<PAGE>
As filed with the Securities and Exchange Commission on March 10, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
KILROY REALTY CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
--------------
<TABLE>
<S> <C>
MARYLAND 95-4598246
(State Or Other Jurisdiction (I.R.S. Employer
Of Incorporation Or Organization) Identification No.)
</TABLE>
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)
--------------
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
--------------
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of each class of Amount to be aggregate price aggregate offering
securities to be registered registered per share(1) price(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.01 par value per share.......... 1,000,000 $21.3125 $21,312,500
- ---------------------------------------------------------------------------------------------------------------------
Series B Junior Participating Preferred Stock Purchase Rights(2).. 1,000,000 * *
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Title of each class of Amount of
securities to be registered registration Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $.01 par value per share.......... $5,925
- ---------------------------------------------------------------------------------------------------------------------
Series B Junior Participating Preferred Stock Purchase Rights(2).. *
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated pursuant to Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, and is based on a per share price of
$21.3125, the average of the high and low prices of our common stock as
reported on the New York Stock Exchange Composite Tape on March 8, 1999.
(2) The rights are initially carried with the common stock. The value
attributable to the rights, if any, is reflected in the value of the common
stock.
--------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 March 10, 1999
PROSPECTUS
KILROY REALTY CORPORATION
DIVIDEND REINVESTMENT AND DIRECT PURCHASE PLAN
----------
COMMON STOCK
Par Value $.01 Per Share
----------
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
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 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 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.
----------
The date of this prospectus is March , 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
----
<S> <C>
PROSPECTUS SUMMARY....................................................... 1
RISK FACTORS............................................................. 5
THE PLAN................................................................. 18
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.................................... 43
EXPERTS.................................................................. 43
LEGAL MATTERS............................................................ 43
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 43
WHERE YOU CAN FIND MORE INFORMATION...................................... 44
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE.......................... 45
</TABLE>
i
<PAGE>
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 reported by the New York Stock Exchange on the
applicable dividend payment date, or
1
<PAGE>
. 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 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 though 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 consent. Under the
Waiver Discount Plan, we may offer a discount of up to 2% from the market price
of the common stock based on the average of the high and low sales price per
share reported on 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 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
investment period when the average per share price on the New York Stock
Exchange falls below the threshold price.
Annex I to this prospectus lists the significant dates 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 subject to a threshold price or be sold at a discount to
current market prices. However, we reserve the right to grant a discount in the
future for such investments.
2
<PAGE>
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 exceeds $5,000 in any calendar month, unless a
request for waiver under the WDP has been approved.
. 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 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%, after a review of current
market conditions, the level of participation, and our current and projected
capital needs. The discount may vary from month to month. 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 month. 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.
Recent Developments
For the fiscal year ended December 31, 1998, we had revenues of $136.3
million, net income of $38.8 million or $1.43 per share diluted and funds from
operations of $71.2 million. For the fourth quarter ended December 31, 1998, we
had revenues of $39.3 million, net income of $10.2 million or $0.37 per share
diluted, and funds from operations of $18.9 million. In addition, during the
fiscal year ended December 31, 1998, we completed $254 million in building
acquisitions and $71 million in new development, adding more than 2.5 million
square feet of space to our office and industrial real estate portfolio. As of
December 31, 1998 we had approximately 932,000 square feet of office and
industrial space under construction, representing a total projected investment
of $114 million. As of December 31, 1998 an additional 2.2 million square feet
of space was in various stages of pre-development and preleasing, which we
presently plan to build over the next several years on a phased basis.
On February 18, 1999, our board of directors declared a regular quarterly
cash dividend of $0.42 per common share payable on April 9, 1999. The dividend
is payable to stockholders of record on March 31, 1999. The dividend is
equivalent to a 3.7% increase in the annual rate to $1.68 per share from the
previous annualized dividend rate of $1.62.
3
<PAGE>
On January 8, 1999, we distributed a quarterly cash dividend to our
stockholders of $.405 per common share.
In addition, Kilroy Realty, L.P. made the following distributions to its
unitholders:
. on November 15, 1998, an aggregate of $1,514,062 to holders of its
Series A Cumulative Redeemable Preferred Units;
. on January 8, 1999, the amount of $.405 per common unit to holders of
its common units; and
. on February 15, 1999, an aggregate of $1,514,062 to holders of its
Series A Cumulative Redeemable Preferred Units, and an aggregate of
$747,396 to holders of its Series C Cumulative Redeemable preferred
Units.
4
<PAGE>
RISK FACTORS
Set forth below are the risks that we believe are material to investors who
participate in our plan. 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
participating in our plan.
Most of our properties are located in Southern California.
Most of our properties are located in Southern California. As of December
31, 1998, these properties represented:
.approximately 85.5% of the aggregate square footage of all of our
properties; and
.88.4% of our annualized base rent.
Our annualized base rent means the monthly contractual rent under existing
leases on December 31, 1998, 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
beyond our control may decrease funds available for distribution and the value
of our properties. Examples include:
.oversupply or reduced demand for local real estate,
.tenant layoffs,
.tenant downsizings,
.industry or economic slowdowns,
.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 our stockholders.
We face risks common to all real estate companies.
General. 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. Rents from
our properties and the value of our properties may decrease as a result of one
or more of the following events or conditions, some of which are beyond our
control:
.the general economic climate;
.competition from other office, industrial, and other commercial buildings;
.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;
5
<PAGE>
. our ability to finance property development and acquisitions on
favorable terms;
. changes in interest rate levels;
. increased operating costs, including insurance premiums, utilities, and
real estate taxes;
. costs of complying with changes in governmental regulation;
. changes in the tax laws; and
. the relative illiquidity of real estate investments.
If our rent revenue decreases, we still have significant expenditures, such
as debt service, payments on the preferred limited partnership units issued by
Kilroy Realty, L.P., mortgage payments, real estate taxes and property
maintenance costs, each of which may remain unchanged.
We have incurred a significant amount of debt. 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;
. 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 our stockholders 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.
We face significant competition. 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. Competition from these other properties may
effect our ability to attract and retain tenants and reduce the rents that we
may obtain. Many of these competing properties have high vacancy rates, which
may result in lower-priced space being available.
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 September 30, 1998, 74 of our office buildings aggregating
4.9 million square feet (representing 44.1% of our properties based on
aggregate square footage and 65.9% of our annualized base rent) were located in
areas known to be subject to earthquakes. As of September 30, 1998, 71 of our
industrial buildings aggregating 4.5 million square feet (representing 40.5% of
our properties based on aggregate square footage and 23.6% of our annualized
based rent) were located in areas known to be subject to earthquakes.
6
<PAGE>
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 these or
any of our other properties in the future if the premiums for earthquake
insurance are not economical.
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.
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 our ability to pay distributions to our stockholders could be
adversely affected.
We may be unable to complete development projects and successfully 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.
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.
While we primarily develop office and industrial property 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.
7
<PAGE>
Several of our properties are held subject to ground leases. We hold eight
of our office buildings and one office building currently under development
subject to ground leases. If we default under the terms of a ground lease, we
may lose the property subject to the ground lease. We may not be able to
renegotiate a new ground 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 ground 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 our stockholders. The
ground leases for the Kilroy Airport Center Long Beach will expire in 2035. The
ground leases for the SeaTac Office Center, including renewal options, will
expire in 2062.
We are dependent upon the financial health of our tenants. We derive most of
our income 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. Also, when our tenants decide not to renew their
leases, we may not be able to relet the space. Even if tenants do renew, the
terms of renewal or reletting may not be as favorable as current lease terms.
Leases representing 13.2% and 11.3% of the square footage of our properties
will expire in 1999 and 2000, respectively. In the event of default by a
lessee, we may experience delays in enforcing our rights as lessor 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 cannot 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 such a 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 relet space as leases expire. Leases on
a total of approximately 24.5% of the aggregate square footage of our
properties as of December 31, 1998 will expire by December 31, 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
respective 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 our
stockholders would be adversely affected.
Real estate assets are illiquid and we may not be able to sell properties at
the appropriate time. Our investments in our properties are relatively
illiquid, which therefore limits our ability to sell properties quickly in
response to changes in economic or other conditions. Limitations in the
Internal Revenue Code and 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 our stockholders.
