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As filed with the Securities and Exchange Commission on September 30, 1999
Registration No. 333-74155
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
To
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KILROY REALTY CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
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MARYLAND 95-4598246
(State Or Other Jurisdiction (I.R.S. Employer
Of Incorporation Or Organization) Identification No.)
2250 East Imperial Highway, Suite 1200
El Segundo, California 90245
(Address, Including zip code, and telephone number, including area code of
registrant's principal executive offices)
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Richard E. Moran Jr.
Executive Vice President, Chief Financial Officer and Secretary
Kilroy Realty Corporation
2250 East Imperial Highway
El Segundo, California 90245
(310) 563-5500
(Name, address, including zip code, and telephone number, including area code
of agent for service)
Copies to:
Edward Sonnenschein, Jr., Esq.
J. Scott Hodgkins, Esq.
Latham & Watkins
633 West Fifth Street
Los Angeles, California 90071
(213) 485-1234
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Approximate date of commencement of proposed sale to the public: From time-
to-time after the effective date of this registration statement as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [_] .....................
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] .....................................................
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED September 30, 1999
PROSPECTUS
KILROY REALTY CORPORATION
DIVIDEND REINVESTMENT AND DIRECT PURCHASE PLAN
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COMMON STOCK
Par Value $.01 Per Share
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We are offering the opportunity to participate in our Dividend Reinvestment
and Direct Purchase Plan. The plan is designed to provide our stockholders and
other investors with a convenient and economical method to purchase shares of
our common stock, par value $.01 per share, and to reinvest all or a portion of
their cash dividends in additional shares of common stock. You may begin
participating in the plan by completing a plan Enrollment Form and returning it
to MellonBank, N.A., as agent, who will administer the plan. ChaseMellon
Shareholders Services, L.L.C., a registered transfer agent, will provide
certain administrative support to the agent.
The prospectus relates to the offer and sale of up to 1,000,000 shares of our
common stock under the plan. You should retain this prospectus for future
reference. Our common stock is listed on the New York Stock Exchange under the
symbol "KRC."
Some of the significant features of the plan are as follows:
. You may purchase additional shares of common stock by automatically
reinvesting all or a portion of your cash dividends.
. If you are already one of our stockholders, you may purchase additional
common stock by making optional cash purchases of between $100 to $5,000
in any calendar month. If you are not already one of our stockholders, you
can make an optional cash purchase of between $750 and $5,000. Optional
cash purchases in excess of $5,000 in any calendar month may be made only
with our prior written consent.
. The plan will acquire shares of common stock purchased with reinvested
dividends and optional cash purchases of up to and including $5,000 in any
calendar month either:
. directly from us in the form of newly issued shares of common stock, or
. in the open market; or
. in privately negotiated transactions from third parties; or
. in some combination of the three previous options.
. The plan will acquire the shares of common stock purchased by optional
cash purchases in excess of $5,000 in any calendar month only from
previously unissued shares of common stock, with our prior written
consent.
. We may offer a discount of up to 2% (determined by us from time to time in
accordance with the plan) on newly issued shares of common stock that you
purchase pursuant to an optional cash purchase of more than $5,000 in any
calendar month.
Your participation in the plan is entirely voluntary, and you may terminate
your participation at any time. If you are already a stockholder and do not
choose to participate in the plan, you will continue to receive cash dividends,
as declared, in the usual manner.
Before you participate in our plan you should consider the risks discussed in
"Risk Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is September , 1999.
<PAGE>
We have not authorized any person to give any information or to make any
representation not contained or incorporated by reference in this prospectus.
You must not rely upon any information or representation not contained or
incorporated by reference in this prospectus as if we had authorized it. This
prospectus is not an offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which it relates and this
prospectus is not an offer to sell or the solicitation of an offer to buy
securities in any jurisdiction where, or to any person to whom, it is unlawful
to make such offer or solicitation. You should not assume that the information
contained in this prospectus is correct on any date after the date of this
prospectus, even though this prospectus is delivered or shares are sold
pursuant to this prospectus on a later date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUMMARY....................................................... 1
RISK FACTORS............................................................. 4
THE PLAN................................................................. 17
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES......................... 31
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT
IN COMMON STOCK......................................................... 31
PLAN OF DISTRIBUTION AND UNDERWRITERS.................................... 44
EXPERTS.................................................................. 44
LEGAL MATTERS............................................................ 44
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 44
WHERE YOU CAN FIND MORE INFORMATION...................................... 45
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE.......................... 46
</TABLE>
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PROSPECTUS SUMMARY
The Company
We develop, acquire, own, operate and manage principally Class A office and
industrial buildings in select locations in key suburban submarkets, primarily
in Southern California. For federal income tax purposes, we believe we have
qualified, and we intend to continue to qualify, as a real estate investment
trust, or "REIT." Our executive offices are located at 2250 E. Imperial
Highway, Suite 1200, El Segundo, California, 90245, and our telephone number is
(310) 563-5500.
Dividend and Distribution Policy
We intend to make distributions to our stockholders in amounts such that all
or substantially all of our taxable income in each year, subject to certain
adjustments, is distributed in order to maintain our qualification as a REIT
under the Internal Revenue Code. Taxable income, if any, not distributed
through regular dividends will be distributed annually in a special dividend.
All distributions will be made at the discretion of our board of directors and
will depend on our earnings and financial condition, the amount of
distributions necessary to maintain our status as a REIT and other factors the
board of directors deems relevant.
Use of Proceeds
We do not know the number of stockholders and other investors that may
participate in the plan and therefore we cannot estimate the number of shares
of common stock that we may ultimately sell pursuant to the plan, or the prices
at which we will sell such shares. In addition, our decision whether to sell
newly issued shares of common stock to fulfill the requirements of the plan
will affect the amount of proceeds that we receive. We plan to use the proceeds
from shares of common stock purchased under the plan to continue our real
estate acquisition, development and investment activities and for general
corporate purposes. Pending these uses, we may temporarily invest the net
proceeds in short-term investments consistent with our investment policies and
qualification as a REIT.
Summary of the Plan
The following summary contains basic information about the plan set forth in
a question and answer format and is qualified by reference to the full text of
the plan which is filed as an exhibit to the registration statement which
contains this prospectus and which was filed with the Securities and Exchange
Commission with respect to the shares of common stock to be sold under the
plan. We encourage you to read and consider the information contained in the
plan and in documents identified in the sections entitled "Incorporation of
Certain Documents by Reference" and "Where You Can Find More Information."
. What is the purpose of the plan?
The purpose of the plan is to provide our stockholders and other investors
with a convenient and economical method of purchasing shares of common stock
and investing all or a portion of their cash dividends in additional shares of
common stock. The plan also provides us with a means of raising additional
capital through the direct sale of common stock.
. How is the purchase price per share determined?
The purchase price per share of common stock acquired through the plan as a
result of the reinvestment of dividends will equal:
. in the case of newly issued shares of common stock, the average of the
high and low prices as reported by the New York Stock Exchange on the
applicable dividend payment date, or
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. in the case of shares purchased in the open market or in privately
negotiated transactions, the average of the purchase price of all shares
purchased by the agent for the plan with reinvested dividends for the
applicable dividend payment date.
The purchase price of shares acquired through optional cash purchases of
$5,000 or less during any calendar month under the Cash Option Purchase Plan,
which are also referred to in this prospectus as purchases under the "COPP,"
will be equal to:
. in the case of newly issued shares of common stock, the average of the
high and low prices as reported by the New York Stock Exchange on the
applicable COPP investment date, or
. in the case of shares purchased in the open market or in privately
negotiated transactions, the average of the purchase price of all shares
purchased by the agent for the applicable COPP investment date.
We may also advise the agent that it may purchase shares from time to time
in its discretion over a 15-day period following the applicable dividend
payment date or COPP investment date, as the case may be.
During some months we may entertain optional cash purchases in excess of
$5,000 under that portion of the plan referred to as the Waiver Discount Plan
or "WDP." During those months, you may make optional cash purchases of shares
of common stock exceeding $5,000, but only with our prior written consent.
Under the WDP, you will acquire the maximum number of shares of common stock
that may be purchased on each day during the applicable ten trading day
investment period with one-tenth of your WDP payment. Under the Waiver Discount
Plan, we may offer a discount of up to 2% on newly issued shares from the
market price of the common stock based on the average of the high and low sales
price per share as reported by the New York Stock Exchange purchased on each
trading day during the ten trading-day WDP investment period. We may also
establish a threshold price for shares of common stock purchased under the WDP,
as described below. Under the WDP, you may only purchase previously unissued
shares of common stock.
If you desire to make purchases of common stock exceeding $5,000 in any
calendar month, you may telephone us at (310) 563-5500 three business days
prior to the first day of the applicable WDP investment period to determine
whether:
. we are considering offering shares pursuant to the Waiver Discount Plan
for that month; and
. we are employing a threshold price that will exclude from the
determination of the average market price the trading days during the
WDP investment period when the average per share price as reported by
the New York Stock Exchange falls below the threshold price.
Annex I to this prospectus lists significant dates for the remainder of 1999
and 2000 relating to optional cash purchases.
. How many shares may I purchase during any period?
There is no limit to the number of shares of common stock you may purchase
with reinvested dividends on any dividend payment date. However, under the
COPP, if you are already one of our stockholders, you may make an investment in
any calendar month of not less than $100 nor more than $5,000. If you are not
already one of our stockholders, you must make an initial optional cash
purchase of not less than $750 and not more than $5,000.
You may request a waiver of the $5,000 monthly maximum by sending a written
request to us. We will approve requests for waiver on a discretionary basis.
Optional cash purchases that do not exceed $5,000 in any calendar month
initially will not be sold at a discount to current market prices. However, we
reserve the right to grant a discount in the future for such investments.
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We will return to you without interest amounts submitted for optional cash
purchases of less than $100, or if you are not already one of our stockholders,
$750 in the case of an initial optional cash purchase, and any optional cash
purchases that exceed $5,000 in any calendar month, unless a request for waiver
under the WDP for that investment period has been approved by us.
. Can I request a waiver of the purchase limitation?
We have not predetermined a maximum limit on the amount of the investment or
on the number of shares that you may purchase pursuant to a written request for
waiver under the WDP. With respect to optional cash purchases in excess of
$5,000 in any calendar month made pursuant to a request for waiver, we may, in
our sole discretion, establish each month a discount and a threshold price. We
may establish a discount from market prices of up to 2% on newly issued shares,
after a review of current market conditions, the level of participation, and
our current and projected capital needs. The discount may vary from one
investment period to the next. The threshold price will equal the minimum
price, determined without giving effect to the applicable discount, if any,
applicable to purchases of common stock under the WDP in a given investment
period. For each trading day during an investment period on which the threshold
price is not satisfied, we will return one-tenth of your optional cash purchase
for that month under the WDP to you as soon as practicable after the applicable
WDP investment period, without interest.
If you acquire shares of common stock through the plan and resell them
shortly before or after acquiring them, you may be considered to be an
underwriter within the meaning of the Securities Act of 1933, as amended. We
expect that certain persons will acquire shares of common stock pursuant to a
request for waiver and resell such shares in order to realize the financial
benefit of any discount then being offered under the plan. We have no
arrangements or understandings, formal or informal, with any person relating to
a distribution of shares to be received pursuant to the plan by such person.
. How many shares are being sold under the plan?
We are registering 1,000,000 shares of common stock for sale under the plan.
There is no limit on the number of these shares that we may direct the agent to
purchase in the open market or in privately negotiated transactions. The agent
will acquire shares of common stock with reinvested dividends under the plan
and with cash submitted under the COPP by purchasing either newly issued shares
of common stock directly from us or shares in the open market or in privately
negotiated transactions, or a combination of both. The agent will acquire
shares of common stock purchased under the WDP only from previously unissued
shares of common stock.
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RISK FACTORS
Set forth below are the risks that we believe are material to investors who
purchase or own our common stock. In addition to other information contained or
incorporated by reference in this prospectus or in an accompanying prospectus
supplement, you should carefully consider the following factors before
acquiring shares of common stock offered hereby.
Most of our properties depend upon the Southern California economy.
Most of our properties are located in Southern California. As of June 30,
1999, these properties represented:
. approximately 87.5% of the aggregate square footage of our stabilized
portfolio; and
. 87.0% of our annualized base rent.
Our annualized base rent means the monthly contractual rent under existing
leases on June 30, 1999, multiplied by 12. The annualized base rent excludes
expense reimbursements and rental abatements.
Our ability to make expected distributions to our stockholders depends on
our ability to generate funds from operations in excess of scheduled principal
payments on debt, payments on the preferred limited partnership units issued by
Kilroy Realty, L.P. and capital expenditure requirements. Events and conditions
applicable to owners and operators of real property that are beyond our control
may decrease funds available for distribution and the value of our properties.
These events include:
. local oversupply or reduction in demand of office, industrial or other
commercial space;
. our ability to collect rent from tenants;
. vacancies or our inability to rent spaces on favorable terms;
. our ability to finance property development and acquisitions on favorable
terms;
. increased operating costs, including insurance premiums, utilities, and
real estate taxes;
. costs of complying with changes in governmental regulation;
. the relative illiquidity of real estate investments;
. changing submarket demographics; and
. property damage resulting from seismic activity.
Concentrating most of our properties in a single geographic region may
expose us to greater economic risks than if we owned properties in several
geographic regions. Any adverse economic or real estate developments in the
Southern California region could adversely impact our financial condition,
results from operations, cash flow, the quoted per share trading price of our
common stock and our ability to pay distributions to you.
Our significant debt level reduces cash available for distribution and may
expose us to the risk of default under our debt obligations.
Payments of principal and interest on borrowings may leave us with
insufficient cash resources to operate the properties or to pay the
distributions necessary to maintain our REIT qualification. Our level of debt
and the limitations imposed on us by our debt agreements may have important
consequences, including the following:
. our cash flow may be insufficient to meet our required principal and
interest payments;
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. we may be unable to refinance our indebtedness at maturity or the
refinancing terms may be less favorable than the terms of our original
indebtedness;
. we may be forced to dispose of one or more of our properties, possibly
on disadvantageous terms;
. we may default on our obligations and the lenders or mortgagees may
foreclose on our properties that secure their loans and receive an
assignment of rents and leases; and
. our default under one mortgage loan with cross default provisions could
result in a default on other indebtedness.
If any one of these events were to occur, our financial position, results of
operations, cash flow, quoted per share trading price of our common stock and
our ability to pay distributions to you could be adversely affected. In
addition, foreclosures could create taxable income without accompanying cash
proceeds, a circumstance which could hinder our ability to meet the strict REIT
distribution requirements imposed by the Internal Revenue Code of 1986, as
amended. As of June 30, 1999, we had $490 million aggregate principal amount of
indebtedness, $2.2 million of which is due prior to December 31, 1999. Our
total debt represented 35.3% of our total market capitalization at June 30,
1999.
We face significant competition which may decrease the occupancy and rental
rates of our properties.
We compete with several developers, owners and operators of office,
industrial and other commercial real estate. Substantially all of our
properties are located in areas with similar properties as our competitors. For
instance, occupancy rates in our El Segundo and Long Beach office property
portfolios at December 31, 1998 were 99.1% and 96.8%, respectively, in
comparison to 94.8% and 94.8%, respectively, for the El Segundo and Long Beach
office submarkets in total. In addition, the occupancy rate in our Anaheim
Industrial property portfolio at December 31, 1998 was 94.4% in comparison to
93.2% for the Anaheim industrial property submarket in total. We believe that
our lower vacancy rates means that, on average, our competitors have more space
currently available for lease than we do. As a result, our competitors have an
incentive to decrease rental rates until their available space is leased. If
our competitors offer space at rental rates below current market rates, we may
be pressured to reduce our rental rates below those currently charged in order
to retain tenants when our tenant leases expire. As a result, our financial
condition, results of operations and cash flows may be adversely affected.
Potential losses may not be covered by insurance.
We carry comprehensive liability, fire, extended coverage and rental loss
insurance covering all of our properties. We believe the policy specifications
and insured limits are appropriate given the relative risk of loss, the cost of
the coverage and industry practice. We do not carry insurance for generally
uninsured losses such as loss from riots or acts of war. Some of our policies,
like those covering losses due to floods, are insured subject to limitations
involving large deductibles or co-payments and policy limits. In addition, we
carry earthquake insurance on our properties located in areas known to be
subject to earthquakes in an amount and with deductions which we believe are
commercially reasonable. As of June 30, 1999, 80 of our office buildings
aggregating 5.3 million square feet, representing 44.1% of our stabilized
portfolio based on aggregate square footage and 61.3% of our annualized base
rent, were located in areas known to be subject to earthquakes. As of June 30,
1999, 74 of our industrial buildings aggregating 5.0 million square feet,
representing 41.6% of our stabilized portfolio based on aggregate square
footage and 25.8% of our annualized based rent, were located in areas known to
be subject to earthquakes. While we presently carry earthquake insurance on
these properties, the amount of our earthquake insurance coverage may not be
sufficient to cover losses from earthquakes. In addition, we may discontinue
earthquake insurance on some or all of our properties in the future if the cost
of premiums for earthquake insurance exceeds the value of the coverage
discounted for the risk of loss.
If we experience a loss which is uninsured or which exceeds policy limits,
we could lose the capital invested in the damaged properties as well as the
anticipated future revenue from those properties. In addition, if the damaged
properties are subject to recourse indebtedness, we would continue to be liable
for the indebtedness, even if the properties were unrepairable.
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We may be unable to complete acquisitions and successfully operate acquired
properties.
We intend to continue to acquire office and industrial properties when
strategic opportunities exist. Our ability to acquire properties on favorable
terms and successfully operate them is subject to many risks:
. we may be unable to acquire a desired property because of competition
from other real estate investors with significant capital, including
both publicly traded REITs and institutional investment funds;
. even if we enter into agreements for the acquisition of office and
industrial properties, these agreements are subject to customary
conditions to closing, including completion of due diligence
investigations to our satisfaction;
. we may not be able to finance the acquisition on favorable terms;
. we may spend more than budgeted amounts to make necessary improvements
or renovations to acquired properties; and
. we may lease the acquired properties at below expected rates.
If we cannot finance property acquisitions on favorable terms, or operate
acquired properties to meet our financial expectations, our financial position,
results of operations, cash flow, quoted per share trading price of our common
stock and ability to pay distributions to you could be adversely affected.
We may be unable to successfully complete and operate developed properties.
Property development involves significant risks:
. we may be unable to obtain construction financing on favorable terms;
. we may be unable to obtain permanent financing at all or on advantageous
terms if we finance development projects through construction loans;
. we may not complete development projects on schedule or within budgeted
amounts;
. we may encounter delays or refusals in obtaining all necessary zoning,
land use, building, occupancy, and other required governmental permits
and authorizations;
. we will expend funds on and devote management's time to projects which
we may not complete; and
. we may lease the developed properties at below expected rental rates.
For example, one of our development projects was completed three months later
than initially projected, resulting in a corresponding delay in the
commencement of leasing activity at the particular property. The delay was
attributable to bad weather conditions which inhibited construction during the
"El Nino" climate condition which ran from 1997 through 1998. In addition,
during the fourth quarter of 1998, we withdrew our participation from a master
planned commercial development prior to the commencement of construction. If
any one of these events were to occur in connection with our projects currently
under development, our financial position, results of operations, cash flow,
quoted per share trading price of our common stock and ability to pay
distributions to you could be adversely affected.
While we primarily develop office and industrial properties in Southern
California markets, we may in the future develop properties for retail or other
use and expand our business to other geographic regions where we expect the
development of property to result in favorable risk-adjusted returns on our
investment. Presently, we do not possess the same level of familiarity with
development of other property types or outside markets which could adversely
affect our ability to develop properties or to achieve expected performance.
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We could default on leases for land on which some of our properties are
located.
We own ten office buildings located on land which we lease on a long-term
basis. If we default under the terms of a lease, we may lose the property
subject to the lease. We may not be able to renegotiate a new lease on
favorable terms, if at all, upon expiration of the lease and all its options.
The loss of these properties or an increase of our rental expense would have an
adverse effect on our financial position, results of operations, cash flow,
quoted per share trading price of our common stock and our ability to pay
distributions to you. The leases for the land under the Kilroy Airport Center,
Long Beach expire in 2035. The leases for the land under the SeaTac Office
Center, including renewal options, expire in 2062. The lease for the land under
12312 West Olympic Boulevard in Santa Monica expires in January 2065. The lease
for the land under 9455 Towne Center in San Diego expires in October 2043.
We depend on significant tenants.
At June 30, 1999, our ten largest office tenants represented approximately
23.6% of our total annual base rental revenue and our ten largest industrial
tenants represented approximately 9.1% of our total annual base rental revenue.
Of this amount, our largest tenant, Hughes Space & Communications, currently
leases approximately 530,000 rentable square feet of office space, representing
approximately 8.2% of our total annual base rental revenues. Our revenue and
cash available for distribution to stockholders would be disproportionately and
materially adversely affected if any of our significant tenants were to become
bankrupt or insolvent, or suffer a downturn in their business, or fail to renew
their leases at all or on terms less favorable to us than their current terms.
Downturns in our tenants' businesses may reduce our cash flow.
We derived as of June 30, 1999, 87.2% of our revenues from rental income. A
tenant may experience a downturn in its business, which may weaken its
financial condition and result in its failure to make timely rental payments.
In the event of default by a tenant, we may experience delays in enforcing our
rights as landlord and may incur substantial costs in protecting our
investment. The bankruptcy or insolvency of a major tenant also may adversely
affect the income produced by our properties. If any tenant becomes a debtor in
a case under the Bankruptcy Code, we could not evict the tenant solely because
of its bankruptcy. On the other hand, the bankruptcy court might authorize the
tenant to reject and terminate its lease with us. Our claim against the tenant
for unpaid, future rent would be subject to a statutory cap that might be
substantially less than the remaining rent actually owed under the lease. Even
so, our claim for unpaid rent would likely not be paid in full. This shortfall
could adversely affect our cash flow and our ability to make distributions to
you. Although we have not experienced material losses from tenant bankruptcies,
our tenants could file for bankruptcy protection in the future.
We may be unable to renew leases or re-let space as leases expire.
Leases representing 4.4% and 12.0% as of June 30, 1999 of the square footage
of our properties will expire during the remainder of 1999 and in 2000. Above
market rental rates on some of our properties may force us to renew or relet
some expiring leases at lower rates. While we believe that the average rental
rates for most of our properties are below quoted market rates in each of their
submarkets, we cannot assure you that leases will be renewed or our properties
released at rental rates equal to or above the current rental rates. If the
rental rates for our properties decrease, our tenants do not renew their leases
or we do not relet a significant portion of our available space, our financial
position, results of operations, cash flow, quoted per share trading price of
our common stock and our ability to pay distributions to you would be adversely
affected.
Real estate assets are illiquid and we may not be able to sell our properties
when we desire.
