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PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION
KILROY PROXY STATEMENT Kilroy Realty Corporation April 2021
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| Kilroy Realty is a place where innovation works. We have made it our mission to provide creative work environments that spark inspiration and productivity for the country’s very best thinkers and doers. Home to approximately
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KILROY REALTY CORPORATION
12200 W. Olympic Boulevard, Suite 200
Los Angeles, California 90064
April 8, 2020[ ], 2021
To Our Fellow Stockholders:
On behalf of the entire Board of Directors of Kilroy Realty Corporation (NYSE: KRC), we are pleased to present you with KRC’s 20202021 Proxy Statement and invite you to attend KRC’s 20202021 annual meeting of stockholders to be held virtually on May 19, 2020.20, 2021 at 8:00 a.m. local (Pacific) time.
First and foremost, we continue to send our thoughts go out to those impacted by the COVID-19 virus, both globally and in the communities in which we live, work and operate. The recentWhile the virus outbreak represents an unprecedentedhas been a challenging and unpredictable period, of uncertainty. While it is not clear what the ultimate impact will be on our economy and society, we believe that we have navigated the period of uncertainty well and are well-positioned to weather this challenging momentthe challenges that the virus outbreak may continue to present. In 2020, despite shelter in time. We have a strong balance sheet,place restrictions, we ended the year with our stabilized portfolio 97% leased94.3% leased. We also completed construction on $1.3 billion of office space and have prefunded371 residential units, which was an annual record for the majoritycompany. Finally, we strengthened an already strong balance sheet.
Our actions in response to the pandemic translated to solid financial results, including ending the year with $1.5 billion of total liquidity that fully funds our under-construction development, program.and annualized net debt to EBITDA of 5.8x. We have secured lease commitments on 89% of the office and life science space under construction. In 2019, we fully leased 333 Dexter in the South Lake Union submarket of Seattle, phase 1 of Kilroy Oyster Point in South San Francisco and 9455 Towne Centre in the University Towne Center submarket of San Diego. We replenished our future development pipeline with three acquisitions totaling $359 million in our region’s best submarkets. We also advanced the entitlement process for our approximately 2.3 million square-foot Flower Mart project in the Central SOMA district of San Francisco, receiving unanimous approval from the City’s board of supervisors.
Our solid execution translated to strong financial results, including a 37% total shareholder return during 2019. We generated $886 million in new capital from our capital recycling program and both debt and equity issuances, maintaining the strength of our balance sheet while addressing future funding needs. We also increased our common dividend by 6.6%3.1% on an annualized basis. Our total stockholder returns forbasis, being one of only two office REITs to do so during 2020. We also increased Same Store Cash NOI by 8.3%, which was driven by higher rental rates.
Overall, we aim to have a resilient portfolio that minimizes environmental and social impacts related to the one-year,development and operations of our buildings while maximizing the three-yearhealth and the five-year periods ended December 31, 2019 outperformed the returnsproductivity of both the SNL US REIT Officeour tenants, employees and BBG REIT Office Property Indices for the corresponding period of time.
communities, as well as our financial returns. Our commitment to and leadership position in sustainability continues to be recognized by various industry groups and government agencies across the world. We were recognizedworld and is more important now than ever. Last year, KRC proudly achieved:
Our goal of carbon neutral operations by GRESByear-end 2020, a timeframe that exceeded both California and Federal standards by multiple decades; and
LEED-certification for 68% of its existing properties (with 100% of new developments designed to be LEED Gold or Platinum) and Fitwel certifications for 39% of its existing properties, a key measure of how workplaces support human health.
For seven years running, KRC has been chosen as the North American Listed Officelisted office leader in sustainability by GRESB, the most widely recognized standard for sustainability practices in our industry. KRC has also been awarded the EPA’s highest ENERGY STAR honor, Partner of the Year Sustained Excellence, for the sixthpast six years and NAREIT’s Leader in Light award in the Office Sector for the past seven years. KRC has also been included in the Dow Jones Sustainability World Index for four years and on Newsweek’s list of America’s Most Responsible Companies for the past two years, and in 2020 was named the #1 Most Sustainable U.S. REIT by Calvert Research & Management.
In 2020, we also continued to focus our attention on diversity, equity and inclusion in our workplaces through expanded training programs, and to community engagement in our operations through our philanthropic and charitable endeavors. We were recognized for our work through our inclusion in Bloomberg’s 2020 Gender Equality Index for the second year in a row. We further deepened our focus
The annual meeting on buildingMay 20, 2021 will be held in a more sustainable enterprise by beingvirtual-only meeting format, via live audio webcast at www.virtualshareholdermeeting.com/KRC2021. Although you will not be able to attend the first North American REITannual meeting in person, the virtual-only meeting format will provide stockholders with the ability to make a commitmentparticipate in the annual meeting, vote their shares and ask questions.
To be admitted to achieve carbon neutral operations by year-end 2020.the virtual-only annual meeting, log on to the annual meeting at www.virtualshareholdermeeting.com/KRC2021 at the appropriate time and enter your unique 16-digit control number, which may be found on the proxy card, voting instruction form or Notice of Internet Availability of Proxy Materials, as applicable. Stockholders are encouraged to access the virtual-only annual meeting prior to its start time. Online access will begin at 7:50 a.m. local (Pacific) time.
The accompanying proxy materials contain detailed information about the matters on which you are being asked to vote at the 2020 annual meeting. We encourage you to submit your vote as soon as possible, whether or not you expect to attend the annual meeting and vote in person.meeting. We urge you to read the materials carefully and vote in accordance with the Board’s recommendations. Your vote is very important to us.
Sincerely,
John Kilroy |
Chairman of the Board, |
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KILROY REALTY CORPORATION
12200 W. Olympic Boulevard, Suite 200
Los Angeles, California 90064
April [ ], 2021
To Our Fellow Stockholders:
On behalf of the Board, I would like to thank you for your investment in KRC. The Board is steadfast in its commitment to building and protecting the long-term value of the company, particularly during this period of global uncertainty. We take seriously our oversight responsibilities, including overseeing KRC’s strategy as well as KRC’s operating, financial and liquidity risks. Our long-standing commitment to maintaining a conservative balance sheet and focusing on long-term success, as well as diversity, sustainability, best-in-class governance, and linking compensation for our executive leadership team to performance, continue, as we believe this is the best way to handle the recent turbulence in the market and drive long-term value for stockholders. We further believe that KRC’s strong long-term financial performance and solid performance in 2020 are testaments to our strategy and the performance of the KRC team during a time when the need for effective leadership within organizations has never been greater.
Since KRC’s 2020 annual meeting of stockholders, we reached out to stockholders who together own approximately 62% of KRC’s outstanding common stock and requested meetings to solicit their input on key items of stockholder interest, including our executive compensation program and sustainability initiatives. We met with each of those stockholders who accepted such request and I personally led the meetings. Feedback from these meetings helped inform key Board discussions and decisions for 2021.
Our Executive Compensation Committee made changes to the KRC executive compensation structure for 2020 based on feedback received from stockholders in 2019 and at the start of 2020, which were in addition to previous changes to the executive compensation structure for 2019 based on feedback received from stockholders after the 2018 annual meeting. As discussed in more detail in this Proxy Statement, these included changes to the executive annual cash incentive program to make it simpler and more objective and modifying John Kilroy’s 2020 annual equity award opportunity to be entirely linked to Company performance and stockholder returns.
During these challenging times, our values as a company matter more than ever and we maintain our focus on ensuring that we are a leader in environmental, social and governance issues. We were recognized by GRESB as the North American Listed Office leader for the seventh year in a row. We further deepened our focus on building a more sustainable enterprise by proudly achieving carbon neutral operations by year-end 2020 after having been the first North American REIT to commit to doing so. Additionally, we continued our significant emphasis on our human capital initiatives, including our focus on enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture despite the fact that a majority of our employees were working remotely.
Additionally, the Board is focused on best practices around gender and ethnic diversity, equity and inclusion. In 2020, we appointed a new female independent director, Louisa Ritter, to our Board as part of our ongoing board refreshment and diversity efforts, and we are currently searching for another new female director and a new director who is ethnically diverse.
We greatly value the feedback we receive from you, our stockholders. Our practice of regularly engaging with stockholders will continue, as we want to ensure that your voice is heard. We encourage you to reach out with any questions or concerns that you have whether or not you expect to attend the annual meeting.
Our commitment to our stockholders remains as strong as ever. Thank you for your trust and continued support. We look forward to your participation at the annual meeting.
Sincerely,
Edward Brennan, PhD | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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What We Pay and Why: Executive Compensation Elements 54 | Design Features of the 2020 Executive Compensation Program
CONTENTS
103 | BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS | 104 | OTHER MATTERS | 107 | 107 |
108 | QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING PROCEDURES | 110 | GENERAL INFORMATION | 114 | This Proxy Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are generally identified through the inclusion of words such as “believe,” “expect,” “goals” and “target” or similar statements or variations of such terms and other similar expressions. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption “Risk Factors” in our most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. All forward-looking statements are based on currently available information, and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.
