EII") and EII Realty Securities
Incorporated ("ERS"), a wholly-owned subsidiary of EII. As of December
31, 1998 (i) EII had sole voting power with respect to 262,443 shares of
Common Stock, shared voting power with respect to 310,500 shares of
Common Stock, sole dispositive power with respect to 344,043 shares of
Common Stock and shared dispositive power with respect to 228,900 shares
of Common Stock; and (ii) ERS had sole voting power with respect to
1,400,300 shares of Common Stock and sole dispositive power with respect
to 1,666,100 shares of Common Stock. The address for EII is 667 Madison
Avenue, 16th Floor, New York, New York 10021-8041.
(14) Based on information provided in a Schedule 13G filed on February 12,
1999 by Nike Securities L.P ("NSLP"), First Trust Advisors L.P ("FTALP")
and Nike Securities Corporation ("NSC"), as of December 31, 1998, NSLP,
FTALP and NSC all had shared voting power and shared dispository power
with respect to 1,825,247 shares of Common Stock. The address for all
three companies is 1001 Warrenville Road, Lisle, Illinois 60532.
Certain Relationships and Related Transactions
Certain directors and executive officers of the Company, including John B.
Kilroy, Sr. and John B. Kilroy, Jr., the Chairman of the Board and the
President and Chief Executive Officer, respectively, (or members of their
immediate families) and persons who will hold more than 5% of the outstanding
shares of Common Stock (or interests exchangeable therefor) have direct or
indirect interests in transactions with the Company, the Operating Partnership
or Kilroy Services, Inc. (the "Services Company"). The transactions include
the exercise of an option to purchase and the subsequent purchase by the
Company of a property (an "Option Property", together with the North Sepulveda
Boulevard Office Complex, the "Option Properties") from a partnership
controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr., and the performance
of management and leasing activities by the Operating Partnership and certain
development and other activities by the Services Company at the Option
Properties.
Various Services Provided by the Services Company to the Kilroy Group
Pursuant to management agreements, the Operating Partnership provided
management and leasing services, and the Services Company provided development
services, with respect to the Option Properties, each of which was
beneficially owned and controlled by John B. Kilroy, Sr. and John B. Kilroy,
Jr. During 1998, in connection with the management and leasing services
provided by the Operating Partnership for the Kilroy Airport Imperial Co.
properties, Messrs. Kilroy, Sr. and Kilroy, Jr. paid to the Operating
Partnership fees in the aggregate amount of $180,000, which the Company
believes are equivalent to the fair market value for such services provided.
In
15
<PAGE>
addition, during 1998, in connection with the development services provided by
the Services Company from January 1, 1998 to April 16, 1998 with respect to
the property located at Calabasas Park Centre, in Calabasas, California,
Messrs. Kilroy, Sr. and Kilroy, Jr. paid to the Services Company fees in the
aggregate amount of $45,907, which the Company believes are equivalent to the
fair market value for such services provided. This property was purchased by
the Company on April 16, 1998 (see discussion below under the caption Option
Properties).
Option Properties
In connection with the Formation Transactions, the Company entered into
certain option agreements with partnerships controlled by John B. Kilroy, Sr.
and John B. Kilroy, Jr., the Chairman of the Board, and President, Chief
Executive Officer and Director, respectively, granting to the Operating
Partnership options to acquire (i) parcels comprising an aggregate of
approximately 18 acres located at Calabasas Park Centre, in Calabasas,
California and (ii) the three-building office complex located on North
Sepulveda Boulevard in El Segundo, California (the "Sepulveda Boulevard Office
Complex") at the respective purchase price for each of the properties as
discussed below.
In January 1998, the Company exercised its option to acquire Calabasas Park
Centre, an 18-acre site located in Calabasas, California which was entitled
for over 312,000 rentable square feet of office space, from a partnership
owned and controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr., for a
purchase price of $2.9 million (representing the accumulated costs of the
sellers incurred to date), plus the assumption of annual assessments in
connection with approximately $6.8 million of Mello-Roos financing obligations
allocable to the Property maturing in 2017, and cross-indemnity arrangements
with developers of other property within the applicable Mello-Roos district.