We encounter risks because the development business and related activities are
conducted by Kilroy Services, Inc.
Kilroy Services, Inc. is subject to tax liabilities on net income. 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 our stockholders.
8
<PAGE>
We do not control the businesses of Kilroy Services, Inc. We have set up the
following structure 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 from its
preferred stock. However, we cannot influence Kilroy Services, Inc.'s
operations, elect its directors or 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 our stockholders.
Kilroy Services, Inc. may be adversely affected by our status as a REIT. The
requirements for REIT qualification may 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 environmental remediation.
Environmental laws and regulations hold us liable for the costs of removal
or remediation of certain 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.
Moreover, the presence of these substances on our properties may hinder our
ability to rent or sell our properties, or to borrow using our properties as
collateral. 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.
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 such
activities. We require our tenants, in their leases, to comply with these
environmental laws and regulations and to indemnify us for any related
liabilities. We do not believe that these activities 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.
Independent environment consultants conducted Phase I or similar
environmental site assessments on all of our properties. Site assessments
generally include an 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;
. historical operations at or near some of our properties, including the
operation of underground storage tanks, may have caused soil or
groundwater contamination.
9
<PAGE>
Prior owners of the affected properties conducted soil remediation. We do
not believe that further soil remediation is required. We carry what we believe
to be sufficient environmental insurance to cover any potential liability for
soil and groundwater contamination at the affected sites. We cannot assure our
stockholders 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 our ability to pay distributions to our stockholders.
None of our site assessments revealed any 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 such condition, liability, or concern by
any other means. 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 (such as the presence of underground
storage tanks).
If the costs of environmental compliance exceed our budgeted limits, we may
be unable to make distributions to our stockholders.
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 certain 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. A number of 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.
Although we do not expect such costs to have a material effect on us, such
costs could be substantial.
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 affect our ability to make distributions to you.
The City of Los Angeles adopted regulations relating to the repair of welded
steel moment frames located in certain areas 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 our
stockholders would be adversely affected.
10
<PAGE>
Common limited partners have limited approval rights.
In addition, 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
the transactions described above could limit our ability to complete a change
of control transaction that might otherwise be in the best interest of
stockholders.
The sale or refinancing of certain properties requires common limited partner
consent.
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 in a taxable transaction 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.
Our unitholding directors and officers may seek to influence us as sole
general partner of Kilroy Realty, L.P. not to carry out a sale of these
properties, even though it might be otherwise financially advantageous to us,
Kilroy Realty, L.P., our stockholders and the other partners. In addition,
Kilroy Realty, L.P. agreed to use commercially reasonable efforts to minimize
the tax consequences to 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.
Certain of our officers and directors have potential conflicts of interest with
us.
Certain of our officers and directors 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.
Officers and directors who are unitholders 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 seven 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% of the total outstanding shares of common stock as
of December 31, 1998. 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 interests of our stockholders.
Also, they may in the future have a substantial influence on the outcome of any
matters submitted to our stockholders for approval.
11
<PAGE>
There are limits on the ownership of our capital stock which limit the
opportunities for a change of control at a premium to existing stockholders.
Certain 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 election 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 certain
entities, during the last half of a taxable year;
. after our first tax year, shares of our common stock 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 the equity interests in
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 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, if issued, may actually or
constructively own any class or series of our preferred stock, so that his
total capital stock ownership would exceed 7.0% by value of our total 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 certain affiliated entities.
These named individuals and entities may own either actually or constructively,
in the aggregate, up to 19.6% 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' best interests.
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
12
<PAGE>
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 Preferred Units which in the future may be
exchanged one-for-one into shares of Series A Preferred Stock, and 700,000
Series C Preferred Units which in the future may be exchanged one for one into
shares of Series C Preferred Stock. In addition, we have designated and
authorized the issuance of up to 400,000 shares of Series B Preferred Stock.
However, no shares of preferred stock are currently issued or outstanding.
We have a stockholder 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 certain 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
. 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;
. 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; and
. All distributions to stockholders will be subject to tax as ordinary
income to the extent of our current and accumulated earnings and
profits.
In addition, if we fail to qualify as a REIT, we will not be required to
make distributions to stockholders.
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 income tax regulations that have been
promulgated under the Internal Revenue
13
<PAGE>
Code ("Treasury Regulations") 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
generally 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
Federal income tax purposes. Although our management believes that we are
organized and operate in such manner, 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 Federal income 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
certain distributions paid by us to stockholders 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.
Our growth depends on external sources of capital.
We are generally 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.
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 interests exchangeable for shares of capital stock
(including Units), 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
14
<PAGE>
and our ability to make expected distributions to our stockholders. Higher
leverage also increases the risk of default on our obligations.
We may issue additional shares of capital stock without stockholder
approval. 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 would dilute an existing stockholder's investment.
We may invest in securities related to real estate. 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.
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 such securities, which
could adversely affect our ability to make distributions to our stockholders.
Market conditions may decrease the value of our capital stock.
Market conditions affect the market price per share of our common stock,
like other publicly traded equity securities. These market conditions include:
. the extent of investor interest in us;
. the general reputation of REITs and the attractiveness of our equity
securities in comparison to other equity securities, including
securities issued by other real estate-based companies;
. our financial performance; and
. general stock and bond market conditions, including changes in interest
rates.
Another influential factor on the market price per share of our common stock
is our distribution yield, which is calculated as a percentage of the price of
each share, relative to market interest rates. An increase in market interest
rates might lead prospective purchasers of our common stock to expect a higher
distribution yield. If the distribution yield on our common stock is lower than
investor expectations, the market price per share for our common stock could be
adversely affected. If the market price for our common stock declines
significantly, we might breach certain of our debt covenants which could in
turn adversely affect our liquidity, our ability to make future acquisitions,
and our ability to pay our distributions to our stockholders.
The market value of our equity securities is based primarily upon the
market's perception of our growth potential and our current and potential
future earnings and cash distributions. Consequently, our equity securities,
including our common stock, may trade at prices that are higher or lower than
our net asset value per share. Our failure to meet market expectations
concerning our future earnings or cash distribution likely would adversely
affect the market price for our common stock.
15
<PAGE>
Governmental regulatory action and changes in tax laws could also have a
significant impact on our common stock's market price per share.
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 December 31, 1998, 27,639,210 shares of our common stock were issued
and outstanding and we had reserved for future issuance the following shares of
common stock:
. 1,383,392 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 (excluding the common stock offered pursuant
to this prospectus);
. 2,900,000 shares issuable under our 1997 Stock Option and Incentive Plan.
. 1,000,000 shares issuable under our Dividend Reinvestment and Direct
Stock Purchase Plan.
Of the 27,639,210 shares of common stock presently outstanding, all but 80,000
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 these systems to 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 expect to
complete this discovery and gathering phase and determine our state of
readiness as to building management systems by May 1999. We have identified the
following five categories of building management systems that could have year
2000 exposure:
. building automation,
. security card access,
16
<PAGE>
. fire and life safety,
. elevator and
. office equipment.
We may have year 2000 issues with significant third parties. 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 our employees 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 such 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, certain of our business operations. Such
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 such a plan during 1999 as part
of our ongoing year 2000 compliance effort.
17
<PAGE>
THE PLAN
The following questions and answers explain the plan, as in effect beginning
March , 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 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, with our 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 and 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.
18
<PAGE>
. 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
regarding shares acquired under the WDP. While a discount from market
prices of up to 2% may be established for a particular month, a discount
for one month will not insure the availability of a discount or the same
discount in future months. Each month we may, without giving you prior
notice, change or eliminate the discount.
19
<PAGE>
. 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 fails to exceed the threshold
price for any trading day on the New York Stock Exchange during
the ten trading-day investment period for that month.
. 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 act as your
agent, 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 for waiver under the WDP in which case your initial investment may
exceed $5,000.
20
<PAGE>
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.
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 written request for waiver and submit it to us for our 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
21
<PAGE>
the next succeeding COPP investment date, the agent will hold the funds 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 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 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 the 20th
calendar day of the 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-day investment period, and a Participant will acquire, on
each day, all rights of ownership with respect to the shares purchased,
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 COPP investment dates in 1999 and 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.