OF STOCKHOLDERS
The Annual Meeting will be held in a virtual-only meeting format, via live audio webcast that will provide stockholders with the ability to participate in the Annual Meeting, vote their shares and ask questions. We are implementing a virtual-only meeting format in order to protect the health and safety of all attendees, particularly in light of the COVID-19 pandemic, as well as leverage technology to enhance stockholder access to the Annual Meeting by enabling attendance and participation from any location around the world by visiting www.virtualshareholdermeeting.com/KRC2021. We believe that the virtual-only meeting format will give stockholders the opportunity to exercise the same rights as if they had attended an in-person meeting and believe that these measures will enhance stockholder access and encourage participation and communication with our Board of Directors and management. BENEFITS OF A VIRTUAL ANNUAL MEETING We believe a virtual-only meeting format facilitates stockholder attendance and participation by enabling all stockholders to participate fully, equally and without cost, using an Internet-connected device from any location around the world. In addition, the virtual-only meeting format increases our ability to engage with all stockholders, regardless of size, resources or physical location and enables us to protect the health and safety of all attendees, particularly in light of the COVID-19 pandemic. Stockholders of record and beneficial owners as of March 8, 2021, the record date, will have the ability to submit questions directly to our management and Board of Directors and vote electronically at the Annual Meeting via the virtual-only meeting platform. ATTENDANCE AT THE VIRTUAL ANNUAL MEETING
To participate in the Annual Meeting by voting or asking questions, you will need the 16-digit control number included on your proxy card, voting instruction form or Notice of Internet Availability of Proxy Materials, as applicable. If you were a stockholder as of March 8, 2021, the record date, you may vote shares held in your name as the stockholder of record or shares for which you are the beneficial owner but not the stockholder of record electronically during the Annual Meeting through the online virtual annual meeting platform by following the instructions provided when you log in to the online virtual annual meeting platform. On the day of the Annual Meeting, Thursday, May 20, 2021, stockholders may begin to log in to the virtual-only Annual Meeting beginning at 7:50 a.m. local (Pacific) time, and the Annual Meeting will begin promptly at 8:00 a.m. local (Pacific) time. Please allow ample time for online login. We will have technicians ready to assist you with any technical difficulties you may have accessing the Annual Meeting. If you encounter any difficulties accessing the virtual-only Annual Meeting platform, including any difficulties with your 16-digit control number or submitting questions, you may call the technical support number that will be posted on the Annual Meeting log-in page. QUESTIONS AT THE VIRTUAL ANNUAL MEETING Stockholders will have the opportunity to submit questions during the Annual Meeting by following the instructions on the virtual-only Annual Meeting platform. Following the presentation of all proposals at the Annual Meeting, we will answer as many stockholder-submitted questions as time permits. Any questions that we are unable to address during the Annual Meeting will be answered on our website at http://investors.kilroyrealty.com following the Annual Meeting. If we receive substantially similar questions, we will group the questions together and provide a single response to avoid repetition. We will not answer any questions that are irrelevant to the purpose of the Annual Meeting or our business or that contain inappropriate or derogatory references which are not in good taste. YOU WILL NOT BE ABLE TO ATTEND THE ANNUAL MEETING IN PERSON
This section highlights information about Kilroy Realty Corporation (“we,” “our,” “us” or the “Company”) and our Board of Directors (the “Board”) that is contained elsewhere in this Proxy Statement. This section does not contain all of the information that you should consider and you should read the entire Proxy Statement before voting. BUSINESS HIGHLIGHTS
sustainability. More information on the Company’s
EXTENSIVE STOCKHOLDER ENGAGEMENT AND RESPONSIVENESS
Enhanced the Performance-Based Component of our NEOs’ Equity Awards.To further enhance the performance-based nature of our NEOs’ long-term equity compensation opportunities, our CEO’s entire 2020 annual equity award is subject to performance-based vesting requirements and three-fourths of the 2020 annual equity awards for our other NEOs are subject to performance-based vesting requirements (other than with respect to Ms. Ngo, who was not an Executive Vice President or more senior officer at the time our 2020 annual equity awards were granted).
Changes to Annual Cash Incentive Plan Since 2019
Continue to engage with stockholders Assigned specific weightings for each NEO to each performance category based on each NEO's area of responsibility Reduced the number of metrics Expanded ESG performance goals including establishing carbon-neutral operations by the end of 2020 and other meaningful goals Assigned specific weightings to each performance category (with a maximum bonus opportunity for each category) Added ESG performance category Added G&A Expense operational metric 1 2 3 2019 2020 2021+ Diversity. Several stockholders asked about diversity on the Board and within the Company. In 2020, we appointed a new female independent director, Louisa Ritter, to our Board as part of our ongoing Board refreshment and diversity efforts, and we are currently searching for another new female director and a new director who is ethnically diverse, or a single new director who is both female and ethnically diverse. In addition, among our workforce, we have numerous women in key leadership roles within the Company, as further discussed on page 8, women make up more than half of our workforce, and approximately 45% of our workforce is diverse.
COMPENSATION HIGHLIGHTS The Compensation Committee approved the Enhanced Operating and Financial Goals that Were Not Adjusted for the Impact of COVID-19 The 2020 short-term incentives (annual cash bonuses) for our NEOs were significantly less than the 2019 short-term incentives for our NEOs, with our CEO’s 2020 short-term incentive being approximately 30% less than his 2019 short-term incentive.
Key operating and financial goals used to determine
The Adjusted FFO per share target used in the
Continued Emphasis on Long-Term Incentive Awards and Performance-Based Compensation
Long-term equity compensation, tied to three-year vesting periods, is the largest component of each NEO’s total compensation opportunity.
Approximately
Total Direct Compensation
89% At Risk 89% Performance Based 79% At Risk 66% Performance Based 11% Base Salary 27% Annual Cash Incentive 62% Annual Long-Term Incentive 21% Base Salary 25% Annual Cash Incentive 55% Annual Long-Term Incentive CEO Other NEOs
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY HIGHLIGHTS The Company and its Board maintain a focus on corporate social responsibility and sustainability. Human Capital Development
The Company is committed to enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture. Our human capital development initiatives include the following: Diversity. We believe cultivating a diverse culture of inclusion that makes a positive difference in our employees’ lives is vital to the success of our Company, and we have developed targeted training to improve workplace diversity, equity and inclusion, as further discussed below. Training and Education. We support the development of our employees through various training and education programs throughout their tenure at the Company, from providing initial onboarding to offering specific skill building opportunities and leadership development through workshops, online training and Company-sponsored executive coaching services for certain members of management.
Employee Health. The mental and physical health and wellness of our employees is of central importance to our culture. We evaluate our group health and ancillary benefits annually as we seek to provide a robust benefits package. We also conduct an annual wellness survey to help us better tailor our employee health and wellness programs.
Fostering Company Culture and Providing Support to Employees During COVID-19 Pandemic. Maintaining a thriving company culture is of utmost importance to the Company. In accordance with local and state government guidance and social distancing recommendations, almost all of our corporate employees have worked remotely since March 2020, and our team has worked hard to protect and foster the Company’s culture during the COVID-19 pandemic.
Diversity at the Company
We strive to have a workforce that reflects the diversity of qualified talent that is available in the markets that we serve.
BLOOMBERG GENDER EQUALITY INDEX Member Inclusion EMPLOYEES BY CATEGORY Overall Workforce Supervisors VPs & Above 2020 Promotions 2021 Promotions to Date 2020 Hires FEMALE MALE 59% 41% 56% 44% 29% 71% 46% 54% 58% 42% 72% 28% Ethnic Diversity. Approximately 45% of our employees are diverse. We recently launched a Company-wide diversity initiative to bolster our diversity, equity and inclusion efforts and communicated regularly with our employees throughout 2020 regarding the events that occurred around social and racial injustice, and important holidays such as Juneteenth, Black History Month and Women’s History Month, sharing resources, virtual events and other opportunities for learning around such topics.
ETHNICITY 45% DIVERSE EMPLOYEES 32% DIVERSE FEMALE EMPLOYEES RACIAL GROUPS 20% Asian 4% Black / African American 11.5% Hispanic / Latino 1% Native Hawaiian / Pacific Islander 8.7% Two or More 54.8% White
Diversity on the Board
More information regarding our human capital development goals and initiatives can be found in our annual sustainability report on our website located at
Sustainability We remain a committed leader in the effort to building and operating environmentally sound properties, which has resulted in wide recognition amongst our
Climate Resilience. We identify climate change as a risk to our business, an opportunity for long-term value creation and a key driver of long-term strategic business decisions. In 2020, under the oversight of our Board, we conducted analyses of our modeled financial losses due to climate change aligned with the Task Force for Climate-Related Financial Disclosures (TCFD) using The Climate Service’s Climanomics® platform. In connection with these analyses, we have updated various Company policies and procedures, including those related to our operations and acquisitions to address these results. In addition, we have incorporated these analyses into our development strategy. We intend to continue to be proactive in managing climate-related risks. More information about our climate resilience work, including our climate change scenario analysis, can be found in our annual sustainability report on our website located at the address above.