Our investments in our properties are relatively illiquid which limits our
ability to sell our properties quickly in response to changes in economic or
other conditions. Limitations in the Internal Revenue Code and
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related Treasury Regulations applicable to REITs may also limit our ability to
sell properties. These restrictions on our ability to sell our properties
could have an adverse effect on our financial position, results of operations,
cash flow, quoted per share trading price of our common stock and our ability
to pay distributions to you.
Kilroy Services, Inc. is subject to tax liabilities on net income which
reduces our cash flow.
Kilroy Services, Inc. is subject to federal and state income tax on its
taxable income at regular corporate rates. Any federal, state or local income
taxes that Kilroy Services, Inc. must pay will reduce the cash available for
distribution to Kilroy Realty, L.P. and, ultimately, to you.
We cannot depend upon distributions from Kilroy Services, Inc. because we do
not control its business.
In order to comply with the REIT asset tests that restrict our ability to
own shares of other corporations:
. Kilroy Realty, L.P. owns 100.0% of the nonvoting preferred stock of
Kilroy Services, Inc., representing approximately 95.0% of its economic
value; and
. John B. Kilroy, Sr. and John B. Kilroy, Jr. own all of the outstanding
voting common stock of Kilroy Services, Inc., representing approximately
5.0% of its economic value.
We receive substantially all of the economic benefit derived from Kilroy
Services, Inc.'s business by virtue of the dividends that we receive on our
investment in its preferred stock. However, we cannot influence Kilroy
Services, Inc.'s operations, elect its directors, appoint its officers or
require its board of directors to declare and pay a cash dividend on the
nonvoting preferred stock owned by Kilroy Realty, L.P. As a result, Kilroy
Services, Inc. may make decisions or pursue business policies which could have
an adverse effect on our financial position, results of operations, cash flow,
quoted per share trading price of our common stock and our ability to pay
distributions to you.
Kilroy Services, Inc. may be adversely affected by our status as a REIT.
Changes in the requirements for REIT qualification may in the future limit
our ability to receive increased distributions from the fee development
operations and related services offered by Kilroy Services, Inc.
We could incur significant costs related to government regulation and private
litigation over environmental matters.
Environmental laws and regulations hold us liable for the costs of removal
or remediation of hazardous or toxic substances released on our properties.
These laws could impose liability without regard to whether we are responsible
for, or even knew of, the presence of the hazardous materials. Government
investigations and remediation actions may have substantial costs and the
presence of hazardous wastes on a property could result in personal injury or
similar claims by private plaintiffs. For instance, third parties may seek
recovery from us for personal injuries associated with asbestos-containing
materials and other hazardous or toxic substances if found on our properties.
As of June 30, 1999, 26 of our properties contained asbestos-containing
materials. Various laws also impose liability on persons who arrange for the
disposal or treatment of hazardous or toxic substances for the cost of removal
or remediation of hazardous substances at the disposal or treatment facility.
These laws often impose liability whether or not the person arranging for the
disposal ever owned or operated the disposal facility. As an owner and
operator of our properties, we may be considered to have arranged for the
disposal or treatment of hazardous or toxic substances.
The use of hazardous materials by some of our tenants may expose us to
liability.
Some of our tenants routinely handle hazardous substances and wastes as
part of their operations on our properties. Environmental laws and regulations
subject our tenants, and potentially us, to liability resulting from these
activities. We require our tenants, in their leases, to comply with these
environmental laws and
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regulations and to indemnify us for any related liabilities. As of June 30,
1999, less than 5% of our tenants routinely handled hazardous substances and/or
wastes on our properties as part of their routine operations. These tenants
were primarily involved in the light industrial and warehouse business and more
specifically the light electronics assembly business. We do not believe that
these activities by our tenants will have any material adverse effect on our
operations. Furthermore, we are unaware of any material noncompliance,
liability or claim relating to hazardous or toxic substances or petroleum
products in connection with any of our properties.
Existing conditions at some of our properties may expose us to liability
related to environmental matters.
Independent environment consultants conducted Phase I or similar
environmental site assessments on all of our properties. Site assessments
generally include a historical review, a public records review, an
investigation of the surveyed site and surrounding properties, and the issuance
of a written report. These assessments do not generally include soil samplings
or subsurface investigations. Our site assessments revealed that:
. some of our properties contain asbestos-containing materials; and
. historical operations at or near some of our properties, including the
operation of underground storage tanks, may have caused soil or
groundwater contamination.
Prior owners of the affected properties conducted clean-up of contamination in
the soils on the properties and we do not believe that further clean-up of the
soils is required. None of our site assessments revealed any other
environmental liability that we believe would have a material adverse effect on
our business, assets or results of operations. We are not aware of any
condition, liability, or concern by any other means that would give rise to
material environmental liability. However:
. the assessments may have failed to reveal all environmental conditions,
liabilities, or compliance concerns;
. there may be material environmental conditions, liabilities, or
compliance concerns that arose at a property after the review was
completed;
. future laws, ordinances or regulations may impose material additional
environmental liability; and
. current environmental conditions at our properties may be affected in
the future by tenants, third parties, or the condition of land or
operations near our properties, including the presence of underground
storage tanks.
If the costs of environmental compliance exceed our budgeted limits, our
ability to make distributions to you would be adversely affected.
Potential environmental liabilities may exceed our environmental insurance
coverage limits.
We carry what we believe to be sufficient environmental insurance to cover
any potential liability for soil and groundwater contamination at the affected
sites identified in our environmental site assessments. However, we cannot
assure you that our insurance coverage will be sufficient or whether our
liability, if any, will have a material adverse effect on our financial
condition, results of operations, cash flow, quoted per share trading price of
our common stock and ability to pay distributions to you.
We may incur significant costs complying with the Americans with Disabilities
act and similar laws.
Under the Americans with Disabilities Act of 1990, all public accommodations
must meet federal requirements related to access and use by disabled persons.
Although we believe that our properties substantially comply with present
requirements of the act, we have not conducted an audit or investigation of all
of our properties to determine our compliance. We may incur additional costs of
complying with the act.
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Additional federal, state and local laws also may require modifications to our
properties, or restrict our ability to renovate our properties. We cannot
predict the ultimate amount of the cost of compliance with the act or other
legislation.
If we incur substantial costs to comply with the act and any other
legislation, our financial condition, results of operations, cash flow, quoted
per share trading price of our common stock and our ability to pay
distributions to you could be adversely affected.
We may incur significant costs complying with other regulations.
Our properties are subject to various federal, state and local regulatory
requirements, such as state and local fire and life safety requirements. If we
fail to comply with these various requirements, we might incur governmental
fines or private damage awards. We believe that our properties are currently in
material compliance with all of these regulatory requirements. However, we do
not know whether existing requirements will change or whether future
requirements will require us to make significant unanticipated expenditures
that will adversely affect our ability to make distributions to you.
The City of Los Angeles adopted regulations relating to the repair of welded
steel movement frames located in areas particularly damaged as a result of the
January 17, 1994 Northridge earthquake in Southern California. Currently, these
regulations apply to only one of our properties representing approximately
78,000 square feet. We believe that this property complies with these
regulations. We do not know, however, whether other regulatory agencies will
adopt similar regulations or whether we will acquire additional properties
which may be subject to these or similar regulations. We believe, based in part
on engineering reports, that our properties are in good condition. However, if
we are required to make significant expenditures under applicable regulations,
our financial condition, results of operations, cash flow, quoted per share
trading price of our common stock and our ability to pay distributions to you
could be adversely affected.
Common limited partners of Kilroy Realty, L.P. have limited approval rights
which may prevent us from completing a change of control transaction which may
be in the best interests of stockholders.
We may not withdraw from Kilroy Realty, L.P. or transfer our general
partnership interest or admit another general partner without the approval of a
majority of the common limited partnership units except in the case of a
"termination transaction" described under in the section entitled "Description
of Material Provisions of the Partnership Agreement of Kilroy Realty, L.P.--
Transferability of partnership interests" which requires the approval of 60% of
the common units, including the common units we hold in our capacity as general
partner. The right of common limited partners to vote on these transactions
could limit our ability to complete a change of control transaction that might
otherwise be in the best interest of our stockholders.
Limited partners of Kilroy Realty, L.P. must approve the dissolution of Kilroy
Realty, L.P. and the disposition of properties they contributed.
For as long as limited partners own at least 5% of all of the common units
of Kilroy Realty, L.P., we must obtain the approval of limited partners holding
a majority of the common units before we may:
. dissolve the partnership, or
. sell the property located at 2260 East Imperial Highway at Kilroy
Airport Center in El Segundo prior to January 31, 2004.
In addition, we may not sell 11 of our properties prior to October 31, 2002
without the consent of the limited partners that contributed the properties to
Kilroy Realty, L.P., except in connection with the sale or transfer of all or
substantially all of our assets or those of Kilroy Realty, L.P. or in
connection with a transaction which does not cause the limited partners that
contributed the property to recognize taxable income. Kilroy Realty, L.P. also
agreed to use commercially reasonable efforts to minimize the tax consequences
to
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common limited partners resulting from the repayment, refinancing, replacement
or restructuring of debt, or any sale, exchange or other disposition of any of
its other assets. The exercise of one or more of these approval rights by the
limited partners could delay or prevent us from completing a transaction which
may be in the best interest of our stockholders.
The chairman of our board of directors and our president and chief executive
officer each have potential conflicts of interest with us.
The chairman of our board of directors and our president and chief executive
officer each are engaged in competitive real estate activities. We own four
office buildings and four industrial buildings in the El Segundo submarket.
John B. Kilroy, Sr., the chairman of our board of directors, and John B.
Kilroy, Jr., our president and chief executive officer, own controlling
interests in partnerships which own a complex of three office buildings in the
same submarket. Kilroy Realty, L.P. manages the complex pursuant to a
management agreement on market terms. The policies adopted by our board of
directors to minimize this conflict, including requiring that Mr. John B.
Kilroy, Sr. and Mr. John B. Kilroy, Jr. enter into non-competition agreements
with us, may not eliminate their influence over transactions involving these
competing properties.
The chairman of our board of directors and our president and chief executive
officer each have substantial influence over our affairs. John B. Kilroy, Sr.
is the Chairman of our board of directors. John B. Kilroy, Jr. is our
President, Chief Executive Officer and one of our directors. Together, Messrs.
Kilroy hold two of the six seats on our board of directors. They also
beneficially own common limited partnership units exchangeable for an aggregate
of 2,598,639 shares of common stock and currently vested options to purchase an
aggregate of 176,666 shares of common stock, representing a total of 10.0% of
the total outstanding shares of common stock as of June 30, 1999. Pursuant to
our charter no other stockholder may own, actually or constructively, more than
7.0% of our common stock. Consequently, Messrs. Kilroy have substantial
influence on us and they could exercise their influence in a manner that is not
in the best interest or our stockholders. Also, they may in the future have a
substantial influence on the outcome of any matters submitted to our
stockholders for approval.
We limit the ownership of our capital stock which limits the opportunities for
a change of control at a premium to existing stockholders.
Provisions of the Maryland General Corporation Law, our charter, our bylaws,
and Kilroy Realty, L.P.'s partnership agreement may delay, defer, or prevent a
change in control over us or the removal of existing management. Any of these
actions might prevent our stockholders from receiving a premium for their
shares of stock over the then prevailing market prices.
The Internal Revenue Code sets forth stringent ownership limits on us as a
result of our decision to be taxed as a REIT, including:
. no more than 50% in value of our capital stock may be owned, actually or
constructively, by five or fewer individuals, including some entities,
during the last half of a taxable year;
. subject to exceptions, our common stock shares must be held by a minimum
of 100 persons for at least 335 days of a 12-month taxable year, or a
proportionate part of a short taxable year; and
. if we, or any entity which owns 10% or more of our capital stock,
actually or constructively owns 10% or more of one of our tenants, or a
tenant of any partnership in which we are a partner, then any rents that
we receive from the tenant in question will not be qualifying income for
purposes of the Internal Revenue Code's REIT gross income tests
regardless of whether we receive the rents directly or through a
partnership.
Our charter establishes clear ownership limits to protect our REIT status.
No single stockholder may own, either actually or constructively, more than
7.0% of our common stock outstanding. Similarly, no single holder of our Series
A Preferred Stock and Series C Preferred Stock may actually or constructively
own any class or series of our preferred stock, so that their total capital
stock ownership would exceed 7.0% by value of our total
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capital stock, and no single holder of Series B Preferred Stock, if issued, may
actually or constructively own more than 7.0% of our Series B Preferred Stock.
The board of directors may waive the ownership limits if it is satisfied
that the excess ownership would not jeopardize our REIT status and if it
believes that the waiver would be in our best interests. The board of directors
has already waived the ownership limits with respect to John B. Kilroy, Sr.,
John B. Kilroy, Jr., members of their families and some affiliated entities.
These named individuals and entities may own either actually or constructively,
in the aggregate, up to 21% of the outstanding common stock.
If anyone acquires shares in excess of any ownership limits:
. the transfer to the transferee will be void with respect to these excess
shares;
. the excess shares will be automatically transferred from the transferee
or owner to a trust for the benefit of a qualified charitable
organization;
. the purported transferee or owner will have no right to vote those excess
shares; and
. the purported transferee or owner will have no right to receive
dividends or other distributions from these excess shares.
Our charter contains provisions that may delay, defer, or prevent a change of
control transaction.
Our board of directors is divided into classes which serve staggered
terms. Our board of directors is divided into three classes with staggered
terms. The staggered terms for directors may reduce the possibility of a tender
offer or an attempt to complete a change of control transaction even if a
tender offer or a change in control were in our stockholders' interest.
We could issue preferred stock without stockholder approval. Our charter
authorizes our board of directors to issue up to 30,000,000 shares of preferred
stock, including convertible preferred stock, without stockholder approval. The
board of directors may establish the preferences, rights and other terms
including the right to vote and the right to convert into common stock of any
shares issued. The issuance of preferred stock could delay or prevent a tender
offer or a change of control even if a tender offer or a change of control were
in our stockholders' interest. Kilroy Realty, L.P. has issued 1,500,000 Series
A Cumulative Redeemable Preferred Units which in the future may be exchanged
one-for-one into shares of 8.075% Series A Cumulative Redeemable Preferred
Stock, and 700,000 Series C Cumulative Redeemable Preferred Units which in the
future may be exchanged one for one into shares of 9.375% Series C Cumulative
Redeemable Preferred Stock. In addition, we have designated and authorized the
issuance of up to 400,000 shares of Series B Junior Participating Preferred
Stock. However, no shares of preferred stock are currently issued or
outstanding.
We have a stockholders' rights plan. On October 2, 1998, our board of
directors adopted a stockholders' rights plan and declared a distribution of
one preferred share purchase right for each outstanding share of common stock.
The rights were issued on October 15, 1998, to each common stockholder of
record on that date. The rights have anti-takeover effects. The rights would
cause substantial dilution to a person or group that attempts to acquire us on
terms that our board of directors does not approve. We may redeem the shares
for $.01 per right, prior to the time that a person or group has acquired
beneficial ownership of 15% or more of our common stock. Therefore, the rights
should not interfere with any merger or business combination our board of
directors approves.
The staggered terms for directors, the future issuance of additional common
or preferred stock and our stockholder rights plan may:
. delay or prevent a change of control over us, even if a change of
control might be beneficial to our stockholders;
. deter tender offers that may beneficial to our stockholders; or
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. limit stockholders' opportunity to receive a potential premium for their
shares if an investor attempted to gain shares beyond our ownership
limits or otherwise to effect a change of control.
Loss of our REIT status would have significant adverse consequences to us and
the value of our stock.
We currently operate and have operated since 1997 in a manner that is
intended to allow us to qualify as a REIT for federal income tax purposes under
the Internal Revenue Code.
If we lose our REIT status, we will face serious tax consequences that will
substantially reduce the funds available for distribution to you for each of
the years involved because:
. we would not be allowed a deduction for distributions to stockholders in
computing our taxable income and would be subject to federal income tax
at regular corporate rates;
. we also could be subject to the federal alternative minimum tax and
possibly increased state and local taxes; and
. unless we are entitled to relief under statutory provisions, we could
not elect to be subject to tax as a REIT for four taxable years
following the year during which we were disqualified.
In addition, if we fail to qualify as a REIT, we will not be required to
make distributions to stockholders and all distributions made to stockholders
will be subject to tax as ordinary income to the extent of our current and
accumulated earnings and profits.
As a result of all these factors, our failure to qualify as a REIT also
could impair our ability to expand our business and raise capital, and would
adversely affect the value of our common stock.
Qualification as a REIT involves the application of highly technical and
complex Internal Revenue Code provisions for which there are only limited
judicial and administrative interpretations. The complexity of these provisions
and of the applicable Treasury Regulations that have been promulgated under the
Internal Revenue Code is greater in the case of a REIT that holds its assets in
partnership form. The determination of various factual matters and
circumstances not entirely within our control may affect our ability to qualify
as a REIT. For example, in order to qualify as a REIT, at least 95% of our
gross income in any year must be derived from qualifying sources. Also, we must
make distributions to stockholders aggregating annually at least 95% of our net
taxable income, excluding capital gains. In addition, legislation, new
regulations, administrative interpretations or court decisions may adversely
affect our investors or our ability to qualify as a REIT for tax purposes.
Although our management believes that we are organized and operate in a manner
so as to qualify as a REIT, no assurance can be given that we will continue to
be organized or be able to operate in a manner so as to qualify or remain
qualified as a REIT for tax purposes.
To maintain our REIT status, we may be forced to borrow funds on a short-term
basis during unfavorable market conditions.
In order to maintain our REIT status, we may need to borrow funds on a
short-term basis to meet the REIT distribution requirements even if the then
prevailing market conditions are not favorable for these borrowings. To qualify
as a REIT, we generally must distribute to our stockholders at least 95% of our
net taxable income each year, excluding capital gains. In addition, we will be
subject to a 4% nondeductible excise tax on the amount, if any, by which some
distributions paid by us in any calendar year are less than the sum of 85% of
our ordinary income, 95% of our capital gain net income and 100% of our
undistributed income from prior years. These short-term borrowing needs could
result from differences in timing between the actual receipt of income and
inclusion of income for federal income tax purposes, or the effect of non-
deductible capital expenditures, the creation of reserves or required debt or
amortization payments.
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Our growth depends on external sources of capital which are outside of our
control.
We are required under the Internal Revenue Code to distribute at least 95%
of our taxable income, determined without regard to the dividends-paid
deduction and excluding any net capital gain. Because of this distribution
requirement, we may not be able to fund future capital needs, including
acquisition financing, from operating cash flow. Consequently, we rely on
third-party sources of capital to fund our capital needs. We may not be able to
obtain the financing on favorable terms or at all. Any additional debt we incur
will increase our leverage. Our access to third-party sources of capital
depends, in part, on:
. general market conditions;
. the market's perception of our growth potential;
. our current and expected future earnings;
. our cash distributions; and
. the market price per share of our common stock.
If we cannot obtain capital from third-party sources, we may not be able to
acquire properties when strategic opportunities exist or make the cash
distributions to our stockholders necessary to maintain our qualification as a
REIT.
We may change our investment and financing policies without stockholder
approval and become more highly leveraged which may increase our risk of
default under our debt obligations.
We are not limited in our ability to incur debt. Our board of directors
adopted a policy of limiting our indebtedness to approximately 50% of our total
market capitalization. Total market capitalization is the market value of our
capital stock, including common limited partnership units of Kilroy Realty,
L.P. and other interests, exchangeable for shares of our capital stock, plus
total debt. However, our organizational documents do not limit the amount or
percentage of indebtedness, funded or otherwise, that we may incur. Our board
of directors may alter or eliminate our current policy on borrowing at any time
without stockholder approval. If this policy changed, we could become more
highly leveraged which would result in an increase in our debt service and
which could adversely affect our cash flow and our ability to make expected
distributions to you. Higher leverage also increases the risk of default on our
obligations.
We may issue additional shares of capital stock without stockholder approval
which may dilute your investment. We may issue shares of our common stock,
preferred stock or other equity or debt securities without stockholder
approval. Similarly, we may cause Kilroy Realty, L.P. to offer its common or
preferred units for contributions of cash or property without approval by the
limited partners of Kilroy Realty, L.P. or our stockholders. Existing
stockholders have no preemptive rights to acquire any of these securities, and
any issuance of equity securities under these circumstances may dilute a
stockholder's investment.
We may invest in securities related to real estate which could adversely
affect our ability to make distributions to you. We may purchase securities
issued by entities which own real estate.
We may in the future also invest in mortgages. In general, investments in
mortgages include several risks, including:
. borrowers may fail to make debt service payments or pay the principal
when due;
. the value of the mortgaged property may be less than the principal
amount of the mortgage note securing the property; and
. interest rates payable on the mortgages may be lower than our cost for
the funds used to acquire these mortgages.
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Owning these securities may not entitle us to control the ownership,
operation and management of the underlying real estate. In addition, we may
have no control over the distributions with respect to these securities, which
could adversely affect our ability to make distributions to our stockholders.
Sales of a substantial number of shares of common stock, or the perception that
this could occur, could result in decreasing the market price per share for our
common stock.
We cannot predict whether future issuances of shares of our common stock or
the availability of shares for resale in the open market will result in
decreasing the market price per share of our common stock.
As of June 30, 1999, 27,629,210 shares of our common stock were issued and
outstanding and we had reserved for future issuance the following shares of
common stock:
. 4,672,902 shares issuable upon the exchange, at our option, of common
units issued in connection with our formation and in connection with the
acquisition of properties;
. 2,900,000 shares issuable under our 1997 Stock Option and Incentive
Plan; and
. the 1,000,000 shares issuable under our Dividend Reinvestment and Direct
Stock Purchase Plan and offered pursuant to this prospectus.
Of the 27,629,210 shares of common stock outstanding at June 30, 1999, all but
60,000 shares may be freely traded in the public market by persons other than
our affiliates. In addition, we have filed or have agreed to file registration
statements covering all of the shares of common stock reserved for future
issuance. Consequently, if and when the shares are issued, they may be freely
traded in the public markets.
We could be adversely affected if our year 2000 problems are significant.
The year 2000 issue refers to a computer system's failure to recognize dates
on or beyond January 1, 2000. The failure of our systems or those of our
vendors or tenants to correctly interpret dates beyond the year 1999 could lead
to disruptions in our operations. Our Information and Technology Committee
examined our year 2000 issue. The committee identified three phases to our year
2000 plan:
. discovery and assessment,
. remediation and implementation and
. testing and verification.
We have identified year 2000 risks in the following areas:
. Our information systems might not be year 2000 compliant. After our
initial public offering in 1997 we replaced and tested all of our
accounting and property management systems for year 2000 compliance.
Also, we acquired all new network hardware and software and updated all
of our desktop systems and software. In each case, we tested for year
2000 compliance and our vendors have asserted that their products are
year 2000 compliant. We will continue to conduct ongoing testing to
ensure year 2000 compliance. Despite our efforts to identify and resolve
year 2000 compliance problems, we cannot assure our stockholders that
all of our systems will be year 2000 compliant. We believe there is no
material year 2000 exposure relating to our information systems.