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 reported on the New York Stock
Exchange on the applicable dividend payment date, or
22
<PAGE>
. 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 reported on 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 though 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
calendar month at a discount of up to 2% from the market price, which will be
the average of the high and low sales price per share of the common stock as
reported on the NYSE on each trading day on which shares are purchased during
the applicable 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.
Whether you are reinvesting dividends or making optional cash purchases, the
purchase price of the shares of common stock you acquire on any particular
investment date or trading day may not be less than 95% of the average market
price per share of the common stock on that particular day, after taking into
account applicable sales fees, brokerage commissions, discounts and threshold
prices.
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 together with 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 KRC
Investment Plan 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 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
23
<PAGE>
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 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 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. 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: Tyler Rose, 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,
24
<PAGE>
. 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 us 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 on 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 us 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 month, but
once established will apply uniformly to all optional cash purchases made under
the WDP for that month, 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 reported on the New York Stock
Exchange on that particular trading day.
25
<PAGE>
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 us at (310) 563-5500 during the three business
days prior to the applicable investment period. Setting a discount for a
particular month will not affect the setting of a discount for any subsequent
month. 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 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.
26
<PAGE>
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
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
fees, 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 fees.
27
<PAGE>
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 on the
New York Stock Exchange on the related dividend payment date. 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,
whether or not the shares are acquired pursuant to the plan, see "Material
Federal Income Tax Consequences Associated With an Investment in Common Stock--
Taxation of Taxable U.S. Stockholders" below.
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 by the agent, we intend to take the position that
participants received their proportionate amount of the commissions as
additional distributions. While the matter is not free from doubt, we intend to
take the position that administrative expenses of the plan paid by us are not
constructive distributions to you.
If we reinvest your dividends or your optional cash purchases under the COPP
in newly issued shares of 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 dividend payment date or COPP investment date, as
applicable. 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 purchased in different months will have
different holding periods.
If you acquire shares of common stock under the WDP at a discount from the
fair market value of such shares on the trading day on which the shares are
purchased during the applicable WDP investment period, the
28
<PAGE>
tax treatment to you is unclear. We presently intend to take the position that
any discount on shares purchased under 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 common stock
under the WDP in an amount equal to the excess, if any, of the total fair
market value of the shares you purchase on each day on which shares are
purchased during the WDP investment period over the amount of your WDP payment.
We may take this position in future reports to you or the IRS. You should
consult with your own tax advisor with respect to the tax treatment of shares
you purchase at a discount under the WDP. Your tax basis in the shares of
common stock acquired under the WDP will equal the amount of your WDP payment
plus the amount of income, if any, you recognized upon the acquisition.
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, whether or not you receive or dispose of the shares through the
plan, 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 (including insurance companies,
tax-exempt organizations, financial institutions or broker dealers, foreign
corporations and persons who are not citizens or residents of the United
States) who is subject to special treatment under the Federal income tax laws.
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 the plan 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 such shares.
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.
29
<PAGE>
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 fees and 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 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.
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 substantial 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.
30
<PAGE>
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 summary of material federal income tax consequences associated
with an investment in the common stock we are registering is based on current
law, is for general information only and is not tax advice. The tax treatment
to holders of common stock will vary depending on a holder's 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 certain types of
stockholders, subject to 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 subject
to 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 holders 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 (including its practices and policies as expressed in certain private
letter rulings which are not binding on the IRS except with respect to the
particular taxpayers who requested and received such rulings), and court
decisions, all as of the date of this prospectus. Future legislation, Treasury
Regulations, administrative interpretations and practices and/or court
decisions may adversely affect the tax considerations described herein. Any
such 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
IRS concerning our tax treatment and the statements in this prospectus are not
binding on the IRS or any court. Thus, we can provide no assurance that these
statements will not be challenged by the IRS or that such challenge will not be
sustained by a court.
You are urged to consult your tax advisor regarding the specific tax
consequences to you of (1) the acquisition, ownership and sale or other
disposition of our common stock, in each case including the federal, state,
local, foreign and other tax consequences, (2) our election to be taxed as a
REIT for federal income tax purposes, and (3) potential changes in applicable
tax laws.
31
<PAGE>
Taxation of the Company.
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 that, commencing with such taxable year, 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. 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, no assurance can be given that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT. See the
section below entitled "--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 sets
forth 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 applicable Internal Revenue Code
provisions, relevant rules and regulations promulgated under the Internal
Revenue Code, and administrative and judicial interpretations of the Internal
Revenue Code and these rules and regulations.
If we qualify for taxation as a REIT, we generally will not be subject to
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 refers to taxation that occurs once at the corporate level when income
is earned and once again at the stockholder level when such income is
distributed. We will be subject to federal income tax as follows:
. We will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
. We may be subject to 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 subject to 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 subject to a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property held primarily for sale to customers in
the ordinary course of business other than foreclosure property.
. 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 subject to 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 subject to 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 (i) 85% of our
REIT ordinary income for the year, (ii) 95% of our REIT capital gain net
income for the year, and (iii) any undistributed taxable income from
prior periods.
. If we acquire any asset from a corporation which is or has been a
C corporation (i.e., generally a corporation subject to full corporate-
level tax) 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 subject to tax at the highest regular corporate tax rate on
this gain to the extent of the built-in
32
<PAGE>
gain. For this purpose, the term "built-in gain" means 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 we acquired the asset. The
results described in this paragraph with respect to the recognition of
built-in gain assume that we will make an election pursuant to IRS
Notice 88-19 and that the availability or nature of such 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;
(4) that is not a financial institution or an insurance company within the
meaning of certain provisions 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 (as defined in
the Internal Revenue Code to include certain entities) during the last
half of each taxable year; and
(7) that meets certain 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 certain other tax-exempt entities are treated as individuals,
subject to a "look-through" exception with respect to pension funds.
We believe that we have satisfied each of the above conditions. 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 the section
entitled "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. However, if we comply with the rules contained in
applicable 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 the section below entitled "--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. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership. Also,
the REIT will be deemed to be entitled to its proportionate share of the
income of the partnership. The character of the assets and gross income of the
partnership retains the same character in the hands of the REIT 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
33
<PAGE>
Realty, L.P. (including Kilroy Realty, L.P.'s share of these items for any
partnership in which it owns an interest) 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. 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, in each taxable year we must
derive directly or indirectly at least 75% of our gross income (excluding gross
income from prohibited transactions) from investments relating to real property
or mortgages on real property (including "rents from real property" and, in
certain circumstances, interest) or from certain types of temporary
investments. Second, in each taxable year we must derive at least 95% of our
gross income (excluding gross income from prohibited transactions) from the
real property investments described above, or from dividends, interest and gain
from the sale or disposition of stock or securities (or from 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 the amount depends in whole or in part 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 whole or in part 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 such tenant (a "Related Party 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 certain 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 such services include the provision of light, heat, or
other utilities, trash removal and general maintenance of common
areas.
We do not and will not, and as general partner of Kilroy Realty, L.P., will
not permit it to:
. charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based
on a percentage of receipts or sales, as described above);
. rent any property to a Related Party Tenant;
. derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent
received under the lease); or
. perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom we
derive no revenue.
34
<PAGE>
Notwithstanding the foregoing, we may have taken and may continue to take
certain of the actions set forth above to the extent that we determine, based
on the advice of our tax counsel, that such actions will not jeopardize our
status as a REIT.
Kilroy Services, Inc. receives fees in exchange for the performance of
certain development activities. Such 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.
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 certain provisions of 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, 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 (including our share of any such
gain realized by Kilroy Realty, L.P. or Kilroy Realty Finance Partnership,
L.P.) will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. 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, and 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.
. 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 (at least five years) public debt offering, but only
for the one-year period beginning on the date we receive such
proceeds.
. Not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset
test.
. 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.