CORPORATE GOVERNANCE HIGHLIGHTS The Company is committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens accountability of the Board and helps build public trust in the Company. Highlights include the following:
VOTING MATTERS AND BOARD RECOMMENDATIONS Our Board is soliciting your proxy to vote on the following matters at our Annual Meeting to be held at 8:
HOW TO CAST YOUR VOTE
The Board presently consists of NOMINEES FOR DIRECTOR Upon the recommendation of the Governance Committee, the Board nominated John Kilroy, Edward Brennan, PhD, Jolie Hunt, Scott Ingraham, Louisa Ritter, Gary Stevenson and Peter Stoneberg for election to the Board for a term continuing until the annual meeting of stockholders to be held in Ms. Ritter is standing for election to the Board for the first time after being appointed to the Board in October 2020 as part of our ongoing Board refreshment process. Ms. Ritter is currently the President of Pisces, Inc., a San Francisco-based asset management firm. Prior to joining Pisces in 2016, Ms. Ritter worked at Goldman Sachs for 14 years. At the request of the Governance Committee and in connection with the Governance Committee’s consideration of new, diverse director candidates, Korn Ferry (“Korn Ferry”) assessed Ms. Ritter’s candidacy. As part of its assessment, a representative of Korn Ferry interviewed Ms. Ritter, made multiple reference calls with her prior employers and conducted an extensive background check. The Board then reviewed the results of Korn Ferry’s evaluation and screening, received a presentation from Korn Ferry and discussed the potential director candidate. Each of the Board members also met and interviewed Ms. Ritter. Following these interviews, the Board then met, discussed and approved Ms. Ritter’s appointment to the Board. Ms. Ritter was initially identified as a potential nominee by Mr. Stoneberg, the Chair of our Governance Committee. Except as otherwise instructed, proxies solicited by this Proxy Statement will be voted “FOR” the election of each of the nominees to the Board. The nominees have consented to be named in this Proxy Statement and to serve as directors if elected. If any nominee of the Board is unable to serve, or for good cause will not serve, as a director at the time of the Annual Meeting, the persons who are designated as proxies intend to vote, in their discretion, for any other persons that may be designated by the Board. As of the date of this Proxy Statement, the Board has no reason to believe that any of the director nominees named above will be unable or unwilling to stand as a nominee or to serve as a director if elected.
BOARD COMPOSITION Board Snapshot The following provides a snapshot of our
Avg. Independent Director Tenure of 8.4 Years Ritter Hunt Stevenson Stoneberg Ingraham Brennan 1 year 6 years 7 years 7 years 13 years 17 years Independence 6 of 7 director nominees are independent Age 3 2 2 <60 years 60-66 years >66 years Diversity 28.6% 71.4% Men Women Avg. Independent Director Tenure of 7.6 Years Ritter Hunt Stevenson Stoneberg Ingraham Brennan 1 year 5 years 6 years 6 years 13 years 17 years Independence 6 of 7 director nominees are independent Age 3 2 2 <60 years 60-66 years >66 years Diversity 28.6% 71.4% Men Women
Director Nominee Skills, Experience and Background We believe each of the
DIRECTOR NOMINEE
DIRECTOR NOMINEE
DIRECTOR NOMINEE
DIRECTOR NOMINEE
DIRECTOR NOMINEE
DIRECTOR NOMINEE
DIRECTOR NOMINEE
VOTE REQUIRED Each director nominee will be elected at the Annual Meeting if he or she receives a majority of the votes cast with respect to his or her election (that is, the number of votes cast “FOR” the nominee must exceed the number of votes cast “AGAINST” the nominee). The majority voting standard does not apply, however, in a contested election where the number of director nominees exceeds the number of directors to be elected at an annual meeting of stockholders. In such circumstances, directors will instead be elected by a plurality of all the votes cast in the election of directors at the annual meeting at which a quorum is present. The election of directors at the Annual Meeting is not contested. Under Maryland law, if an incumbent director is notre-elected at a meeting of stockholders at which he or she stands forre-election, then the incumbent director continues to serve in office as a holdover director until his or her successor is elected. To address this “holdover” issue, our Bylaws provide that if an incumbent director is notre-elected due to his or her failure to receive a majority of the votes cast in an uncontested election, the director will promptly tender his or her resignation as a director, subject to acceptance by the Board. The Governance Committee will then make a recommendation to our Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. Our Board will act on the Governance Committee’s recommendation and publicly disclose its decision, along with its rationale, within 90 days after the date of the certification of the election results. RECOMMENDATION THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR NOMINEES.
ADVISORY APPROVAL OF OUR EXECUTIVE COMPENSATION We are asking our stockholders to approve the compensation of our NEOs (as identified in the CD&A) as disclosed pursuant to the Our executive compensation philosophy is designed to achieve the following objectives:
To align executive compensation with the Company’s corporate strategies, business objectives and the creation of long-term value for our stockholders without encouraging unnecessary or excessive risk-taking;
To provide an incentive to achieve key strategic and financial performance measures by linking short-term incentive award opportunities and a substantial portion of long-term incentive award opportunities to the achievement of corporate and operational performance
To set total compensation to be competitive with companies in our peer group identified on page
To help the Company attract, retain and incentivize talented and experienced individuals in the highly competitive West Coast employment and commercial real estate markets. The Compensation Committee values input from the Company’s stockholders regarding the Company’s executive compensation program and, as discussed in more detail on Below are highlights of the
Annual Short-Term Incentives Based on Performance Measurement
Majority of Target TDC is “At Risk”.Approximately
Majority of Long-Term Incentives are
We also maintain a range of executive compensation and governance-related policies, which are listed beginning on page In accordance with the requirements of Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the related rules of the SEC, our Board requests your advisorySay-on-Pay vote to approve the following resolution at our Annual Meeting: RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed in this Proxy Statement pursuant to the Securities and Exchange Commission’s executive compensation disclosure rules (which disclosure includes the “Compensation Discussion and Analysis” section, the compensation tables and the narrative discussion that accompanies the compensation tables), is hereby approved. This vote is an advisory vote only and will not be binding on the Company, the Board or the Compensation Committee, and will not be construed as overruling a decision by, or creating or implying any additional fiduciary duty for, the Company, the Board or the Compensation Committee. However, the Compensation Committee will consider the outcome of this vote when making future compensation decisions for our NEOs. The Company’s current policy is to provide our stockholders with an advisorySay-on-Pay vote to approve the compensation of our NEOs each year at the annual meeting of stockholders. It is expected that the next advisorySay-on-Pay vote will be held at the VOTE REQUIRED The compensation of our NEOs will be approved, on an advisory basis, if a majority of the votes cast at the Annual Meeting are cast in favor of the proposal. RECOMMENDATION THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE RESOLUTION APPROVING, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY’S NEOs.