. Our building management system could have potential year 2000
exposure. During 1998, our property management executives and personnel
began gathering data to identify all of our year 2000 sensitive building
management systems and to determine if they are compliant or should be
modified or replaced. We have completed the discovery and assessment
phase and determined our state of readiness as to building management
systems in early 1999. We expect to complete the remediation and
implementation phase by September 1999 and the verification phase by the
end of fiscal year
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1999. We have identified the following five categories of building
management systems that could have year 2000 exposure:
. building automation;
. security card access;
. fire and life safety;
. elevator; and
. office equipment.
. Our tenants and vendors may have significant year 2000 issues. We have a
diverse tenant base and the success of our business is not tied to the
success of any one particular tenant. Also, the success of our business
is not closely tied to the operations of any one vendor supplier or
manufacturer. However, we are in the process of surveying significant
tenants, vendors, suppliers and other relevant third parties, to
determine if their systems will be year 2000 compliant and if our normal
operations will continue without interruption. We anticipate this
project will be completed by September 1999.
We replaced our accounting and property management system and installed our
updated desktop systems and software as a result of our initial public
offering. Also, we are using 13 salaried employees, who are not paid overtime
and who management expects will spend 10% of their annual working hours over a
two to three year period focusing on year 2000 compliance issues, to perform
the discovery and assessment phase. As a result, our year 2000 costs to date
have been minimal and are not material to our financial position or our
results of operations. However, future costs for completing phases two and
three for the building management systems are not readily quantifiable. We
believe that a significant portion of these costs will be treated as operating
expenses and will be reimbursable to us under our tenant leases.
We do not believe that the impact of any year 2000 issues will have a
material adverse effect on our financial condition or results of operations.
However, despite our efforts to identify and resolve year 2000 compliance
problems, we cannot guarantee that all of our systems will be year 2000
compliant or that other companies on which we rely will be timely converted.
As a result, our operations could be interrupted or otherwise adversely
affected. The failure to correct a material year 2000 problem could result in
an interruption in, or a failure of, some of our business operations. These
failures could have a material adverse effect on our financial condition and
results of operations.
We believe the year 2000 issue relating to our building management systems
are immaterial because each of our properties have separate building
management systems. However, we do not currently have a comprehensive
contingency plan for the year 2000 problem. We intend to establish this
contingency plan by October 1999 as part of our ongoing year 2000 compliance
effort.
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THE PLAN
The following questions and answers explain the plan, as in effect beginning
October 4, 1999, a copy of which is filed as an exhibit to the registration
statement which contains this prospectus and which was filed with the SEC with
respect to the shares of common stock to be sold under the plan. We encourage
you to read and consider the information contained in the plan and in the
documents identified in the sections entitled "Incorporation of Certain
Documents by Reference" and "Where You Can Find Additional Information."
Purpose.
1. What is the purpose of the plan?
The plan provides our stockholders and other investors with a convenient and
economical method to purchase shares of our common stock and to reinvest all or
a portion of their cash dividends in additional shares of our common stock. In
addition, the plan provides us with a means of raising additional capital to
continue our real estate, acquisition, development and investment activities,
and for general corporate purposes.
Options under the plan.
2. What options are available under the plan?
You may participate in the plan even if you are not already one of our
stockholders. Under the plan you may automatically reinvest cash dividends on
all or a portion of your shares of our common stock in additional shares of our
common stock. Even if you do not reinvest dividends, if you are already one of
our stockholders you may make optional cash purchases of common stock, subject
to a minimum investment of $100 and a maximum investment of $5,000 during any
calendar month. If you are not already one of our stockholders, you may make an
initial optional cash purchase of not less than $750 and not more than $5,000
during any calendar month. You may be able to purchase more than $5,000 during
a calendar month through the plan, with our prior written consent by submitting
a request for waiver.
Benefits and disadvantages of the plan.
3. What are the benefits and disadvantages of the plan to me?
Benefits of the plan.
. The plan provides you the opportunity to automatically reinvest cash
dividends on all or a portion of your common stock in additional shares
of common stock.
. In addition to reinvestment of dividends, if you are already one of our
stockholders you may purchase additional shares of common stock pursuant
to optional cash purchases of not less than $100 and not more than
$5,000 during any calendar month. Optional cash purchases may not be
made more frequently than at monthly intervals. You may make optional
cash purchases even if dividends on your shares are not being reinvested
under the plan.
. If you are not already one of our stockholders, you may make an initial
cash investment of not less than $750 and not more than $5,000 during
any calendar month to purchase shares of common stock under the plan.
. You will not be charged trading fees or sales commissions on previously
unissued shares of common stock. If we direct the agent to purchase
shares of common stock with reinvested dividends or to make optional
cash purchases under the COPP in the open market or in privately
negotiated transactions instead of from previously unissued shares, we
will pass on to you and other participants the applicable trading or
brokerage fees or commissions on a pro rata basis based on the number of
purchased shares allocated to you and to each other participant.
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. We may issue shares purchased directly from us pursuant to a request for
waiver at a discount to the market price and without the payment of
trading fees or brokerage commissions, subject to certain limitations.
We will not purchase shares in the open market or in privately
negotiated transactions to satisfy purchases under the WDP.
. You may fully invest dividends and any optional cash purchases because
the plan permits fractional shares to be credited to your account. We
will reinvest dividends on whole and on fractional shares in additional
shares which will be credited to your account.
. You may direct the agent to transfer, at any time and at no cost to you,
all or a portion of your shares in the plan to a plan account for
another person.
. You will avoid the need for safekeeping of certificates for shares of
common stock credited to your plan account and may submit to the agent
for safekeeping certificates you hold that are registered in your name.
. You or other book entry holders that are registered holders may direct
the agent to sell or transfer all or a portion of your shares held in
the plan or in book entry.
. You will receive periodic statements reflecting all current activity in
your plan account, including purchases, sales and latest balances, which
will simplify your recordkeeping.
Disadvantages of the plan.
. Cash dividends that you reinvest will be treated for federal income tax
purposes as a dividend received by you on the dividend payment date and
may create a liability for the payment of income tax without providing
you with immediate cash to pay such tax when it becomes due.
. We may, without giving you prior notice, change our determination as to
whether the agent will purchase shares of common stock directly from us
or in the open market or in privately negotiated transactions from third
parties (although we may not change this decision more than once in any
three-month period) in connection with the purchase of shares with
reinvested dividends or from optional cash purchases under the COPP.
. You will not know the actual number of shares purchased in any month on
your behalf under the plan until after the applicable investment date.
. The purchase price per share will equal an average price, in some cases
determined from purchases made as many as 15 days after the applicable
dividend payment date, or COPP investment date, and in the case of
optional cash purchases under the WDP, on each trading day on which
shares are purchased during the applicable investment period.
Consequently, the actual purchase price of your shares may exceed the
price at which shares are trading on the dividend payment date, COPP
investment date or any particular trading day on which shares are
purchased during the applicable WDP investment period, as applicable.
. You will have limited control regarding the specific timing of purchases
and sales under the plan. Because the agent will effect sales under the
plan only as soon as practicable after it receives instructions from
you, you may not be able to control the timing of purchases and sales as
you might for investments made outside the plan. The market price of the
shares of common stock may fluctuate between the time the agent receives
an investment instruction and the time at which the shares of common
stock are purchased or sold.
. You may not be able to depend on the availability of a market discount
on shares acquired under the WDP. While a discount from market prices of
up to 2% may be established for a particular investment period, a
discount for one investment period will not insure the availability of a
discount or the same discount in future investment periods. Each
investment period we may, without giving you prior notice, change or
eliminate the discount.
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. We will not pay you interest on dividends or funds for optional cash
purchases held pending reinvestment or investment or to be returned to
you. In addition, we may return funds submitted for optional cash
purchases under the WDP (in whole or proportionate part) without
interest if:
. a threshold price has been established with respect to shares to
be purchased from us, and
. the average per share market price as reported by the New York
Stock Exchange fails to exceed the threshold price for any
trading day during the applicable, ten trading-day investment
period.
. Shares deposited in a plan account may not be pledged until the shares
are withdrawn from the plan.
Your investment in the shares of common stock held in your account is no
different than an investment in directly held shares of common stock. You bear
the risk of loss and the benefits of gain from market price changes for all of
your shares of common stock. NEITHER WE NOR THE AGENT CAN ASSURE YOU THAT
SHARES OF COMMON STOCK PURCHASED UNDER THE PLAN WILL, AT ANY PARTICULAR TIME,
BE WORTH MORE OR LESS THAN THE AMOUNT YOU PAID FOR THEM.
Administration of the plan.
4. Who will administer the plan?
MellonBank, N.A., as agent, or such successor administrator as we may
designate, will administer the plan. Under the plan the agent will keep records
of your account, send regular account statements to you, and perform other
duties relating to the plan.
ChaseMellon Shareholder Services, L.L.C., a registered transfer agent, will
provide certain administrative support to the agent.
MellonBank, N.A.
c/o ChaseMellon Shareholder Services, LLC
P. O. Box 3338, South Hackensack, New Jersey 07060-1938
Telephone Number: (888) 816-7506
Participation in the plan.
5. Am I eligible to participate in the plan?
Any stockholder whose shares of common stock are registered on our stock
transfer books in his or her name (also referred to as a "registered holder")
or any stockholder whose shares of common stock are registered in a name other
than his or her name, for example, in the name of a broker, bank or other
nominee (also known as a "beneficial holder"), may participate in the plan. If
you are a registered holder, you may participate in the plan directly. If you
are a beneficial owner you must either become a registered holder by having
such shares transferred into your name or by making arrangements with your
broker, bank or other nominee to participate in the plan on your behalf. Even
if you are not already one of our stockholders, you may participate in the plan
by making an initial optional cash purchase of common stock of not less than
$750 or more than $5,000 during any calendar month unless we approve your
request in writing for waiver under the WDP in which case your initial
investment may exceed $5,000.
You may not transfer the right to participate in the plan to another person.
We reserve the right to exclude any person from the plan if we believe that
person utilizes the plan to engage in short-term trading activities that cause
aberrations in the trading volume of our common stock.
If you reside in a state or other jurisdiction in which your participation
in the plan would be unlawful, you will not be eligible to participate in the
plan.
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Enrollment in the plan.
6. How do I enroll in the plan and become a participant in the plan?
If you are a registered holder, you may become a participant by completing
and signing an Enrollment Form and returning it to the agent at the address set
forth on the Enrollment Form. You may obtain an Enrollment Form at any time by
requesting one from the agent by calling (800) 842-7629. If your shares are
registered in more than one name (e.g., joint tenants, trustees), all
registered holders of such shares must sign the Enrollment Form exactly as
their names appear on the account registration.
If you are a beneficial owner, you must instruct your broker, bank or other
nominee in whose name your shares are held to participate in the plan on your
behalf. If a broker, bank or other nominee holds shares of beneficial owners
through a securities depository, the broker, bank or other nominee may also be
required to provide a Broker and Nominee Form to the agent in order to
participate in the optional cash purchases portion of the plan. You may obtain
a Broker and Nominee Form at any time by requesting one from the agent at the
address listed in this prospectus.
If you are not presently one of our stockholders, but desire to participate
in the plan by making an initial investment in common stock, you may join the
plan by completing an Enrollment Form and forwarding it, together with such
initial investment, to the agent at the address indicated on the Enrollment
Form. If your initial purchase is for more than $5,000, you must also complete
a request for waiver and submit it to us for our written approval before you
will be enrolled in the plan.
7. What does the enrollment form provide?
The Enrollment Form directs the agent to apply to the purchase of additional
shares of common stock all of the cash dividends on the specified percentage of
shares of common stock that you own on the applicable dividend record date and
that you designate to be reinvested through the plan. The Enrollment Form also
directs the agent to purchase additional shares of common stock with any
optional cash purchases that you may elect to make.
While the Enrollment Form directs the agent to reinvest cash dividends on
shares enrolled in the plan by electing "Full Dividend Reinvestment," you may
alternatively elect "Partial Dividend Reinvestment" or "Optional Cash Purchases
Only." You may change the dividend reinvestment option at any time by
submitting a newly executed Enrollment Form to the agent or by writing to the
agent. The agent must receive any change in the percentage of shares with
respect to which the agent is authorized to reinvest dividends prior to the
record date for a dividend to permit the change to apply to that dividend. For
each method of dividend reinvestment, we will reinvest your cash dividends in
the manner specified on your Enrollment Form on all shares other than those
that you designate for payment of cash dividends until you specify otherwise or
withdraw from the plan altogether, or until the plan is terminated.
8. When will my participation in the plan begin?
Your participation in the dividend reinvestment portion of the plan will
commence with the next dividend payment date after the agent receives your
Enrollment Form, provided the agent receives it on or before the record date we
establish for the payment of the dividend.
Your participation in the optional cash purchase portion of the plan for
purchases of $5,000 or less will commence with the next COPP investment date
after the agent receives your Enrollment Form, provided the agent receives the
funds to be invested not later than one business day immediately preceding the
COPP investment date. If the agent receives the funds to be invested after the
day indicated above and before the next succeeding COPP investment date, the
agent will hold the funds for a period of up to 35 days, without interest,
until they can be invested on the next COPP investment date.
Your participation in the optional cash purchase portion of the plan for
purchases in excess of $5,000 will commence with the next investment period
after the agent receives your Enrollment Form and your request for
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waiver, approved by us, provided the agent receives the funds to be invested
not later than one business day immediately preceding the applicable
investment period. If the agent receives the funds to be invested after the
day indicated above and before the next succeeding investment period, the
agent will hold the funds for a period up to 35 days, without interest, until
they can be invested during the next WDP investment period.
You may enroll in the plan at any time. Once enrolled, you will remain
enrolled until you discontinue participation or until we terminate the plan.
Purchases.
9. When will my shares be acquired under the plan?
In the event that the agent purchases shares directly from us, the date of
issuance of shares to be purchased
. with reinvested dividends, will be the applicable dividend payment date,
. under the COPP, will be the COPP investment date which shall be
approximately the 20th calendar day of the calendar month, unless such
day is a Saturday, Sunday or holiday, in which case the COPP investment
date will occur on the next succeeding business day of the month, or
. under the WDP, will be each day on which shares are purchased during the
applicable ten trading day investment period, and you will acquire, on
each day, all rights of ownership with respect to the maximum number of
shares of common stock that may be purchased on each day during the
applicable ten trading day investment period with one-tenth of your WDP
payment, including, without limitation the right to dispose of or vote
the shares.
In the event that the agent purchases shares either in open market or
privately negotiated transactions, the shares will be deemed acquired on the
date that they are purchased. For a schedule of expected threshold price and
discount dates, optional cash payment due dates, investment period
commencement dates, and optional cash purchase investment dates for the
remainder of 1999 and in 2000, see Annex I to this prospectus.
If the agent acquires shares for the plan through open market purchases or
privately negotiated transactions, we will apply all dividends and all
optional cash purchases to the purchase of common stock pursuant to the plan
as soon as practicable on or after the applicable investment date. For
purchases under the WDP, we will purchase shares on each day during the ten
trading day investment period that the purchase price exceeds the threshold
price, if any.
In the past, our common stock dividend payment dates occurred on or about
the tenth day of each January, April, July and October. While we expect to
continue to pay quarterly dividends, dividends are paid as and when declared
by the our board of directors. We cannot assure you that our board of
directors will declare or pay dividends on the common stock, and nothing
contained in the plan obligates our board of directors to declare or pay
dividends on common stock. The plan does not guarantee you the right to
receive dividends in the future.
10. What is the source of shares to be purchased under the plan?
The agent will reinvest dividends and acquire common stock under the COPP
by purchasing either shares of common stock issued directly from us or by
purchasing shares in the open market or in privately negotiated transactions,
or a combination of both. The agent will acquire shares of common stock under
the WDP only by purchasing previously unissued shares of common stock from us.
11. At what price will my shares be purchased?
The purchase price per share of common stock acquired through the plan as a
result of the reinvestment of dividends will be equal to
. in the case of newly issued shares of common stock, the average of the
high and low sales price per share as reported by the New York Stock
Exchange on the applicable dividend payment date, or
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. in the case of shares purchased in the open market or in privately in
negotiated transactions, the average of the purchase price of all shares
purchased by the agent for the plan with reinvested dividends for the
applicable dividend payment date.
The price of shares acquired through optional cash purchases under the COPP of
$5,000 or less during any calendar month will be equal to
. in the case of newly issued shares of common stock, the average of the
high and low sales price per share as reported by the New York Stock
Exchange on the applicable COPP investment date, or
. in the case of shares purchased in the open market or in privately
negotiated transactions, the average of the purchase price of all shares
purchased by the agent for the applicable COPP investment date.
We may advise the agent to purchase shares from time to time in its
discretion over a period of up to 15 trading days following the applicable
dividend payment date or COPP investment date, as the case may be.
Under the WDP you may purchase more than $5,000 of common stock during any
WDP investment period at a discount of up to 2% on newly issued shares from the
market price, which will be the average of the high and low sales price per
share of the common stock as reported by the New York Stock Exchange on each
trading day on which shares are purchased during the applicable WDP investment
period. Shares purchased pursuant to the WDP may also be subject to a threshold
price provision. The agent will acquire shares of common stock purchased under
the WDP only from previously unissued shares of common stock.
You may obtain the discount applicable to the next investment period by
telephoning Investor Relations at (310) 563-5500 three business days prior to
the applicable WDP investment period. Setting a discount for a particular
investment period will not affect the setting of a discount for any subsequent
investment period.
Whether you are reinvesting dividends or making optional cash purchases, the
purchase price per share of common stock you acquire on any particular
investment date or trading day may not be less than 95% of the average high and
low sales price per share of the common stock as reported by the New York Stock
Exchange on that particular day,
12. How may I make an optional cash purchase?
You are eligible to request optional cash purchases at any time. If you are
a registered holder, you may make an optional cash purchase by submitting an
Enrollment Form to the agent.
If you hold your shares registered in the name of another person, the Broker
and Nominee Form provides the sole means whereby a broker, bank or other
nominee holding shares on your behalf may request an optional cash purchase for
you. In such case, the broker, bank or other nominee must use a Broker and
Nominee Form for transmitting optional cash purchases on your behalf. A Broker
and Nominee Form must be delivered to the agent each time that such broker,
bank or other nominee transmits optional cash purchases on your behalf. Your
broker or nominee may request a Broker and Nominee Form from the agent in
writing at its address included in this prospectus or by telephone.
If you are not already one of our stockholders, you may make an initial
investment in common stock through an optional cash purchase by submitting an
Enrollment Form to the agent and, in the case of a purchase under the WDP, a
request for waiver approved by us.
13. Where should I send my money to make an optional cash purchase?
You may make optional cash purchases under the COPP by check payable to
Mellon Bank and mailed to the agent at the address referenced on the Enrollment
Form or your statement, as applicable. You may make optional cash purchases
under the WDP only with our prior written consent and only by wire transfer to
the account referenced on the Request for Waiver Form. You should send all
inquiries regarding other forms of payments and all other written inquiries
directly to the agent at its address referenced in this prospectus.
The agent must receive funds for optional cash purchases of $5,000 or less
during any calendar month not later than one business day before the COPP
investment date. The agent must receive funds for optional cash
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purchases greater than $5,000 during any calendar month and made pursuant to a
request for waiver not later than one business day before the commencement of
the applicable WDP investment period in order to purchase shares of common
stock during the following WDP investment period.
14. How do I get a refund if I change my mind?
You may obtain a refund of any COPP payment or WDP payment not yet invested
by requesting, in writing, the agent to refund your payment. The agent must
receive your request not later than two business days prior to, in the case of
a COPP payment, the next COPP investment date, and in the case of a WDP
payment, the commencement of the next WDP investment period. If the agent
receives your request later than these specified times, your COPP payment or
WDP payment will be applied to the purchase of shares of common stock.
15. Will I be paid interest on funds held for optional cash purchases prior
to investment?
You will not be paid interest on funds you send to the agent for optional
cash purchases. Consequently, we strongly suggest that you deliver funds to the
agent to be used for investment in optional cash purchases shortly prior to the
applicable investment date or investment period so that they are not held over
to the following investment date. If you have any questions regarding the
applicable investment dates or the dates as of which funds should be delivered
to the agent, you should write or telephone the agent at the address and
telephone number included above.
You should be aware that since investments under the plan are made as of
specified dates, you may lose any advantage that you otherwise might have from
being able to control the timing of an investment. Neither we nor the agent can
assure you a profit or protect you against a loss on shares of common stock
purchased under the plan.
16. What limitations apply to optional cash purchases?
Minimum/Maximum limits.
If you are already one of our stockholders, you may make optional cash
purchases under the COPP with a minimum investment of $100 up to a maximum
investment of $5,000 during any calendar month. If you are not already one of
our stockholders, you may make optional cash purchases under the COPP with a
minimum initial investment of $750 up to a maximum investment of $5,000 during
any calendar month. If you request an optional cash purchase of less than the
applicable minimum amount, or if you request an optional cash purchase under
the COPP in excess of $5,000, the agent will return your funds to you promptly,
without interest.
Request for waiver.
You may make optional cash purchases in excess of $5,000 during any calendar
month under the WDP only pursuant to a request for waiver approved by us in
writing. If you wish to make an optional cash purchase in excess of $5,000 for
any calendar month, you must obtain our prior written approval and a copy of
such written approval must be submitted to the agent. A request for waiver
should be sent to us by facsimile at (310) 322-5981, Attention: Investor
Relations, by 2:00 p.m., Los Angeles Time, on the day that is at least three
business days prior to the first day of the applicable investment period. You
may obtain the Request for Waiver Form from us or the agent at its address and
telephone number referenced above. We have sole discretion to grant any
approval for optional cash purchases in excess of the allowable maximum amount.
In deciding whether to approve a request for waiver, we will consider
relevant factors including, but not limited to:
. our need for additional funds,
. the attractiveness of obtaining such additional funds through the sale
of common stock as compared to other sources of funds,
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. the purchase price likely to apply to any sale of common stock, and
. the aggregate amount of optional cash purchases in excess of $5,000 for
which requests for waiver have been submitted by all participants.
If requests for waiver are submitted for any WDP investment date for an
aggregate amount in excess of the amount we are then willing to accept, we may
honor such requests by any method that we determine to be appropriate. With
regard to optional cash purchases made pursuant to a request for waiver, the
plan does not provide for a predetermined maximum limit on the amount that you
may invest or on the number of shares that you may purchase. We reserve the
right to modify, suspend or terminate the plan for any reason whatsoever
including elimination of practices that are not consistent with the purposes of
the plan.
Threshold price.
