-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJZGoEEkQFmiJmMhnW8HBnO2lS+L0bjSKCuZTu4AJHBQGMxaDUkb7AskYmMauScP HyafWii9vZdisbFsFDqq8A== 0000898430-00-001122.txt : 20000404 0000898430-00-001122.hdr.sgml : 20000404 ACCESSION NUMBER: 0000898430-00-001122 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000523 FILED AS OF DATE: 20000403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILROY REALTY CORP CENTRAL INDEX KEY: 0001025996 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 954598246 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-12675 FILM NUMBER: 591941 BUSINESS ADDRESS: STREET 1: 2250 E IMPERIAL HWY STREET 2: C/O KILROY INDUSTRIES CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3105635500 MAIL ADDRESS: STREET 1: C/O KILROY INDUSTRIES STREET 2: 2250 E IMPERIAL HIGHWAY #1200 CITY: EL SEGUNDO STATE: CA ZIP: 90245 DEF 14A 1 DEFINITIVE PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary proxy statement [_] Confidential, for use of the [X] Definitive proxy statement commission only (as permitted by Rule 14a-6(e)(2)) [_] Definitive additional materials [_] Soliciting Material Pursuant to Rule 14a-12 KILROY REALTY CORPORATION (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if Other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: KILROY REALTY CORPORATION 2250 EAST IMPERIAL HIGHWAY, SUITE 1200 EL SEGUNDO, CALIFORNIA 90245 March 30, 2000 Dear Stockholder: You are cordially invited to attend the 2000 annual meeting of stockholders of KILROY REALTY CORPORATION to be held on May 23, 2000, at 10:00 a.m. at The Beverly Hilton located at 9876 Wilshire Boulevard, Beverly Hills, California 90210. Information about the meeting and the various matters on which the stockholders will act is included in the Notice of Annual Meeting of Stockholders and Proxy Statement which follow. Also included is a Proxy Card and postage paid return envelope. It is important that your shares be represented at the meeting. Whether or not you plan to attend, we hope that you will complete and return your Proxy Card in the enclosed envelope as promptly as possible. Sincerely, Richard E. Moran Jr. Executive Vice President, Chief Financial Officer and Secretary KILROY REALTY CORPORATION 2250 EAST IMPERIAL HIGHWAY, SUITE 1200 EL SEGUNDO, CALIFORNIA 90245 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 23, 2000 To the Stockholders of Kilroy Realty Corporation: NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual Meeting") of Kilroy Realty Corporation, a Maryland corporation (the "Company"), will be held at The Beverly Hilton located at 9876 Wilshire Boulevard, Beverly Hills, California 90210 on May 23, 2000, at 10:00 a.m., local time, for the following purposes: 1. To elect two directors to the Company's Board of Directors to serve until the annual meeting of stockholders in the year 2003 and until their successors are duly elected and qualify; and 2. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. The Board of Directors has fixed the close of business on March 20, 2000 as the record date (the "Record Date") for determining the stockholders entitled to receive notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. The enclosed proxy is solicited by the Board of Directors of the Company, which recommends that stockholders vote FOR the election of the nominees named therein. Please refer to the attached Proxy Statement, which forms a part of this Notice and is incorporated herein by reference, for further information with respect to the business to be transacted at the Annual Meeting. STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. By Order of the Board of Directors, Richard E. Moran Jr. Executive Vice President, Chief Financial Officer and Secretary March 30, 2000 El Segundo, California KILROY REALTY CORPORATION 2250 EAST IMPERIAL HIGHWAY, SUITE 1200 EL SEGUNDO, CALIFORNIA 90245 ---------------- ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 23, 2000 ---------------- PROXY STATEMENT ---------------- INTRODUCTION General This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Kilroy Realty Corporation, a Maryland corporation (the "Company"), of proxies from the holders of the Company's issued and outstanding shares of common stock, par value $.01 per share (the "Common Stock"), to be exercised at the Annual Meeting of Stockholders (the "Annual Meeting") to be held on May 23, 2000 at The Beverly Hilton located at 9876 Wilshire Boulevard, Beverly Hills, California 90210 at 10:00 a.m. local time, and at any adjournment(s) or postponement(s) thereof for the purposes set forth in the accompanying Notice of Annual Meeting. At the Annual Meeting, the stockholders of the Company will be asked to consider and vote upon the following proposals (the "Proposals"): 1. The election of two directors to the Company's Board of Directors to serve until the annual meeting of stockholders to be held in the year 2003 and until their successors are duly elected and qualify; and 2. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. Only the holders of record of the shares of Common Stock at the close of business on March 20, 2000 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote on all matters. As of the Record Date, 26,163,310 shares of Common Stock were outstanding. This Proxy Statement and enclosed form of proxy are first being mailed to the stockholders of the Company on or about March 30, 2000. A majority of the shares of Common Stock outstanding must be represented at the Annual Meeting in person or by proxy to constitute a quorum for the transaction of business at the Annual Meeting. Shares represented by proxies that reflect abstentions or "broker non-votes" will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In order to be elected as a director, a nominee must receive a plurality of all the votes cast at the Annual Meeting at which a quorum is present. For purposes of calculating votes cast in the election of the directors, abstentions or broker non-votes will not be counted as votes cast and will have no effect on the result of the vote on the Proposal regarding the election of the director nominees. The shares of Common Stock represented by all properly executed proxies returned to the Company will be voted at the Annual Meeting as indicated or, if no instruction is given, FOR election of the two director nominees named herein. As to any other business that may properly come before the Annual Meeting, all properly executed proxies will be voted by the persons named therein in accordance with their discretion. The Company does not presently know of any other business which may come before the Annual Meeting. However, if any other matter 1 properly comes before the Annual Meeting, or any adjournment or postponement thereof, which may properly be acted upon, unless otherwise indicated the proxies solicited hereby will be voted on such matter in accordance with the discretion of the proxy holders named therein. Any person giving a proxy has the right to revoke it at any time before it is exercised (i) by filing with the Secretary of the Company a duly signed revocation or a proxy bearing a later date or (ii) by electing to vote in person at the Annual Meeting. Mere attendance at the Annual Meeting will not revoke a proxy. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. The cost of soliciting proxies will be paid by the Company. Proxies may be solicited by directors, officers and employees of the Company in person or by mail, telephone or facsimile transmission, but such persons will not be specially compensated therefor. The Company's executive offices are located at 2250 East Imperial Highway, Suite 1200, El Segundo, California 90245, telephone (310) 563-5500. References herein to the "Company" refer to Kilroy Realty Corporation and its subsidiaries, unless the context otherwise requires. ---------------- The date of this Proxy Statement is March 30, 2000. 