APPROVAL OF
Proposed Bylaw Amendment
The “
The
Article III, Section 7 of our Bylaws currently provides that
As a public company, we are subject to the applicable related party transaction approval requirements of Section 314 of the NYSE listing standards, which requires transactions between officers, directors, and principal shareholders and a company to be reviewed and evaluated by an appropriate group within the company, and Item 404 of Regulation
Review of Related Party Transactions by our Governance Committee under
Effective Date of the Proposed Amendment and Restatement If the amendment and restatement of our VOTE REQUIRED The proposed amendment and restatement of our RECOMMENDATION THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE PROPOSED AMENDMENT AND RESTATEMENT OF OUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR We are seeking stockholder ratification of our appointment of Deloitte & Touche LLP (“Deloitte”), an independent registered public accounting firm, as our independent auditor for the fiscal year ending December 31, Additional information about Deloitte, including the fees we paid to Deloitte in fiscal years A representative of Deloitte is expected to be present at our Annual Meeting, be available to respond to appropriate questions and will have the opportunity to make a statement, if desired. Stockholder ratification of the appointment of Deloitte as our independent auditor is not required by our Bylaws or otherwise. However, the Board is submitting the appointment of Deloitte to the stockholders for ratification as a matter of good corporate governance. If the stockholders fail to ratify the appointment, the Audit Committee may reconsider whether or not to retain Deloitte. Even if the appointment is ratified, the Audit Committee, in its discretion, may appoint a different independent auditor at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our VOTE REQUIRED Ratification of the appointment of Deloitte as our independent auditor will be approved if a majority of the votes cast at the Annual Meeting are cast in favor of the proposal. Abstentions will not be counted in determining the outcome of this proposal. RECOMMENDATION THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE AS OUR INDEPENDENT AUDITOR FOR FISCAL
The Company is committed to good corporate governance, which promotes the long-term interests of stockholders, strengthens accountability of the Board and helps build public trust in the Company. Highlights include the following:
BOARD COMPOSITION AND GOVERNANCE Director Attendance The Board held Independent Directors Under the corporate governance rules of the New York Stock Exchange (the “NYSE”), a majority of the members of the Board must satisfy the NYSE criteria for “independence.” No director qualifies as independent unless the Board affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). The Board has determined that each of Dr. Brennan, Independent Director Meetings The Independent Directors meet regularly in executive session without the presence of management. These meetings are generally held on the date of each regularly scheduled Board meeting and on anas-needed basis. Dr. Brennan, our Lead Independent Director, presides over these meetings. Board Leadership Structure and Lead Independent Director Our Corporate Governance Guidelines and our Bylaws permit the roles of Chairman and CEO to be filled by the same or different individuals. Our Board believes it is important to select our Chairman and our CEO in the manner it considers in the best interests of the Company and our stockholders at any given point in time. The Independent Directors on our Board assess the role of Chairman and CEO annually to ensure that the Company’s leadership structure best fits the Company’s specific circumstances and short and long-term challenges. At this time, our Board believes that the Company and our stockholders are best served by having Mr. Kilroy serve as our Chairman and CEO. Mr. Kilroy’s combined role as Chairman and CEO demonstrates clearer accountability and provides a single leader who speaks with one voice to our stockholders, tenants, partners, employees, other stakeholders and the public. The combined Chairman and CEO role also enhances transparency between management and our Board by serving as an efficient and effective bridge for communication between the Board and management on significant business developments and time-sensitive matters, and provides unified leadership for carrying out our strategic initiatives and business plans. The combined Chairman and CEO role is balanced by the number of independent directors serving on our Board, our independent committee Chairs and our Lead Independent Director. Our Corporate Governance Guidelines provide that if the Chairman is also our CEO, or if the Chairman is not otherwise an Independent Director, the Independent Directors will appoint annually from amongst themselves a Lead Independent Director. Dr. Brennan is currently our Lead Independent Director and brings to this role considerable skills and experience, as described above in “Proposal 1 — Election of Directors.” The role of our Lead Independent Director is designed to further promote the independence of our Board and appropriate oversight of management and to facilitate free and open discussion and communication among the Independent Directors.
The responsibilities of our Lead Independent Director are clearly delineated in our Corporate Governance Guidelines and include:
Presiding at all meetings of our Board at which the Chairman is not present, including executive sessions of the Independent Directors;
Serving as liaison between the Chairman and the Independent Directors;
Approving information sent to our Board;
Approving agendas for meetings of our Board;
Approving meeting schedules of our Board to ensure that there is sufficient time for discussion of all agenda items;
Developing agendas for and calling meetings of the Independent Directors when necessary or appropriate; and
Being available for consultation and direct communication if requested by major stockholders. We believe this current leadership structure with the combined Chairman and CEO leadership role and a Lead Independent Director enhances our Board’s ability to provide insight and direction on important strategic initiatives and, at the same time, promotes effective and independent oversight of management and our business.
Board Oversight of Risk Both our Board and management have key responsibilities in managing risk throughout the Company, as shown below. Oversight of risks inherent in their respective areas of oversight are delegated to the various Board committees, with each committee generally reporting to our Board at each regular Board meeting. Our Board believes that this structure is conducive to its risk oversight process.
Our Board believes that the process it has established to administer the Board’s risk oversight function would be effective under a variety of leadership frameworks and, therefore, does not have a material effect on our choice of the Board’s leadership structure described above under “Board Leadership Structure and Lead Independent Director.” Code of Business Conduct and Ethics Our Board has adopted a Code of Business Conduct and Ethics that applies to our directors, officers (including our CEO, President, Chief Financial Officer, Chief Accounting Officer and Controller, and other members of senior financial management), employees, agents and consultants. This Code of Business Conduct and Ethics satisfies the requirements of a “code of business conduct and ethics” under the NYSE listing standards and a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules. This Code of Business Conduct and Ethics is available in the Investors — Overview — Corporate Governance section of the Company’s website at http://www.kilroyrealty.com. Amendments to, or waivers from, a provision of this Code of Business Conduct and Ethics that apply to the Company’s directors or executive officers, including our CEO, President, Chief Financial Officer, Chief Accounting Officer and Controller, and other members of senior financial management, may be made only by the Board or a Board committee and will be promptly posted on our website to the extent required by applicable SEC rules and NYSE listing standards. Corporate Governance Guidelines Our Board has adopted Corporate Governance Guidelines, which provide the framework for the governance of our Company and represent the Board’s current views with respect to selected corporate governance issues considered to be of significance to our stockholders. The Corporate Governance Guidelines direct our Board’s actions with respect to, among other things, Board composition and director qualifications, selection of the Chairman of the Board and the Lead Independent Director, establishment of the Board’s standing committees, director stock ownership guidelines, succession planning and the Board’s annual performance evaluation. A current copy of the Corporate Governance Guidelines is available in the Investors — Overview — Corporate Governance section of our website at http://www.kilroyrealty.com. Succession Planning Pursuant to our Corporate Governance Guidelines, our Board and our CEO review succession planning, management performance and management development on a regular basis. To facilitate this succession planning oversight by the Board, the Board has established an ad hoc Succession Planning Committee of the Board that is responsible for reviewing the Company’s succession planning and management performance and development. The members of the Succession Planning Committee are Messrs. Kilroy and Stevenson and Dr. Brennan, with Mr. Stevenson serving as its Chair. The Succession Planning Committee reviews potential internal candidates with our CEO, including the qualifications, experience and development priorities for these individuals, and provides recommendations to our Board regarding potential CEO successors and reviews their development plans. Directors also engage with potential CEO and key management personnel successors at Board and committee meetings and in less formal settings to allow directors to personally assess potential successor candidates. Our Board also maintains an emergency CEO succession plan. The plan will become effective in the event our CEO becomes unable to perform his or her duties in order to minimize potential disruption or loss of continuity to the Company’s business and operations. The Succession Planning Committee reviews the emergency succession plan periodically and makes recommendations to the Board regarding any changes or updates to the emergency succession plan. Corporate Social Responsibility and Sustainability Operating in a responsible and sustainable manner plays an important role in our business. Management and our Board, through the CSR&S Committee,
Commitment to Diversity at the Company and on the Board We are focused on creating a diverse and inclusive workforce. Our priority is to attract, develop and retain the best talent, foster an inclusive culture and embrace diversity. Our employees are the foundation of our success and we strive to have a workforce that reflects the diversity of qualified talent that is available in the markets that we serve. As of December 31, In We are also committed to diversity at the Board level. 29% Commitment to Achieving Our Sustainability Goals
We have aggressive goals to reduce the energy, greenhouse gas emissions, water consumption and waste to landfill impacts of our portfolio. In 2015, we met our goal of reducing energy consumption 10% from 2010 levels, and in that same year we met our goal of reducing water consumption by 10% from 2012 levels by 2017, two years early. We have built on that success by
Below are a few highlights of the goals that we have adopted and our progress on such goals to date.(12) GOAL 2020 RESULTS LEED CERTIFICATION Achieve LEED Gold or Platinum Certification on 100% of new construction projects 100% of new construction projects achieved LEED Gold or Platinum certification CARBON NEUTRAL OPERATIONS Achieve carbon neutral operations for 100% of our stabilized portfolio and development pipeline 100% of our stabilized portfolio and development portfolio achieved carbon neutral operations ENERGY STAR CERTIFICATION Achieve ENERGY STAR certification for 75% of eligible existing buildings 69% of eligible existing buildings are ENERGY STAR certified Industry Leading Sustainability Practices We continue to be recognized for our industry leading sustainability practices.
Earned ENERGY STAR certifications for 69% of the stabilized portfolio in 2020
Received the Climate Leadership Award in the prestigious “Organizational” category from the Climate Registry and Center for Climate and Energy Solutions
Achieved Fitwel certification, a measure of how well workplaces support the health of occupants, for 39% of our stabilized portfolio Awarded the Best in Building Health Award by The Center for Active Design for having the most Fitwel-certified buildings of any non-government real estate company worldwide for the third time Since 2018, have been conducting industry leading efforts to push sustainability through our supply chain, including being the first U.S. REIT to complete a comprehensive analysis of the environmental and social impacts on the most critical components of our supply chain Conducted the first Green Bond offering in the United States in 2018 allocated to green buildings that has been certified by the Climate Bonds Initiative, the only global certification body for green bonds, with proceeds to be used to finance investments in LEED Gold or LEED Platinum development projects; issued a second Green Bond in 2020, with Climate Bonds Initiative certification targeted for 2021 Sustainability Reporting We are committed to providing our stockholders with transparency around our ESG sustainability indicators. We publish an annual sustainability report that is aligned with the Global Reporting Initiative (GRI) reporting framework. Additionally, we have recently expanded our voluntary ESG disclosure efforts by including certain ESG data in our Annual Report on Form10-K aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) and disclosing to the Dow Jones Sustainability Indices since 2017. To learn more about the Company’s diversity, sustainability and human capital development efforts, please view our Commitment to Communities We are deeply aware that our buildings are part of the larger community and that we thrive when the communities around us thrive. The COVID-19 pandemic has had a devastating impact on our communities, with vulnerable communities being the most affected. Coupled with social unrest stemming from racial inequity, our responsibility as environmental and social stewards is more crucial than ever. Though we remain socially distant, we continue to make a difference providing much-needed resources to the community and are proud to make these communities better places to live and work through our volunteerism and philanthropy initiatives.