We may establish for any investment period a minimum threshold price
applicable to optional cash purchases made under the WDP. Not later than three
business days prior to the first day of the applicable investment period, we
will determine whether to establish a threshold price. We will determine the
threshold price in our sole discretion after a review of current market
conditions, the level of participation in the plan, and current and projected
capital needs. You may telephone Investor Relations at (310) 563-5500 during
the three business days prior to the applicable investment period to ascertain
whether we have established a threshold price for such investment period.
The threshold price, if any, is the per share price that the average of the
high and low sale prices of the common stock must equal or exceed as reported
by the New York Stock Exchange for each trading day of the relevant investment
period. If the per share sale price does not equal or exceed the threshold
price for any particular trading day in the investment period, then we will
exclude that trading day from the investment period. A trading day will also be
excluded if no trades of common stock are made on the New York Stock Exchange
for that day. For example, if the threshold price is not satisfied for three of
the ten trading days in an investment period, then we will determine the number
of shares to be purchased (including the applicable purchase price) based upon
the remaining seven trading days on which the threshold price was satisfied.
The agent will return to you, without interest, a portion of your optional
cash purchase for each trading day of an investment period on which the
threshold price is not satisfied or for each day on which no trades of common
stock are reported on the New York Stock Exchange. The returned portion will
equal one-tenth of the total amount of such optional cash purchase for each
trading day on which the threshold price is not satisfied or on which no trades
of common stock are reported on the New York Stock Exchange. Thus, for example,
if the threshold price is not satisfied or no such sales are reported for three
of the ten trading days in an investment period, we would return 3/10 (i.e.,
30%) of such optional cash purchase to you.
The possible return of a portion of the investment applies only to optional
cash purchases made under the WDP. Whether a threshold price is established for
any particular investment period will not affect whether a threshold price is
established for any subsequent investment period. For any particular month, we
may waive our right to set a threshold price. Neither we nor the agent will
notify you whether we establish a threshold price for any investment period.
You may, however, confirm whether we have established a threshold price for any
given investment period by telephoning Investor Relations at (310) 563-5500
during the three business days prior to the applicable investment.
Waiver discounts. Each month, not later than three business days prior to
the first day of the applicable investment period, we may establish a discount
from the market price applicable to optional cash purchases under the WDP. The
discount may be up to 2% of the purchase price and may vary each investment
period, but once established will apply uniformly to all optional cash
purchases made under the WDP for that investment period, provided that the
purchase price for shares purchased on any particular trading day during the
applicable investment period may not be less than the minimum purchase price of
95% of the average of the high and low sales price per share of the common
stock as reported by the New York Stock Exchange on that particular trading
day.
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We may establish a discount in our sole discretion after a review of current
market conditions, the level of participation in the plan, and current and
projected capital needs. You may obtain the discount applicable to the next
investment period by telephoning Investor Relations at (310) 563-5500 during
the three business days prior to the applicable investment period. Setting a
discount for a particular investment period will not affect the setting of a
discount for any subsequent investment period. The discount will apply to the
entire optional cash purchase and not just the portion of such investment that
exceeds $5,000.
The discount initially will apply only to optional cash purchases that
exceed $5,000, but we reserve the right to establish a discount from the market
price for reinvestment of cash dividends and optional cash purchases of $5,000
or less.
17. What if I have more than one account?
We may aggregate all optional cash purchases for you if you have more than
one account using the same social security or taxpayer identification number.
If you are unable to supply a social security or taxpayer identification
number, we may limit your participation to only one plan account.
Also for the purpose of such limitations, we may aggregate all plan accounts
that we believe to be under common control or management or to have common
ultimate beneficial ownership. Unless we determine that reinvestment of
dividends and optional cash purchases for each account is consistent with the
purposes of the plan, we have the right to aggregate all such accounts and to
return, without interest, within 35 days of receipt, any amounts in excess of
the investment limitations applicable to a single account received in respect
of all such accounts.
Certificates.
18. Will certificates be issued for my share purchases?
All shares purchased pursuant to the plan will be credited to your
individual account in "book entry" form. This protects you against the loss,
theft or destruction of certificates evidencing shares. If you request, or if
you withdraw from the plan or if the plan terminates, the agent will issue and
deliver certificates for all full shares credited to your account. You may
request delivery of share certificates by telephoning or writing the agent. The
agent will only issue certificates in the same names as those enrolled in the
plan. In no event will we issue certificates for fractional shares. Any
fractional shares that you hold in the plan at the time you withdraw or at the
time the plan is terminated will be sold by the agent. The agent will
distribute to you the net proceeds of any of your fractional shares held in the
plan sold in connection with your withdrawal.
19. May I add shares of common stock to my account by transferring other
stock certificates representing Kilroy Realty Corporation common stock that I
possess?
You may send to the agent for safekeeping all common stock certificates
which you hold. The safekeeping of shares offers the advantage of protection
against loss, theft or destruction of certificates as well as convenience, if
and when shares are sold through the plan. The agent will keep all shares
represented by such certificates for safekeeping in "book entry" form, combined
with any full and fractional shares then held by the plan in your name. To
deposit certificates for safekeeping under the plan, you must submit a letter
of instruction to the agent. You should send stock certificates by registered
mail and the letter of instruction as well as all written inquiries about the
safekeeping service to the agent at its address indicated in this prospectus.
You may withdraw shares deposited for safekeeping by telephoning or writing the
agent.
Sale of shares.
20. How can I sell shares held under the plan?
You, or any other book entry holder, may instruct the agent to sell some or
all of your shares held in the plan or in book entry by notifying the agent by
telephone or in writing, or by using the form included with your statement of
account. You may also withdraw all or a portion of your shares from your
account and sell them through an outside broker or otherwise.
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The agent will sell shares through a registered broker dealer as soon as
practicable after receipt of a proper notice. Shares to be sold may be
commingled with those of other participants requesting sale of their shares,
and we will allocate the proceeds to you and to each other participant based on
the average price for all shares sold during the day of sale. You should
understand that the price of the common stock may go down as well as up between
the date you submit a request to sell and the date the sale is executed. You
may not specify either the dates or the prices at which shares are to be sold
through the agent. If the agent receives your request to sell shares on or
after the record date for a dividend, we will reinvest any cash dividend paid
on such shares, if applicable. You will only be charged for your pro rata share
of trading fees or brokerage commissions for selling shares through the agent.
These charges are normally lower than the cost of executing sales through a
brokerage account.
Reports.
21. What reports will I receive under the plan?
Unless you participate in the plan through a broker, bank or nominee, you
will receive from the agent a detailed statement of your account following each
dividend payment and when there is purchase or sale activity in your account.
These detailed statements will show total cash dividends received, total
optional cash purchases received, total shares purchased (including fractional
shares), price paid per share and total shares held in the plan. You should
retain these statements in order to determine the tax cost basis for shares
purchased pursuant to the plan.
If you participate in the plan through a broker, bank or nominee, you should
contact that person for such a statement.
Withdrawal.
22. How may I withdraw from the plan?
You may terminate participation in the plan by writing to the agent. After
the agent receives the termination notice, we will send dividends to you in the
usual manner and you may not make any additional optional cash purchases unless
you re-enroll. The agent must receive your notice of termination at least two
business days before an investment date in order to be processed prior to that
investment date. Once termination has been effected, the agent will issue you a
certificate for all whole shares you hold under the plan. Alternatively, you
may specify in the termination notice that some or all of the shares be sold.
The agent will convert any fractional shares held in your account under the
plan at the time of termination to cash at a price equal to the average of the
highest and lowest price per share as reported by the New York Stock Exchange,
net of any trading fees or brokerage commissions. If you transfer shares
represented by certificates registered in your name on our books but do not
notify the agent, the agent will continue to reinvest dividends on shares held
in your account under the plan until you direct otherwise. If the agent
receives your termination request on or after the record date for a dividend,
the agent will reinvest any cash dividend paid to you on your account. Your
request will then be processed as soon as practicable after the dividend is
reinvested and the additional shares are credited to your account. You will not
be charged to terminate from the plan, other than the applicable trading fees
or brokerage commissions with respect to any shares sold.
If your plan account balance falls below one full share, the agent reserves
the right to liquidate the fraction and remit the proceeds, less any applicable
trading fees or brokerage commissions, to you at your address of record and to
terminate your participation in the plan. We may also terminate the plan after
written notice in advance mailed to you at the address appearing on the agent's
records. If the plan or your participation is terminated, you will receive
certificates for whole shares held in your accounts and a check for the cash
value of any fractional shares held in any plan account that is terminated less
any applicable trading fees or brokerage commissions.
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Taxes.
23. What are the Federal income tax consequences of participating in the
plan?
Dividends you receive on shares of common stock that you hold in the plan
and which are reinvested in newly issued shares will be treated for Federal
income tax purposes as a taxable stock distribution to you. Accordingly, you
will receive taxable dividend income in an amount equal to the fair market
value of the shares of common stock that you receive on the dividend payment
date to the extent we have current or accumulated earnings and profits for
Federal income tax purposes. We intend to take the position that the fair
market value of the newly issued shares purchased with reinvested dividends
equals the average of the high and low sale prices of shares as reported by the
New York Stock Exchange on the related dividend payment date. The treatment
described above will apply to you whether or not the shares are purchased at a
discount. On the other hand, dividends you receive on shares of common stock
that you hold in the plan which are reinvested in shares of common stock
purchased by the agent in the open market or in privately negotiated
transactions will be treated for Federal income tax purposes as a taxable cash
distribution to you in an amount equal to the purchase price of such shares, to
the extent that we have current or accumulated earnings and profits for Federal
income tax purposes. The portion of a distribution you receive that is in
excess of our current and accumulated earnings and profits will not be taxable
to you if this portion of the distribution does not exceed the adjusted tax
basis of your shares. If a portion of your distribution exceeds the adjusted
tax basis of your shares, that portion of your distribution will be taxable as
a capital gain. If we properly designate a portion of your distribution as a
capital gain dividend, then that portion will be reportable as a capital gain.
Capital gains will be taxed to you at a 20% or 25% income tax rate, depending
on the tax characteristics of the assets which produced such gains, and on
certain other designations, if any, that we may make. Your statement of account
will show the fair market value of the common stock purchased with reinvested
dividends on the applicable dividend payment date. You also will receive a Form
1099-DIV after the end of the year which will show for the year your total
dividend income, your amount of any return of capital distribution and your
amount of any capital gain dividend. For a general discussion of the Federal
income tax consequences of distributions to you with respect to shares of
common stock, see "Material Federal Income Tax Consequences Associated With an
Investment in Common Stock--Taxation of Taxable U.S. Stockholders" below.
If you acquire shares of our common stock under the WDP at a discount from
the fair market value of such shares on a trading day on which the shares are
purchased during the applicable COPP investment date or WDP investment period,
the tax treatment to you is unclear. We presently intend to take the position
that any discount on shares purchased under the COPP or the WDP does not
constitute a distribution from us to you. However, it is possible that you will
be treated as having received a distribution from us upon the purchase of our
common stock under the COPP or the WDP in an amount equal to the excess, if
any, of the total fair market value of the shares you purchase on the COPP
investment date or on each day on which shares are purchased during the WDP
investment period over the amount of your payment for the shares. We may take
this position in future reports to you or the IRS. You should consult with your
tax advisor with respect to the tax treatment of shares you purchase at a
discount under the COPP or the WDP.
Under the plan, you will bear any trading fees or brokerage commissions
related to the acquisition and sale of shares of common stock. However, in the
future we may agree to pay some or all of the trading fees or brokerage
commissions in connection with purchase transactions. The IRS has ruled in
private letter rulings that brokerage commissions paid by a corporation with
respect to open market purchases on behalf of participants in a dividend
reinvestment plan were to be treated as constructive distributions to the
participants. In these rulings the IRS determined that distributions were
subject to income tax in the same manner as distributions and includable in the
participant's cost basis of the shares purchased. Accordingly, to the extent
that we pay brokerage commissions with respect to any open market or privately
negotiated purchases made with reinvested dividends by the agent, we intend to
take the position that participants received their proportionate amount of the
commissions as distributions in addition to the amounts described above. While
the matter is not free from doubt, we intend to take the position that any
trading fees or brokerage commissions paid by us with respect to the COPP will
be treated in the same manner as the purchase price discount
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described above, and that administrative expenses of the plan paid by us are
not constructive distributions to you.
If we invest your optional cash purchases under the COPP or WDP in newly
issued shares of our common stock not sold to you at a discount, or reinvest
your dividends in newly issued shares of our common stock, then your tax basis
in the shares purchased for your account will equal the per share fair market
value of the common stock on the relevant COPP investment date, the day the
shares are purchased during the WDP investment period, or the relevant dividend
payment date, as applicable. Your tax basis in any shares of our common stock
acquired under the COPP or WDP at a discount will equal the amount you paid for
the shares, plus the amount of income, if any, you recognized upon the
acquisition as a result of the purchase price discount. If we reinvest your
dividends or your optional cash purchases under the COPP in shares that the
agent purchases in the open market or in privately negotiated transactions,
then your tax basis in your shares purchased for your account will equal the
amount paid for the shares, including any trading fees or brokerage commissions
you paid, plus the amount of income, if any, that you recognize because trading
fees or brokerage commissions were paid on your behalf. Your holding period for
the shares of common stock acquired under the plan will begin on the day
following the date such shares were purchased for your account. Consequently,
shares of our common stock purchased in different months will have different
holding periods.
You will not realize any gain or loss when you receive certificates for
whole shares of common stock credited to your account, either upon your
request, when you withdraw from the plan or if the plan terminates. However,
you will recognize gain or loss when whole shares of common stock or rights
applicable to common stock acquired under the plan are sold or exchanged. You
will also recognize gain or loss when you receive a cash payment for a
fractional share of common stock credited to your account when you withdraw
from the plan or if the plan terminates. The amount of your gain or loss will
equal the difference between the amount you receive for your shares or
fractional shares of common stock or rights applicable to common stock, net of
any costs of sale paid by you, and your tax basis of such shares. For a general
discussion of the Federal income tax consequences of disposing of shares of
common stock, see "Material Federal Income Tax Consequences Associated With an
Investment in Common Stock--Dispositions of common stock" below.
The foregoing summary of certain Federal income tax considerations regarding
the plan is based on current law, is for your general information only and is
not tax advice. This discussion does not purport to deal with all aspects of
taxation that may be relevant to you in light of your personal investment
circumstances, or if you are a type of investor who is subject to special
treatment under the Federal income tax laws, such as insurance companies, tax-
exempt organizations, financial institutions or broker dealers, foreign
corporations and persons who are not citizens or residents of the United
States. If you wish to participate in the plan, you are strongly urged to
consult with your tax advisor regarding the specific tax consequences,
including the Federal, state, local and foreign tax consequences, that may
affect you if you participate in the plan, and of potential changes in
applicable tax laws. See "Material Federal Income Tax Consequences Associated
With an Investment in Common Stock" below.
Other provisions.
24. What happens if I sell or transfer shares of stock or acquire additional
shares of stock?
If you elect to have dividends automatically reinvested in additional shares
of common stock and subsequently sell or transfer all or any part of the shares
registered in your name, we will continue to reinvest your dividends as long as
shares are registered in your name or until you terminate your participation in
the plan. Similarly, if you elect the full or partial dividend reinvestment
option under the plan and subsequently acquire additional shares registered in
your name, we will continue to reinvest your dividends until you terminate your
participation in the plan. If, however, you elect the optional cash purchases
only option and subsequently acquire additional shares that are registered in
your name, we will not reinvest your dividends paid on these shares.
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25. How will my shares be voted?
For any meeting of stockholders, you will receive proxy materials in order
to vote all shares held by the plan for your account. The plan will vote all
shares as you designate or you may vote in person at the meeting of
stockholders. If you do not provide instructions or return an executed proxy,
the plan will not vote your shares. If you hold your shares through a broker,
bank or nominee, that person will receive the proxy materials and you will need
to contact that person in order to vote your shares.
26. Who pays the expenses of the plan?
We will pay all of the costs of administrating the plan other than trading
fees or brokerage commissions. We will pass on to you the trading fees and
brokerage commissions associated with the purchase and sale of shares of common
stock attributable to you under the plan.
27. What are the responsibilities of the company or the agent under the
plan?
Neither we nor the agent will be liable for any act done in good faith or
for any good faith omission to act, including, without limitation, any claims
of liability arising out of a failure to terminate your account upon your death
or adjudication of incompetence prior to the receipt of notice in writing of
such death or adjudication of incompetence, the prices at which shares are
purchased for your account, the times when purchases are made or fluctuations
in the market value of the common stock. Neither we nor the agent has any
duties, responsibilities or liabilities except as expressly set forth in the
plan or as imposed by applicable laws, including, without limitation, Federal
securities laws. You should recognize that we cannot assure you a profit or
protect you against a loss on the shares you purchase under the plan and we
take no position on whether you or other stockholders or investors should
participate in the plan.
28. What happens if the company issues a stock dividend, subscription
rights, declares a stock split or makes any other similar distribution in
respect of shares of common stock?
You will automatically receive credit to your plan account for any stock
dividend, stock split or other similar distribution in respect of shares of
common stock that we may declare. In the event that we make available to
stockholders subscription rights to purchase additional shares of common stock
or other securities, the agent will sell the rights accruing to all shares held
in your name when rights become separately tradable and will apply the net
proceeds from the sale of the rights to the purchase of common stock with the
next monthly optional cash purchase. If you do not want the agent to sell the
rights and invest the proceeds, you can notify the agent by submitting an
updated Enrollment Form and request that the distribution of subscription or
other purchase rights be made directly to you. This will permit you to
personally exercise, transfer or sell the rights on your shares.
29. May shares in my account be pledged?
You may not pledge shares credited to your account, and any purported pledge
will be void. If you wish to pledge shares, you must withdraw those shares from
the plan.
30. May I transfer all or a part of my shares held in the plan to another
person?
You may transfer ownership of all or part of your shares held in the plan
through gift, private sale or otherwise, by mailing to the agent at the address
listed above a properly executed stock assignment, along with a letter
requesting the transfer and a Substitute Form W-9--Certification of Taxpayer
Identification Number completed by the transferee. Requests for transfer of
shares held in the plan are subject to the same requirements as the transfer of
common stock certificates, including the requirement of a medallion signature
guarantee on the stock assignment. The agent will provide you with the
appropriate forms upon request. If any stock certificates bearing a restrictive
legend are contained in the your plan account, the agent will comply with the
provisions of such restrictive legend before effecting a sale or transfer of
such restricted shares. All transfers will be subject to the limitations on
ownership and transfer provided in our charter which are summarized below and
which are incorporated into the prospectus by reference.
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31. May the plan be changed or terminated?
We may amend, modify, suspend or terminate the plan at any time. The agent
will notify you in writing of any material modifications made to the plan. The
agent may appoint, by plan amendment, a successor agent to take its place under
the terms and conditions set forth in the plan. If the agent appoints a
successor agent, we are authorized to pay the successor agent for your account,
and all dividends and distributions payable on common stock you hold under the
plan for application by such successor.
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RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES
Our charter places certain restrictions upon the actual and constructive
ownership of shares of common stock. With respect to our common stock, you may
not actually or constructively own more than 7.0% of our outstanding capital
stock. The percentage of ownership is measured by either value or absolute
number of shares, whichever measurement is more restrictive. To the extent any
transfer of common stock, reinvestment of dividends or optional cash purchase
that you or another stockholder elects causes you or such other stockholder or
any other person or entity to exceed the ownership limit or otherwise violate
our charter, the transfer or investment will be void ab initio as to you or the
other stockholder, with the shares resold to a third party or to us, and you or
such stockholder would be entitled to receive cash dividends, without interest,
in lieu of such reinvestment or to a return of such voluntary cash investment,
without interest, as applicable, provided that the amount received by you or
the other stockholder will not exceed the sales price of the shares.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED
WITH AN INVESTMENT IN COMMON STOCK
The following is a summary of the federal income tax considerations we
believe are material to you. This summary is based on current law, is for
general information only and is not tax advice. Your tax treatment will vary
depending on your particular situation and this discussion does not purport to
deal with all aspects of taxation that may be relevant to a holder of common
stock in light of his or her personal investments or tax circumstances, or to
stockholders who receive special treatment under the federal income tax laws
except to the extent discussed under the headings "--Taxation of tax-exempt
stockholders" and "--Taxation of non-U.S. stockholders." Stockholders receiving
special treatment include, without limitation:
. insurance companies;
. financial institutions or broker-dealers;
. tax-exempt organizations;
. stockholders holding securities as part of a conversion transaction, or
a hedge or hedging transaction, or as a position in a straddle for tax
purposes;
. foreign corporations or partnerships; and
. persons who are not citizens or residents of the United States.
In addition, the summary below does not consider the effect of any foreign,
state, local or other tax laws that may be applicable to you as a holder of our
common stock.
The information in this section is based:
. on the Internal Revenue Code;
. current, temporary and proposed Treasury Regulations promulgated under
the Internal Revenue Code;
. the legislative history of the Internal Revenue Code;
. current administrative interpretations and practices of the Internal
Revenue Service; and
. court decisions.
In addition, the administrative interpretations and practices of the
Internal Revenue Service include its practices and policies as expressed in
private letter rulings which are not binding on the Internal Revenue
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Service, except with respect to the particular taxpayers who requested and
received these rulings. Future legislation, Treasury Regulations,
administrative interpretations and practices and/or court decisions may
adversely affect the tax considerations contained in this discussion. Any
change could apply retroactively to transactions preceding the date of the
change. We have not requested, and do not plan to request, any rulings from the
Internal Revenue Service concerning our tax treatment, and the statements in
this prospectus are not binding on the Internal Revenue Service or any court.
Thus, we can provide no assurance that the tax considerations contained in this
discussion will not be challenged by the Internal Revenue Service or if
challenged, will not be sustained by a court.
You are urged to consult your tax advisor regarding the specific tax
consequences to you of:
. the acquisition, ownership and sale or other disposition of our common
stock, including the federal, state, local, foreign and other tax
consequences;
. our election to be taxed as a REIT for federal income tax purposes; and
. potential changes in the tax laws.
Taxation of Kilroy Realty Corporation.
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ended December 31,
1997. We believe we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Internal Revenue Code
commencing with our taxable year ended December 31, 1997. We intend to continue
to operate in this manner. However, our qualification and taxation as a REIT
depends upon our ability to meet, through actual annual operating results,
asset diversification, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Internal Revenue Code.
Accordingly, there is no assurance that we have operated or will continue to
operate in a manner so as to qualify or remain qualified as a REIT. See "--
Failure to qualify."
The sections of the Internal Revenue Code that relate to the qualification
and operation as a REIT are highly technical and complex. The following
describes the material aspects of the sections of the Internal Revenue Code
that govern the federal income tax treatment of a REIT and its stockholders.
This summary is qualified in its entirety by the Internal Revenue Code,
relevant rules and Treasury Regulations promulgated under the Internal Revenue
Code, and administrative and judicial interpretations of the Internal Revenue
Code and these rules and Treasury Regulations.