The acquisition was consummated on April 16, 1998 and was financed with
$0.4 million of borrowings under the Company's credit facility and the
issuance of 90,787 Units to Messrs. Kilroy, Sr. and Kilroy, Jr. The 90,787
Units issued to Messrs. Kilroy, Sr. and Kilroy, Jr. were valued at
approximately $2.5 million based on the closing share price of the Company's
common stock as reported on the NYSE. The Independent Committee of the Board
of Directors unanimously approved the acquisition.
The option for the Sepulveda Boulevard Office Complex is exercisable on or
before January 31, 2004. The Company has not exercised its option to purchase
the Sepulveda Boulevard Office Complex as of the date of this Proxy Statement.
Pursuant to the terms of the applicable Option Agreement, the purchase price
for the Sepulveda Boulevard Office Complex must be equal to the sum of (i) the
then outstanding mortgage indebtedness secured by the respective properties,
plus (ii) $1, plus (iii) the aggregate amount of capital contributed by the
beneficial owners of the property, net of actual cash distributions
distributed in respect of such beneficial owners, during the period beginning
on January 31, 1997 and ending on the date of exercise of the option, plus
(iv) an annualized return of 8.0% on the amount in excess of $5.0 million, if
any, as determined pursuant to clause (iii) preceding. The purchase price is
payable in cash or Units at the election of the seller. The Company's option
to purchase the Sepulveda Boulevard Office Complex is subject to a right of
first offer held by Hughes Space & Communications.
Agreements to Purchase Certain Properties
On October 31, 1997, the Company entered into an agreement with TAG to
purchase through a series of transactions office and industrial buildings with
approximately 1,730,000 aggregate rentable square feet and to develop a
minimum of approximately 750,000 square feet of office space for an aggregate
purchase price of approximately $300.0 million. The acquisitions were based on
what the Company believes to be terms similar to arm's-length negotiations.
Subsequent to the execution of the related agreements, Richard S. Allen, the
majority equity owner and Chief Executive Officer of TAG, was elected to serve
as a director of the Company, and Steven Black and Patrick Smith, equity
holders of TAG, were appointed officers of the Company. On July 1, 1998,
Mr. Smith resigned as an officer and on February 18, 1999, Mr. Allen resigned
as a director.
During 1997, the Company completed the first phase of the acquisitions from
TAG by acquiring four office and four industrial buildings encompassing
907,000 aggregate rentable square feet for an aggregate purchase price of
approximately $80.0 million.
16
<PAGE>
During 1998, the Company acquired four office properties located in San
Diego, California and one industrial property located in Reno, Nevada
encompassing an aggregate 390,000 rentable square feet as part of the second
phase of the acquisitions from TAG. The acquisitions were financed with $39.5
million of borrowings under the Company's credit facility and the issuance of
703,869 Units valued at $18.1 million based on the closing share price of the
Company's common stock as reported on the NYSE. Of the total 703,869 Units,
400,553 were issued to Mr. Allen and other entities under his common control
and 303,316 were issued to Mr. Black. The acquisitions were based on what the
Company believes were terms similar to arm's-length negotiations. The original
agreement contemplated the acquisition by the Company of two industrial
buildings in San Rafael, California and Las Vegas, Nevada, respectively, and
one office building in Redwood City, California for an aggregate purchase
price of $22.8 million. Based on the current amended agreement, the Company is
no longer obligated to purchase these three non-strategic properties.