Our Board has four (4) standing committees: (i) the Audit Committee, (ii) the Compensation Committee, (iii) the Governance Committee and (iv) the CSR&S Committee. All members of the Audit Committee, Compensation Committee and Governance Committee are Independent Directors. Our Audit Committee, Compensation Committee, Governance Committee and CSR&S Committee each operate under a written charter adopted by our Board, which is available in the Investors — Overview — Corporate Governance section of the Company’s website at http://www.kilroyrealty.com.
In fulfilling its responsibilities, the Compensation Committee may delegate any or all of its responsibilities to a separate committee of the Board or a subcommittee of the Compensation Committee. The Compensation Committee has not delegated any of its authority to set compensation levels of our executive officers or to grant equity awards, but has delegated certain limited administrative authority to management (i) with respect to the 2007 Deferred Compensation Plan, as amended; (ii) to address the settlement of fractional share interests arising under certain equity awards under our 2006 Plan; and (iii) to determine whether certain equity awards would be settled in cash or stock under such plan. In accordance with the Compensation Committee’s charter, the Compensation Committee may retain independent compensation advisors and other management consultants. In At the request of the Compensation Committee, certain of our executive officers aid the Compensation Committee in reviewing and analyzing our executive compensation program. These services are discussed under “Compensation Discussion and Analysis — How We Make Compensation Decisions — Role of Management in Executive Compensation Planning” below.
Additionally, the Governance Committee has the authority to engage any independent counsel or other outside expert or advisors it deems desirable or appropriate.
DIRECTOR SELECTION, EVALUATION AND COMMUNICATIONS Qualifications of Director Nominees The Board is committed to having a membership comprised of individuals who by occupation, background and experience are in a position to make a strong, positive contribution to the Company and its stockholders, and will endeavor to include women and individuals from minority groups in the qualified pool from which director candidates are selected. In considering candidates for nomination or appointment to the Board, the Governance Committee and the Board seek director candidates who, both individually and collectively, have such knowledge, experience and education based on criteria determined by the Governance Committee to be appropriate in the context of the perceived objectives of the Company at a given point in time and to provide balance to the Board’s knowledge, perspective, experience and expertise. The Governance Committee has established board membership criteria (the “Membership Criteria”), which it uses as a guideline in considering nominations to the Company’s Board. The criteria include, but are not limited to:
Board balance. In addition, the Company’s Bylaws and listing standards of the NYSE require the Board to be composed of a majority of directors who qualify as “independent directors” as defined therein. In considering director candidates, the Governance Committee and Board do not discriminate based on race, ethnicity, national origin, gender, religion or disability. The Membership Criteria established by the Governance Committee are not exhaustive and the Governance Committee and the Board may consider other qualifications and attributes that they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board. The Governance Committee reviews and assesses the Membership Criteria annually. Process for Identifying Nominees for Director At any appropriate time prior to each annual meeting of stockholders at which directors are to be elected, and whenever there is otherwise a vacancy on the Board, the Governance Committee will assess the qualifications and effectiveness of the current Board members and, to the extent there is a need, will seek other individuals qualified and available to serve as potential Board members. The Governance Committee will review each potential candidate’s qualifications in light of the Membership Criteria described above. In reviewing each potential candidate, the Governance Committee also considers the results of the annual Board and individual director evaluations for purposes of assessing the suitability of each Board member for continued service on the Board. See “Annual Board Evaluations” below for additional information regarding the annual Board evaluation process. The Governance Committee will select the candidate or candidates it believes are the most qualified to recommend to the Board for selection as a director nominee. Stockholder-Recommended Director Candidates The Governance Committee will consider director candidates recommended by stockholders of the Company. Candidates recommended by a stockholder are evaluated in the same manner as candidates identified by the Governance Committee. All recommendations must be directed to the Governance Committee c/o Secretary at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. Recommendations for director nominees to be considered at the
Each stockholder recommending a person as a director candidate must provide the Company with the following information for the Governance Committee to determine whether the recommended director candidate is independent from the stockholder, or each member of the stockholder group, that has recommended the director candidate:
If the recommending stockholder or any member of the recommending stockholder group is a natural person, whether the recommended director candidate is the recommending stockholder, a member of the recommending stockholder group, or a member of the immediate family of the recommending stockholder or any member of the recommending stockholder group;
If the recommending stockholder or any member of the recommending stockholder group is an entity, whether the recommended director candidate or any immediate family member of the recommended director candidate is an employee of the recommending stockholder or any member of the recommending stockholder group or has been at any time during the current or preceding calendar year;
Whether the recommended director candidate or any immediate family member of the recommended director candidate has accepted directly or indirectly any consulting, advisory or other compensatory fees from the recommending stockholder or any member of the group of recommending stockholders, or any of their respective affiliates during the current or preceding calendar year;
Whether the recommended director candidate is an executive officer or director (or person fulfilling similar functions) of the recommending stockholder or any member of the recommending stockholder group, or any of their respective affiliates; and
Whether the recommended director candidate controls the recommending stockholder or any member of the recommending stockholder group. The recommending stockholder must also provide supplemental information that the Governance Committee may request to determine whether the recommended director candidate (i) meets the standards of independence established by the NYSE; (ii) satisfies the Membership Criteria described above; and (iii) is qualified to serve on the Audit Committee. In addition, the recommending stockholder must include the consent of the recommended director candidate and the recommended director candidate must make himself or herself reasonably available to be interviewed by the Governance Committee. The Governance Committee will consider all recommended director candidates submitted to it in accordance with these established procedures, although it will only recommend to the Board as potential nominees those candidates it believes are most qualified. However, the Governance Committee will not consider any director candidate if his or her candidacy or, if elected, Board membership, would violate controlling state or federal law. Annual Board Evaluations Pursuant to our Corporate Governance Guidelines and the charter of the Governance Committee, the Governance Committee oversees an annual evaluation of the performance of the Board. Each standing committee also conducts a separate evaluation of its own performance and of the adequacy of its charter and reports to the Board on the results of this evaluation. The evaluation process is designed to assess the overall effectiveness of the Board and its committees and to identify opportunities for improving Board and Board committee operations and procedures. The Governance Committee also reviews the qualifications and effectiveness of individual directors each year when the directors stand forre-nomination. The review of individual directors includes an assessment of each director’s skills and experience in relationship to the Membership Criteria and that director’s commitment to the Board as evidenced by preparation for, understanding of, and attendance at Board meetings. The results of the individual director evaluations and the Governance Committee’s recommendations regarding director nominations are reported to the Board. The annual evaluations are generally conducted in the fourth quarter of each year or in the first quarter of the following year. Communications with the Board Stockholders or other interested parties who wish to contact the Board, the Lead Independent Director, any Board committee, or our Independent Directors as a group may send written correspondence c/o Board of Directors at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. The name of any specific intended Board recipients should be clearly noted in the
communication. All communications will be received, processed and then forwarded to the appropriate member(s) of our Board, except that, certain items unrelated to the Board’s duties and responsibilities, such as spam, junk mail, mass mailings, solicitations, resumes and employment inquiries and similar items will not be forwarded. Board members receiving communications will respond as such directors deem appropriate, including the possibility of referring the matter to management of our Company, to the full Board or to an appropriate committee of the Board. In addition, if requested by stockholders, when appropriate, the Lead Independent Director will also be available for consultation and direct communication with stockholders.