35
<PAGE>
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 a portion of 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
shares 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 such 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
(directly or through Kilroy Realty, L.P.) acquired 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 such test for any quarter with respect to
which retesting is to occur, we cannot assure our stockholders that such 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 or increase our interests in Kilroy Realty, L.P., we can cure this
failure by disposing of sufficient nonqualifying assets within 30 days after
the close of that quarter. 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, and we intend to take such 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," and 95% of our after
tax net income, if any, from foreclosure property, minus
. The excess of the sum of certain items of our noncash income 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 such year and if paid on or before the first regular dividend
payment after such declaration. 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. For example, 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 in accordance with 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
subject to tax thereon 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 such steps as may be necessary to cause Kilroy Realty,
L.P. to distribute to its partners an amount sufficient to permit us to meet
these distribution requirements.
36
<PAGE>
We expect that our REIT taxable income will be less than our cash flow
because of depreciation and other non-cash charges included in 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, from time to time, 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.
Under certain circumstances, we may be able to rectify a failure to meet our
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 would be subject to 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 such year, at least the sum
of 85% of our REIT ordinary income for such year, 95% of our REIT capital gain
income for the year and any undistributed taxable income from prior periods.
Any REIT 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 applicable to REITs do not
apply, we will be subject to tax, including any applicable 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 as ordinary income to the extent of our current and accumulated
earnings and profits. Subject to certain limitations of the Internal Revenue
Code, corporate stockholders may be eligible for the dividends-received
deduction. Unless we are 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 effectively preclude us from
re-electing to be taxed as a REIT following a 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 subject to 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 subject to tax thereon, 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.
37
<PAGE>
Entity classification. Our interests in Kilroy Realty, L.P. involve special
tax considerations, including 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
such a 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.
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 (an "eligible
entity") 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 these Treasury
Regulations, and, as a result, we believe 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 promulgated thereunder.
Generally, Section 704(b) of the Internal Revenue Code and the 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 to the Company 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 such 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 such 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 such 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. All remaining items of gain or loss relating to
the disposition of Kilroy Realty, L.P.'s assets upon liquidation will be
allocated first to the partners in the amounts necessary, in general, to
equalize our and the limited partners' per common unit capital accounts.
Certain 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.
38
<PAGE>
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with 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 of contributed property
at the time of contribution and the adjusted tax basis of the property at the
time of contribution. We refer to this difference as a "book-tax difference."
These allocations are solely for federal income tax purposes and do not 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 such a book-tax difference, all income attributable to the book-tax
difference will generally be allocated to the limited partner who contributed
the property, and we will generally be allocated only our share of capital
gains attributable to appreciation, if any, occurring after the date of
contribution. 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 or other
partners 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
such contributed assets in excess of the economic or book income allocated to
us or other partners as a result of the sale. Such an allocation might cause us
or other partners to recognize taxable income in excess of cash proceeds, which
might adversely affect our ability to comply with our 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 certain 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 certain assets contributed 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;
39
<PAGE>
. a corporation, partnership, or other entity created or organized in
or under the laws of the United States or of any state thereof or in
the District of Columbia, unless, in the case of a partnership,
Treasury Regulations provide otherwise;
. an estate the income of which is subject to United States federal
income taxation regardless of its source; or
. a trust whose administration is subject to 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.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain 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 the outstanding preferred
stock, if any, and then to the common stock.
To the extent that we make distributions 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 gains, provided that the shares were held
as a capital asset, and 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 shall 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 they do not
exceed our actual net capital gain for the taxable year. Depending on the
period of time the tax characteristics of the assets which produced these
gains, and on certain 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 certain 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, will not be treated as
investment income under certain circumstances.
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;
40
<PAGE>
. 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 in accordance with Treasury Regulations to be
prescribed by the IRS.
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 and 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 (after applying certain 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 comes within certain other exempt categories 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
applicable requirements of 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, provided that a tax-exempt shareholder
(except certain tax-exempt stockholders described below) has not held its
shares as "debt financed property" within the meaning of the Internal Revenue
Code, and the shares are not otherwise used in a trade or business, dividend
income from us will not be unrelated business taxable income to a tax-exempt
stockholder. Similarly, income from the sale of shares will not constitute
unrelated business taxable income unless a tax-exempt stockholder has held its
shares as "debt financed property" within the meaning of the Internal Revenue
Code or has used the shares in its trade or business. Generally, debt financed
property is property, the acquisition or holding of which was financed through
a borrowing by the tax-exempt stockholder.
For 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 certain 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.
41
<PAGE>
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.
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 such qualified trust holds more than 25%, by value,
of the interests in the REIT, or one or more such qualified trusts, each
of which owns more than 10%, by value, of the interests in the REIT,
holds 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 subject to 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 the 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
who are not U.S. stockholders. In general, stockholders who are not 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 stockholder's country. A stockholder
who is not a U.S. stockholder and 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 such treatment. Stockholders who are not 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 subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business. Our stockholders
may be subject to state or local taxation 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
an investment in our common stock.
42
<PAGE>
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 financial statement schedule
incorporated by reference in this prospectus by reference from the Company's
Annual Report on Form 10-K, the combined historical summary of certain revenues
and certain expenses of the Five Acquired Properties for the year ended
December 31, 1996 incorporated by reference in this prospectus by reference
from the Company's Current Report on Form 8-K/A filed February 27, 1998, and
the combined historical summary of certain revenues and certain expenses of the
Three Acquired Properties for the year ended December 31, 1997 incorporated by
reference in this prospectus by reference from the Company's Current Report on
Form 8-K/A filed April 28, 1998, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and having 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed the documents listed below under the Exchange Act with the
SEC. These documents are incorporated herein by reference:
(a) our annual report on Form 10-K (File No. 001-12675) for the year ended
December 31, 1997;
(b) our quarterly reports on Form 10-Q (File No. 001-12675) for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998;
(c) our current reports on Form 8-K filed April 23, 1998, April 24, 1998,
April 28, 1998, October 8, 1998 and December 11, 1998; and
(d) the description of our common stock contained in our registration
statement on Form 8-K/A, dated March 5, 1999.
43
<PAGE>
Any document filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this prospectus and prior to the
termination of the offering of the securities offered hereby to which this
prospectus relates shall be deemed to be incorporated by reference in this
prospectus and to be part hereof from the date of filing such documents.
Any statement contained in this prospectus or in a document incorporated or
deemed to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this prospectus.
We will provide copies of all documents which are incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents) without charge to
each person, including any beneficial owner, to whom this prospectus is
delivered, upon written or oral request. You should direct requests to the
attention of the Chief Financial Officer, Kilroy Realty Corporation, 2250 East
Imperial Highway, El Segundo, California 90245, telephone number (310) 563-
5500.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and,
accordingly, file reports, proxy statements and other information with the SEC.
The registration statement, the exhibits and schedules forming a part thereof
and the reports, proxy statements and other information we filed with the SEC
in accordance with the Exchange Act can be inspected and copied at the SEC's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the SEC: Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. If available, such information
also may be accessed through the SEC's electronic data gathering, analysis and
retrieval system ("EDGAR") via electronic means, including the SEC's Internet
web site (http://www.sec.gov). In addition, our common stock is listed on the
New York Stock Exchange and similar information about us can be inspected and
copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
We filed with the SEC a registration statement on Form S-3 together with all
amendments and exhibits, of which this prospectus is a part, under the
Securities Act. This prospectus does not contain all of the information set
forth in the registration statement, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. Statements
contained in this prospectus or in any document incorporated by reference
herein, as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to, or incorporated by
reference in, the registration statement, each such statement being qualified
in all respects by such reference and the exhibits and schedules thereto. For
further information about us and our common stock you are encouraged to refer
to the registration statement and the exhibits and schedules which may be
obtained from the SEC at its principal office in Washington, D.C. upon payment
of the fees prescribed by the SEC.
44
<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.