Under the terms of the current agreement, the Company was committed to
purchase two additional office properties totaling 254,000 rentable square
feet for an aggregate purchase price of $40.1 million. In connection with the
contemplated acquisition of one of the two aformentioned properties, in May
1998, the Company entered into an agreement to loan up to $2.3 million to a
limited liability company controlled by Richard S. Allen. Advances on the $2.3
million loan were used for tenant improvements in the subject property. The
note was secured by the pledge of membership interests in the limited
liability company. Interest accrued on the outstanding borrowings at a rate of
Prime plus 1.00% and $2.3 million was outstanding at December 31, 1998. On
March 19, 1999, the Company acquired the property encompassing 126,000
rentable square feet for $17.4 million and 168,402 units valued at $3.6
million based upon the closing share price of the Company's common stock as
reported on the NYSE. Of the total 168,402 Units, 20,762 were issued to
Mr. Allen and other entities under his common control, 49,164 were issued to
Mr. Smith and 98,476 were issued to Mr. Black. In connection with the
acquisition, the outstanding balance of the note and accrued interest were
repaid to the Company.
The last phase of the TAG transaction consists of the development of the two
office projects which the Company currently estimates will encompass
approximately 1,000,000 aggregate rentable square feet at an estimated
aggregate development cost of approximately $150 million. The Company has
agreed to purchase a 50% managing interest in the two projects upon completion
of all necessary entitlements and infrastructure and is expected to manage the
development of both projects. As of December 31, 1998, construction had
commenced on the first phase of both construction projects. In connection with
the commencement of construction, as of December 31, 1998, the Company had
provided financing of $2.9 million including accrued interest to the two
limited liability companies, established to develop the two construction
projects, of which the Company and TAG will each own a 50% interest. In
addition, the Services Company had $146,404 in development fees due from the
two limited liability companies at December 31, 1998 which were paid in March
1999.
In connection with the last phase of the TAG transaction, in May 1998, the
Company entered into an agreement to loan up to $8.5 million to a limited
partnership controlled by Richard S. Allen, a member of the Company's Board at
December 31, 1998. Advances on the loan were used for infrastructure
improvements on undeveloped land in San Diego that secured the note. Interest
accrues on the outstanding borrowings at a rate of LIBOR plus 1.85% and the
note and accrued interest are due upon the acquisition of a 50% interest in
the land by the Company.
In January 1999, the Company purchased a managing interest in phase 1 of the
first office development project which was financed with $1.9 million of
borrowings under the Company's credit facility, and the issuance of 7,771
Units to Richard S. Allen and an Executive Vice President of the Company, who
was previously an executive officer of TAG. The 7,771 Units were valued at
$177,015 million based upon the closing share price of the Company's common
stock as reported on the NYSE. The acquisitions were based on what the Company
believes were terms similar to arm's-length negotiations. The Company has an
option to purchase TAG's remaining interest in both projects for a purchase
price to be determined upon completion of the projects.
17
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Other Transactions
In October 1997, the Services Company entered into a management agreement to
manage the development of certain properties owned by entities under common
control of Richard S. Allen, a director of the Company at December 31, 1998
and a limited partner of the Operating Partnership. At December 31, 1998, the
Services Company had a receivable balance of $230,000 for management fees
earned during 1998. The fees were paid in March 1999. The Company believes
that the fees earned under the management agreement were equivalent to market
rates.
COMPLIANCE WITH FEDERAL SECURITIES LAWS
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities (collectively, "Insiders"), to file with the
Commission initial reports of ownership and reports of changes in ownership of
the Company's Common Stock and other equity securities of the Company.
Insiders are required by regulation of the Commission to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company or written representations that no other
reports were required, during the year ended December 31, 1998, all Insiders
complied with all Section 16(a) filing requirements applicable to them; except
that Richard E. Moran Jr. was late with respect to the filing of his Statement
of Changes in Beneficial Ownership on Form 4 for the month of January. The
Form 4 for Mr. Moran related to one transaction.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 annual meeting of
stockholders must be received by the Secretary of the Company at its principal
executive offices by December 31, 1998 to be considered for possible inclusion
in the Company's proxy statement and form of proxy used in connection with
such annual meeting.