Deloitte has served as the Company’s independent auditor since 1995 when the Company was privately held and has continued to serve as such since the Company’s initial public offering in January 1997. Deloitte is expected to be reappointed by the Audit Committee for the current fiscal year at its meeting to be held during the second quarter, which will precede the Annual Meeting. The Audit Committee of the Board has determined that Deloitte is independent with regard to the Company within the meaning of the Exchange Act and the applicable published rules and regulations thereunder and by the Public Company Accounting Oversight Board (the “PCAOB”). The Audit Committee annually reviews andpre-approves certain audit andnon-audit services that may be provided by Deloitte and establishes apre-approved aggregate fee level for these services. Any proposed services not included within the list ofpre-approved services or any proposed services that will cause the Company to exceed thepre-approved aggregate amount requires specificpre-approval by the Audit Committee. Additionally, the Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grantpre-approvals, provided suchpre-approvals are presented to the Audit Committee at a subsequent meeting. The Audit Committee has delegated thispre-approval authority to Mr. Ingraham, the Chair of the Audit Committee, although such delegation does not limit the authority of the Audit Committee topre-approve in its discretion any specific services to be provided by Deloitte. PRINCIPAL ACCOUNTANT FEES AND SERVICES The aggregate fees billed to the Company by Deloitte for professional services rendered in fiscal years
The Audit Committee of the Company’s Board is composed of Independent Directors who satisfy the requirements of Section 10A(m)(3) of the Exchange Act and Rule10A-3(b)(1)(i) thereunder and the current listing standards of the NYSE. The Audit Committee operates pursuant to a written charter. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. In fulfilling its oversight responsibilities, the Audit Committee appoints the Company’s independent auditors and reviews and discusses the audited financial statements included in the Company’s and the Operating Partnership’s Annual Report on Form10-K with management, including the reasonableness of significant judgments and the clarity of disclosures in the financial statements. Management has primary responsibility for the financial statements and the reporting process, including the Company’s internal control over financial reporting. The Company’s independent auditors are responsible for performing an audit of the Company’s consolidated financial statements and expressing an opinion on the conformity of those audited consolidated financial statements with generally accepted accounting principles. The Audit Committee reviewed and discussed the audited consolidated financial statements of the Company as of and for the year ended December 31, The Audit Committee discussed with the Company’s independent auditors the overall scope of their respective audits. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting. In the performance of their oversight function, the members of the Audit Committee relied upon the information, opinions, reports and statements presented to them by the Company’s management and by the Company’s independent auditors. The Audit Committee held six meetings during In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board approved) that the audited financial statements as of and for the year ended December 31, Audit Committee Scott Ingraham, Chair Edward Brennan, PhD Louisa Ritter* Peter Stoneberg * Ms. Ritter was appointed to the Audit Committee effective October 30, 2020. The foregoing report of the Audit Committee is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language in such filing.
AND ANALYSIS This CD&A describes the material elements of our executive compensation program, the compensation decisions made under the program and the factors considered in making those decisions for the NEOs listed below for
Our Business We are a self-administered REIT that is active in the current premier
A fully integrated real estate
Strong development experience.We maintain an active, multi-year development program that focuses on economically dynamic locations where anticipated long-term demand is strong, supply is limited and barriers to entry are high.
An innovator in work spaces.We strive to be a leader in rethinking and reshaping the physical work environment, which we believe is necessary to meet the needs of the fast-paced and knowledge-driven businesses that choose to locate in the coastal economies of the western United States.
EXTENSIVE STOCKHOLDER ENGAGEMENT AND RESPONSE TO
Enhanced the Performance-Based Component of our NEOs’ Equity Awards.There was support for the significant performance-based weighting of the Company’s
Simplified Our Annual Cash Incentive Program.We also received feedback from certain
In designing our 2020 annual cash incentive program for NEOs and in response to We also received feedback from stockholders in 2020 that they voted against our 2020 Say-on-Pay vote because in January 2020 we extended our employment agreement with Jeffrey Hawken. However, severance benefits would have been triggered under Mr. Hawken’s agreement had we failed to extend the term of the agreement upon substantially the same (or better) compensation and other terms for Mr. Hawken. This was a legacy provision in Mr. Hawken’s employment agreement that has not been included in any of the Company’s other employment agreements that are currently in effect, and we do not plan including this provision in any new employment agreements in the future. In July 2020, the Company notified Mr. Hawken that his employment was being terminated without cause in connection with a restructuring of the Company’s management team and the Company entered into a Separation Agreement with Mr. Hawken pursuant to which Mr. Hawken’s employment with the Company ended on July 13, 2020. The severance benefits provided to Mr. Hawken under the Separation Agreement are generally consistent with the severance benefits that Mr. Hawken would have been entitled to receive had the Company failed to extend the term of his employment agreement (on substantially the same (or better) compensation and other terms for Mr. Hawken) earlier in the year. Mr. Hawken’s Separation Agreement is discussed in “— Employment and Separation Agreements with Jeffrey Hawken” and “Named Executive Officer Compensation Tables — Potential Payments Upon Termination or Change in Control” below. When making future compensation decisions for our NEOs, the Compensation Committee will continue to consider the views that stockholders express through the annualSay-on-Pay votes and through direct communication
During
Increased
Record Year of Development Deliveries. We continued to create significant value for our stockholders through our development program. Over the past seven years, at a cost of $3.2 billion, we have delivered projects encompassing approximately 4.0 million square feet of office space, 198,000 square feet of retail and production, distribution and repair space and 808 residential units. These projects were 99% leased upon stabilization and generated a stabilized cash return on cost that averaged between 7.0% to 8.0%. In 2020, we completed core and shell construction on $1.3 billion of office space and 371 residential units, a record year. These projects included: 333 Dexter, a $410.0 million office project in Seattle, which is 100% leased to a Fortune 50 publicly traded company
Netflix on Vine, a $300.0 million office project, located in the Hollywood submarket of Los Angeles, which is 100% leased to Netflix, Inc. Additionally, in 2020, we fully stabilized The Exchange on 16th, a $585.0 million, 750,000 square foot office development project located in the Mission Bay district of San Francisco. The office component is 100% leased to Dropbox, Inc. and we recently announced that we signed a definitive agreement to sell the property for a purchase price of $1.08 billion or approximately $1,440 per square foot, which is expected to close at the end of March 2021. Moreover, in 2020, we continued to improve the status and scope of our development projects under construction, which have a total estimated investment of $910.0 million upon completion. These developments projects under construction are substantially pre-leased, with 77% leased within the office and life science component. We also continued to make significant progress entitling our future development projects,
Ended 2020 with liquidity of approximately $1.5 billion, which was comprised of approximately $732.0 million of cash and cash equivalents on hand and full availability under our $750.0 million revolving credit facility Fully funded all development under construction and projects in the tenant improvement phase with cash on hand
Completed several opportunistic financing transactions that lowered our overall cost of capital and enhanced our liquidity, including:
Business Values Take into AccountNon-Financial Objectives. We are committed to pursuing corporate social responsibility objectives, including sustainability, diversity, equity and inclusion, philanthropy and community involvement, good corporate citizenship, health and wellness, and othernon-financial issues that are of significance to the Company and its stockholders, as further described under “Corporate Governance — Board Composition and Governance — Corporate Social Responsibility and Sustainability” on page Maintained Leadership Position in Sustainability.We continue to be recognized for our
Strong Company Leadership. The Company’s leadership team is comprised of individuals that have extensive real estate experience, and is led by the award-winning Chairman and CEO, John Kilroy. Overall, the Company’s executive management team has an average tenure of COMPENSATION PHILOSOPHY AND OBJECTIVES Our executive compensation philosophy is designed to achieve the following objectives:
To align executive compensation with the Company’s corporate strategies, business objectives and the creation of long-term value for our stockholders without encouraging unnecessary or excessive risk-taking;
To provide an incentive to achieve key strategic and financial performance measures by linking annual cash incentive award opportunities and a substantial portion of long-term incentive award opportunities to the achievement of corporate and operational performance objectives;
To set total compensation to be competitive with companies in our peer group, taking into account our active portfolio management strategy and the skill set required to implement that strategy;
To provide a majority of target total direct compensation for the NEOs in the form of long-term incentive equity awards; and
To help the Company attract, retain and incentivize talented and experienced individuals in the highly competitive West Coast employment and commercial real estate markets. WHAT WE PAY AND WHY: EXECUTIVE COMPENSATION ELEMENTS The following table sets forth the key elements of our executive compensation program, along with the primary objective and key features associated with each element of compensation.
DESIGN FEATURES OF THE We believe that our executive compensation program strikes an appropriate balance between attracting and retaining executives with the expertise and talent required to execute on our active portfolio management strategy, and linking compensation with the performance of the Company. Below is a summary of some of the key design features of our
Total Direct Compensation
Short-term incentives are “at risk” because the amount awarded could range from 0% to 150% of the NEO’s target short-term incentive depending on Company and individual performance. Annual long-term equity awards are “at risk” because the final award value depends on our stock price and continued service over a three-year vesting period. In addition,
Annual Short-Term Incentives Based on Performance Measurement Framework.The 2020 short-term incentives (annual cash bonuses) for our NEOs were significantly less than the 2019 short-term incentives for our NEOs, with our CEO’s 2020 short-term incentive being approximately 30% less than his 2019 short-term incentive. The Compensation Committee
Majority of Target TDC is in the Form of Long-Term Incentives.The most significant component of each NEO’s total compensation opportunity is in the form of RSUs that vest over a three-year period. In
Majority of Long-Term Incentives are Performance-Based.