45
<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>
April 13, 1999 April 15, 1999 April 16, 1999 April 20, 1999
May 11, 1999 May 13, 1999 May 14, 1999 May 20, 1999
June 8, 1999 June 10, 1999 June 11, 1999 June 21, 1999
June 13, 1999 July 15, 1999 July 16, 1999 July 20, 1999
August 10, 1999 August 12, 1999 August 13, 1999 August 20, 1999
September 7, 1999 September 9, 1999 September 10, 1999 September 20, 1999
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>
46
<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............................................ 50,000
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............................................................ $145,000
========
</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>
3.1 Articles of Amendment and Restatement of the Registrant(1)
3.2 Amended and Restated Bylaws of the Registrant(1)
3.3 Form of Certificate for Common Stock of the Registrant(1)
3.4 Articles Supplementary of the Registrant designating 8.075% Series A
Cumulative Redeemable Preferred Stock(10)
3.5 Articles Supplementary of the Registrant, designating 8.075% Series A
Cumulative Redeemable Preferred Stock(13)
3.6 Articles Supplementary of the Registrant designating its Series B Junior
Participating Preferred Stock (to be filed by amendment)
3.7 Articles Supplementary of the Registrant designating its 9.375% Series C
Cumulative Redeemable Preferred Stock(15)
4.1 Registration Rights Agreement, dated January 31, 1997(1)
4.2 Registration Rights Agreement, dated February 6, 1998(10)
4.3 Registration Rights Agreement, dated April 20, 1998(13)
4.4 Registration Rights Agreement, dated November 24, 1998(15)
4.5 Registration Rights Agreement, dated as of October 31, 1997(7)
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(16)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP (to be filed by
amendment)
10.1 Fourth Amended and Restated Agreement of Limited Partnership of Kilroy
Realty, L.P., dated November 24, 1998(15)
10.2 Omnibus Agreement, dated as of October 30, 1996, by and among Kilroy
Realty, L.P. and the parties named therein(1)
10.3 Supplemental Representations, Warranties and Indemnity Agreement by and
among Kilroy Realty, L.P. and the parties named therein(1)
10.4 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr.,
John B. Kilroy, Jr. and Kilroy Industries(1)
10.5 1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty,
L.P(1)
10.6 Form of Indemnity Agreement of the Registrant and Kilroy Realty, L.P. with
certain officers and directors(1)
10.7 Lease Agreement, dated January 24, 1989, by and between Kilroy Long Beach
Associates and the City of Long Beach for Kilroy Long Beach Phase I(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.8 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase I(1)
10.9 Lease Agreement, dated July 17, 1985, by and between Kilroy Long Beach
Associates and the City of Long Beach for Kilroy Long Beach Phase
III(1)
10.10 Lease Agreement, dated April 21, 1988, by and between Kilroy Long Beach
Associates and the Board of Water Commissioners of the City of Long
Beach, acting for and on behalf of the City of Long Beach, for Long
Beach Phase IV(1)
10.11 Lease Agreement, dated December 30, 1988, by and between Kilroy Long
Beach Associates and City of Long Beach for Kilroy Long Beach Phase
II(1)
10.12 First Amendment to Lease, dated January 24, 1989, by and between Kilroy
Long Beach Associates and the City of Long Beach for Kilroy Long Beach
Phase III(1)
10.13 Second Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III(1)
10.14 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase II(1)
10.15 Third Amendment to Lease Agreement, dated October 10, 1994, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III(1)
10.16 Development Agreement by and between Kilroy Long Beach Associates and
the City of Long Beach(1)
10.17 Amendment No. 1 to Development Agreement by and between Kilroy Long
Beach Associates and the City of Long Beach(1)
10.18 Ground Lease by and between Frederick Boysen and Ted Boysen and Kilroy
Industries, dated May 15, 1969, for SeaTac Office Center(1)
10.19 Amendment No. 1 to Ground Lease and Grant of Easement, dated April 27,
1973, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose
Boysen and Sea/Tac Properties(1)
10.20 Amendment No. 2 to Ground Lease and Grant of Easement, dated May 17,
1977, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose
Boysen and Sea/Tac Properties(1)
10.21 Airspace Lease, dated July 10, 1980, by and among the Washington State
Department of Transportation, as lessor, and Sea Tac Properties, Ltd.
and Kilroy Industries, as lessee(1)
10.22 Lease, dated April 1, 1980, by and among Bow Lake, Inc., as lessor, and
Kilroy Industries and SeaTac Properties, Ltd., as lessees for Sea/Tac
Office Center(1)
10.23 Amendment No. 1 to Ground Lease, dated September 17, 1990, between Bow
Lake, Inc., as lessor, and Kilroy Industries and Sea/Tac Properties,
Ltd., as lessee(1)
10.24 Amendment No. 2 to Ground Lease, dated March 21, 1991, between Bow Lake,
Inc., as lessor, and Kilroy Industries and Sea/Tac Properties, Ltd., as
lessee(1)
10.25 Property Management Agreement between Kilroy Realty Finance Partnership,
L.P. and Kilroy Realty, L.P.(1)
10.26 Environmental Indemnity Agreement(1)
10.27 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Airport
Imperial Co.(1)
10.28 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Calabasas
Associates(1)
10.29 Employment Agreement between the Registrant and John B. Kilroy, Jr.(1)
10.30 Employment Agreement between the Registrant and Richard E. Moran Jr.(1)
10.31 Employment Agreement between the Registrant and Jeffrey C. Hawken(1)
10.32 Employment Agreement between the Registrant and C. Hugh Greenup(1)
10.33 Noncompetition Agreement by and between the Registrant and John B.
Kilroy, Sr.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.34 Noncompetition Agreement by and between the Registrant and John B.
Kilroy, Jr.(1)
10.35 License Agreement by and among the Registrant and the other persons
named therein(1)
10.36 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases, Rents and
Security Deposits(1)
10.37 Mortgage Note(1)
10.38 Indemnity Agreement(1)
10.39 Assignment of Leases, Rents and Security Deposits(1)
10.40 Variable Interest Rate Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of Leases
and Rents(1)
10.41 Environmental Indemnity Agreement(1)
10.42 Assignment, Rents and Security Deposits(1)
10.43 Form of Mortgage, Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment of Leases and Rents(1)
10.44 Assignment of Leases, Rents and Security Deposits(1)
10.45 Purchase and Sale Agreement and Joint Escrow Instructions, dated April
30, 1997, by and between Mission Land Company, Mission-Vacaville, L.P.
and Kilroy Realty, L.P.(2)
10.46 Agreement of Purchase and Sale and Joint Escrow Instructions, dated
April 30, 1997, by and between Camarillo Partners and Kilroy Realty,
L.P.(2)
10.47 Purchase and Sale Agreement and Escrow Instructions dated May 5, 1997,
by and between Kilroy Realty, L.P. and Pullman Carnegie Associates(4)
10.48 Amendment to Purchase and Sale Agreement and Escrow Instructions, dated
June 27, 1997, by and between Pullman Carnegie Associates and Kilroy
Realty, L.P.(4)
10.49 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow
Instructions, dated May 12, 1997, by and between Shidler West
Acquisition Company, LLC and Kilroy Realty, L.P.(3)
10.50 First Amendment to Purchase and Sale Agreement, Contribution Agreement
and Joint Escrow Instructions, dated June 6, 1997, between Kilroy
Realty, L.P. and Shidler West Acquisition Company, L.L.C. and Kilroy
Realty, L.P.(3)
10.51 Second Amendment to Purchase and Sale Agreement, Contribution Agreement
and Joint Escrow Instructions, dated June 12, 1997, by and between
Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(3)
10.52 Agreement of Purchase and Sale and Joint Escrow Instructions, dated June
12, 1997, by and between Mazda Motor of America, Inc. and Kilroy
Realty, L.P.(4)
10.53 Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated June 30, 1997, by and between Mazda Motor of
America, Inc. and Kilroy Realty, L.P.(4)
10.54 Agreement for Purchase and Sale of 2100 Colorado Avenue, Santa Monica,
California, dated June 16, 1997, by and between Santa Monica Number
Seven Associates L.P. and Kilroy Realty L.P.(4)
10.55 Second Amendment to Credit Agreement and First Amendment to Variable
Interest Rate Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases and Rent
dated August 13, 1997(5)
10.56 Purchase and Sale Agreement and Joint Escrow Instructions, dated July
10, 1997, by and between Kilroy Realty, L.P. and Mission Square
Partners(6)
10.57 First Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated August 22, 1997(6)
10.58 Second Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 5, 1997(6)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.59 Third Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 19, 1997(6)
10.60 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 22, 1997(6)
10.61 Fifth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 23, 1997(6)
10.62 Sixth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 25, 1997(6)
10.63 Seventh Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 29, 1997(6)
10.64 Eighth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated October 2, 1997(6)
10.65 Ninth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated October 24, 1997(6)
10.66 Contribution Agreement, dated October 21, 1997, by and between Kilroy
Realty, L.P. and Kilroy Realty Corporation and The Allen Group and the
Allens(8)
10.67 Purchase and Sale Agreement and Escrow Instructions, dated December 11,
1997, by and between Kilroy Realty, L.P. and Swede-Cal Properties,
Inc., Viking Investors of Southern California, L.P. and Viking
Investors of Southern California II, L.P.(9)
10.68 Amendment to the Contribution Agreement, dated October 14, 1998, by and
between Kilroy Realty, L.P. and Kilroy Realty Corporation and The
Allen Group and the Allens, dated October 21, 1997(14)
10.69 Amended and Restated Revolving Credit Agreement, dated as of October 8,
1998 among Kilroy Realty, L.P., Morgan Guaranty Trust Company of New
York, as Bank and as Lead Agent for the Banks, and the Banks listed
therein.(14)
10.70 Amended and Restated Guaranty of Payment, dated as of October 8, 1998,
between Kilroy Realty Corporation and Morgan Guaranty Trust Company of
New York.(14)
*10.71 Form of Dividend Reinvestment and Direct Purchase Plan.