AUDITORS
Subject to its discretion to appoint alternative auditors if it deems such
action appropriate, the Board has retained Deloitte & Touche LLP as the
Company's auditors for the current fiscal year. The Board has been advised
that Deloitte & Touche LLP is independent with regard to the Company within
the meaning of the Securities Act and the applicable published rules and
regulations thereunder. Representatives of Deloitte & Touche LLP are expected
to be present at the Annual Meeting and will have the opportunity to make
statements if they desire and to respond to appropriate questions from
stockholders.
PROXY SOLICITATION EXPENSE
The cost of soliciting proxies will be borne by the Company. The Company
will also request persons, firms and corporations holding shares beneficially
owned by others to send proxy material to, and obtain proxies from, the
beneficial owners of such shares and will, upon request, pay the holders'
reasonable expenses for doing so.
18
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by the Company may be inspected without charge and copies
obtained upon payment of prescribed fees from the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, or by way
of the Commission's Internet address, http://www.sec.gov.
The Company will provide without charge to each person to whom a copy of the
Proxy Statement is delivered, upon the written or oral request of any such
persons, additional copies of the Company's Form 10-K for the period ended
December 31, 1998. Requests for such copies should be addressed to: Kilroy
Realty Corporation, 2250 East Imperial Highway, Suite 1200, El Segundo,
California 90245, Attn: Secretary, telephone (310) 563-5500.
OTHER MATTERS
The Board of Directors does not know of any other matter which will be
brought before the Annual Meeting. However, if any other matter properly comes
before the Annual Meeting, or any adjournment or postponement thereof, which
may properly be acted upon, the proxies solicited hereby will be voted on such
matter in accordance with the discretion of the proxy holders named therein.
You are urged to sign, date and return the enclosed proxy in the envelope
provided. No further postage is required if the envelope is mailed within the
United States. If you subsequently decide to attend the Annual Meeting and
wish to vote your shares, you may do so. Your cooperation in giving this
matter your prompt attention will be appreciated.
March 30, 1999
By Order of the Board of Directors,
Richard E. Moran Jr.
Executive Vice President,
Chief Financial Officer and
Secretary
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PROXY
KILROY REALTY CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Kilroy Realty Corporation (the "Company") ac-
knowledges receipt of a copy of the Annual Report and the proxy statement
dated March 30, 1999 and, revoking any proxy heretofore given, hereby appoints
John B. Kilroy, Sr., John B. Kilroy, Jr., Richard E. Moran Jr. and each of
them, as proxies for the undersigned, and hereby authorizes each of them to
vote all the shares of Common Stock of the Company held of record by the un-
dersigned of March 29, 1999, at the Annual Meeting of Stockholders to be held
on May 17, 1999, or any adjournment of postponement thereof, and otherwise to
represent the undersigned at the meeting with all powers possessed by the un-
dersigned if personally present at the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
INDICATED, IT WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR LISTED IN THE PROXY
STATEMENT.
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FOLD AND DETACH HERE
<PAGE>
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Please mark [X]
your votes
like this
FOR
(excepted as
indicated to
the contrary) WITHHOLD
1. PROPOSAL 1: ELECTION OF DIRECTORS [_] [_]
Nominees: John B. Kilroy,
Sr. Mathew J. Hart
INSTRUCTION: To withhold authority to vote for any nominee's name on the space
provided below:
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This proxy will be voted as directed or, if no contrary direction is indicated,
will be voted FOR approval of Proposal 1.
[_] Please check if you have had a change of address and print your new
address and phone number below
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
Date: _________________, 1999 __________________________________________________
(Signature)
NOTE: Please sign exactly as shown at left. If stock is jointly held, each
owner should sign. Executors, administrators, trustees, guardians, attorneys
and corporate officers should indicate their fiduciary capacity or full title
when signing.
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FOLD AND DETACH HERE