2 PROPOSAL 1: ELECTION OF DIRECTORS Pursuant to the Company's articles of incorporation, as amended (the "Charter"), the Company's bylaws, as amended (the "Bylaws"), and the resolutions adopted by the Board of Directors (the "Board"), the Board presently consists of seven directors with one vacancy. The Board is divided into three classes equal in number, serving staggered three-year terms, consisting of two members whose term will expire at the Annual Meeting, two members whose terms will expire at the 2001 annual meeting of stockholders and two members whose terms will expire at the 2002 annual meeting of stockholders. Pursuant to the Charter, at each annual meeting the successors to the class of directors whose terms expire at such meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Accordingly, at the Annual Meeting, the nominees for election will be elected to hold office for a term of three years until the annual meeting of stockholders to be held in the year 2003, and until their successors are duly elected and qualify. Except where otherwise instructed, proxies solicited by this Proxy Statement will be voted for the election of each of the nominees to the Board listed below. Each such nominee has consented to be named in this Proxy Statement and to serve as a director if elected. The information below relating to the nominees for election as director and to each of the other directors whose terms of office continue after the Annual Meeting has been furnished to the Company by the respective individuals. The Board recommends a vote FOR the election of John B. Kilroy, Jr. and Dale F. Kinsella to serve until the annual meeting of stockholders to be held in the year 2003 and until their respective successors are duly elected and qualify. Nominees for Director The following table sets forth certain current information with respect to the nominees for directors to the Board of the Company:
Name Age Director Since Position With The Company ---- --- -------------- ------------------------- John B. Kilroy, Jr............. 51 1996 President, Chief Executive Officer, and Director Dale F. Kinsella............... 51 1997 Director
The following is a biographical summary of the experience of the nominees for directors to the Board of the Company: John B. Kilroy, Jr., has served as the Company's President, Chief Executive Officer and Director since its incorporation in September 1996. Prior to joining the Company, Mr. Kilroy served in the same capacity for Kilroy Industries ("KI"), the predecessor entity to the Company, and was responsible for the overall management of all facets of KI and its various affiliates since 1981. Mr. Kilroy has been involved in all aspects of commercial and industrial real estate development, construction, acquisition, sales, leasing, financing, and entitlement since 1967 and worked for KI for over 30 years. Mr. Kilroy became President of KI in 1981 and was elected Chief Executive Officer in 1991. Prior to that time he held positions as Executive Vice President and Vice President--Leasing & Marketing. He is a trustee of the El Segundo Employers Association, and a past trustee of Viewpoint School, the Jefferson Center For Character Education and the National Fitness Foundation. Mr. Kilroy holds a Bachelor of Science degree in Economics from the University of Southern California. Mr. Kilroy is the son of John B. Kilroy, Sr., the Chairman of the Company's Board of Directors. Dale F. Kinsella, has been a member of the Board of Directors of the Company since its inception as a public company in January 1997. Since 1990, Mr. Kinsella has been a partner with the Los Angeles law firm of Kinsella, Boesch, Fujikawa & Towle LLP. Mr. Kinsella received his undergraduate degree from the University of California, Santa Barbara and his Juris Doctor degree from the University of California, Los Angeles. 3 Vote Required The election of each director requires the plurality of the votes cast by the holders of the shares of Common Stock entitled to vote thereon present in person or by proxy at the Annual Meeting. The Board Recommends a vote FOR the election of John B. Kilroy, Jr. and Dale F. Kinsella to serve until the annual meeting of stockholders to be held in the year 2003 and until their respective successors are duly elected and qualify. Directors Continuing in Office Information concerning the other directors of the Company whose terms do not expire at the Annual Meeting is set forth below.
Name Age Position With The Company Term ---- --- ------------------------- ---- John B. Kilroy, Sr............... 77 Chairman of the Board of Directors 2002 John R. D'Eathe.................. 64 Director 2001 William P. Dickey................ 57 Director 2001 Matthew J. Hart.................. 47 Director 2002
John B. Kilroy, Sr., has served as the Company's Chairman of the Board of Directors since its incorporation in September 1996, and served in the same capacity for KI since 1954. In 1947, Mr. Kilroy founded the businesses that were incorporated in 1952 as the entity known as KI, the predecessor to the Company. Mr. Kilroy served as KI's President from 1952 until 1981, and as its Chairman of its Board of Directors from 1954 to 1997. Mr. Kilroy is a nationally recognized member of the real estate community, providing the Company with strategic leadership and a broadly based network of relationships. Mr. Kilroy is a trustee of the Independent Colleges of Southern California, serves on the Board of Directors of Pepperdine University, and is a past trustee of Harvey Mudd College. Mr. Kilroy is the father of John B. Kilroy, Jr., the Company's President and Chief Executive Officer. John R. D'Eathe, has been a member of the Board of Directors of the Company since October 1997. Mr. D'Eathe is a 30-year veteran of real estate development and management in Canada, Europe and the United States. Since 1980, Mr. D'Eathe has been serving as the President of Freehold Development Canada, which is primarily focused on commercial and industrial development in western Canada. From 1970 to 1979, Mr. D'Eathe was President and Chief Executive Officer of Canadian Freehold Properties Ltd., a Canadian-based development company involved in commercial projects in both Canada and the United States. From 1965 to 1969, he served as a director and senior vice president of Grosvenor International, a private real estate group that owns and develops property around the world. Since 1997, Mr. D'Eathe has been the Chairman and President of Penreal Advisors Ltd., one of Canada's largest pension fund real estate investment and advisory firms. In addition, he has been the Chairman of Spark Music Inc., of Vancouver since 1992, and has been a director of John Hancock's Maritime Life Assurance Company since 1995. Mr. D'Eathe holds an honors Bachelor of Laws degree from London University, UK and is an associate member of The Canadian Bar Association. William P. Dickey, has been a member of the Board of Directors of the Company since its inception as a public company in January 1997. Mr. Dickey has been the President of The Dermot Company, Inc., a real estate investment and management company since 1990. From 1986 to 1990, Mr. Dickey was a Managing Director of Real Estate for CS First Boston Corporation. Prior to 1986, Mr. Dickey was a partner at the New York law firm of Cravath, Swaine & Moore, where he started as an associate beginning in 1974. Mr. Dickey is a member of the board of directors of Prime Retail, Inc., a real estate investment trust ("REIT") which invests primarily in factory outlet centers, and Mezzanine Capital Property Investors, Inc., a REIT which invests primarily in East Coast office/mixed use space. Mr. Dickey received his undergraduate degree from the United States Air Force Academy, his Masters Degree from Georgetown University and his Juris Doctor Degree from Columbia Law School. 