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (to be filed by
amendment)
23.2 Consent of Deloitte & Touche LLP (to be filed by amendment)
24.1 Power of Attorney (included on the signature page to the registration
statement)
*27.1 Financial Data Schedule
*99.1 Enrollment Form
*99.2 Request for Waiver Form
</TABLE>
- --------
*Filed herewith.
(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 Exhibit 10.11 and 10.12, respectively, to the Current
Report on Form 8-K, dated May 22, 1997, and incorporated herein by
reference.
(3) Previously filed as Exhibit 10.57, 10.58 and 10.59, respectively, to the
Current Report on Form 8-K, dated June 30, 1997, and incorporated herein
by reference.
II-5
<PAGE>
(4) Previously filed as Exhibit 10.54, 10.59, 10.60, 10.61 and 10.62,
respectively, to the Current Report on Form 8-K, dated June 30, 1997, and
incorporated herein by reference.
(5) Previously filed as an exhibit to the Registration Statement on Form S-11
(No. 333-32261), and incorporated herein by reference.
(6) Previously filed as an exhibit on Form 10-Q, for the quarterly period
ended September 30, 1997, and incorporated herein by reference.
(7) Previously filed as an exhibit to the Current Report on Form 8-K/A, dated
October 29, 1997, and incorporated herein by reference.
(8) Previously filed as Exhibit 10.70 and 10.71, respectively, to the Current
Report on Form 8-K, dated November 7, 1997, and incorporated herein by
reference.
(9) Previously filed as Exhibit 10.70 to the Current Report on Form 8-K, dated
December 17, 1997, and incorporated herein by reference.
(10) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated February 6, 1998 and incorporated herein by reference.
(11) Previously filed as an exhibits to the Current Report on Form 8-K (No. 1-
12675) dated October 2, 1998 and incorporated herein by reference.
(12) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated October 29, 1997 and incorporated herein by reference.
(13) 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.
(14) Previously filed as an exhibit on Form 10-Q (No. 1-12675) for the
quarterly period ended September 30, 1998 and incorporated herein by
reference.
(15) 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.
(16) 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.
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
II-6
<PAGE>
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.
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-7
<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
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 10th
day of March, 1999.
KILROY REALTY CORPORATION
/s/ John B. Kilroy, Jr.
By: _________________________________
John B. Kilroy, Jr.
President, Chief Executive
Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John B. Kilroy, Jr., Jeffrey C. Hawken, Richard
E. Moran Jr., Tyler H. Rose, Ann Marie Whitney, and each of them, with full
power to act without the other, such person's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including post-effective
amendments), and to file the same, with exhibits and schedules thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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>
/s/ John B. Kilroy, Sr. Chairman of the Board March 10, 1999
____________________________________
John B. Kilroy, Sr.
/s/ John B. Kilroy, Jr. President, Chief Executive March 10, 1999
____________________________________ Officer and Director
John B. Kilroy, Jr. (Principal Executive
Officer)
/s/ John R. D'Eathe Director March 10, 1999
____________________________________
John R. D'Eathe
/s/ William P. Dickey Director March 10, 1999
____________________________________
William P. Dickey
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Matthew J. Hart Director March 10, 1999
____________________________________
Matthew J. Hart
/s/ Dale F. Kinsella Director March 10, 1999
____________________________________
Dale F. Kinsella
/s/ Richard E. Moran Jr. Executive Vice President, March 10, 1999
____________________________________ Chief Financial Officer and
Richard E. Moran Jr. Secretary (Principal
Financial Officer)
/s/ Ann Marie Whitney Vice President and March 10, 1999
____________________________________ Controller (Principal
Ann Marie Whitney Accounting Officer)
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Articles of Amendment and Restatement of the Registrant(1)
3.2 Amended and Restated Bylaws of the Registrant(1)
3.3 Form of Certificate for Common Stock of the Registrant(1)
3.4 Articles Supplementary of the Registrant designating 8.075% Series A
Cumulative Redeemable Preferred Stock(10)
3.5 Articles Supplementary of the Registrant, designating 8.075% Series A
Cumulative Redeemable Preferred Stock(13)
3.6 Articles Supplementary of the Registrant designating its Series B Junior
Participating Preferred Stock (to be filed by amendment)
3.7 Articles Supplementary of the Registrant designating its 9.375% Series C
Cumulative Redeemable Preferred Stock(15)
4.1 Registration Rights Agreement, dated January 31, 1997(1)
4.2 Registration Rights Agreement, dated February 6, 1998(10)
4.3 Registration Rights Agreement, dated April 20, 1998(13)
4.4 Registration Rights Agreement, dated November 24, 1998(15)
4.5 Registration Rights Agreement, dated as of October 31, 1997(7)
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(16)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP (to be filed by
amendment)
10.1 Fourth Amended and Restated Agreement of Limited Partnership of Kilroy
Realty, L.P., dated November 24, 1998(15)
10.2 Omnibus Agreement, dated as of October 30, 1996, by and among Kilroy
Realty, L.P. and the parties named therein(1)
10.3 Supplemental Representations, Warranties and Indemnity Agreement by and
among Kilroy Realty, L.P. and the parties named therein(1)
10.4 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr.,
John B. Kilroy, Jr. and Kilroy Industries(1)
10.5 1997 Stock Option and Incentive Plan of the Registrant and Kilroy
Realty, L.P(1)
10.6 Form of Indemnity Agreement of the Registrant and Kilroy Realty, L.P.
with certain officers and directors(1)
10.7 Lease Agreement, dated January 24, 1989, by and between Kilroy Long
Beach Associates and the City of Long Beach for Kilroy Long Beach Phase
I(1)
10.8 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase I(1)
10.9 Lease Agreement, dated July 17, 1985, by and between Kilroy Long Beach
Associates and the City of Long Beach for Kilroy Long Beach Phase
III(1)
10.10 Lease Agreement, dated April 21, 1988, by and between Kilroy Long Beach
Associates and the Board of Water Commissioners of the City of Long
Beach, acting for and on behalf of the City of Long Beach, for Long
Beach Phase IV(1)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.11 Lease Agreement, dated December 30, 1988, by and between Kilroy Long
Beach Associates and City of Long Beach for Kilroy Long Beach Phase
II(1)
10.12 First Amendment to Lease, dated January 24, 1989, by and between Kilroy
Long Beach Associates and the City of Long Beach for Kilroy Long Beach
Phase III(1)
10.13 Second Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III(1)
10.14 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase II(1)
10.15 Third Amendment to Lease Agreement, dated October 10, 1994, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III(1)
10.16 Development Agreement by and between Kilroy Long Beach Associates and
the City of Long Beach(1)
10.17 Amendment No. 1 to Development Agreement by and between Kilroy Long
Beach Associates and the City of Long Beach(1)
10.18 Ground Lease by and between Frederick Boysen and Ted Boysen and Kilroy
Industries, dated May 15, 1969, for SeaTac Office Center(1)
10.19 Amendment No. 1 to Ground Lease and Grant of Easement, dated April 27,
1973, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose
Boysen and Sea/Tac Properties(1)
10.20 Amendment No. 2 to Ground Lease and Grant of Easement, dated May 17,
1977, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose
Boysen and Sea/Tac Properties(1)
10.21 Airspace Lease, dated July 10, 1980, by and among the Washington State
Department of Transportation, as lessor, and Sea Tac Properties, Ltd.