The law firm of Latham & Watkins has acted as our tax counsel in connection
with this offering and our election to be taxed as a real estate investment
trust. In the opinion of Latham & Watkins, commencing with our taxable year
ended December 31, 1997, we have been organized and have operated in conformity
with the requirements for qualification and taxation as a REIT under the
Internal Revenue Code, and our proposed method of operation will enable us to
continue to meet the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code. This opinion was
rendered as of September 30, 1999, and Latham & Watkins undertakes no
obligation to update its opinion subsequent to this date.
The opinion of Latham & Watkins is based on various assumptions, and
representations made by us as to factual matters, including representations
made by us in this prospectus, the accompanying prospectus supplement and a
factual certificate provided by our officers. Moreover, our qualification and
taxation as a real estate investment trust depends upon our ability to meet the
various qualification tests imposed under the Internal Revenue Code and
discussed below, relating to our actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
results of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of our
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operations for any particular taxable year will satisfy these requirements. See
"--Failure to qualify" in this prospectus. Further, the anticipated income tax
treatment described in this prospectus may be changed, perhaps retroactively,
by legislative, administrative or judicial action at any time. With respect to
the enforceability of the stock ownership limits in our charter, Latham &
Watkins has relied on the opinion of Ballard, Spahr, Andrews & Ingersohn, LLP,
our Maryland counsel.
If we qualify for taxation as a REIT, we generally will not be required to
pay federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that ordinarily results from investment in a corporation.
Double taxation means taxation once at the corporate level when income is
earned and once again at the stockholder level when this income is distributed.
We will be required to pay federal income tax, however, as follows:
. We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
. We may be required to pay the "alternative minimum tax" on our items of
tax preference.
. If we have: (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business; or (b) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. Foreclosure property is generally defined
as property acquired through foreclosure or after a default on a loan
secured by the property or a lease of the property.
. We will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business.
. If we fail to satisfy the 75% or 95% gross income test, as described
below, but have otherwise maintained our qualification as a REIT, we
will be required to pay a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the
75% or 95% gross income test multiplied by (b) a fraction intended to
reflect our profitability.
. We will be required to pay a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to
distribute during each calendar year at least the sum of (a) 85% of our
REIT ordinary income for the year, (b) 95% of our REIT capital gain net
income for the year, and (c) any undistributed taxable income from prior
periods.
. If we acquire any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset in the hands
of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period beginning on the
date on which we acquired the asset, then under Treasury Regulations not
yet promulgated we will be required to pay tax at the highest regular
corporate tax rate on this gain to the extent of the excess of (a) the
fair market value of the asset over (b) our adjusted basis in the asset,
in each case determined as of the date on which we acquired the asset. A
C corporation is generally defined as a corporation required to pay full
corporate-level tax. The results described in this paragraph with
respect to the recognition of gain assume that we will make an election
under IRS Notice 88-19 and that the availability or nature of this
election is not modified as proposed in President Clinton's 2000 Federal
Budget Proposal.
Requirements for qualification as a REIT. The Internal Revenue Code defines
a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation but for Sections 856
through 860 of the Internal Revenue Code;
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(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals, including
specified entities, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions (5)
and (6) do not apply until after the first taxable year for which an election
is made to be taxed as a REIT. For purposes of condition (6), pension funds and
other specified tax-exempt entities generally are treated as individuals,
except that a "look-through" exception applies with respect to pension funds.
We believe that we have satisfied all of the conditions to qualify as a
REIT. In addition, our charter provides for restrictions regarding ownership
and transfer of shares. These restrictions are intended to assist us in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. These ownership and transfer restrictions are described in "Description
of capital stock--Restrictions on ownership and transfer of shares of our
capital stock." These restrictions, however, may not ensure that we will, in
all cases, be able to satisfy the share ownership requirements described in (5)
and (6) above. If we fail to satisfy these share ownership requirements, except
as provided in the next sentence, our status as a REIT will terminate. If,
however, we comply with the rules contained in the Treasury Regulations that
require us to ascertain the actual ownership of our shares and we do not know,
or would not have known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition (6) above, we will be
treated as having met this requirement. See "--Failure to qualify."
In addition, we may not maintain our status as a REIT unless our taxable
year is a calendar year. We have and will continue to have a calendar taxable
year.
Ownership of a partnership interest. Treasury Regulations provide that if we
are a partner in a partnership, we will be deemed to own our proportionate
share of the assets of the partnership. Also, we will be deemed to be entitled
to our proportionate share of the income of the partnership. The character of
the assets and gross income of the partnership retains the same character in
our hands for purposes of Section 856 of the Internal Revenue Code, including
satisfying the gross income tests and the asset tests. Thus, our proportionate
share of the assets and items of income of Kilroy Realty, L.P. are treated as
our assets and items of income for purposes of applying the requirements
described in this prospectus, including the income and asset tests described
below. In addition, for these purposes, Kilroy Realty, L.P.'s assets and items
of income include its share of assets and items of income of any partnership in
which it owns an interest. We have included a brief summary of the rules
governing the federal income taxation of partnerships and their partners below
in "--Tax Aspects of the Partnerships." We have direct control of Kilroy
Realty, L.P. and will continue to operate it in a manner consistent with the
requirements for qualification as a REIT.
Income tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT:
. First, each taxable year we must derive directly or indirectly at least
75% of our gross income, excluding gross income from prohibited
transactions, from (a) investments relating to real property or
mortgages on real property, including "rents from real property" and, in
some circumstances, interest, or (b) types of temporary investments;
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. Second, each taxable year we must derive at least 95% of our gross
income, excluding gross income from prohibited transactions, from (a)
the real property investments described above, or (b) dividends,
interest and gain from the sale or disposition of stock or securities or
(c) any combination of the foregoing.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any
person. An amount received or accrued generally will not be excluded from the
term "interest," however, solely by reason of being based on a fixed percentage
or percentages of receipts or sales.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT described above only if the following
conditions are met:
. the amount of rent must not be based in any way on the income or profits
of any person. An amount received or accrued generally will not be
excluded from the term "rents from real property" solely because it is
based on a fixed percentage or percentages of receipts or sales;
. the Internal Revenue Code provides that rents received from a tenant
will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an actual or constructive owner of 10% or
more of the REIT, actually or constructively owns 10% or more of the
interests in that tenant;
. if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property"; and
. for rents received to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render
services to the tenants of the property, subject to a 1% de minimis
exception, other than through an independent contractor from whom the
REIT derives no revenue. The REIT may, however, directly perform
services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Examples of these services
include the provision of light, heat, or other utilities, trash removal
and general maintenance of common areas.
We generally do not intend to receive rent which fails to meet any of the
conditions described above.
Notwithstanding the foregoing, we may have taken and may continue to take the
actions which do not satisfy the conditions described above to the extent that
we determine, based on the advice of our tax counsel, that those actions will
not jeopardize our status as a REIT.
Kilroy Services, Inc. generally receives fees in exchange for the
performance of specified development activities. These fees do not accrue to
us, but we derive our allocable share of dividends from Kilroy Services, Inc.
through our interest in Kilroy Realty, L.P., which qualify under the 95% gross
income test, but not the 75% gross income test. We believe that the aggregate
amount of our nonqualifying income, from all sources, in any taxable year will
not exceed the limit on nonqualifying income under the gross income tests.
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If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under the Internal Revenue Code. Generally, we may avail
ourselves of the relief provisions if:
. our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
. we attach a schedule of the sources of our income to our federal income
tax return; and
. any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set
of circumstances, we will not qualify as a REIT. As discussed above in "--
Taxation of Kilroy Realty Corporation--General", even if these relief
provisions apply, and we retain our status as a REIT, a tax would be imposed
with respect to our non-qualifying income. We may not always be able to
maintain compliance with the gross income tests for REIT qualification despite
our periodic monitoring of our income.
Prohibited transaction income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Our gain includes
our share of any gain realized by Kilroy Realty, L.P. or Kilroy Realty Finance
Partnership, L.P. This prohibited transaction income may also adversely affect
our ability to satisfy the income tests for qualification as a REIT. Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a trade or business depends on all the
facts and circumstances surrounding the particular transaction. Kilroy Realty,
L.P. intends to hold its properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing and owning its
properties. Kilroy Realty, L.P. intends to make occasional sales of the
properties as are consistent with Kilroy Realty, L.P.'s investment objectives.
The IRS may contend, however, that that one or more of these sales is subject
to the 100% penalty tax.
Asset tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
. First, at least 75% of the value of our total assets must be represented
by real estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include stock or debt
instruments that are purchased with the proceeds of a stock offering or
a long-term public debt offering with a term of at least five years, but
only for the one-year period beginning on the date we receive these
proceeds.
. Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset
test.
. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities may not exceed 5% of the value of our total
assets, and we may not own more than 10% of any one issuer's outstanding
voting securities.
Kilroy Realty, L.P. owns 100% of the non-voting preferred stock of Kilroy
Services, Inc., and by virtue of our ownership of interests in Kilroy Realty,
L.P., we are considered to own these shares. The preferred stock of Kilroy
Services, Inc. held by us is not a qualifying real estate asset. Kilroy Realty,
L.P. does not and will not own any of the voting securities of Kilroy Services,
Inc., and therefore we will not be considered to own more than 10% of its
voting securities. In addition, we believe that the value of our share of the
preferred stock held by Kilroy Realty, L.P. does not exceed 5% of the total
value of our assets, and will not exceed this amount in the future. No
independent appraisals have been obtained to support this conclusion. We cannot
assure our stockholders that the IRS will not contend that the value of the
securities of Kilroy Services, Inc. held by us exceeds the 5% value limitation.
The 5% value test must be satisfied not only on the date that we acquired,
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directly or through Kilroy Realty, L.P., securities in Kilroy Services, Inc.,
but also each time we increase our ownership, including as a result of
increasing our interest in Kilroy Realty, L.P. whether as a result of a capital
contribution or the redemption of common units of Kilroy Realty, L.P. Although
we believe that we presently satisfy the 5% value test and plan to take steps
to ensure that we satisfy this test for any quarter with respect to which
retesting is to occur, we cannot assure our stockholders that these steps will
always be successful, or will not require a reduction in Kilroy Realty, L.P.'s
interest in Kilroy Services, Inc.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If we fail to
satisfy the asset tests because we acquire securities or other property during
a quarter, we can cure this failure by disposing of sufficient nonqualifying
assets within 30 days after the close of that quarter. For this purpose, an
increase in our interests in Kilroy Realty L.P. will be treated as an
acquisition of a portion of the securities or other property owned by this
partnership. We believe we have maintained and intend to continue to maintain
adequate records of the value of our assets to ensure compliance with the asset
tests. In addition, we intend to take those other actions within the 30 days
after the close of any quarter as may be required to cure any noncompliance. If
we fail to cure noncompliance with the asset tests within this time period, we
would cease to qualify as a REIT.
Annual distribution requirements. To maintain our qualification as a REIT,
we are required to distribute dividends, other than capital gain dividends, to
our stockholders in an amount at least equal to the sum of:
. 95% of our "REIT taxable income"; plus
. 95% of our after tax net income, if any, from foreclosure property;
minus
. the excess of the sum of specified items of our noncash income items
over 5% of "REIT taxable income" as described above.
Our "REIT taxable income" is computed without regard to the dividends paid
deduction and our net capital gain. In addition, for purposes of this test,
non-cash income means income attributable to leveled stepped rents, original
issue discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable.
We must pay these distributions in the taxable year to which they relate, or
in the following taxable year if they are declared before we timely file our
tax return for that year and paid on or before the first regular dividend
payment following their declarations. Except as provided below, these
distributions are taxable to our stockholders, other than tax-exempt entities,
as discussed below, in the year in which paid. This is so even though these
distributions relate to the prior year for purposes of our 95% distribution
requirement. The amount distributed must not be preferential. To avoid being
preferential, every stockholder of the class of stock to which a distribution
is made must be treated the same as every other stockholder of that class, and
no class of stock may be treated otherwise than according to its dividend
rights as a class. To the extent that we do not distribute all of our net
capital gain or distribute at least 95%, but less than 100%, of our "REIT
taxable income," as adjusted, we will be required to pay tax on this income at
regular ordinary and capital gain corporate tax rates. We believe we have made
and intend to continue to make timely distributions sufficient to satisfy these
annual distribution requirements. In this regard, the Kilroy Realty, L.P.
partnership agreement authorizes us, as general partner, to take whatever steps
are necessary to cause Kilroy Realty, L.P. to distribute to its partners an
amount sufficient to permit us to meet these distribution requirements.
We expect that our "REIT taxable income" will be less than our cash flow
because of depreciation and other non-cash charges included in computing our
"REIT taxable income." Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy our distribution
requirements. However, we may not have sufficient cash or other liquid assets
to meet these distribution requirements because of timing differences between
the actual receipt of income and actual payment of deductible expenses, and the
inclusion of income and deduction of expenses in determining our taxable
income. If these timing differences occur, we may need to arrange for short-
term, or possibly long-term, borrowings or need to pay dividends in the form of
taxable stock dividends in order to meet the distribution requirements.
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We may be able to rectify an inadvertent failure to meet the 95%
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which we may include in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
In addition, we will be required to pay a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we fail to
distribute during each calendar year, or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following that year, at least the sum
of 85% of our REIT ordinary income for the year, 95% of our REIT capital gain
income for the year and any undistributed taxable income from prior periods.
Any taxable income and net capital gain on which this excise tax is imposed for
any year is treated as an amount distributed during that year for purposes of
calculating the tax.
Failure to qualify.
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Internal Revenue Code do not apply, we will be
required to pay tax, including any alternative minimum tax, on our taxable
income at regular corporate rates. Distributions to stockholders in any year in
which we fail to qualify as a REIT will not be deductible by us and we will not
be required to distribute any amounts to our stockholders. As a result, we
anticipate that our failure to qualify as a REIT would reduce the cash
available for distribution by us to our stockholders. In addition, if we fail
to qualify as a REIT, all distributions to stockholders will be taxable at
ordinary income rates to the extent of our current and accumulated earnings and
profits. In this event, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which we lose our
qualification. It is not possible to state whether in all circumstances we
would be entitled to this statutory relief. In addition, President Clinton's
2000 Federal Budget Proposal contains a provision which, if enacted in its
present form, would result in the immediate taxation of all gain inherent in a
C corporation's assets upon an election by the corporation to become a REIT in
taxable years beginning after January 1, 2000. If enacted, this provision could
impose a substantial tax upon us if we re-elected to be taxed as a REIT
following any loss of REIT status.
Tax aspects of the partnerships.
General. Substantially all of our investments are held indirectly through
Kilroy Realty, L.P. and Kilroy Realty Finance Partnership, L.P. In general,
partnerships are "pass-through" entities which are not required to pay federal
income tax. Rather, partners are allocated their proportionate shares of the
items of income, gain, loss, deduction and credit of a partnership, and are
potentially required to pay tax on this income, without regard to whether the
partners receive a distribution from the partnership. We will include in our
income our proportionate share of these partnership items for purposes of the
various REIT income tests and in the computation of our REIT taxable income.
Moreover, for purposes of the REIT asset tests, we will include our
proportionate share of assets held by Kilroy Realty, L.P. and Kilroy Realty
Finance Partnership, L.P.
Entity classification. Our interests in Kilroy Realty, L.P. involve special
tax considerations. These special tax considerations include, for example, the
possibility that the IRS might challenge the status of Kilroy Realty, L.P. or
Kilroy Realty Finance Partnership, L.P. as partnerships, as opposed to
associations taxable as corporations, for federal income tax purposes. If
Kilroy Realty, L.P. or Kilroy Realty Finance Partnership, L.P. were treated as
an association, it would be taxable as a corporation and therefore be subject
to an entity-level tax on its income. In this situation, the character of our
assets and items of gross income would change and prevent us from satisfying
the REIT asset tests and possibly the REIT income tests. This, in turn, would
prevent us from qualifying as a REIT. In addition, a change in Kilroy Realty,
L.P.'s or Kilroy Realty Finance Partnership, L.P.'s tax status might be treated
as a taxable event. If so, we might incur a tax liability without any related
cash distributions.
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Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997, provide that a domestic business entity not otherwise
organized as a corporation and which has at least two members may elect to be
treated as a partnership for federal income tax purposes. Unless it elects
otherwise, an eligible entity in existence prior to January 1, 1997, will have
the same classification for federal income tax purposes that it claimed under
the entity classification Treasury Regulations in effect prior to this date. In
addition, an eligible entity which did not exist or did not claim a
classification prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. Kilroy Realty, L.P.
and Kilroy Realty Finance Partnership, L.P. intend to claim classification as
partnerships under the final regulations. As a result, we believe that these
partnerships will be classified as partnerships for federal income tax
purposes.
Allocations of Kilroy Realty, L.P.'s income, gain, loss and deduction. A
partnership agreement will generally determine the allocation of income and
losses among partners. These allocations, however, will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) of the
Internal Revenue Code and the Treasury Regulations. Generally, Section 704(b)
of the Internal Revenue Code and the related Treasury Regulations require that
partnership allocations respect the economic arrangement of the partners.
The partnership agreement provides for preferred distributions of cash and
preferred allocations of income with respect to the holders of Series A
Preferred Units and Series C Preferred Units. In addition, to the extent that
we issue Series B Preferred Stock, Kilroy Realty, L.P. will issue Series B
Preferred Units to us, and the partnership agreement will be amended to provide
for similar preferred distributions of cash and preferred allocations of income
to us with respect to our Series B Preferred Units, although these
distributions and allocations will be subordinate to the Series A and Series C
Preferred Units. As a consequence, we will receive distributions from Kilroy
Realty, L.P. and distributions attributable to our other assets that we will
use to pay dividends on any issued shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock before any other partner in Kilroy
Realty, L.P. receives a distribution, other than a holder of Series A Preferred
Units and Series C Preferred Units, if these units are not then held by us. In
addition, if necessary, income will be specially allocated to us, and losses
will be allocated to the other partners of Kilroy Realty, L.P., in amounts
necessary to ensure that the balance in our capital account will at all times
be equal to or in excess of the amount that we must pay on any issued shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
upon liquidation or redemption. As long as we do not hold the Series A
Preferred Units or Series C Preferred Units, similar preferred distributions
and allocations will be made for the benefit of the holders of these units. All
remaining items of operating income and loss will be allocated to the holders
of common units in proportion to the number of common units held by each
unitholder. Some limited partners have agreed to guarantee debt of Kilroy
Realty, L.P., either directly or indirectly through an agreement to make
capital contributions to it under limited circumstances. As a result, and
notwithstanding the above discussion of allocations of income and loss to
holders of common units, these limited partners could under limited
circumstances be allocated a disproportionate amount of net loss upon a
liquidation, which net loss would have otherwise been allocable to us.
If an allocation is not recognized for federal income tax purposes, the
relevant item will be reallocated according to the partners' interests in the
partnership. This reallocation will be determined by taking into account all of
the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. Kilroy Realty, L.P.'s allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Internal Revenue Code and the Treasury Regulations thereunder.
Tax allocations with respect to the properties. Under Section 704(c) of the
Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner so
that the contributing partner is charged with the unrealized gain or benefits
from the unrealized loss associated with the property at the time of the
contribution. The amount of the unrealized gain or unrealized loss is generally
equal to the difference between the fair market value or book value and the
adjusted tax basis of the contributed property at the time of contribution.
These allocations are solely for federal income tax purposes. These allocations
do not
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affect the book capital accounts or other economic or legal arrangements among
the partners. Kilroy Realty, L.P. was formed by way of contributions of
appreciated property. Moreover, subsequent to the formation of Kilroy Realty,
L.P., additional appreciated property has been contributed to it in exchange
for partnership interests. The partnership agreement requires that these
allocations be made in a manner consistent with Section 704(c) of the Internal
Revenue Code.
In general, the partners of Kilroy Realty, L.P., who acquired their limited
partnership interests through a contribution of appreciated property will be
allocated depreciation deductions for tax purposes which are lower than these
deductions would have been if they had been determined on a pro rata basis. In
addition, in the event of the disposition of any of the contributed assets
which have an unrealized gain or loss attributable to a difference between the
fair market or book value and the adjusted tax basis of the asset at the time
of contribution, all income attributable to this book-tax difference will
generally be allocated to the limited partners who contributed the property. We
will generally be allocated only our share of income attributable to
appreciation or depreciation, if any, occurring after the date of contribution
to Kilroy Realty, L.P. These allocations will tend to eliminate the book-tax
difference over the life of Kilroy Realty, L.P. However, the special allocation
rules of Section 704(c) of the Internal Revenue Code do not always entirely
eliminate the book-tax difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of Kilroy Realty, L.P. may cause us to be
allocated lower depreciation and other deductions. We could possibly be
allocated an amount of taxable income in the event of a sale of these
contributed assets in excess of the economic or book income allocated to us as
a result of the sale. This may cause us to recognize taxable income in excess
of cash proceeds, which might adversely affect our ability to comply with the
REIT distribution requirements.
Treasury Regulations issued under Section 704(c) of the Internal Revenue
Code provide partnerships with a choice of several methods of accounting for
book-tax differences, including retention of the "traditional method" or the
election of other methods which would permit any distortions caused by a book-
tax difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. We and Kilroy Realty, L.P. have
determined to use the "traditional method" for accounting for book-tax
differences for the properties initially contributed to Kilroy Realty, L.P. and
for some assets acquired subsequently. We and Kilroy Realty, L.P. have not yet
decided what method will be used to account for book-tax differences for
properties acquired by Kilroy Realty, L.P. in the future.
Any property acquired by Kilroy Realty, L.P. in a taxable transaction will
initially have a tax basis equal to its fair market value, and Section 704(c)
of the Internal Revenue Code will not apply.
Taxation of taxable U.S. stockholders.
As used below, the term "U.S. stockholder" means a holder of shares of
common stock who is for United States federal income tax purposes:
. a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state or in the District
of Columbia, unless, in the case of a partnership, Treasury Regulations
provide otherwise;
. an estate which is required to pay United States federal income tax
regardless of the source of its income; or
. a trust whose administration is under the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
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Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as
United States persons, shall also be considered U.S. stockholders.
Distributions generally. Distributions out of our current or accumulated
earnings and profits, other than capital gain dividends discussed below, will
constitute dividends taxable to our taxable U.S. stockholders as ordinary
income. As long as we qualify as a REIT, these distributions will not be
eligible for the dividends-received deduction in the case of U.S. stockholders
that are corporations. For purposes of determining whether distributions to
holders of common stock are out of current or accumulated earnings and profits,
our earnings and profits will be allocated first to our outstanding preferred
stock, if any, and then to our common stock.
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. stockholder. This treatment will reduce the adjusted basis which each
U.S. stockholder has in his or her shares of stock for tax purposes by the
amount of the distribution, but not below zero. Distributions in excess of a
U.S. stockholder's adjusted basis in his or her shares will be taxable as
capital gain, provided that the shares were held as capital assets. This gain
will be taxable as long-term capital gain if the shares have been held for more
than one year. Dividends we declare in October, November, or December of any
year and payable to a stockholder of record on a specified date in any of these
months will be treated as both paid by us and received by the stockholder on
December 31 of that year, provided we actually pay the dividend on or before
January 31 of the following calendar year. Stockholders may not include in
their own income tax returns any of our net operating losses or capital losses.