4 Matthew J. Hart, has been a member of the Board of Directors of the Company since its inception as a public company in January 1997. Mr. Hart joined Hilton Hotels Corporation in 1996 and presently serves as its Executive Vice President, Chief Financial Officer and Treasurer. Prior to joining Hilton, Mr. Hart was Senior Vice President and Treasurer of The Walt Disney Company from 1995 to 1996. From 1981 to 1995, Mr. Hart was employed by Host Marriott Corporation (formerly known as Marriott Corporation), most recently as its Executive Vice President and Chief Financial Officer. Before joining Marriott Corporation, Mr. Hart had been a lending officer with Bankers Trust Company in New York. Mr. Hart is a member of the board of directors of First Washington Realty Trust, Inc., a REIT which invests primarily in retail properties and Heal the Bay, a nonprofit organization. Mr. Hart received his undergraduate degree from Vanderbilt University and a Masters of Business Administration from Columbia University. Board of Directors Meetings and Attendance During the year ended December 31, 1999, the Board held five meetings including one special telephonic meeting. All but one director attended 75% or more of the aggregate of (i) the total number of meetings of the Board while they were on the Board and (ii) the total number of meetings of the committees of the Board on which such directors served. Mr. Kilroy, Sr. attended 60% of the total meetings of the Board and their respective committees. Board Committees The Board of Directors of the Company has an Audit Committee, an Independent Committee, an Executive Committee and an Executive Compensation Committee. Audit Committee. The Audit Committee consists of two Independent Directors, Mr. Hart, the Chairman, and Mr. D'Eathe. An "Independent Director" is a director who is not an employee, officer or affiliate of the Company or a subsidiary or a division thereof, or a relative of a principal executive officer, or who is not an individual member of an organization acting as an advisor, consultant or legal counsel, receiving compensation on a continuing basis from the Company in addition to director's fees. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the scope and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Company's internal accounting controls. The Audit Committee held three meetings during 1999. Independent Committee. The Independent Committee consists of four Independent Directors, Mr. Kinsella, the Chairman, and Messrs. Dickey, Hart and D'Eathe. The Independent Committee has the authority to approve transactions between the Company and its affiliates, including, without limitation, John B. Kilroy, Sr. or John B. Kilroy, Jr. and their respective affiliates. The Independent Committee held one meeting during 1999. Executive Committee. The Executive Committee consists of Mr. Kilroy, Jr., the Chairman, and Messrs. Kilroy, Sr. and Kinsella. Subject to the Company's conflict of interest policies, the Executive Committee has authority to acquire and dispose of real property and the power to authorize, on behalf of the full Board, the execution of certain contracts and agreements, including those related to the borrowing of money by the Company (and, consistent with the Agreement of Limited Partnership as amended from time to time (the "Partnership Agreement") of Kilroy Realty, L.P. (the "Operating Partnership"), to cause the Operating Partnership to take such actions). The Executive Committee held no meetings during 1999. Executive Compensation Committee. The Executive Compensation Committee consists of two Independent Directors, Mr. Dickey, the Chairman, and Mr. Kinsella. The function of the Executive Compensation Committee is to (i) establish, review, modify, and adopt remuneration levels for executive officers of the Company, and (ii) implement the Company's Stock Incentive Plan and any other incentive programs. The Executive Compensation Committee held one meeting during 1999. 5 Compensation of Directors In February 1999, the Board approved a recommendation by management to modify and increase the Board's compensation structure to a level comparable to the Company's peers. During 1999, under the new structure, the Company paid its non-employee directors (including those who are deemed "inside" directors) annual compensation of $20,000 for their services. In addition, each non- employee director also received annual compensation of $2,000 for their services as chairman of any committee of the Board and $1,000 for each Board meeting attended by such director. Each non-employee Director was also reimbursed for reasonable expenses incurred to attend director and committee meetings. Officers of the Company who are directors were not paid any directors fees. In addition, under the Company's 1997 Stock Option and Incentive Plan (the "Stock Incentive Plan"), upon his initial election to the Board, each Independent Director was automatically granted options to purchase 10,000 shares of Common Stock which options vest pro rata in annual installments over a three-year period, and on each anniversary of his election to the Board, each Independent Director received an option to purchase 1,000 shares of Common Stock which options also vest pro rata in annual installments over a three-year period. As a result of management's recommendation to modify and increase the Board compensation structure in February 1999 as discussed above, the annual grant of options to purchase shares to each non-employee director was increased from options to purchase 1,000 shares, to options to purchase 5,000 shares. For administrative simplicity, the new structure provides that all future option grants to Board members will be made on a common annual date, rather than the respective anniversary dates of each Board member's election to the Board. All stock options were issued pursuant to the Stock Incentive Plan at an exercise price equal to or greater than the fair market value of the Common Stock at the date of grant. As of December 31, 1999, Messrs. Dickey, Hart and Kinsella each held options to purchase 10,000 shares of Common Stock at an exercise price of $23.00 per share, all of which are currently exercisable, options to purchase 1,000 shares of Common Stock at an exercise price of $28.56 per share, of which options to purchase 667 shares are currently exercisable, and options to purchase 5,000 shares of Common Stock at an exercise price of $20.38 per share, of which options to purchase 1,667 shares are currently exercisable. In addition, as of December 31, 1999, Mr. D'Eathe held options to purchase 10,000 shares of Common Stock at an exercise price of $27.25 per share, of which options to purchase 6,667 shares are currently exercisable, options to purchase 1,000 shares of Common Stock at an exercise price of $20.56 per share, of which options to purchase 333 shares are currently exercisable, and options to purchase 5,000 shares of Common Stock at an exercise price of $20.38 per share, of which options to purchase 1,667 shares are currently exercisable. Further, as of December 31, 1999, Mr. Kilroy, Sr. held options to purchase 15,000 shares of Common Stock at an exercise price of $23.00 per share, of which options to purchase 10,000 shares are exercisable as of December 31, 1999, and options to purchase 5,000 shares of Common Stock at an exercise price of $20.38 per share, of which options to purchase 1,667 shares are currently exercisable. CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS The following table sets forth certain current information with respect to the executive officers of the Company:
Name Age Position ---- --- -------- John B. Kilroy, Sr. ... 77 Chairman of the Board John B. Kilroy, Jr. ... 51 President, Chief Executive Officer and Director Executive Vice President, Los Angeles Campbell Hugh Greenup.. 46 Development Executive Vice President and Chief Operating Jeffrey C. Hawken...... 41 Officer Executive Vice President, Chief Financial Richard E. Moran Jr. .. 48 Officer and Secretary Steven R. Scott........ 43 Senior Vice President, San Diego Development
6 The following is a biographical summary of the experience of the executive and senior officers of the Company: John B. Kilroy, Sr. has served as Chairman of the Board since its incorporation in September 1996. Biographical information regarding Mr. Kilroy is set forth under "Proposal 1: Election of Directors--Directors Continuing in Office." John B. Kilroy, Jr. has served as the President and Chief Executive Officer of the Company since it commenced operations as a public company in January 1997. Biographical information regarding Mr. Kilroy is set forth under "Proposal 1: Election of Directors--Nominees for Director." Campbell Hugh Greenup is currently an Executive Vice President of the Company and has served in that capacity since the Company commenced operations as a public company in January 1997. Prior to that time, Mr. Greenup was employed at KI since 1986 as Assistant General Counsel and was also President of Kilroy Technologies Company, LLC. Mr. Greenup is a member of the American Bar Association, the Urban Land Institute, the National Association of Corporate Real Estate Executives and the Los Angeles County Beach Advisory Commission. Mr. Greenup holds a Juris Doctor from Hastings College of Law and a Bachelor of Arts degree in History from the University of California, Los Angeles. Jeffrey C. Hawken has served as the Executive Vice President and Chief Operating Officer of the Company since it commenced operations as a public company in January 1997. Prior to that time, Mr. Hawken served in the same capacity for KI and was responsible for the management and operations of KI's real estate portfolio. He also served on KI's acquisitions and executive committees. Mr. Hawken joined KI in 1980, as a Senior Financial Analyst, and has been involved in property and asset management with the Company since May 1983. Since that time, he attained the designation of Real Property Administrator through the Building Owner's and Manager's Association ("BOMA"), and currently serves as a director on the board of BOMA of Greater Los Angeles. Mr. Hawken holds a Bachelor of Science degree in Business Administration from the University of Southern California. Richard E. Moran Jr. has served as Executive Vice President, Chief Financial Officer and Secretary of the Company since December 1996. Prior to that time, Mr. Moran was Executive Vice President, Chief Financial Officer and Secretary of Irvine Apartment Communities, Inc. from 1993 to 1996. Mr. Moran was affiliated with The Irvine Company from 1977 to 1993 where he served as Treasurer from 1983 to 1993, was named Vice President in 1984, Senior Vice President in 1990, and Executive Vice President, Corporate Finance in 1992. Previously, he was a certified public accountant with Coopers & Lybrand LLP. He is a member of the Urban Land Institute. Mr. Moran received his Master of Business Administration degree from the Harvard University Graduate School of Business Administration and a Bachelor of Science degree in Accounting from Boston College. Steven R. Scott is currently a Senior Vice President of the Company and has served in that capacity since he joined the Company in January 1998. Prior to that time Mr. Scott was Senior Vice President with CB Richard Ellis in San Diego from January 1996 to December 1997, where he concentrated in corporate services, build-to-suits and brokerage in the mid-San Diego County markets of Sorrento Mesa, Torrey Pines, University Towne Centre and the I-15 Corridor. Prior to CB Richard Ellis, he was affiliated with the San Diego office of Grubb & Ellis Company for 13 years most recently as Senior Marketing Consultant. Mr. Scott holds a Bachelor of Science degree in Business from San Diego State University. 7 EXECUTIVE COMPENSATION The following table sets forth the salary rates and other compensation paid for the fiscal years ended December 31, 1999 and 1998 and for the period from the Company's inception as a public company, January 31, 1997 through December 31, 1997, to the Chief Executive Officer and each of the Company's other executive officers (the "Named Executive Officers"). The Company has entered into employment agreements with each of its executive officers, except for Steven R. Scott, as described below. See "--Employment Agreements."
Long-Term Annual Compensation Compensation --------------------------------------- --------------------- Securities Restricted Underlying Other Annual Stock Options Name and Principal Position Year Salary Bonus Compensation Award (1) Granted(2) --------------------------- ---- -------- ---------- ------------- ---------- ---------- John B. Kilroy, Jr. ............ 1999 $465,000 $1,029,500 (6) Director, President and Chief 1998 $350,000 $ 510,000 250,000 Executive Officer 1997 $180,769(3) $ 200,000 250,000 Jeffrey C. Hawken............... 1999 $275,000 $ 611,700 (6) Executive Vice President and 1998 $225,000 $ 325,000 150,000 Chief Operating Officer 1997 $158,173(3) $ 200,000 150,000 Richard E. Moran Jr. ........... 1999 $275,000 $ 545,300 (6) Executive Vice President, Chief 1998 $225,000 $ 325,000 150,000 Financial Officer and Secretary 1997 $180,769(3) $ 200,000(5) $2,299,000 150,000 Campbell Hugh Greenup........... 1999 $207,000 $ 225,000 (6) Executive Vice President, 1998 $200,000 $ 200,000 Los Angeles Development 1997 $149,135(3) $ 200,000 100,000 Steven R. Scott................. 1999 $182,400 $ 225,000 (6) Senior Vice President, 1998 $167,750(4) $ 116,000 20,000 San Diego Development
- -------- (1) Pursuant to Mr. Moran's employment agreement, concurrent with the consummation of the Company's initial public offering of Common Stock (the "IPO"), he received 100,000 restricted shares of Common Stock under the Stock Incentive Plan with an aggregate value at January 31, 1997, the date of issuance, of $2.3 million against the payment of $1,000 therefor. The restricted shares of Common Stock vest in equal annual installments pro rata over a five-year period, subject to certain acceleration provisions. Mr. Moran is entitled to receive distributions in respect of such restricted stock. (2) Options to purchase an aggregate of 2,019,000 shares of Common Stock have been granted to directors, executive officers and other employees of the Company as of the date of this Proxy Statement. Such options vest pro rata in annual installments over a three-year period. An additional 881,000 shares of Common Stock are reserved for issuance under the Stock Incentive Plan, as of the date of this Proxy Statement. (3) The salary, which was paid to the Named Executive Officer during the fiscal year ended December 31, 1997, commenced on February 1, 1997. (4) The salary, which was paid to the Named Executive Officer during the fiscal year ended December 31, 1998, commenced on January 5, 1998. (5) Mr. Moran also was paid a bonus of $200,000 upon consummation of the IPO on January 31, 1997, which was an obligation of, and was paid by, the principals of KI. (6) The aggregate amount of the perquisites and other personal benefits, securities or property for each Named Executive Officer is less than the lesser of $50,000 or 10% of the total 1999, 1998 and 1997 salary and bonus for such Named Executive Officer. 8 Option Grants in Last Fiscal Year The Company did not grant any options to purchase shares of Common Stock to the Named Executive Officers during 1999. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table sets forth certain information concerning exercised and unexercised options held by the Named Executive Officers at December 31, 1999.