and Kilroy Industries, as lessee(1)
10.22 Lease, dated April 1, 1980, by and among Bow Lake, Inc., as lessor, and
Kilroy Industries and SeaTac Properties, Ltd., as lessees for Sea/Tac
Office Center(1)
10.23 Amendment No. 1 to Ground Lease, dated September 17, 1990, between Bow
Lake, Inc., as lessor, and Kilroy Industries and Sea/Tac Properties,
Ltd., as lessee(1)
10.24 Amendment No. 2 to Ground Lease, dated March 21, 1991, between Bow Lake,
Inc., as lessor, and Kilroy Industries and Sea/Tac Properties, Ltd., as
lessee(1)
10.25 Property Management Agreement between Kilroy Realty Finance Partnership,
L.P. and Kilroy Realty, L.P.(1)
10.26 Environmental Indemnity Agreement(1)
10.27 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Airport
Imperial Co.(1)
10.28 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Calabasas
Associates(1)
10.29 Employment Agreement between the Registrant and John B. Kilroy, Jr.(1)
10.30 Employment Agreement between the Registrant and Richard E. Moran Jr.(1)
10.31 Employment Agreement between the Registrant and Jeffrey C. Hawken(1)
10.32 Employment Agreement between the Registrant and C. Hugh Greenup(1)
10.33 Noncompetition Agreement by and between the Registrant and John B.
Kilroy, Sr.(1)
10.34 Noncompetition Agreement by and between the Registrant and John B.
Kilroy, Jr.(1)
10.35 License Agreement by and among the Registrant and the other persons
named therein(1)
10.36 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases, Rents and
Security Deposits(1)
10.37 Mortgage Note(1)
10.38 Indemnity Agreement(1)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.39 Assignment of Leases, Rents and Security Deposits(1)
10.40 Variable Interest Rate Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of Leases
and Rents(1)
10.41 Environmental Indemnity Agreement(1)
10.42 Assignment, Rents and Security Deposits(1)
10.43 Form of Mortgage, Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment of Leases and Rents(1)
10.44 Assignment of Leases, Rents and Security Deposits(1)
10.45 Purchase and Sale Agreement and Joint Escrow Instructions, dated April
30, 1997, by and between Mission Land Company, Mission-Vacaville, L.P.
and Kilroy Realty, L.P.(2)
10.46 Agreement of Purchase and Sale and Joint Escrow Instructions, dated
April 30, 1997, by and between Camarillo Partners and Kilroy Realty,
L.P.(2)
10.47 Purchase and Sale Agreement and Escrow Instructions dated May 5, 1997,
by and between Kilroy Realty, L.P. and Pullman Carnegie Associates(4)
10.48 Amendment to Purchase and Sale Agreement and Escrow Instructions, dated
June 27, 1997, by and between Pullman Carnegie Associates and Kilroy
Realty, L.P.(4)
10.49 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow
Instructions, dated May 12, 1997, by and between Shidler West
Acquisition Company, LLC and Kilroy Realty, L.P.(3)
10.50 First Amendment to Purchase and Sale Agreement, Contribution Agreement
and Joint Escrow Instructions, dated June 6, 1997, between Kilroy
Realty, L.P. and Shidler West Acquisition Company, L.L.C. and Kilroy
Realty, L.P.(3)
10.51 Second Amendment to Purchase and Sale Agreement, Contribution Agreement
and Joint Escrow Instructions, dated June 12, 1997, by and between
Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(3)
10.52 Agreement of Purchase and Sale and Joint Escrow Instructions, dated June
12, 1997, by and between Mazda Motor of America, Inc. and Kilroy
Realty, L.P.(4)
10.53 Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated June 30, 1997, by and between Mazda Motor of
America, Inc. and Kilroy Realty, L.P.(4)
10.54 Agreement for Purchase and Sale of 2100 Colorado Avenue, Santa Monica,
California, dated June 16, 1997, by and between Santa Monica Number
Seven Associates L.P. and Kilroy Realty L.P.(4)
10.55 Second Amendment to Credit Agreement and First Amendment to Variable
Interest Rate Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases and Rent
dated August 13, 1997(5)
10.56 Purchase and Sale Agreement and Joint Escrow Instructions, dated July
10, 1997, by and between Kilroy Realty, L.P. and Mission Square
Partners(6)
10.57 First Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated August 22, 1997(6)
10.58 Second Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 5, 1997(6)
10.59 Third Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 19, 1997(6)
10.60 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 22, 1997(6)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.61 Fifth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 23, 1997(6)
10.62 Sixth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 25, 1997(6)
10.63 Seventh Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 29, 1997(6)
10.64 Eighth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated October 2, 1997(6)
10.65 Ninth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated October 24, 1997(6)
10.66 Contribution Agreement, dated October 21, 1997, by and between Kilroy
Realty, L.P. and Kilroy Realty Corporation and The Allen Group and the
Allens(8)
10.67 Purchase and Sale Agreement and Escrow Instructions, dated December 11,
1997, by and between Kilroy Realty, L.P. and Swede-Cal Properties,
Inc., Viking Investors of Southern California, L.P. and Viking
Investors of Southern California II, L.P.(9)
10.68 Amendment to the Contribution Agreement, dated October 14, 1998, by and
between Kilroy Realty, L.P. and Kilroy Realty Corporation and The
Allen Group and the Allens, dated October 21, 1997(14)
10.69 Amended and Restated Revolving Credit Agreement, dated as of October 8,
1998 among Kilroy Realty, L.P., Morgan Guaranty Trust Company of New
York, as Bank and as Lead Agent for the Banks, and the Banks listed
therein.(14)
10.70 Amended and Restated Guaranty of Payment, dated as of October 8, 1998,
between Kilroy Realty Corporation and Morgan Guaranty Trust Company of
New York.(14)
*10.71 Form of Dividend Reinvestment and Direct Purchase Plan.
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (to be filed by
amendment)
23.2 Consent of Deloitte & Touche LLP (to be filed by amendment)
24.1 Power of Attorney (included on the signature page to the registration
statement)
*27.1 Financial Data Schedule
*99.1 Enrollment Form
*99.2 Request for Waiver Form
</TABLE>
- --------
*Filed herewith.
(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 Exhibit 10.11 and 10.12, respectively, to the Current
Report on Form 8-K, dated May 22, 1997, and incorporated herein by
reference.
(3) Previously filed as Exhibit 10.57, 10.58 and 10.59, respectively, to the
Current Report on Form 8-K, dated June 30, 1997, and incorporated herein
by reference.
(4) Previously filed as Exhibit 10.54, 10.59, 10.60, 10.61 and 10.62,
respectively, to the Current Report on Form 8-K, dated June 30, 1997, and
incorporated herein by reference.
(5) Previously filed as an exhibit to the Registration Statement on Form S-11
(No. 333-32261), and incorporated herein by reference.
<PAGE>
(6) Previously filed as an exhibit on Form 10-Q, for the quarterly period
ended September 30, 1997, and incorporated herein by reference.
(7) Previously filed as an exhibit to the Current Report on Form 8-K/A, dated
October 29, 1997, and incorporated herein by reference.
(8) Previously filed as Exhibit 10.70 and 10.71, respectively, to the Current
Report on Form 8-K, dated November 7, 1997, and incorporated herein by
reference.
(9) Previously filed as Exhibit 10.70 to the Current Report on Form 8-K, dated
December 17, 1997, and incorporated herein by reference.
(10) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated February 6, 1998 and incorporated herein by reference.
(11) Previously filed as an exhibits to the Current Report on Form 8-K (No. 1-
12675) dated October 2, 1998 and incorporated herein by reference.