Capital gain distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. stockholders as gains
from the sale or disposition of a capital asset to the extent that these gains
do not exceed our actual net capital gain for the taxable year. Depending on
the tax characteristics of the assets which produced these gains, and on
specified designations, if any, which we may make, these gains may be taxable
to non-corporate U.S. stockholders at a 20% or 25% rate. U.S. stockholders that
are corporations may, however, be required to treat up to 20% of some capital
gain dividends as ordinary income.
Passive activity losses and investment interest limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
stockholders will generally be unable to apply any "passive losses" against
this income or gain. Distributions we make, to the extent they do not
constitute a return of capital, generally will be treated as investment income
for purposes of computing the investment interest limitation. Gain arising from
the sale or other disposition of our shares, however, may not be treated as
investment income depending upon your particular situation.
Retention of net long-term capital gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a U.S. stockholder generally
would:
. include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
. be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. stockholder's long-term capital
gains;
. receive a credit or refund for the amount of tax deemed paid by it;
. increase the adjusted basis of its common stock by the difference
between the amount of includable gains and the tax deemed to have been
paid by it; and
. in the case of a U.S. stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains as
required by Treasury Regulations to be prescribed by the IRS.
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Dispositions of common stock.
If you are a U.S. stockholder and you sell or dispose of your shares of
common stock, you will recognize gain or loss for federal income tax purposes
in an amount equal to the difference between the amount of cash and the fair
market value of any property you receive on the sale or other disposition and
your adjusted basis in the shares for tax purposes. This gain or loss will be
capital if you have held the common stock as a capital asset. This gain or loss
will be long-term capital gain or loss if you have held the common stock for
more than one year. In general, if you are a U.S. stockholder and you recognize
loss upon the sale or other disposition of common stock that you have held for
six months or less, then after applying the relevant holding period rules, the
loss you recognize will be treated as a long-term capital loss to the extent
you received distributions from us which were required to be treated as long-
term capital gains.
Backup withholding.
We report to our U.S. stockholders and the IRS the amount of dividends paid
during each calendar year and the amount of any tax withheld. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder is a corporation
or is otherwise exempt and, when required, demonstrates this fact or provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the backup withholding rules. A
U.S. stockholder that does not provide us with his or her correct taxpayer
identification number may also be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
In addition, we may be required to withhold a portion of capital gain
distributions to any stockholders who fail to certify their non-foreign status.
Taxation of tax-exempt stockholders.
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income when received by a tax-
exempt entity. Based on that ruling, except as described below, dividend income
from us will not be unrelated business taxable income to a tax-exempt
stockholder. This income or gain will be unrelated business taxable income,
however, if the tax-exempt stockholder holds its shares as "debt financed
property" within the meaning of the Internal Revenue Code or if the shares are
used in a trade or business of the tax-exempt stockholder. Generally, debt
financed property is property, the acquisition or holding of which was financed
through a borrowing by the tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to properly claim a
deduction for amounts set aside or placed in reserve for specific purposes so
as to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set
aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as unrelated business taxable income as to
any trust which:
. is described in Section 401(a) of the Internal Revenue Code;
. is tax-exempt under Section 501(a) of the Internal Revenue Code; and
. holds more than 10%, by value, of the interests in the REIT.
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Tax-exempt pension funds that are described in Section 401(a) of the
Internal Revenue Code are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if:
. it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Internal Revenue Code provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust, rather
than by the trust itself; and
. either at least one of these qualified trusts holds more than 25%, by
value, of the interests in the REIT, or two or more of these qualified
trusts, each of which owns more than 10%, by value, of the interests in
the REIT, hold in the aggregate more than 50%, by value, of the
interests in the REIT.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
. the unrelated business taxable income earned by the REIT, treating the
REIT as if it were a qualified trust and therefore required to pay tax
on unrelated business taxable income, to
. the total gross income of the REIT.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as unrelated business taxable income will not apply if the REIT
is able to satisfy the "not closely held" requirement without relying upon the
"look-through" exception with respect to qualified trusts. As a result of the
limitations on the transfer and ownership of stock contained in our charter,
we are not and do not expect to be classified as a "pension-held REIT."
Taxation of non-U.S. stockholders.
The preceding discussion does not address the rules governing U.S. federal
income taxation of the ownership and disposition of common stock by persons
that are non-U.S. stockholders. When we use the term "non-U.S. stockholder" we
mean stockholders who are not U.S. stockholders. In general, non-U.S.
stockholders may be subject to special tax withholding requirements on
distributions from us and with respect to their sale or other disposition of
our common stock, except to the extent reduced or eliminated by an income tax
treaty between the United States and the non-U.S. stockholder's country. A
non-U.S. stockholder who is a stockholder of record and is eligible for
reduction or elimination of withholding must file an appropriate form with us
in order to claim this treatment. Non-U.S. stockholders should consult their
tax advisors concerning the federal income tax consequences to them of an
acquisition of shares of common stock, including the federal income tax
treatment of dispositions of interests in and the receipt of distributions
from us.
Other tax consequences.
We may be required to pay state or local taxes in various state or local
jurisdictions, including those in which we transact business. Our stockholders
may be required to pay state or local taxes in various state or local
jurisdictions, including those in which they reside. Our state and local tax
treatment may not conform to the federal income tax consequences summarized
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences summarized above. Consequently, you should
consult your tax advisor regarding the effect of state and local tax laws on a
disposition of Kilroy Realty, L.P. common units or an investment in our common
stock.
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PLAN OF DISTRIBUTION AND UNDERWRITERS
Pursuant to the plan, we may be requested to approve optional cash purchases
excess of the allowable maximum amounts pursuant to requests for waiver on
behalf of you or any another participant that may be engaged in the securities
business. In deciding whether to approve such a request, we will consider
relevant factors including, but not limited to:
. our need for additional funds,
. the attractiveness of obtaining such additional funds through the sale
of common stock as compared to other sources of funds,
. the purchase price likely to apply to any sale of common stock, and
. the aggregate amount of optional cash purchases in excess of $5,000 for
which requests for waiver have been submitted by all participants.
Persons who acquire shares of common stock through the plan and resell them
shortly after acquiring them, including coverage of short positions, under
certain circumstances, may be participating in a distribution of securities
that would require compliance with Regulation M under the Securities Exchange
Act of 1934, as amended, and may be considered to be underwriters within the
meaning of the Securities Act. We will not extend to any such person any rights
or privileges other than those to which it would be entitled as a participant,
nor will we enter into any agreement with any such person regarding such
person's purchase of such shares or any resale or distribution thereof. We may,
however, approve requests for optional cash purchases by such persons in excess
of allowable maximum limitations. If such requests are submitted for any WDP
investment date for an aggregate amount in excess of the amount we are willing
to accept, we may honor such requests in order of receipt, pro rata or by any
other method which we determine to be appropriate.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1998 and the combined
historical summary of certain revenues and certain expenses of the April 1998
Acquisition for the year ended December 31, 1997 incorporated in this
prospectus by reference from the Company's Current Report on Form 8-K dated
April 10, 1998 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland. Latham &
Watkins will issue an opinion to us regarding tax matters described under
"Material Federal Tax Considerations Associated with an Investment in Common
Stock."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
the SEC, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
. our annual report on Form 10-K (File No. 001-12675) for the year ended
December 31, 1998, as amended by Amendment No. 1 to Form 10-K on Form
10-K/A filed on August 10, 1999;
44
<PAGE>
. our quarterly report on Form 10-Q for the quarter ended March 31, 1999,
as amended by Amendment No. 1 to Form 10-Q on Form 10-Q/A filed on
August 10, 1999;
. our quarterly report on Form 10-Q (File No. 001-12675) for the quarter
ended June 30, 1999;
. our current report on Form 8-K filed July 9, 1999 (file number 001-
12675); and
. the description of our common stock contained in our registration
statement on Form 8-K/A, dated March 5, 1999 (file number 001-12675),
including any amendments or reports filed for the purpose of updating
this description.
. all documents filed by us with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) pursuant to the Securities Exchange Act of 1934, as
amended after the date of this prospectus and prior to the termination
of the offering.
To receive a free copy of any of the documents incorporated by reference in
this prospectus, other than exhibits, unless they are specifically incorporated
by reference in the documents, call or write Kilroy Realty Corporation, 2250
East Imperial Highway, El Segundo, CA 90245, Attention: Secretary (310) 563-
5500.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file with the SEC at the SEC's public reference rooms at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC also maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC
(http://www.sec.gov). You can inspect reports and other information we file at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
We have filed a registration statement of which this prospectus is a part
and related exhibits with the SEC under the Securities Act of 1933, as amended.
The registration statement contains additional information about us. You may
inspect the registration statement and exhibits without charge at the office of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and you may obtain
copies from the SEC at prescribed rates.
45
<PAGE>
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE
Some of the information included and incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to our
(including certain of our subsidiaries') capital resources, portfolio
performance and results of operations. Likewise, the pro forma financial
statements and other pro forma information incorporated by reference in this
prospectus also contain forward-looking statements. In addition, all statements
regarding anticipated growth in our funds from operations and anticipated
market conditions, demographics and results of operations are forward-looking
statements. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. We can not
assure you that the events or circumstances reflected in forward-looking
statements will be achieved or will occur. You can identify forward-looking
statements by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates" or "anticipates" or the negative of these
words and phrases or similar words or phrases. You can also identify forward-
looking statements by discussions of strategy, plans or intentions. Forward-
looking statements are necessarily dependent on assumptions, data or methods
that may be incorrect or imprecise and we may not be able to realize them. The
following factors, among others, could cause actual results and future events
to differ materially from those set forth or contemplated in the forward-
looking statements: defaults on or non-renewal of leases by tenants, increased
interest rates and operating costs, our failure to obtain necessary outside
financing, difficulties in identifying properties to acquire and in effecting
acquisitions, our failure to successfully integrate acquired properties and
operations, risks and uncertainties affecting property development and
construction, including construction delays, cost overruns, our inability to
obtain necessary permits and public opposition to these activities, our failure
to qualify and maintain our status as a REIT under the Internal Revenue Code,
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. Our success also depends upon economic trends
generally, including interest rates, income tax laws, governmental regulation,
legislation, population changes and certain other matters. We caution you not
to place undue reliance on forward-looking statements, which reflect our
analysis only.
46
<PAGE>
ANNEX I
KILROY REALTY CORPORATION
ESTIMATED DATES FOR OPTIONAL CASH PURCHASES
<TABLE>
<CAPTION>
Estimated
Threshold Price
and Waiver
Discount Estimated Estimated
Determination Optional Cash Investment Period Estimated
Date Payment Due Date Commencement Date COPP Investment Date
- ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>
October 12, 1999 October 14, 1999 October 15, 1999 October 20, 1999
November 9, 1999 November 11, 1999 November 12, 1999 November 22, 1999
December 7, 1999 December 9, 1999 December 10, 1999 December 20, 1999
January 11, 2000 January 13, 2000 January 14, 2000 January 20, 2000
February 9, 2000 February 10, 2000 February 11, 2000 February 21, 2000
March 7, 2000 March 9, 2000 March 10, 2000 March 20, 2000
April 11, 2000 April 13, 2000 April 14, 2000 April 20, 2000
May 9, 2000 May 11, 2000 May 12, 2000 May 22, 2000
June 6, 2000 June 8, 2000 June 9, 2000 June 20, 2000
June 11, 2000 July 13, 2000 July 14, 2000 July 20, 2000
August 8, 2000 August 10, 2000 August 11, 2000 August 21, 2000
September 5, 2000 September 7, 2000 September 8, 2000 September 20, 2000
October 10, 2000 October 12, 2000 October 13, 2000 October 20, 2000
November 7, 2000 November 9, 2000 November 10, 2000 November 20, 2000
December 5, 2000 December 7, 2000 December 8, 2000 December 20, 2000
</TABLE>
47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of issuance and distribution
The expenses, other than underwriting discounts and commissions, in
connection with the offering of the securities being registered are set forth
below. All of such expenses are estimates.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 5,925
NYSE Filing Fee.................................................... 3,500
Printing........................................................... 30,000
Legal Fees and Expenses............................................ 75,000
Accounting Fees and Expenses....................................... 25,000
Blue Sky Fees and Expenses......................................... 7,000
Plan Administration Fees and Expenses.............................. 20,000
Miscellaneous Expenses............................................. 3,575
--------
Total............................................................ $170,000
========
</TABLE>
All of the costs identified above will be paid by us.
Item 15. Indemnification of directors and officers.
Section 2-418 of the Maryland General Corporation Law permits a corporation
to indemnify its directors and officers and certain other parties against
judgments, penalties, fines, settlements, and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that:
. the act or omission of the director or officer was material to the
matter giving rise to the proceeding and
. was committed in bad faith or
. was the result of active and deliberate dishonesty;
. the director or officer actually received an improper personal benefit
in money, property or services; or
. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Indemnification may be made against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit
to the director or officer, whether or not involving action in the director's
or officer's official capacity, in which the director or officer was adjudged
to be liable on the basis that personal benefit was received. The termination
of any proceeding by conviction, or upon a plea of nolo contendere or its
equivalent, or an entry of any order of probation prior to judgment, creates a
rebuttable presumption that the director or officer did not meet the requisite
standard of conduct required for indemnification to be permitted.
In addition, Section 2-418 of the Maryland General Corporation Law requires
that, unless prohibited by its charter, a corporation indemnify any director or
officer who is made a party to any proceeding by reason of service in that
capacity against reasonable expenses incurred by the director or officer in
connection with the proceeding, in the event that the director or officer is
successful, on the merits or otherwise, in the defense of the proceeding.
II-1
<PAGE>
Our charter and bylaws provide in effect that we will indemnify our
directors and officers to the fullest extent permitted by applicable law. We
have purchased directors' and officers' liability insurance for the benefit of
its directors and officers.
We have entered into indemnification agreements with each of our executive
officers and directors. The indemnification agreements require, among other
matters, that we indemnify our executive officers and directors to the fullest
extent permitted by law and reimburse them for all related expenses as
incurred, subject to return if it is subsequently determined that
indemnification is not permitted.
Item 16. Exhibits.
<TABLE>
<C> <S>
4.1 Registration Rights Agreement, dated January 31, 1997(1)
4.2 Registration Rights Agreement, dated February 6, 1998(2)
4.3 Registration Rights Agreement, dated April 20, 1998(3)
4.4 Registration Rights Agreement, dated November 24, 1998(4)
4.5 Registration Rights Agreement, dated as of October 31, 1997(5)
4.6 Rights Agreement, dated as of October 2, 1998 between Kilroy Realty
Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, which includes the form of Articles Supplementary of the
Series B Junior Participating Preferred Stock of Kilroy Realty
Corporation as Exhibit A, the form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Shares as
Exhibit C(6)
*4.7 Form of Dividend Reinvestment and Direct Purchase Plan
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
*8.1 Latham & Watkins Opinion
*23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in exhibit
5.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Latham & Watkins (included in exhibit 8.1)
**24.1 Power of Attorney
*99.1 Enrollment Form
*99.2 Request for Waiver Form
</TABLE>
- --------
* Filed herewith.
** Previously filed.
(1) Previously filed as an exhibit to the Registration Statement on Form S-11
(No. 333-15553) as declared effective on January 28, 1997 and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated February 6, 1998 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated August 20, 1998 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated November 24, 1998 and incorporated herein by reference.
(5) Previously filed as an exhibit to the Current Report on Form 8-K/A, dated
October 29, 1997, and incorporated herein by reference.
(6) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated October 2, 1998 and incorporated herein by reference.
II-2
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change such information in the
registration statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Exchange Act that are incorporated by reference in
the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance under Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act,
as amended, may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Exchange Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director. officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Exchange Act of 1934, as amended, and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of El Segundo, State of
California, on this 30 day of September, 1999.
KILROY REALTY CORPORATION
*
By: _________________________________
John B. Kilroy, Jr.
President, Chief
Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board September 30, 1999
____________________________________
John B. Kilroy, Sr.
* President, Chief Executive September 30, 1999
____________________________________ Officer and Director
John B. Kilroy, Jr. (Principal Executive
Officer)
* Director September 30, 1999
____________________________________
John R. D'Eathe
* Director September 30, 1999
____________________________________
William P. Dickey
* Director September 30, 1999
____________________________________
Matthew J. Hart
* Director September 30, 1999
____________________________________
Dale F. Kinsella
* Executive Vice President, September 30, 1999
____________________________________ Chief Financial Officer and
Richard E. Moran Jr. Secretary (Principal
Financial Officer)
/s/ Ann Marie Whitney Vice President and September 30, 1999
____________________________________ Controller (Principal
Ann Marie Whitney Accounting Officer)
/s/ Ann Marie Whitney September 30, 1999
*By: _______________________________
Ann Marie Whitney
Attorney-in-Fact
September 30, 1999
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
4.1 Registration Rights Agreement, dated January 31, 1997(1)
4.2 Registration Rights Agreement, dated February 6, 1998(2)
4.3 Registration Rights Agreement, dated April 20, 1998(3)
4.4 Registration Rights Agreement, dated November 24, 1998(4)
4.5 Registration Rights Agreement, dated as of October 31, 1997(5)
4.6 Rights Agreement, dated as of October 2, 1998 between Kilroy Realty
Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, which includes the form of Articles Supplementary of the
Series B Junior Participating Preferred Stock of Kilroy Realty
Corporation as Exhibit A, the form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Shares as
Exhibit C(6)
*4.7 Form of Dividend Reinvestment and Direct Purchase Plan
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
*8.1 Latham & Watkins Opinion
*23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in exhibit
5.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Latham & Watkins (included in exhibit 8.1)
**24.1 Power of Attorney
*99.1 Enrollment Form
*99.2 Request for Waiver Form
</TABLE>
- --------
* Filed herewith.
** Previously filed.
(1) Previously filed as an exhibit to the Registration Statement on Form S-11
(No. 333-15553) as declared effective on January 28, 1997 and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated February 6, 1998 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated August 20, 1998 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated November 24, 1998 and incorporated herein by reference.
(5) Previously filed as an exhibit to the Current Report on Form 8-K/A, dated
October 29, 1997, and incorporated herein by reference.
(6) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated October 2, 1998 and incorporated herein by reference.
<PAGE>
EXHIBIT 4.7
KILROY REALTY CORPORATION
DIVIDEND REINVESTMENT AND DIRECT PURCHASE PLAN
October 4, 1999
1. PURPOSE AND ADMINISTRATION
Kilroy Realty Corporation, a Maryland corporation (the "Company"), has
adopted three plans for the direct purchase of shares of the Company's common
stock, par value $.01 per share (the "Common Stock"): (i) the Dividend
Reinvestment Program (the "DRIP"); (ii) the Cash Option Purchase Plan (the
"COPP"); and (iii) the Waiver Discount Plan (the "WDP"). The DRIP, COPP and WDP
are collectively referred to as the "Plan." The purpose of the Plan is to
provide existing stockholders of the Company with an opportunity to invest
automatically the cash dividends paid upon shares of the Company's Common Stock
held by them, as well as to permit existing and prospective stockholders to make
voluntary cash purchases of such Common Stock. MellonBank, N.A., as agent, or
such successor plan administrator as we may designate (the "Agent"), will
administer the Plan. ChaseMellon Shareholder Services, L.L.C., a registered
transfer agent, will provide certain administrative support to the Agent.
2. PARTICIPATION
Any existing holder of shares of Common Stock with any of such shares
registered in his or her name on the records of the Agent and, with respect to
the COPP and WDP, certain other persons as described below, may enroll in the
Plan (any such person so enrolled in the Plan is referred to herein as a
"Participant"). Beneficial owners of shares of Common Stock registered in the
name of another person or entity must make arrangements for that person or
entity to handle investment or reinvestment with respect to dividends received
upon such shares, or must arrange to have such shares registered in the
beneficial owner's name in order to participate.
If a Participant holds shares registered in the name of another
person, a Broker/Nominee Form ("B/N Form") provides the sole means whereby a
broker, bank or other nominee holding shares on a Participant's behalf may
request an Optional Cash Purchase for the Participant. In such case, the
broker, bank or other nominee must use a B/N Form for transmitting Optional Cash
Purchases on the Participant's behalf. A B/N Form must be delivered to the
Agent each time that such broker, bank or other nominee transmits Optional Cash
Purchases on the Participant's behalf. A Participant may request a B/N Form
from the Agent in writing or by telephone.
To enroll in the Plan, a prospective Participant must complete and
sign an enrollment form, substantially in the form attached hereto as Exhibit A
(the "Enrollment Form") and return it to the Agent and, if applicable, a Request
for Waiver, substantially in the form attached hereto as Exhibit B (the "Request
for Waiver"), and return it to the Company. If the
<PAGE>
shares of Common Stock are registered in more than one name (such as joint
tenants, trustees, etc.), all registered holders must sign an Enrollment Form
and, if applicable, the Request for Waiver.
A prospective Participant may join the Plan at any time.
Participation in the DRIP will begin with the first dividend payment after an
Enrollment Form, designating the reinvestment of dividends, is received by the
Agent, provided there is sufficient time for processing prior to the next
dividend record date. Participation in the COPP will begin concurrently with
the first COPP Investment Date after an Enrollment Form and the COPP Payment (as
defined below) are received by the Agent, provided the payment is received one
full business day prior to the next COPP Investment Date. Participation in the
WDP will begin upon commencement of the first Investment Period (as defined
below) after the Request for Waiver, approved by the Company, and the WDP
Payment (as defined below) are received by the Agent, provided the payment is
received one full business day prior to the next Investment Period.
By selecting the "Partial Reinvestment" option on the Enrollment Form,
stockholders may elect to receive cash dividends on a specified percentage of
their shares, and reinvest the dividends on the balance of such shares. A
Participant may change the dividend reinvestment option at any time by
submitting a newly executed Enrollment Form to the Agent or by writing to the
Agent. Enrollment Forms may be obtained by contacting the Agent at the address
set forth in Section 22 of this Agreement. Any change in the percentage of
shares with respect to which the Agent is authorized to reinvest dividends must
be received by the Agent prior to the record date for a dividend to permit the
new number of shares to apply to that dividend.
3. DIVIDEND REINVESTMENT
Purchases of shares of Common Stock with reinvested dividends shall
occur on the dividend payment date or on the actual date of purchase if the
Company directs the Agent to extend the period used to purchase shares in the
open market or in privately negotiated transactions for up to an additional
trading 15 days after the applicable dividend payment date. Shares of Common
Stock purchased with such reinvested dividends shall be, at the Company's
option, either from (i) authorized but unissued shares of Common Stock or (ii)
shares of Common Stock purchased by the Agent in open market or privately
negotiated transactions. In either case, such shares of Common Stock will be
sold to the Participant at a price per share determined in accordance with
Section 5 hereof.