Number of Securities Underlying Value of Unexercised Unexercised Options at In-The-Money Options at December 31, 1999 December 31, 1999(1) Shares Acquired Value ------------------------- -------------------------- Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable ---- --------------- ------------ ----------- ------------- ----------- -------------- John B. Kilroy, Jr. .... -- N/A 250,001 249,999 $20,834 $41,666 Jeffrey C. Hawken....... -- N/A 150,000 150,000 12,500 25,000 Richard E. Moran Jr. ... -- N/A 150,000 150,000 12,500 25,000 Campbell Hugh Greenup... -- N/A 66,667 33,333 -- -- Steven R. Scott......... -- N/A 6,667 13,333 -- --
- -------- (1) Based on the closing price of $22.38 per share of Common Stock on December 31, 1999, as reported by the New York Stock Exchange. 401(k) Plan Effective November 1, 1997, the Company established its Section 401(k) Savings/Retirement Plan (the "401(k) Plan") to cover eligible employees of the Company and any designated affiliate. The 401(k) Plan permits eligible employees of the Company to defer up to 20% of their annual compensation, subject to certain limitations imposed by the Internal Revenue Code (the "Code"). The employees' elective deferrals are immediately vested and non- forfeitable upon contributions to the 401(k) Plan. The Company currently makes matching contributions to the 401(k) Plan in an amount equal to fifty-cents for each one dollar of participant contributions up to a maximum of five percent of the participant's annual salary up to certain limits. Participants vest immediately in the amounts contributed by the Company. Employees of the Company are eligible to participate in the 401(k) Plan after one year of credited service with the Company. For the year ended December 31, 1999, the Company's contribution to the 401(k) Plan was $138,000. The 401(k) Plan qualifies under Section 401 of the Code so that contributions by employees to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan. Employment Agreements Each of John B. Kilroy, Jr., Jeffrey C. Hawken, Richard E. Moran Jr, and Campbell Hugh Greenup have entered into an employment agreement with the Company which became effective on January 31, 1997. Each of the employment agreements has a one-year term and is subject to automatic one-year renewals. Each of the employment agreements provides that the amount paid for annual base compensation and the amount of any bonus is determined at the discretion of the Executive Compensation Committee. The employment agreements entitle the executives to participate in the Company's Stock Incentive Plan and to receive certain other insurance benefits. The employment agreements also provide that in the event of death, the executive's estate will receive monthly payments of the executive's annual salary, plus one-twelfth of any bonus to be received, for a period equal to the lesser of the term remaining under the employment agreement or one year. In addition, in the event of a termination by the Company without "cause," a termination of employment resulting from "disability," a termination by the executive for "good reason," or, in the case of Mr. Kilroy and Mr. Moran, a termination pursuant to a "change of control" of the Company (as such terms are 9 defined in the respective employment agreements) the terminated executive will be entitled to (i) severance (the "Severance Amount") and (ii) continued receipt of certain benefits including medical insurance, life and disability insurance and the receipt of other customary benefits established by the Company for its executive employees for two years following the date of termination (collectively, the "Severance Benefits"). The Severance Amount is equal to the sum of two times the executive's average annual base compensation and two times the highest annual bonus received during the preceding 36-month period. Under the employment agreements, "Disability" means a physical or mental disability or infirmity which, in the opinion of a physician selected by the Board, renders the executive unable to perform his duties for six consecutive months or for shorter periods aggregating 180 business days in any 12-month period (but only to the extent that such definition does not violate the Americans with Disabilities Act). "Cause," as defined under the terms of the respective employment agreements, means (i) the executive's conviction for commission of a felony or a crime involving moral turpitude, (ii) the executive's willful commission of any act of theft, embezzlement or misappropriation against the Company or (iii) the executive's willful and continued failure to substantially perform the executive's duties (other than such failure resulting from the executive's incapacity due to physical or mental illness), which is not remedied within a reasonable time. "Good reason" means (i) the Company's material breach of any of its obligations under the employment agreement (subject to certain notice and cure provisions) or (ii) any removal of the executive from one or more of the appointed offices or any material alteration or diminution in the executive's authority, duties or responsibilities, without "cause" and without the executive's prior written consent. "Change of Control" means (i) the event by which the individuals constituting the Board as of the date of the IPO cease for any reason to constitute at least a majority of the Company's Board; provided, however, that if the election, or nomination for election by the Company's stockholders of any new director was approved by a vote of at least a majority of the members of the original Board of Directors, such new director shall be considered a member of the original Board of Directors; (ii) an acquisition of any voting securities of the Company by any "person" (as the term "person" is used for purposes of Section 13(d) or Section 14(d) of the Exchange Act, immediately after which such person has "beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20; or (iii) approval by the stockholders of the Company of (a) a merger, consolidation, share exchange or reorganization involving the Company, unless the stockholders of the Company, immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 80% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or reorganization in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, share exchange or reorganization; (b) a complete liquidation or dissolution of the Company; or (c) an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Executive Compensation Interlocks and Insider Participation The Executive Compensation Committee is comprised of William P. Dickey and Dale F. Kinsella. There are no Executive Compensation Committee interlocks and no employees of the Company participate on the Executive Compensation Committee. Executive Compensation Committee Report on Executive Compensation The Compensation Committee of the Board of Directors is responsible for developing, administering and monitoring the executive compensation plans and programs of the Company. The names of the Compensation Committee members are set forth below this report. General Policies Regarding Compensation of Executive Officers In establishing compensation for executive officers, the Committee seeks to: (1) attract and retain individuals of superior ability and managerial talent, (2) motivate individuals for the achievement of the Company's business objectives and (3) align the goals of the Company's executive officers with those of its 10 shareholders. To these ends, the Company's executive