Enhanced Operating and Financial
Target TDC Set Taking into Account Market Pay Levels and that Payouts are Linked to Performance.The Compensation Committee did not set
The Compensation Committee reviews and authorizes each NEO’s compensation on an annual basis. Executive compensation is not established at any particular level against peer group data. Rather, the Compensation Committee generally considers the following factors:
The performance of the Company (e.g., TSR, operations, financial performance, acquisitions, dispositions, development and balance sheet management);
The performance of each NEO;
The contribution of each NEO to our overall results;
Input from our CEO (with respect to our other NEOs);
Additional roles or responsibilities assumed;
Experience, skill set and tenure;
Base salary, target short-term incentive and long-term incentive grant levels for comparable positions at companies in our peer group;
The NEO’s employment agreement (if any); and
The relative need to retain the NEO. Base Salary General Description As noted above, we provide base salaries as a regular source of income so employees can focus onday-to-day responsibilities and to recognize ongoing performance of job responsibilities. Decisions for
Short-Term Incentives General Description Our short-term incentives (annual cash bonuses) are based on the annual performance of our Company and each individual’s contribution to the annual performance of our Company.
During the first quarter of the year, the Compensation Committee approves a performance measurement framework for that year and establishes a target short-term incentive amount for each
Compensation Committee and our CEO regarding the plan and outlook for the year. The Compensation Committee also receives direct input from management regarding the Company’s business plan and the business environment generally and from its independent compensation consultant, Mercer. Mercer is involved throughout the process in advising the Compensation Committee on the general structure of the program, as well as the specific metrics and goals under consideration. The Compensation Committee selects the performance categories, metrics and goals that it believes will accurately assess the annual performance of the Company and strategic goals. In response to stockholder feedback, the Compensation Committee Following the performance year, the Compensation Committee compares the Company’s actual performance results to thepre-established goals. The Compensation Committee then rates the Company’s performance
Extraordinary – 150% of target
Superior – 125% of target
On Target – 100% of target
In-Line – 75% of target Below
Well Below The Compensation Committee then applies the weighting for each performance goal to determine the Company’s overall achievement and potential bonus payout percentages. Like the process in establishing the performance measurement framework each year, the process to rate actual performance against the performance goals and determine the final short-term incentive award amounts typically takes place over several months at multiple meetings of the Compensation Committee. The Compensation Committee’s determination on the actual short-term incentive amount paid for each of the NEOs is based on a holistic assessment of results achieved and the business environment for the year, including consideration of the Company’s TSR and individual awards may vary based on the Compensation Committee’s assessment of each NEO’s contributions and achievements. The Compensation Committee engages in discussions with management regarding the Company’s business plan for the year, the goals that had been established for the performance measurement framework, actual performance results for the year and the general business environment for the year. The Compensation Committee also receives input from Mercer regarding these matters and our CEO provides the Compensation Committee with input regarding the performance of the NEOs (other than himself). The maximum amount that may be awarded to an NEO is 150% of the NEO’s target short-term incentive amount. Since our business strategy requires us to actively manage our property portfolio, the Compensation Committee believes that a rigid short-term incentive formula could undermine opportunistic decisions that have a negative impact on short-term gains but create long-term stockholder value (e.g., midyear changes in our strategy or portfolio due to a shift in market conditions or unanticipated opportunities can significantly alter specific objective goals that are set early in the year). The Compensation Committee believes its approach in determining each NEO’s short-term incentive payout reflects an appropriate balance between applying objective criteria and preserving flexibility to keep each NEO focused on strategic decisions that are in the long-term best interests of our stockholders.
Decisions for The Compensation Committee determined that the NEOs’ In developing the performance measurement framework and goals for The Compensation Committee then reviewed and approved the Company’s proposed
Debt to EBITDA Ratio.
The design of the
2020 Performance Measurement Framework
The table below shows the weighting of the different performance goals for each NEO that was approved by the Compensation Committee in early 2020.
At the end of the year, the Compensation Committee determined the Company’s actual
The Compensation Committee considered each NEO’s individual performance, contributions toward achieving the performance goals and the Company’s overall TSR performance to determine the actual amount of the to each NEO. As a result, the The
As noted above, Ms. Ngo did not participate in the 2020 short-term incentive program. Instead, her 2020 short-term incentive was determined by the Compensation Committee in its discretion. Taking the Company’s performance into account during the year (utilizing the same measures as applied under the 2020 short-term incentive program), assessing Ms. Ngo’s contributions during the year, and taking her historic bonus level into account, the Compensation Committee determined that Ms. Ngo’s short-term incentive for 2020 would be $215,000, which was a reduction from her short-term incentive for 2019. Long-Term Incentives General Description We grant annual long-term incentives to our NEOs in the form of RSUs that vest over a three-year period. A portion of the RSUs awarded to our Executive Vice Presidents and more senior officers include performance-based vesting requirements. Each RSU represents and is paid in one share of our common stock, subject to the satisfaction of applicable vesting conditions, which further aligns our NEOs’ interests with those of our stockholders. The NEOs do not have the right to vote or dispose of any RSUs prior to the time the shares are actually issued. Each RSU is granted in tandem with a corresponding dividend equivalent right that entitles the NEO to be credited with additional RSUs upon the Company’s payment of dividends to stockholders if the dividend equivalent right is or was outstanding on the record date. Any such additional RSUs credited in respect of dividend equivalent rights are subject to the same vesting terms as the underlying RSUs and vest (if at all) together with the underlying RSU to which they relate. In addition to annual equity awards, we occasionally make grants of equity awards at other times at the discretion of the Compensation Committee, such as in recognition of service to the Company, in connection with the negotiation of an employment agreement or the hiring or promoting of employees. Decisions for The
The Compensation Committee also believed that a majority of each NEO’s total
Align overall reward opportunity with actual performance delivered;
Require achievement ofpre-defined operating goals using a performance measure that is reflective of management’s efforts (i.e., the FFO Per Share metric for the first year, which applies to all of the performance-based awards, and the debt to EBITDA ratio metric over the three-year performance period, which applies to 50% of the performance-based awards);
Require sustained longer-term performance of the Company’s share price by including a relative TSR modifier that measures the Company’s performance against other office REIT competitors in the SNL US REIT Office Index over the entire three-year vesting period (i.e., the TSR Percentile Ranking metric, which applies to the other 50% of the performance-based awards); and
Create an additional retention incentive, as vesting is contingent on each NEO’s continued service through the end of the three-year vesting period.
The structure and goals (discussed below) for our 2020 performance-based long-term incentive awards were established before the full impact of the 2020 Annual Equity Award Values In
The
The Banked Shares subject to the award are then eligible to vest as follows:
For example, if the TSR Percentile Ranking is at
The FFO Per Share measure applies to the year The TSR Percentile Ranking over the three-year performance period modifier was included to further align executives’ interests and potential rewards with stock price performance on a relative basis over a longer-term performance period. The Average Debt to EBITDA Ratio modifier, again, over the three-year performance period, was included to align the Company’s substantial growth plans with maintaining a conservative balance sheet. By including a key leverage metric, the Company is limited in its ability to incur significant additional debt to fund growth and grow earnings without negatively impacting this compensation metric. The increasedup-side and down-side leverage applied to the TSR modifier and the Average Debt to EBITDA Ratio modifier for the award to our CEO reflects his responsibility for the overall performance of the Company. Please see the discussion under “Named Executive Officer Compensation Tables — Description of Plan-Based Awards — Performance-Based RSUs” beginning on page
The following chart illustrates the operation of the performance-based RSUs awarded in
Illustration of 2020 Performance-Based RSUs Up to 1.5x target (1.75x for the CEO) 1 2020 FFO Per Share Measure 1-year performance against pre-set FFO Per Share goals to determine number of Banked Shares Earn up to 50% (75% for the CEO) more than Banked Shares Set 1-Year operating goals grant target number of shares As little as 0.0x target 2 TSR Percentile Rank vs. SNL US REIT Office Index Companies Relative 3-Year TSR Percentile = TSR Percentile Ranking 50% Weighting 3 Modify Banked Shares based on TSR Percentile Ranking Forfeit up to 50% (75% for the CEO) of Banked Shares Earn up to 50% (75% for the CEO) more than Banked Shares 4 2020 Debt to EBITDA Ratio 2021 Debt to EBITDA Ratio 2022 Debt to EBITDA Ratio 5 Modify Banked Shares based on Average Debt to EBITDA Ratio Forfeit up to 50% (75% for the CEO) of Banked Shares Average of Three 1-Year Debt to EBITDA Ratios = Average Debt to EBITDA Ratio 50% Weighting
In January 2021, the Compensation Committee determined that the Company’s 2020 FFO Per Share, when adjusted in accordance with the 2020 RSU award agreement, was $4.11. Added back to FFO per share for purposes of this determination and in accordance with the terms of the award agreements was $0.40 per share of unbudgeted costs incurred in 2020, including $0.18 per share of unbudgeted severance costs, $0.19 per share of unbudgeted financing costs that resulted from our decision, with unanimous support of our Board, to enhance our cash position during the year, and $0.03 per share of other unbudgeted costs. As a result, 100% of the target number of performance-based RSUs awarded in 2020 to each NEO (other than Ms. Ngo) were Banked Shares and became eligible to vest, subject to (1) further adjustment (up or down) as follows: (a) 50% of the Banked Shares will be adjusted (up or down) based on the Company’s relative TSR performance against other office REIT competitors in the SNL US REIT Office Index over the entire three-year vesting period and (b) 50% of the Banked Shares will be adjusted (up or down) based on the Company’s Average Debt to EBITDA Ratio over the three-year performance period, and (2) continued service through the remainder of the three-year performance period.