(12) Previously filed as an exhibit to the Current Report on Form 8-K (No. 1-
12675) dated October 29, 1997 and incorporated herein by reference.
(13) 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.
(14) Previously filed as an exhibit on Form 10-Q (No. 1-12675) for the
quarterly period ended September 30, 1998 and incorporated herein by
reference.
(15) 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.
(16) 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 10.71
KILROY REALTY CORPORATION
DIVIDEND REINVESTMENT AND DIRECT PURCHASE PLAN
March __, 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 the 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. 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. VOLUNTARY CASH PURCHASES
A voluntary cash purchase may be made under either the COPP or 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 KRC Investment Plan to the Agent at the address set forth
herein. Participants may make Optional Cash Purchases under the WDP by
transmitting immediately available funds to the Agent to the account referenced
on the
2
<PAGE>
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.
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 Kilroy Investment Plan at the address set forth in Section 22. 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 second 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 next 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 than
$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.
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 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
defined below) 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 established pursuant to Section 4.C below (the "Investment
Period Average Purchase Price"). "Investment Period" means the period of ten
(10) 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 to
the NYSE, exceeds the 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
3
<PAGE>
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. The aggregate amount of any WDP
Payment of a Participant used to purchase shares of Common Stock during any
calendar month shall not be less 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 a portion of that
Participant's 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 were reported on the New York Stock Exchange. The
Company's election whether to establish a Threshold Price for any particular
Investment Period will not effect 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)
563-5531 during the three business days preceding the applicable Investment
Period.
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. Any discount set by the Company with respect to an Optional Cash
Purchase shall apply to the entire Optional Cash Purchase. 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
4
<PAGE>
Period by telephoning the Company at (310) 563-5531 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 purchase price. 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 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, shall not be less that the minimum purchase
price of 95% of the average of the high and low sales price of the Common Stock
reported on the NYSE on that particular trading day.
E. Procedures Applicable to Voluntary 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 hereof. COPP Payments shall
be delivered to the Agent at the address set forth in Section 22.
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 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, 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.
5. SHARE PURCHASES
As Agent for the Participants in the Plan, the Agent will receive cash
dividends from the Company with respect to Common Shares held by the
Participants and voluntary cash
5
<PAGE>
purchases from the Participants. Shares to be purchased under the DRIP and the
COPP with such cash dividends or voluntary cash purchases may be purchased in
the open market by the Agent on the New York Stock Exchange or any securities
exchange where the Company's Common Shares 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, or with voluntary cash
purchases will be the Dividend Payment Date, 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 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. 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 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
6
<PAGE>
other costs of purchase paid by the Company, 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").
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.
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. Shares certificates may be
withdrawn from the Plan by instructing the Agent in writing.
7
<PAGE>
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 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.
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 W-9 completed by the transferee. If
any stock certificates in such Participant's account contain a
8
<PAGE>
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 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. 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,
Optional Cash Purchase Payment 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
commencement of the COPP Investment Period or Investment Period respectively, it
will not be processed until after purchases made from dividends paid 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.
9
<PAGE>
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, 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.
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 "Termination Notice"). The Agent may resign as Agent upon 60
days prior written notice to the Company. Upon 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 or delivers, as the case may be, the Termination Notice
(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 10 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.
The Agent shall keep 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 hereof.
Without limiting the foregoing, the Agent shall maintain and retain for a period
of not less than two years from the date of the event the following information:
(i) the dates and substance of any materials distributed in connection with the
Plan, (ii) the number of
10
<PAGE>
Participants as of the end of each month; (iii) the volume of Company securities
purchased under the Plan by the Agent each month; and (iv) a record of any
period during which the Company is engaged in any other distribution of shares
of its Common Stock or other Company securities for purposes of Regulation M
under the Exchange Act. 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 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, as such term is defined herein;
(b) shall be regarded as making no representation and having no
responsibilities as to the validity, sufficiency, value, or
genuineness of any of the Company's securities purchased or sold
in connection herewith, 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 hereunder; if,
however, the Agent determines to take any legal action hereunder,
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 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 funds as set forth herein to make such
payments in full;
(g) may consult with counsel reasonably satisfactory to the Agent,
including in-house counsel, if any, or counsel to the Company,
and the advice of such counsel shall be full and complete
authorization and protection in
11
<PAGE>
respect of any action taken, suffered, or omitted by the Agent in
good faith and in accordance with the advice of such counsel;
(h) may perform any of its duties hereunder either directly or by or
through agents or attorney 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 type of orders or transactions processed through the
Plan. The Agent shall not be liable or responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with reasonable care by it hereunder; and
(i) is not authorized, and shall have no obligation, to pay any
brokers, dealers, or soliciting fees to any person.
In exercising all of its duties and obligations hereunder, the Agent
shall use the same degree of skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
Notwithstanding the foregoing, the Agent may not be relieved from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that the Agent shall not be liable for any error
or 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.
In administering the Plan, neither the Agent, the Company nor any
agent for either will be liable for (i) any act done in good faith or for any
good faith omission to act, including, without limitation, any claim of
liability arising out of failure to terminate a Participant's account upon such
Participant's death or adjudicated incompetence prior to the receipt of written
notice
12
<PAGE>
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.
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 (including reasonable attorneys' fees and expenses)
(a "Loss") incurred as a result of the performance of the Agent's duties
hereunder, provided that such Loss is not (a) due to any negligent or bad faith
act or omission by the Agent, (b) due to a failure by the Agent to act in
accordance with the provisions hereof or the written instructions of the Company
or (c) due to a breach by the Agent of its agreements set forth herein.
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
13
<PAGE>
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 Common 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 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
14
<PAGE>
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.
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 March ____,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
15
<PAGE>
<TABLE>
<CAPTION>
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 shareholder? YES [ ] NO [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
<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
- - / /
-----------------------------------------------------------------------------------------------------------------------------------
[ ] 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 KRC Investment Plan)
[ ] As a CURRENT registered shareholder 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>
<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>
REQUEST FOR WAIVER
Dividend Reinvestment and Direct Purchase Plan
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: Tyler Rose, 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 (310) 563-5500.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Participant Information:
Please Fill Out Entirely. Bids with Incomplete Information will be rejected.
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Participant Name Participant Signature Date
--------------------------------------------------------------------------------------------------------------------------------
Tax I.D. Number Phone Number Fax Number
--------------------------------------------------------------------------------------------------------------------------------
Street Address City State Zip
--------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payment Information:
<S> <C>
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.
- ------------------------------------------------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
For Company Use Only:
--------------------------------------------------------------------------------------------------------------------------------
Amount Approved Approved by
--------------------------------------------------------------------------------------------------------------------------------
Discount Approved Title Date
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 27,311 8,929
<SECURITIES> 0 0
<RECEIVABLES> 19,951 7,875
<ALLOWANCES> (494) (508)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 1,132,158 834,690
<DEPRECIATION> (139,170) (121,780)
<TOTAL-ASSETS> 1,063,670 757,654
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 276 245
<OTHER-SE> 476,122 396,905
<TOTAL-LIABILITY-AND-EQUITY> 1,063,670 757,654
<SALES> 0 0
<TOTAL-REVENUES> 96,990 45,701
<CGS> 0 0
<TOTAL-COSTS> 45,878 22,310
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,462 8,609
<INCOME-PRETAX> 36,740 14,782
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 36,740 14,782
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 3,204
<CHANGES> 0 0
<NET-INCOME> 28,649<F1> 15,942
<EPS-PRIMARY> 1.07 0.82
<EPS-DILUTED> 1.07 0.81
<FN>
<F1>NET INCOME IS AFTER EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY OF ($24) AND
MINORITY INTERESTS OF ($7,797)
</FN>
</TABLE>
<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 shareholder? YES [ ] NO [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
<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
- - / /
-----------------------------------------------------------------------------------------------------------------------------------
[ ] 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 KRC Investment Plan)
[ ] As a CURRENT registered shareholder 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: Tyler Rose, 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 (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.
- ------------------------------------------------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
For Company Use Only:
--------------------------------------------------------------------------------------------------------------------------------
Amount Approved Approved by
--------------------------------------------------------------------------------------------------------------------------------
Discount Approved Title Date
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