compensation package consists of a fixed base salary, variable annual cash compensation (bonus) and stock-based long-term incentive awards. Compensation for each executive officer is weighted towards the variable components in order to ensure that total compensation reflects the overall success or failure by the Company and the Executive to meet the appropriate performance measures. Base Salary. Salary levels of executive officers are established after a review of REITs and other real estate companies deemed comparable to the Company. The Committee generally compares the Company's performance with that of other REITs and real estate companies engaged in activities similar to those engaged in by the Company. Annual Bonus. The Company's annual bonus plan promotes the Company's pay for performance philosophy. The amount of each executive officer's annual bonus is based upon a combination of three performance factors: (1) overall corporate performance, (2) departmental performance and (3) individual achievements and performance. For 1999, Corporate goals were measured on the basis of achieving targeted FFO and development objectives. These objectives included contributions to FFO, total returns from and value created by completed development and new acquisitions, and the performance of the existing property portfolio. Department goals were measured on specific departmental strategic and operational objectives. Individual performance measures are assessed in a subjective manner based upon each individuals annual goals as established each year during the Company's formal performance review process. Long-Term Incentive Compensation. Stock-based incentives constitute the long-term portion of the Company's executive compensation package. Stock options and restricted stock granted at 100% of the stock's fair market value on the grant date provide an incentive for executives to increase the Company's stock price and, therefore, the return to the Company's shareholders. In granting stock-based awards, the Committee takes into account such factors as it determines to be appropriate under the circumstances, including without limitation the extent of an executive's equity ownership in the Company and the amounts and value of long-term compensation and stock- based compensation received by similarly situated executives at competitor firms. No options or restricted stock was granted to the Company's executive officers during 1999. Chief Executive Officer Compensation. The compensation of John B. Kilroy, Jr. for the year ended December 31, 1999 was determined on the same general basis as discussed above. In determining the total amount of cash compensation paid to Mr. Kilroy, the Committee evaluated the performance of the Company for 1999 as compared to other REITs and real estate companies engaged in activities similar to those engaged in by the Company. Specifically, the Committee gave substantial weight to the achievement of the Company's goals for growth in FFO, improved performance of its operating portfolio, the successful execution of its development plans and the specific contributions that the CEO made in strategically positioning the Company to be a leader in its target markets. The Committee did not issue any stock options, restricted stock or any other form of long-term incentive compensation to Mr. Kilroy for the year ended December 31, 1999. Limitation on Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code limits the deductibility of compensation paid to certain executive officers of the Company. To qualify for deductibility under Section 162(m), compensation in excess of $1,000,000 per year paid to the Chief Executive Officer and the four other most highly compensated executive officers at the end of such fiscal year generally must be "performance-based" compensation as determined under Section 162(m). 11 The Committee generally intends to comply with the requirements for full deductibility of executive compensation under Section 162(m). However, the Committee will balance the costs and burdens involved in such compliance against the value to the Company and its shareholders of the tax benefits to be obtained by the Company thereby, and may in certain instances pay compensation that is not fully deductible if in its determination such costs and burdens outweigh such benefits. The Committee believes that because the Company qualifies as a REIT under the Internal Revenue Code and is not subject to Federal income taxes, the payment of compensation that does not satisfy the requirements of Section 162(m) would not have a material adverse consequence to the Company, provided the Company distributes 95% of its taxable income. March 30, 2000 Executive Compensation Committee William P. Dickey Dale F. Kinsella 12 PERFORMANCE GRAPH As a part of the rules concerning executive compensation disclosure, the Company is obligated to provide a chart comparing the yearly percentage change in the cumulative total stockholder return on the Company's Common Stock over a five-year period. However, since the Company's Common Stock has been publicly traded only since January 28, 1997, such information is provided from that date through December 31, 1999. The following line graph compares the change in the Company's cumulative stockholder return on its shares of Common Stock to the cumulative total return of the NAREIT Equity REIT Total Return Index ("NAREIT Equity Index") and the Standard & Poor's 500 Stock Index ("S&P 500 Index") from January 31, 1997, the closing date of the Company's initial public offering, to December 31, 1999. The line graph starts at January 28, 1997, the date that the Company's shares of Common Stock commenced trading on the New York Stock Exchange; however, the beginning value of each of the NAREIT Equity Index and the S&P 500 Index is as of January 31, 1998, as each index is calculated only on a monthly basis. The graph assumes the investment of $100 in the Company and each of the indices on January 28, 1997 and as required by the Commission, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance. [PERFORMANCE GRAPH APPEARS HERE]
Measurement Period (Fiscal Year Covered) Kilroy Realty Corp. NAREIT Equity Index(1) S&P 500 Index(1) --------------------- ------------------- ---------------------- ---------------- 1/28/97 100 100 100 12/31/97 132 120 133 12/31/98 113 99 171 12/31/99 119 94 195
- -------- (1) Beginning value of each of the NAREIT Equity Index and the S&P 500 Index is as of January 31, 1997, as each index is calculated only on a monthly basis. 13 PRINCIPAL STOCKHOLDERS The following table sets forth certain information, as of December 31, 1999, regarding the beneficial ownership of Common Stock (or Common Stock for which common limited partnership interests in the Operating Partnership (the "Units") are exchangeable) for (i) each person known by the Company to be the beneficial owner of five percent or more of the Company's outstanding Common Stock (or common stock for which the Units are exchangeable), (ii) each director and each Named Executive Officer and (iii) the directors and such Named Executive Officers of the Company as a group. Except as indicated below, all of such Common Stock is owned directly, and the indicated person has sole voting and investment power with respect to all of the shares of Common Stock beneficially owned by such person. The Company has relied upon information supplied by its officers, directors and certain stockholders and upon information contained in filings with the Commission.