4. OPTIONAL CASH PURCHASES
An optional cash purchase (the "Optional Cash Purchase") may be made
under either the COPP or, with the Company's prior written approval, the WDP at
the time a Participant enrolls in the Plan, and thereafter from time to time as
set forth below, as long as a Participant is enrolled in the Plan. Participants
may make Optional Cash Purchases under the COPP by delivering a check or money
order payable to Mellon Bank to the Agent at the
2
<PAGE>
address set forth in Section 22 of this Agreement. Participants may make
Optional Cash Purchases under the WDP by transmitting immediately available
funds to the Agent to the account referenced on the Request for Waiver.
Participants should send all inquiries regarding other forms of payments and all
other written inquiries directly to the Agent at its address set forth in
Section 22 of this Agreement.
A. Cash Option Purchase Plan.
Any Participant may purchase additional shares of Common Stock under
the COPP by delivering to the Agent a check or money order in U.S. currency made
payable to Mellon Bank at the address set forth in Section 22 of this Agreement.
Wire transfers are not permitted for purchases under the COPP. Under the COPP,
the purchase of shares of Common Stock by a Participant will occur on the next
COPP Investment Date following the date on which the Agent receives the COPP
Payment; provided, however, that if any COPP Payment is received less than one
full business day before the next COPP Investment Date following the date the
payment is received by the Agent, such COPP Payment will be used to purchase
shares of Common Stock on the second COPP Investment Date following the date on
which the Agent receives the COPP Payment if the Agent determines, in its sole
discretion, that insufficient time exists to process the COPP Payment prior to
the next COPP Investment Date. The aggregate amount of any COPP Payment of a
Participant used to purchase shares of Common Stock during any calendar month
shall not be less than $100 nor more than $5,000; provided, however, that the
aggregate amount of any COPP Payment of a Participant that is not an existing
stockholder during any calendar month shall not be less than $750 nor more that
$5,000. Shares of Common Stock purchased under the COPP shall be, at the
Company's option, either from (i) authorized but unissued shares of Common Stock
or (ii) shares of Common Stock purchased by the Agent in open market or
privately negotiated transactions, or (iii) a combination of both. In either
case, such shares of Common Stock will be sold to the Participant at a price per
share determined in accordance with Section 5 of this Agreement.
B. Waiver Discount Plan.
Any Participant may purchase additional shares of Common Stock under
the WDP by transferring immediately available funds to the account referenced in
the Request for Waiver. The Agent must also receive written approval from the
Company of the Request for Waiver at least one full business day before the next
Investment Period. Under the WDP, a Participant shall purchase the maximum
number of shares of Common Stock that may be purchased on each trading day
during the applicable Investment Period (as defined below) with 1/10th of the
WDP Payment at a price per share equal to the average of the average high and
low price per share on that particular trading day during the applicable
Investment Period as reported by the New York Stock Exchange or, if the Common
Stock is not then listed on the New York Stock Exchange, any other securities
exchange or national quotation service on which the Common Stock is then traded
or listed for quotation, less a discount of up to 2%, subject to any applicable
Threshold Price (as defined below) established pursuant to Section 4.C below
(the "Investment Period Average Purchase Price"). "Investment Period" means the
period of ten (10)
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consecutive trading days during any calendar month commencing on a date
determined at the sole discretion of the Company. Under the WDP, the purchase of
shares of Common Stock by a Participant will occur on each trading day during
the Investment Period on which shares are traded on the NYSE and, if applicable,
on which the average of the high and low sales price per share, as reported by
the NYSE, exceeds the applicable Threshold Price. Under the WDP, a Participant
will acquire, on each such trading day, all rights of ownership with respect to
the shares of Common Stock purchased on such day, including without limitation,
the right to dispose of or vote such shares. The WDP Payment must be received by
the Agent not less than one full business day before the commencement of the
Investment Period; provided, however, that if any WDP Payment is received less
than one full business day before the commencement of an Investment Period, such
WDP Payment will be used to purchase shares of Common Stock on the second
Investment Period following the date on which the Agent receives the WDP Payment
if the Agent determines, in its sole discretion, that insufficient time exists
to process the WDP Payment prior to commencement of the next Investment Period
and if the Company agrees to sell shares under the WDP during the then next
scheduled Investment Period. The aggregate amount of any WDP Payment of a
Participant used to purchase shares of Common Stock during any calendar month
must be more than $5,000. Shares of Common Stock purchased under the WDP shall
be only from authorized and unissued shares of Common Stock in accordance with
Section 5.
C. Threshold Pricing.
The Company may elect to establish for any Investment Period a minimum
threshold price (a "Threshold Price") applicable to Optional Cash Purchases made
under the WDP not later than three business days prior to the first day of the
applicable Investment Period. The Threshold Price, if any, shall be determined
by the Company in its sole discretion after reviewing the current market
conditions and shall be the per share price that the average of the high and low
prices of the Common Stock as reported on the New York Stock Exchange must equal
or exceed for each trading day of the relevant Investment Period. In the event
that (i) the average per share sale price does not equal or exceed the Threshold
Price for any particular trading day in the Investment Period or (ii) no trades
of Common Stock are made on the New York Stock Exchange on a day in the
Investment Period, then the Company shall exclude that trading day from the
Investment Period. The Agent shall return to a Participant one-tenth of that
Participant's Optional Cash Purchase for each trading day of an Investment
Period if that is excluded by the Company in accordance with the immediately
preceding sentence. The Company's election whether to establish a Threshold
Price for any particular Investment Period will not affect its rights to
establish a Threshold Price in any other Investment Period. Neither the Company
nor the Agent shall have any responsibility to notify any Participant regarding
the Company's establishment of a Threshold Price for an Investment Period. Any
Participant shall be able to confirm the existence of a Threshold Price by
telephoning the Company at (310) 563-5500 and asking for Investor Relations
during the three business days preceding the applicable Investment Period.
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D. Discount Pricing.
The Company may elect to establish, each month and in no event later
than three business days prior to the dividend record date, COPP Investment Date
or the first day of the applicable Investment Period, as applicable, a discount
from the market price applicable to reinvested dividends and Optional Cash
Purchases with respect to the purchase of newly issued shares from the Company.
Any discount set by the Company with respect to an Optional Cash Purchase shall
apply to the entire Optional Cash Purchase subject to the limitations set forth
below. The Company's election whether to establish a discount for dividend
reinvestment or Optional Cash Purchases for any dividend payment date, COPP
Investment Date or Investment Period, as applicable, will not affect its rights
to establish a discount for any other dividend payment date, COPP Investment
Date or Investment Period in the future. Any Participant may obtain the
discount applicable to the next dividend payment date, COPP Investment Date or
Investment Period by telephoning the Company at (310) 563-5500 and asking for
Investor Relations during the three business days prior to the applicable
dividend payment date, COPP Investment Date or Investment Period, as applicable.
The discount, if any, shall be determined by the Company in its sole discretion
after reviewing the current market conditions, the level of participation in the
plan, and current and projected capital needs. Such discount may vary but shall
at no time be more than 2% of the average of the high and low sales prices per
share of Common Stock as reported by the New York Stock Exchange on the
applicable dividend payment date a COPP Investment Date, and for each day during
an Investment Period. Notwithstanding the foregoing, the discount may not be
varied by the Company during an Investment Period, and shall apply uniformly to
all Optional Cash Purchases made under the WDP for each day of the respective
Investment Period, provided however, that such purchase price for shares
purchased on any particular trading day during the applicable Investment Period,
after giving effect to the applicable discount, less the per share amount of any
brokerage commissions, trading fees and other costs of purchase paid by the
Company on behalf of the Participant on such day, shall not be less than the
Minimum Purchase Price as defined in Section 5 below.
E. Procedures Applicable to Optional Cash Purchases.
Participants shall not be obligated to make any COPP investments or
WDP investments, and the amount of such investments may vary, in the case of a
purchase under the COPP, among COPP Investment Dates, and in the case of a
purchase under the WDP, among Investment Periods. With respect to a purchase
under the COPP, if the "COPP Investment Only" box on the Enrollment Form is
checked, the Company will continue to pay cash dividends on the shares
registered in the Participant's name in the usual manner, but any COPP Payment
received will be applied toward the purchase of additional shares of Common
Stock under the COPP in accordance with the terms of this Agreement. COPP
Payments shall be delivered to the Agent at the address set forth in Section 22
of this Agreement.
In the event that any Participant's check with respect to a COPP
Payment is returned unpaid for any reason, the Agent will consider the request
for investment of such money
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null and void and shall immediately remove from the Participant's account
shares, if any, purchased upon the prior credit of such money. The Agent shall
thereupon be entitled to sell these shares to satisfy any uncollected amounts.
If the net proceeds of the sale of such shares are insufficient to satisfy the
balance of such uncollected amounts, the Agent, in addition to any other legal
remedies it may have, shall be entitled to sell such additional shares from the
Participant's account to satisfy the uncollected balance.
A Participant may obtain a refund of any COPP Payment or WDP Payment
not yet invested upon written request to the Agent at the address set forth in
Section 22 of this Agreement, provided such request is received not later than
two business days prior to, in the case of a COPP Payment, the next COPP
Investment Date, and in the case of a WDP Payment, the commencement of the next
Investment Period. If the Agent receives the Participant's request for refund
later than these specified times, the COPP Payment or WDP Payment, as
applicable, will be applied to the purchase of shares of Common Stock in
accordance with this Agreement.
5. SHARE PURCHASES
As Agent for the Participants in the Plan, the Agent will receive cash
dividends from the Company with respect to shares of Common Stock held by the
Participants and Optional Cash Purchases from the Participants. Shares to be
purchased under the DRIP and the COPP with such cash dividends or Optional Cash
Purchases may be purchased in the open market by the Agent on the New York Stock
Exchange or any securities exchange where shares of the Company's Common Stock
are traded, in the over-the-counter market, or in negotiated transactions, and
may be subject to such terms with respect to price, delivery and other matters
as to which the Agent may agree. Alternatively, or in combination with open
market purchases, the Company has the right to satisfy its obligations under the
DRIP and the COPP, and shall satisfy its obligations under the WDP, by
registering and issuing additional shares of Common Stock, subject to compliance
with the Securities Act of 1933, as amended, and the rules and regulations
thereunder. We may, without giving you prior notice, change our determination
as to whether the Agent will purchase shares of Common Stock directly from us or
in the open market or in privately negotiated transactions from third parties
(although we may not effect such a change more than once in any three-month
period) in connection with the purchase of shares with reinvested dividends or
from Optional Cash Purchases under the COPP.
In the event that the Company satisfies its obligations hereunder by
registering and issuing additional shares of Common Stock, the date of issuance
of shares to be purchased with reinvested dividends will be the Dividend Payment
Date, and the date of issuance of shares to be purchased with Optional Cash
Purchases will be the COPP Investment Date or on each day on which shares are
purchased during the applicable WDP Investment Period, as the case may be.
When the Company is issuing shares of Common Stock to satisfy it
obligations under the DRIP or the COPP, the purchase price will be the average
of the highest and lowest price per share as reported by the New York Stock
Exchange or, if the Common Stock is not then
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listed on the New York Stock Exchange, any other securities exchange or national
quotation service on which the Common Stock is then traded or listed for
quotation on such Dividend Payment Date or COPP Investment Date. When the
Company is issuing shares of Common Stock to satisfy its obligations under the
WDP, the purchase price will be the average of the highest and lowest price per
share as reported by the New York Stock Exchange, any other securities exchange
or national quotation service on which the Common Stock is then traded or listed
for quotation on each day shares are purchased during the applicable investment
period. Shares of Common Stock purchased under the DRIP and the COPP on the open
market or in privately negotiated transactions, shall occur on the applicable
Dividend Payment Date or COPP Investment Date, as the case may be; provided,
however, that the Company may in the future advise the Agent that the Agent may
effect such purchases from time to time in its discretion over such longer
period not to exceed the 15 trading days following the applicable Dividend
Payment Date or COPP Investment Date; provided, further, that in the case of
such a purchase to be effected following a COPP Investment Date, in no event
shall any such purchase occur on a Dividend Payment Date. If the Company
exercises its discretion to execute market purchases over an extended period,
the date of issuance will be the actual date of purchase of the Common Stock. In
making purchases for a Participant's account, the Agent may commingle a
Participant's funds with those of other Participants. The price at which shares
will be deemed to have been acquired for a Participant's account shall be the
average price (on a day-by-day basis) of all shares purchased by the Agent for
the Plan with reinvested dividends and/or COPP Payments then being invested. No
Participant shall have any authority or power to direct the time or price at
which Common Stock may be purchased. No interest will be paid on funds held for
investment.
Notwithstanding anything to the contrary in this Plan, the amount per
share paid by a Participant for any shares of Common Stock (whether from
reinvested dividends or Optional Cash Purchases, and whether acquired from the
Company or through open market or privately negotiated transactions) purchased
on any particular trading day during the applicable Investment Period, less the
amount of any brokerage commissions, trading fees and any other costs of
purchase paid by the Company, if any, shall not be less than 95% of the average
of the high and low sales price of the Common Stock reported by the New York
Stock Exchange on that particular trading day (the "Minimum Purchase Price").
In the event that shares would be purchased below the Minimum Purchase Price,
the Company will instead reduce the discount, if any, or charge the Participant
for such commissions, fees or costs on such share purchase so that the
Participant's purchase price per share will equal the Minimum Purchase Price.
The number of shares to be purchased for a Participant will depend on
the net amount of the Participant's dividends available for reinvestment under
the DRIP, and/or the aggregate amount of the COPP Payment and/or WDP Payment and
the price per share of the Common Stock. Each Participant's account will be
credited with the number of shares, including fractions calculated to four
decimal places, equal to the total of a Participant's funds available for
investment, divided by the applicable per share purchase price of the shares
purchased.
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The Agent shall have no responsibility as to the value of the Common
Stock acquired for a Participant's account. It is understood that for a number
of reasons, including observance of the Rules and Regulations of the Securities
and Exchange Commission requiring temporary curtailment or suspension of
purchases and the limitations on ownership contained in the Company's charter,
the whole amount of funds available in a Participant's account for the purchase
of Common Stock might not be applied to such purchase. The Agent shall not be
liable when conditions prevent the purchase of Common Stock or interfere with
the timing of such purchases.
6. COSTS
The Company will pay all of the costs of administrating the Plan
(other than brokerage commissions and trading fees). The Company will pass on
to each Participant the fees and commissions associated with the purchase and
sale of shares of Common Stock attributable to each Participant under the Plan.
7. CUSTODIAL SERVICE
All shares of Common Stock that are purchased by Participants under
the DRIP, COPP or the WDP shall be held in the Participant's name and the shares
shall be added to the Participants' balance in the Plan. The Agent shall act as
custodian for all of the Participants' shares held in the Plan.
A Participant may send to the Agent for safekeeping all Common Stock
certificates which the Participant holds. The Agent will keep all shares
represented by such certificates for safekeeping in book entry form, combined
with any full and fractional shares then held in the Plan in the name of the
Participant. In order to deposit share certificates in the Plan, a Participant
must submit a letter of instruction to the Agent at the address set forth in
Section 22 of this Agreement. Shares may be withdrawn from the Plan by
instructing the Agent in writing at the address set forth in Section 22 of this
Agreement.
8. STATEMENT OF ACCOUNT
As soon as practicable after the purchase of Common Stock is
completed, the Agent will send each Participant a statement of account
confirming the transaction and itemizing any previous investment activity for
the calendar year. If a Participant participates in the Plan through a broker,
bank or nominee, the Participant's statement of account will be sent to the
respective broker, bank or nominee and the Participant must contact the broker,
bank or nominee to obtain the statement.
9. DIVIDENDS ON PLAN SHARES
As the custodian for the Common Stock held in Participants' accounts
under the Plan (whether such shares were purchased under the DRIP, the COPP or
the WDP) the Agent
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will receive dividends (less any applicable tax withholding requirements imposed
on the Company) for all Plan shares held on the applicable record date, will
credit such dividends to Participants' accounts on the basis of shares held in
these accounts, and will automatically reinvest such dividends in additional
Common Stock unless it is otherwise instructed in writing by the Participant.
If the Company distributes stockholders' subscription rights to
purchase additional shares of common stock or other securities, the Agent shall
sell the rights accruing to all shares held in a Participant's name when the
rights become separately tradable. The Agent will apply the net proceeds from
the sale of the rights to the purchase of Common Stock with the next monthly
Optional Cash Purchase. If a Participant does not want the subscription or such
other rights sold, such Participant may notify the Agent by submitting an
updated Enrollment Form which shall direct the Agent to distribute the rights
directly to the Participant.
10. SALE OF PLAN SHARES
A Participant can instruct the Agent in writing to sell any or all of
the whole shares of Common Stock held in the Plan. The written notification to
the Agent must include the number of shares to be sold. Any such request that
does not clearly indicate the number of shares to be sold will be returned to
the Participant with no action taken. The Agent will make the sale as soon as
practicable after receipt of a Participant's proper request and a check for the
proceeds, less brokerage commission, transfer taxes (if any) and a $5.00 service
fee, will be sent by the Agent promptly after the settlement date. No
Participant shall have the authority or power to direct the date or sales price
at which Common Stock may be sold. A withdrawal/termination form will be
provided on the reverse side of the statement of account for this purpose.
Participants should mail this form to the Agent at the address set forth in
Section 22 of this Agreement.
A Participant may transfer ownership of all or any part of their
shares held in the Plan through gift, private sale or otherwise, by mailing to
the Agent at the above address a properly executed stock assignment, along with
a letter requesting the transfer and a Form Substitute W-9 completed by the
transferee. If any stock certificates in such Participant's account contain a
restrictive legend, the Agent will comply with the provisions of such
restrictive legend before effecting a sale or transfer of such restricted
shares. All transfers shall be subject to the limitations on ownership and
transfer provided herein and in the Company's charter.
11. ISSUANCE OF SHARE CERTIFICATES
Share certificates will not be issued unless a request is made to the
Agent. The number of shares held in the Plan by a Participant will be shown on
the regular statement of account provided to such Participant. By contacting the
Agent by telephone or in writing, a Participant may request, without charge, a
share certificate for any or all of the whole shares held for such Participant
in the Plan. Each certificate issued will be registered in the name or names in
which the account is maintained, unless otherwise instructed in writing. If a
certificate is to be
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issued in a name other than the name on the Plan Account, the Participant or
Participants must have their signature(s) guaranteed by a commercial banker or
broker. Certificates for fractional shares will not be issued under any
circumstances.
12. TERMINATION OF PLAN PARTICIPATION
In order to terminate participation in the Plan, a Participant must
notify the Agent in writing at the address set forth in Section 22 of this
Agreement. The Company may also terminate the Plan by sending written notice to
the Participants and to the Agent. After the Agent receives the termination
notice, dividends will be sent to the stockholder in the usual manner, and no
further voluntary cash purchases may be made. A termination notice will be
effective upon receipt by the Agent, provided such notice is received at least
two business days prior to the next dividend record date, COPP Investment Date
or commencement of the next Investment Period. If a termination notice is not
received by the Agent at least two business days prior to any dividend record
date, in the case of the DRIP, and in the case of the COPP and WDP, at least two
business days prior to the COPP Investment Date or the commencement of the
Investment Period respectively, it will not be processed until after purchases
made from dividends paid and Optional Cash Purchases, if any, have been
completed and credited to Participants' accounts. Once termination has been
effected, the Agent will issue to the Participant a certificate for all whole
shares held by a Participant under the Plan. Alternatively, a Participant may
specify in the termination notice that some or all of the shares be sold. Any
fractional shares held in a Participant's account under the Plan at the time of
termination will be converted to cash at a price equal to the average of the
highest and lowest price per share as then reported by the New York Stock
Exchange or, if the Common Stock is not then listed on the New York Stock
Exchange, any other securities exchange or national quotation service on which
the Common Stock is then traded or listed for quotation on the date of such
conversion, and the Agent will deliver a check to the Participant for the net
proceeds.
If a Participant transfers shares represented by certificates
registered in such Participant's name on the Company's books but does not notify
the Agent, the Agent will continue to reinvest dividends on shares held in such
Participant's account under the Plan until otherwise directed.
If a Participant's Plan account balance falls below one full share,
the Agent reserves the right to liquidate the fraction and remit the proceeds,
less any applicable fees, to the Participant at the Participant's address
appearing in the Agent's records.
13. PLAN ADMINISTRATION
The Agent, or a successor selected by the Company, pursuant to an
agreement with the Company (the "Agent Agreement"), will administer the Plan for
Participants, keep records, send statements of account to Participants, answer
Participants' questions and perform other duties set forth herein or otherwise
related to the Plan. All inquiries regarding the Plan should be sent to the
Agent at the address set forth in Section 22 of this Agreement.
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As soon as practicable after each purchase for a Participant's
account, a statement of account will be mailed to the Participant by the Agent.
In addition, the Agent shall send to each Participant all communications sent to
other stockholders, including, if applicable, any annual and quarterly reports
to stockholders, proxy statements and dividend income information for tax
reporting purposes.
The Company may remove the Agent upon 60 days prior written notice to
the Agent. The Agent may resign as Agent upon 60 days prior written notice to
the Company. Upon the effectiveness of any such removal or resignation, the
Agent shall be relieved and discharged of any further responsibilities with
respect to its duties thereunder. Not later than 30 days after the date on
which the Agent receives notice of termination or delivers notice of
resignation, as the case may be (the "Termination Notice Date"), the Company
shall deliver to the Agent a written notice instructing the Agent to deliver to
the Company or its designee all of the statements of account, the shares of
Common Stock held by the Agent under the Plan, and all other books and records
in connection with the administration of the Plan (collectively, the "Plan
Records"). The Agent shall comply with instruction and deliver the Plan Records
to the Company or its designee not later than 15 business days following the
date it receives such instruction; provided, however, that if no instruction is
received by the Agent by the 30th day following the Termination Notice Date, the
Agent shall deliver the Plan Records to the Company not later than 45 days after
the Termination Notice Date. The Agent shall cooperate with and assist the
Company or any successor agent with the transfer of the Plan Records.
As Agent, MellonBank, N.A. shall act in accordance with the Plan and
in accordance with applicable laws, including without limitation the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and interpretations
thereof by the Securities and Exchange Commission (including without limitation
SEC Release No. 34-35041 dated December 1, 1994).
The Agent shall keep all necessary and appropriate records concerning
the Plan, accounts, purchases and sales of the Company's securities made under
the Plan and Participants' addresses of record and shall send statements of
account and confirmations to each Participant in accordance with the provisions
in the Agent Agreement. The Company shall notify the Agent of the commencement
and the termination of any such period on the date of any such commencement or
termination.