Number of Shares Percentage of of Common Stock Outstanding Shares Name of Beneficial Owner(1) Beneficially Owned of Common Stock(2) --------------------------- ------------------ ------------------ John B. Kilroy, Sr. .................... 1,181,672(3) 4.1% John B. Kilroy, Jr. .................... 1,603,268(4) 5.5% Jeffrey C. Hawken....................... 200,000(5) * Richard E. Moran Jr. ................... 280,000(6) * Campbell Hugh Greenup................... 100,000(7) * Steven R. Scott......................... 6,667(8) * John R. D'Eathe......................... 8,667(9) * William P. Dickey....................... 14,334(10) * Matthew J. Hart......................... 17,334(11) * Dale F. Kinsella........................ 12,333(12) * CRA Real Estate Securities, L.P. ....... 1,720,552(13) 6.2% European Investors Incorporated......... 2,786,842(14) 10.0% LaSalle Investment Management, Inc. .... 1,942,293(15) 7.0% All directors and executive officers as a group (10 persons)................... 3,424,276 11.9%
- -------- * Represents less than 1.0% of outstanding shares of Common Stock. (1) Unless otherwise indicated, the address for each of the persons listed is c/o Kilroy Realty Corporation, 2250 East Imperial Highway, Suite 1200, El Segundo, CA 90245. (2) Assumes the exchange at the Company's option of Units held by such beneficial owner that are redeemable within 60 days of December 31, 1999 into shares of Common Stock on a one-for-one basis and includes shares of Common Stock subject to options held by such beneficial owner that are exercisable within 60 days of December 31, 1999, the date as of which information in the table is presented. (3) Includes (i) 16,667 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of December 31, 1999 and (ii) 1,081,709 shares of Common Stock issuable upon the exchange of Units (including Units beneficially owned by KI and Kilroy Technologies Company, LLC, a California limited liability company ("Kilroy Technologies"), and allocated to Mr. Kilroy as one of its two shareholders). (4) Includes (i) 333,333 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of December 31, 1999, and (ii) 1,076,930 shares of Common Stock issuable upon the exchange of Units (including Units beneficially owned by KI and Kilroy Technologies, and allocated to Mr. Kilroy as one of its two shareholders). (5) Includes 200,000 shares of Common Stock issuable upon the exercise of options within 60 days of December 31, 1999. (6) Includes (i) 200,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of December 31, 1999, (ii) 20,000 shares of Common Stock held directly and (ii) 60,000 restricted shares of Common Stock. 14 (7) Includes 100,000 shares of Common Stock issuable upon the exercise of options exercisable within 60 days of December 31, 1999. (8) Includes 6,667 shares of Common Stock issuable upon the exercise of options within 60 days of December 31, 1999. (9) Includes 8,667 shares of Common Stock issuable upon the exercise of options within 60 days of December 31, 1999. (10) Includes (i) 12,333 shares of Common Stock issuable upon the exercise of options exercisable within 60 days as of December 31, 1999 and (ii) 2,000 shares of Common Stock beneficially owned by Mr. Dickey. (11) Includes (i) 12,334 shares of Common Stock issuable upon the exercise of options exercisable within 60 days as of December 31, 1999 and (ii) 5,000 shares of Common Stock beneficially owned by Mr. Hart. (12) Includes 12,334 shares of Common Stock issuable upon the exercise of options exercisable within 60 days as of December 31, 1999. (13) Based on information provided in a Schedule 13G filed on February 14, 2000 by CRA Real Estate Securities, L.P. As of December 31, 1999 CRA Real Estate Securities, L.P. had sole voting power with respect to 1,546,152 shares of Common Stock, sole dispositive power with respect to 1,659,552 shares of Common Stock and shared dispositive power with respect to 61,000 shares of Common Stock. The address for CRA Real Estate Securities, L.P. is 259 N. Radnor-Chester Road, Suite 205, Radnor, Pennsylvania 19087. (14) Based on information provided in a Schedule 13G filed on February 11, 2000 by European Investors Incorporated ("EII") and EII Realty Securities Incorporated ("ERS"), a wholly-owned subsidiary of EII. As of December 31, 1999 (i) EII had sole voting power with respect to 405,053 shares of Common Stock, shared voting power with respect to 210,800 shares of Common Stock, sole dispositive power with respect to 488,942 shares of Common Stock and shared dispositive power with respect to 149,700 shares of Common Stock; and (ii) ERS had sole voting power with respect to 1,919,299 shares of Common Stock and sole dispositive power with respect to 2,148,200 shares of Common Stock. The address for EII is 667 Madison Avenue, 16th Floor, New York, New York 10021-8041. (15) Based on information provided in a Schedule 13G filed on February 10, 2000 by LaSalle Investment Management, Inc. ("LaSalle") and LaSalle Investment Management (Securities), L.P. ("LaSalle Securities"), a wholly-owned subsidiary of LaSalle. As of December 31, 1999 (i) LaSalle had shared dispositive power with respect to 238,400 shares of Common Stock; and (ii) LaSalle Securities had sole voting power with respect to 363,900 shares of Common Stock, shared voting power with respect to 1,283,153 shares of Common Stock, sole dispositive power with respect to 349,900 shares of Common Stock and shared dispositive power with respect to 1,353,993 shares of Common Stock The address for LaSalle is 200 East Randolph Drive, Chicago, Illinois 60601. Certain Relationships and Related Transactions Certain directors and executive officers of the Company, including John B. Kilroy, Sr. and John B. Kilroy, Jr., the Chairman of the Board and the President and Chief Executive Officer, respectively, (or members of their immediate families) have direct or indirect interests in transactions and potential transactions with the Company or the Operating Partnership. The Operating Partnership holds an option to purchase the three-building office complex located on North Sepulveda Boulevard in El Segundo, California (the "Option Property") from a partnership controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr., In addition, the Operating Partnership performs management and leasing activities at the Option Property. 15 Various Services Provided by the Company to the Kilroy Group Pursuant to management agreements, the Operating Partnership provided management and leasing services to the Option Property which is beneficially owned and controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr. During 1999, in connection with the management and leasing services provided by the Operating Partnership for the Option Property, Messrs. Kilroy, Sr. and Kilroy, Jr. paid to the Operating Partnership fees in the aggregate amount of $120,000, which the Company believes are equivalent to the fair market value for such services provided. Option Property In connection with the formation of the Company, the Company entered into an option agreement with a partnership controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr., the Chairman of the Board, and President, Chief Executive Officer and Director, respectively, granting to the Operating Partnership an option to acquire the three-building office complex located on North Sepulveda Boulevard in El Segundo, California (the "Sepulveda Boulevard Office Complex"). The option for the Sepulveda Boulevard Office Complex is exercisable on or before January 31, 2004. The Company has not exercised its option to purchase the Sepulveda Boulevard Office Complex as of the date of this Proxy Statement. Pursuant to the terms of the applicable Option Agreement, the purchase price for the Sepulveda Boulevard Office Complex is equal to the sum of (i) the then outstanding mortgage indebtedness secured by the respective properties, plus (ii) $1, plus (iii) the aggregate amount of capital contributed by the beneficial owners of the property, net of actual cash distributions distributed in respect of such beneficial owners, during the period beginning on January 31, 1997 and ending on the date of exercise of the option, plus (iv) an annualized return of 8.0% on the amount in excess of $5.0 million, if any, as determined pursuant to clause (iii) preceding. The purchase price is payable in cash or Units at the election of the seller. The Company's option to purchase the Sepulveda Boulevard Office Complex is subject to a right of first offer held by Hughes Space & Communications, a tenant of the property. Other Purchases and Transactions During 1999, the Company acquired construction materials for its Kilroy Airport Center, Long Beach development project from a partnership controlled by John B. Kilroy, Sr. and John B. Kilroy, Jr. for a purchase price of approximately $4.3 million (representing the accumulated costs of the sellers). The acquisition of the construction materials was based upon terms that the Company believes were comparable to terms obtainable from third- parties based on arm's-length negotiations. The Independent Committee of the Board of Directors unanimously approved the acquisition. COMPLIANCE WITH FEDERAL SECURITIES LAWS Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities (collectively, "Insiders"), to file with the Commission initial reports of ownership and reports of changes in ownership of the Company's Common Stock and other equity securities of the Company. Insiders are required by regulation of the Commission to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company or written representations that no other reports were required, during the year ended December 31, 1999, all Insiders complied with all Section 16(a) filing requirements applicable to them. 16 STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING A stockholder desiring to have a proposal included in the Company's proxy statement for the 2001 annual meeting of stockholders must comply with the applicable rules and regulations of the Securities and Exchange Commission, including that any such proposal must be received by the Company's Secretary at the Company's principal executive offices by November 30, 2000. The Company's bylaws require a stockholder desiring to present a proposal for a vote at the 2001 annual meeting of stockholders to notify the Company's Secretary in writing. The notice generally must be delivered to or mailed and received at the Company's principal executive offices (i) not less than 50 days nor more than 75 days prior to the 2001 annual meeting or (ii) if the Company provides less than 65 days public notice of the date of its annual meeting, then not later than the 15th day following the earlier of the day on which public notice of the date for the 2001 annual meeting is published or mailed. Other specifics regarding the notice procedures, including the required content of the notice, can be found in the Company's bylaws, a copy of which may be obtained without charge by request to the Company's Secretary at the Company's executive offices. Stockholders who wish to have a proposal included in the Company's proxy statement for the 2001 annual meeting and have the proposal properly brought before the 2001 annual meeting for a vote must comply with both of the above requirements. Stockholder proposals submitted to the Company's Secretary that do not comply with these requirements may be excluded from the Company's proxy statement and/or may not be brought before the 2001 annual meeting. AUDITORS Subject to its discretion to appoint alternative auditors if it deems such action appropriate, the Board has retained Deloitte & Touche LLP as the Company's auditors for the current fiscal year. The Board has been advised that Deloitte & Touche LLP is independent with regard to the Company within the meaning of the Securities Act and the applicable published rules and regulations thereunder. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting and will have the opportunity to make statements if they desire and to respond to appropriate questions from stockholders. PROXY SOLICITATION EXPENSE The cost of soliciting proxies will be borne by the Company. The Company will also request persons, firms and corporations holding shares beneficially owned by others to send proxy material to, and obtain proxies from, the beneficial owners of such shares and will, upon request, pay the holders' reasonable expenses for doing so. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company may be inspected without charge and copies obtained upon payment of prescribed fees from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, or by way of the Commission's Internet address, http://www.sec.gov. The Company will provide without charge to each person to whom a copy of the Proxy Statement is delivered, upon the written or oral request of any such persons, additional copies of the Company's Form 10-K for the period ended December 31, 1999. Requests for such copies should be addressed to: Kilroy Realty Corporation, 2250 East Imperial Highway, Suite 1200, El Segundo, California 90245, Attn: Secretary, telephone (310) 563-5500. 17 OTHER MATTERS The Board of Directors does not know of any other matter which will be brought before the Annual Meeting. However, if any other matter properly comes before the Annual Meeting, or any adjournment or postponement thereof, which may properly be acted upon, the proxies solicited hereby will be voted on such matter in accordance with the discretion of the proxy holders named therein. You are urged to sign, date and return the enclosed proxy in the envelope provided. No further postage is required if the envelope is mailed within the United States. If you subsequently decide to attend the Annual Meeting and wish to vote your shares, you may do so. Your cooperation in giving this matter your prompt attention will be appreciated. March 30, 2000 By Order of the Board of Directors, Richard E. Moran Jr. Executive Vice President, Chief Financial Officer and Secretary 18 - ------------------------------------------------------------------------------- PROXY KILROY REALTY CORPORATION ANNUAL MEETING OF STOCKHOLDERS MAY 23, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned stockholder of Kilroy Realty Corporation (the "Company") acknowledges receipt of a copy of the Annual Report and the proxy statement dated March 30, 2000 and, revoking any proxy heretofore given, hereby appoints John B. Kilroy, Sr., John B. Kilroy, Jr., Richard E. Moran Jr. and each of them, as proxies for the undersigned, and hereby authorizes each of them to vote all the shares of Common Stock of the Company held of record by the undersigned of March 20, 2000, at the Annual Meeting of Stockholders to be held on May 23, 2000, or any adjournment of postponement thereof, and otherwise to represent the undersigned at the meeting with all powers possessed by the undersigned if personally present at the meeting. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR LISTED IN THE PROXY STATEMENT. - FOLD AND DETACH HERE - Please mark [X] your votes like this FOR (except as indicated to the contrary) WITHHOLD 1. PROPOSAL 1: ELECTION OF DIRECTORS [_] [_] Nominees: John B. Kilroy, Jr. Dale F. Kinsella INSTRUCTION: To withhold authority to vote for any nominee's name on the space provided below: - ------------------------------------------------------------------------------- This proxy will be voted as directed or, if no contrary direction is indicated, will be voted FOR approval of Proposal 1. [_] Please check if you have had a change of address and print your new address and phone number below - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE. Date: ________, 2000 __________________________________________________________ (Signature) NOTE: Please sign exactly as shown at left. If stock is jointly held, each owner should sign. Executors, administrators, trustees, guardians, attorneys and corporate officers should indicate their fiduciary capacity or full title when signing. - ------------------------------------------------------------------------------- - FOLD AND DETACH HERE - -----END PRIVACY-ENHANCED MESSAGE-----