The Agent:
(a) shall have no duties or obligations other than those specifically
set forth herein and in the Agent Agreement or as may
subsequently be agreed to in writing between the Agent and the
Company. Without limiting the foregoing, nothing herein shall
impose any fiduciary duty upon the Agent to any Participant;
(b) shall be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value, or
genuineness of any
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of the Company's securities purchased or sold in connection with
the Plan, and will not be required to or be responsible for and
will make no representations as to, the validity, sufficiency,
value or genuineness of any of the Company's securities;
(c) shall not be obligated to take any legal action under the Agent
Agreement or in the Plan; if, however, the Agent determines to
take any legal action under the Agent Agreement or the Plan, and
where the taking of such action might, in its reasonable
judgment, subject or expose it to any expense or liability, the
Agent shall not be required to act unless it shall have been
furnished with an indemnity reasonably satisfactory to it;
(d) may rely on and shall be fully authorized and protected in acting
or failing to act in good faith reliance upon any certificate,
instrument, opinion, notice, letter, telegram, telex, facsimile
transmission or other document or security delivered to and
believed in good faith by the Agent to be genuine and to have
been signed by the proper person or persons;
(e) shall not be liable or responsible for any failure on the part of
the Company or any Participant to comply with any of their
respective obligations relating to the Plan or under applicable
law, including without limitation obligations under applicable
securities laws;
(f) shall have no obligation to make any payment unless it has
received the necessary immediately available funds to make such
payment in full, except as other wise set forth in this Plan;
(g) may consult with counsel satisfactory to the Agent, including in-
house counsel or counsel to the Company, and the advice of such
counsel shall be full and complete authorization and protection
in respect of any action taken, suffered, or omitted by the Agent
hereunder or under the Agent Agreement in good faith and in
accordance with the advice of such counsel;
(h) may perform any of its duties hereunder or under the Agent
Agreement either directly or by or through agents or attorneys
which are not affiliates of the Company (except for purchase and
sale orders submitted by Participants, including accompanying
funds, all of which will be handled only by the Agent's
personnel), provided that (i) any activities that constitute
transfer agent functions, as defined in section 3(a)(25) of the
Exchange Act, must be conducted either by the Agent itself or by
a service organization that is a registered transfer agent under
the Exchange Act, and (ii) no such agent or attorney shall
receive compensation based on the number and types of orders or
transactions processed through the Plan. The Agent shall not be
liable or responsible for any misconduct or
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<PAGE>
negligence on the part of any agent or attorney appointed with
reasonable care by it hereunder or under the Agent Plan; and
(i) is not authorized, and shall have no obligation, to pay any
brokers, dealers, or soliciting fees to any person.
Notwithstanding the foregoing, the Agent may not be relieved from
liability for its own grossly negligent action, its own grossly negligent
failure to act, or its own willful misconduct, except that the Agent shall not
be liable for any error of judgment made in good faith unless it is proved that
the Agent was negligent in ascertaining the pertinent facts.
The Agent may charge reasonable fees for its services in connection
with the Plan (to the extent consistent with the provisions of the Plan)
including without limitation fees for purchase and sale order processing,
enrollment, custody, account maintenance and dividend reinvestment and shall be
reimbursed for all its reasonable out-of-pocket costs and expenses. All such
fees, costs and expenses shall be paid by the Company, except that Participants
and other eligible book entry stockholders will be required to pay a nominal
commission and fee for each sale order and a nominal fee for the issuance of
duplicate statements of account or transaction notices. The Agent may from time
to time by notice to the Company and the Participants establish the amount of
any such fees.
The Agent shall have the authority to undertake any act reasonably
necessary to fulfill its duties as set forth herein and in the Agent Agreement.
In administering the Plan, the Agent will be liable for any act done
in good faith or for any good faith omission to act, including, without
limitation, liability arising out of (i) failure to terminate a Participant's
account upon such Participant's death or adjudicated incompetence, prior to the
receipt of notice in writing of such death or adjudicated incompetence, (ii) the
prices at which Common Stock are purchased for the Participant's account, (iii)
the times when purchases are made or (iv) fluctuations in the per share market
value of the Common Stock. The Agent shall not be liable for any failure or
delays arising out of conditions beyond its reasonable control including, but
not limited to, work stoppages, fires, civil disobedience, riots, rebellions,
storms, electrical, mechanical, computer or communications facilities failures,
acts of God or similar occurrences. In no event will the Agent be liable for
special, indirect, incidental or consequential loss or damages of any kind
whatsoever (including but not limited to lost profits), even if the Agent has
been advised of the possibility of such damages. Any liability of the Agent
will be limited to the amount of fees paid by the Company.
Neither the Agent, the Company nor any agent for either shall have any
duties, responsibilities or liabilities except such as are expressly set forth
herein and in the Agent Agreement. The Company specifically disclaims any
responsibility for any of the Agent's actions or inactions in connection with
the administration hereof.
The Company will indemnify and hold harmless the Agent and its
officers, directors, shareholders, and agents from and against any loss,
liability, damage or expense
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(including reasonable attorneys' fees and expenses) (a "Loss") incurred as a
result of the performance of the Agent's duties hereunder or under the Agent
Agreement, provided that such Loss is not due to any negligent or bad faith act
or omission by the Agent.
14. PLEDGE OF SHARES
Shares held in the Plan may not be pledged or assigned, and any such
purported pledge or assignment shall be void.
15. VOTING
The Agent will not vote any shares that it holds for a Participant's
account except as directed by the Participant. If no instructions are received,
the shares will not be voted. Each Participant that is a registered holder will
receive a proxy voting card for the total of their whole shares, including
shares that they hold in the Plan. Neither the Company nor the Agent shall be
required to send proxy materials to any Participant that holds shares of Common
Stock through a broker, bank or nominee and any such Participant must contact
such broker, bank or nominee to vote their shares.
16. SHARE DIVIDENDS, ETC.
Any Common Stock dividend upon, or shares of Common Stock issued as a
result of, splits of Common Stock, both full and fractional, will be credited by
the Agent to Participants' accounts. Participation in any rights offering will
be based upon both the Common Stock registered in Participants' names and the
Common Stock credited to Participants' accounts. Rights applicable to Common
Stock credited to a Participant's account under the Plan will be sold by the
Agent and proceeds will be credited to the Participant's account under the Plan
and applied to the purchase of Common Stock on the next investment date. Any
Participant who wishes to exercise, transfer or sell the rights applicable to
the Common Stock credited to the Participant's account under the Plan must
request, prior to the record date for the issuance of any such rights, that the
Common Stock credited to the Participant's account be transferred from the
Participant's account and registered in the Participant's name.
17. OWNERSHIP LIMITATIONS
The Company's charter places certain restrictions upon the actual and
constructive ownership of shares of each class or series of stock, applied to
each class or series of stock separately. With respect to the Common Stock of
the Company, any one person or entity is limited to owning, actually and
constructively, no more than 7.0% of the outstanding capital stock of the
Company (the "Ownership Limit"). The percentage of ownership is measured by
either value or absolute number of shares, whichever measurement is more
restrictive. To the extent any transfer of Common Stock, reinvestment of
dividends or voluntary cash investment elected by a stockholder would cause such
stockholder or any other person or entity to exceed the Ownership Limit or
otherwise violate the Company's charter, such transfer or investment will be
14
<PAGE>
void ab initio as to that stockholder or the other person or entity, and such
stockholder or other person or entity will be entitled to receive cash dividends
(without interest) in lieu of such reinvestment or to a return of such voluntary
cash investment (without interest), as applicable, provided that the amount
received by that stockholder or other person or entity does not exceed the sales
price of the shares.
In order to monitor the Ownership Limit and the limitation of cash
purchases which may be made under the COPP, the Company has right to aggregate
all plan accounts that it believes, in its sole discretion, are under common
control or management or to have common ultimate beneficial ownership. If the
Company exercises such right, it shall aggregate the accounts and return,
without interest, within 35 days of receipt, any amounts in excess of the
investment limitations applicable to a single account received in respect of all
such accounts.
18. AMENDMENT OR TERMINATION OF PLAN
The Plan may be amended, modified, suspended, supplemented or
terminated by the Company at any time, provided, however, that when necessary or
appropriate to comply with law or the rules or policies of the Securities and
Exchange Commission or other applicable regulatory authority, such action shall
be effective only by mailing appropriate written notice at least 30 days prior
to the effective date of such action to each Participant. Any such action shall
be deemed accepted by the Participant unless prior to the effective date
thereof, the Agent receives written notice of the termination of the
Participant's account. Any such amendment may include an appointment by the
Company of a successor agent under the terms and conditions set forth herein, in
which event the Company is authorized to pay such successor agent for the
account of each Participant all dividends and distributions payable on Common
Stock held by the Participant under the Plan for application by such successor
agent as provided herein. Notwithstanding the foregoing, such action shall not
have any retroactive effect that would prejudice the interests of the
Participants. In the event of termination, certificates for whole shares held
by each Participant in the Plan will be delivered to such Participant together
with a check for the net proceeds of the value of any fractional shares, which
value will be equal to the average of the highest and lowest price per share as
then reported by the New York Stock Exchange or, if the Common Stock is not then
listed on the New York Stock Exchange, any other securities exchange or national
quotation service on which the Common Stock is then traded or listed for
quotation on the date of such termination.
19. GOVERNING LAW
The terms and conditions of the Plan and its operation shall be
governed by the internal laws of the State of Maryland, without regard to
otherwise applicable principles of conflicts of law.
15
<PAGE>
20. INTERPRETATION
Any question of interpretation arising under the Plan will be
determined by the Company, and any such determination will be final.
21. EFFECTIVE DATE
The effective date of the Plan shall be October 4, 1999.
22. CORRESPONDENCE AND QUESTIONS
All correspondence and questions regarding the Plan and any account
thereunder should be directed to:
MellonBank, N.A.
c/o ChaseMellon Shareholder Services, L.L.C.
P. O. Box 3338
South Hackensack, New Jersey 07060-1938
Telephone (888) 816-7506
16
<PAGE>
EXHIBIT 5.1
September 30, 1999
Kilroy Realty Corporation
2250 East Imperial Highway
El Segundo, California 90245
Re: Kilroy Realty Corporation, a Maryland corporation (the "Company") -
Registration Statement on Form S-3 (Registration No. 333-74155),
pertaining to One Million (1,000,000) shares (the "Shares") of common
stock, par value one cent ($.01) per share ("Common Stock") to be issued by
the Company in accordance with the Dividend Reinvestment and Direct
Purchase Plan (the "Plan")
--------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933, as amended (the "Act") by the Company on Form S-3, filed with the
Securities and Exchange Commission (the "Commission") on or about September 30,
1999 and further amendments if any to be filed with the Commission subsequent to
the date hereof (the "Registration Statement"), you have requested our opinion
with respect to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the authorization, issuance and delivery of the Shares, and for purposes of
this opinion have assumed such proceedings will be timely completed in the
manner presently proposed. In addition, we have relied upon certificates and
advice from the officers of the Company upon which we believe we are justified
in relying and on various certificates from, and documents recorded with, the
State Department of Assessments and Taxation of Maryland (the "SDAT"), including
the charter of the Company (the "Charter"), consisting of Articles of
Incorporation filed with the SDAT on September 13, 1996 and Articles of
Amendment and Restatement filed with the SDAT on January 21, 1997, and Articles
Supplementary filed with the SDAT on February 6, 1998, April 20, 1998,, October
15, 1998 and November 25, 1998 and a Certificate of Correction filed with the
SDAT on March 4, 1999. We have also examined the Amended and Restated Bylaws of
the Company, adopted as of January 26, 1997, (the "Bylaws"), resolutions of the
Board of Directors of the Company adopted on May 12, 1998 and in full force and
effect on the date hereof (the "Directors' Resolutions), the Plan, the
Registration Statement, and such other laws, records,
<PAGE>
documents, certificates, opinions and instruments as we have deemed necessary to
render this opinion.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as certified, photostatic or conformed copies. In
addition, we have assumed that each person executing any instrument, document or
certificate referred to herein on behalf of any party is duly authorized to do
so. We have also assumed that none of the Shares will be issued or transferred
in violation of the provisions of the Charter entitled "Restrictions on
Ownership and Transfer to Preserve Tax Benefit".
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that, as of the date of this letter, the
Shares have been duly reserved and authorized for issuance by all necessary
corporate action on the part of the Company, and when and if such Shares are
issued and delivered by the Company in accordance with the Plan and the
Directors' Resolutions, in exchange for payment of the full consideration
therefor, such Shares will be duly authorized, validly issued, fully paid and
non-assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section of
the Prospectus (which is part of the Registration Statement) entitled "Legal
Matters".
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF LATHAM & WATKINS]
September 30, 1999
KILROY REALTY CORPORATION
2250 East Imperial Highway, Suite 1200
El Segundo, California 90245
Re: Kilroy Realty Corporation
-------------------------
Ladies and Gentlemen:
We have acted as tax counsel to Kilroy Realty Corporation, a Maryland
corporation (the "Company"), in connection with its sale of common stock of the
-------
Company pursuant to the registration statement filed with the Securities and
Exchange Commission (the "Commission") on Form S-3 on March 10, 1999, (file No.
----------
333-74155), as amended (together with all exhibits thereto and documents
incorporated by reference therein, the "Registration Statement").
----------------------
You have requested our opinion concerning certain of the federal
income tax consequences to the Company and the purchasers of the securities
described above in connection with the Registration Statement. This opinion is
based on various factual assumptions, including the facts set forth in the
Registration Statement concerning the business, properties and governing
documents of the Company, Kilroy Realty, L.P., (the "Operating Partnership") and
---------------------
their subsidiaries. We have also been furnished with, and with your consent
have relied upon, certain representations made by the Company, the Operating
Partnership and their subsidiaries with respect to certain factual matters
through a certificate of an officer of the Company (the "Officer's
---------
Certificate"). With respect to matters of Maryland law, we have relied upon the
- -----------
opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel for the Company,
dated September 30, 1999.
<PAGE>
September 30, 1999
Page 2
In our capacity as tax counsel to the Company, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for purposes of this opinion. For the purposes of our opinion, we
have not made an independent investigation or audit of the facts set forth in
the above referenced documents or in the Officer's Certificate. In our
examination, we have assumed the authenticity of all documents submitted to us
as originals, the genuineness of all signatures thereon, the legal capacity of
natural persons executing such documents and the conformity to authentic
original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any state or other jurisdiction or as to any matters
of municipal law or the laws of any other local agencies within any state.
Based on such facts, assumptions and representations, it is our
opinion that:
1. The statements in the Registration Statement set forth under the
caption "Material Federal Income Tax Considerations" are, subject to the
limitations set forth therein, the material federal income tax considerations
relevant to purchasers of the Company's common stock pursuant to the
Registration Statement; and
2. Commencing with the Company's taxable year ending December 31,
1997, the Company has been organized and has operated in conformity with the
requirements for qualification as a "real estate investment trust" under the
Internal Revenue Code of 1986, as amended (the "Code"), and its proposed method
----
of operation will enable the Company to continue to meet the requirements for
qualification and taxation as a real estate investment trust under the Code.
No opinion is expressed as to any matter not discussed herein.
This opinion is rendered to you as of the date of this letter, and we
undertake no obligation to update this opinion subsequent to the date hereof.
This opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters, all of which are subject to change
either prospectively or retroactively. Also, any variation or difference in the
facts from those set forth in the Registration Statement or the Officer's
Certificate may affect the conclusions stated herein. Moreover, the Company's
qualification and taxation as a real estate investment trust depends upon the
Company's ability to meet, through actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
various qualification tests imposed under the Code, the results of which have
not been and will not be
<PAGE>
September 30, 1999
Page 3
reviewed by Latham & Watkins. Accordingly, no assurance can be given that the
actual results of the Company's operation for any one taxable year will satisfy
such requirements.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "Material
Federal Income Tax Considerations" and "Legal Matters" in the Registration
Statement. In giving this consent, we do not hereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules or regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to Registration
Statement No. 333-74155 of Kilroy Realty Corporation on Form S-3 of our report
dated March 10, 1999, appearing in the Annual Report on Form 10-K/A of Kilroy
Realty Corporation for the year ended December 31, 1998 and our report on the
combined historical summary of certain revenues and certain expenses of the
April 1998 Acquisition for the year ended December 31, 1997 dated June 12, 1998
appearing in the Kilroy Realty Corporation Current Report on Form 8-K dated
April 10, 1998, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Los Angeles, California
September 29, 1999
<PAGE>
<TABLE>
<CAPTION>
Exhibit 99.1
Kilroy Realty Corporation Enrollment Form for
Kilroy Realty Corporation
Common Stock
Dividend Reinvestment and Direct Purchase Plan
------------------------------------------------------------------------------
This form when completed and signed, should be mailed in the courtesy envelope
provided to: ChaseMellon Shareholder Services Investor Services Program,
P.O. Box 3339, South Hackensack N.J. 17606-1939
Is this account for an existing stockholder? YES [ ] NO [ ]
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<S> <C> <C>
1. Account Registration Complete only one section. Print clearly in CAPITAL LETTERS.
[ ] INDIVIDUAL OR JOINT ACCOUNT
Owner's name
Owner's Social Security number Owner's date of birth
(used for tax reporting) Month Day Year
- - / /
Joint Owner's name
Joint Owner's Social Security number The account will be registered "Joint Tenants with Rights
(used for tax reporting) of Survivorship" unless you check a box below:
- - [ ] Tenants in common [ ] Tenants by entirety [ ] Community property
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] GIFT TRANSFER TO A MINOR (UGMA/UTMA)
Custodian's name
Minor's name
Minor's Social Security number Minor's date of birth
(required) Month Day Year Donor's
state
- - / /
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] TRUST (Please check only one of the trustee types) [ ] Person as trustee [ ] Organization as trustee
Trustee: Individual or organization name
and Co-trustee's name, if applicable
Name of trust
For the benefit of
Trust taxpayer identification number Date of trust
Month Day Year Donor's
State
- - / /
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[ ] ORGANIZATION OR BUSINESS ENTITY Check one: [ ] Corporation [ ] Partnership [ ] Other
Name of entity
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Taxpayer identification number
-
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
2. Address
Mailing address (including apartment or box number)
--
City State Zip
-
Home phone Work phone
( ) - ( ) -
For mailing address outside the U.S.:
Country of residence Province Routing or postal code
- -----------------------------------------------------------------------------------------------------------------------------------
3. Cash Purchase (Make checks payable to Mellon Bank)
[ ] As a CURRENT registered stockholder I wish to make an As a NEW Investor I wish to enroll in the Program by making an
additional investment. Enclosed is my check or money order initial investment for $ _______________. (Initial
for $ ______________. (Minimum $100 with the Maximum not to investment must be a least $750 not to exceed $5,000) AS A
exceed $5,000 per month.) NEW INVESTOR YOU MUST COMPLETE SECTIONS 1, 2, & 6.
- -----------------------------------------------------------------------------------------------------------------------------------
4. Dividend Reinvestment
You may choose to reinvest all or part of the dividends paid on Kilroy Realty
Corporation Common Stock. If neither box is selected, Mellon Bank will automatically
remit any dividends to you.
[ ] Reinvest the dividends on ALL shares.
[ ] I would like a portion of my dividends reinvested. Please reinvest the dividends on
__________ percent of my shares. 100% of your dividends will be reinvested if a
percentage is not indicated.
- -----------------------------------------------------------------------------------------------------------------------------------
5. Safekeeping
[ ] Common stock certificates deposited for safekeeping in your account must be in the same
registration as your program account.
Please accept the enclosed certificate (s) for deposit to my account. Enclosed are
______________ share certificates.
insert number
certificate number number of shares
T O T A L
-----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
6. Account Authorization Signature (required)
[ ] REQUEST FOR TAXPAYER IDENTIFICATION CERTIFICATE OF FOREIGN STATUS
NUMBER (Substitute Form W-9) (Substitute Form W-8)
I am a U.S. citizen or a resident alien. I certify, under I am an exempt foreign citizen. I certify, under penalties
penalties of perjury, that (1) the taxpayer identification of perjury, that for dividends, I am not a U.S. citizen or
number in Section 1 is correct (or I am waiting for a number resident alien (or I am filing for a foreign corporation,
to be issued to me) and (cross out the following if not true) partnership, estate, or trust) and I am an exempt foreign
(2) I am not subject to backup withholding because: (a) I am person. I have entered in Section 2 of this enrollment
exempt from backup withholding, or (b) I have not been notified form the country where I reside permanently for
by the Internal Revenue Service that I am subject to backup income-tax purposes.
withholding as a result of failure to report all interest of
dividends, or (c) the IRS has notified me that I am no
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
longer subject to backup withholding.
FOR ORGANIZATIONS AND BUSINESS ENTITIES
EXEMPT FROM BACKUP WITHHOLDING
I qualify for exemption and my account will not be
subject to
tax reporting and backup withholding.
MY/OUR SIGNATURES (S) BELOW INDICATES I/WE HAVE READ THE PROGRAM BROCHURE AND
AGREE TO THE TERMS THEREIN AND HEREIN.
Signature of Owner Date (month, day, year)
</TABLE>
Signature of Joint Owner
If you need assistance, please call the Agent at (888)816-7506
<PAGE>
EXHIBIT 99.2
REQUEST FOR WAIVER
Dividend Reninvestment and Direct Purchase
This form is to be used only by Participants in the Kilroy Realty Corporation
(the "Company") Dividend Reinvestment Program and Direct Purchase Plan (the
"Plan") who are requesting authorization from the Company to make an optional
cash investment under the Plan in excess of the $5,000 monthly maximum.
A new form must be completed each month in which the Participant wishes to make
an optional cash investment in excess of the $5,000 monthly maximum. This form
will not be accepted by the Agent, unless it is completed in its entirety.
The Participant submitting this form hereby certifies that (a) the information
contained herein is true and correct as of the date of this form and (b) the
Participant has received a current copy of the Prospectus relating to the Plan
(the "Prospectus").
This form should be completed and returned via facsimile at (310) 322-5981,
Attention: Investor Relations by 2:00 p.m. Los Angeles Time, on the day that is
at least three business days prior to the first day of the applicable Investment
Period. (See Annex 1 to the Prospectus.) For information regarding the discount
(if any) and threshold price (if any) that may be applicable to optional cash
investments made pursuant to an approved Request for Waiver, please call
Investor Relations at (310) 563-5500.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Participant Information:
Please Fill Out Entirely. Bids with Incomplete Information will be rejected.
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Participant Name Participant Signature Date
--------------------------------------------------------------------------------------------------------------------------------
Tax I.D. Number Phone Number Fax Number
--------------------------------------------------------------------------------------------------------------------------------
Street Address City State Zip
--------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Payment Information:
Amount of Payment Request: $ ____________
*Wired funds should be directed to the following account: ABA # 043 000 261, account # 100-3609, with a reference to Kilroy
Investment Plan. The Agent must receive all funds at least one business day prior to the first day of the Investment Period
for the applicable investment date.
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
For Company Use Only:
--------------------------------------------------------------------------------------------------------------------------------
Amount Approved Approved by
--------------------------------------------------------------------------------------------------------------------------------
Discount Approved Title Date
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