2020 Performance Year Under 2019 Annual Equity Awards In February 2019, the Compensation Committee awarded the NEOs (other than Ms. Ngo) RSUs that had a structure similar to the RSUs awarded to the NEOs in January 2020. The 2019 RSUs are described more fully in the Company’s 2020 Proxy Statement. In January 2020, the Compensation Committee determined that the Company’s 2019 FFO Per Share, when adjusted in accordance with the 2019 RSU award agreement, was $3.96. As a result, 150% of the target number of performance-based RSUs awarded in 2019 to each NEO (and 175% of the target number of performance-based RSUs awarded in 2019 to our CEO) were Banked Shares and became eligible to vest, subject to (1) further adjustment (up or down) as follows: (a) 50% of the Banked Shares will be adjusted (up or down) based on the Company’s relative TSR performance against other office REIT competitors in the SNL US REIT Office Index over the entire three-year vesting period and (b) 50% of the Banked Shares will be adjusted (up or down) based on the Company’s Average Debt to EBITDA Ratio over the three-year performance period, and (2) continued service through the remainder of the three-year performance period. Based on the Company’s 2019 FFO Per Share performance, between approximately 100% and 200% of the target number of performance-based RSUs awarded in 2019 to each NEO (and between approximately 87.5% and 262.5% of the target number of performance-based RSUs awarded in 2019 to our CEO) will vest at the end of the three-year performance period, assuming continued service through the remainder of that period.
In February 2018, the Compensation Committee awarded the NEOs (other than Ms. Ngo) RSUs that had a structure similar to the RSUs awarded to the NEOs in Compensation Committee
Additional Compensation Elements Indirect Elements of Compensation To assist us in attracting and retaining key executives, our NEOs are eligible to participate in the same health, welfare and insurance benefit plans in which our other salaried employees are generally able to participate. In addition, we provide our NEOs with certain other benefits such as an automobile allowance, a medical allowance, supplemental life insurance, and certain reimbursements for club dues, financial planning services and home office expenses. Stock Award Deferral Program We maintain a Stock Award Deferral Program under which our directors and certain of our management employees, including our NEOs, may elect to receive RSUs in lieu of restricted shares granted under the 2006 Plan in order to defer receipt of these shares (or may elect to defer payment of RSUs that would otherwise be made when the RSUs vest). Each RSU issued under the deferral program represents the right to receive one share of our common stock in the future, subject in each case to the vesting conditions provided in the restricted stock or RSU award. In addition, deferred RSUs carry with them the right to receive dividend equivalents that credit participants, upon our payment of dividends in respect of the shares underlying the participant’s RSUs, with additional RSUs equal to the value of the dividend paid in respect of such shares. Shares of stock underlying RSUs will be paid to the participant on the earliest to occur of a change in control, the participant’s “separation from service” with us, the participant’s death or disability, or apre-determined date, if specified by the participant. By electing to receive deferred RSUs, participants are generally able to defer income taxes on these awards, which we believe helps us to attract, retain and incentivize top talent without significant additional cost to the Company. Since RSUs are paid in our common stock and the deferral of payment of RSUs under the program may result in participants holding RSUs for a longer period, we believe the Stock Award Deferral Program enhances the alignment between management and stockholder interests.
Defined Contribution Plans We maintain a Section 401(k) Savings/Retirement Plan (the “401(k) Plan”) that covers our eligible employees, including our NEOs, and those of certain designated affiliates. The 401(k) Plan permits our eligible employees to defer receipt of (and taxation on) a portion of their annual compensation, subject to certain limitations imposed by the 401(k) Plan and under the Internal Revenue Code. The employees’ elective deferrals are immediately vested and nonforfeitable upon contribution to the 401(k) Plan. We currently make matching contributions to the 401(k) Plan in an amount equal to fifty cents for each dollar of participant contributions, up to a maximum of 10% of the participant’s base salary (thus, the maximum match is 5% of the participant’s base salary) and subject to certain other limits under the tax laws. Participants vest immediately in the amounts contributed by us to their plan accounts. Our employees are eligible to participate in the 401(k) Plan after three months of credited service with us. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue 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. Thistax-preferential savings option helps us to attract, retain and incentivize top talent. Deferred Compensation Plan We maintain a cash deferred compensation plan, the 2007 Deferred Compensation Plan, as amended (the “Deferred Compensation Plan”), under which our directors, partners and certain of our management employees, including our NEOs, may defer receipt of their compensation, including up to 100% of their director fees and cash bonuses and up to 70% of their salaries or other types of eligible compensation, each as applicable. In addition, partners and eligible management employees, including our NEOs, will generally receive semi-monthly contributions from us to their Deferred Compensation Plan accounts equal to 10% of their respective gross semi-monthly base salaries (or certain guaranteed payments, in the case of partners). The Deferred Compensation Plan provides that we may also make additional discretionary contributions to participant accounts. We did not make any discretionary contributions to the Deferred Compensation Plan for Severance and Change in Control Arrangements We have entered into employment agreements with each of our NEOs (other than Ms. Ngo and Mr. We do not provide our NEOs with any “single trigger” severance or equity award acceleration arrangements, meaning that severance benefits and accelerated vesting of equity awards are not triggered simply because a change in control transaction occurs. Instead, time-based RSU awards granted to our NEOs generally vest in connection with a change in control transaction only if the award is to be terminated (and will not be continued, substituted for or assumed) in connection with the transaction. In the case of the performance-based RSUs granted to our NEOs, the RSUs will vest based on the Company’s performance through the transaction. The time-based RSUs granted to our NEOs also generally vest, and any severance benefits for our NEOs are generally triggered, upon a termination of the NEO’s employment by the Company without “cause,” by the NEO for “good reason,” or, in certain cases, due to the retirement, death or disability of the NEO. For a description of the material terms of these arrangements, see “Named Executive Officer Compensation Tables — Employment Agreements — Salary and Short-Term Incentive (Annual Cash Bonus) Amounts,” “Named Executive Officer Compensation Tables — Grants of Plan-Based Awards —
The Company was a party to an employment agreement with Jeffrey Hawken, its former Executive Vice President and Chief Operating Officer. The term of the In July 2020, Decisions for 2021 None of our
HOW WE MAKE COMPENSATION DECISIONS Executive Compensation Committee Our executive compensation program is established by, and executive compensation decisions are made by, the Compensation Committee. Role of Independent Compensation Consultant The Compensation Committee has sole authority to hire, retain and terminate the services of independent compensation consultants to assist in its decision-making process. The Compensation Committee retained Mercer as its independent compensation consultant in Mercer performed a comprehensive review of our
on the compensation Mercer is a subsidiary of Marsh & McLennan Companies, Inc. (collectively, “MMC”), a diversified conglomerate of companies that provide insurance, strategy and human resources consulting services. During
Other than the services identified above, MMC provided no services to the Company during
The aggregate amount of fees paid or payable by the Company to MMC for
Mercer has established Global Business Standards to manage potential conflicts of interest for executive rewards consulting services, which policies and procedures were provided to the Company;
There are no business or personal relationships between our Mercer executive remuneration advisors and any member of the Compensation Committee other than in respect of (1) the services provided to the Company by Mercer as described above, or (2) work performed by Mercer for any other company, board of directors or compensation committee for which such Compensation Committee member also serves as an independent director;
Our Mercer executive remuneration advisors do not own stock in the Company; and
There are no business or personal relationships between our Mercer executive remuneration advisors, Mercer or other MMC affiliates and any executive officer of the Company other than in respect of the services provided to the Company as described above. Role of Management in Executive Compensation Planning Our CEO provides recommendations to the Compensation Committee regarding the compensation of our executive officers (other than for himself). Our CEO and President further
Our President and Chief Financial Officer
Market Review and Compensation Peer Group The Compensation Committee reviews peer group data to assess the competitiveness of our executive compensation program and to help inform its decision-making process. The Peer Group: KRC Alignment Characteristics
The Compensation Committee uses peer group compensation analyses, together with other reports and information prepared by Mercer for the Compensation Committee, to evaluate our executive compensation program generally and to inform its decision-making process. Differences in compensation levels for our NEOs are driven by the Compensation Committee’s assessment, in its judgment, of each of our executive’s responsibilities, experience and compensation levels for similar positions at companies in the peer group. Our pay positioning versus the peer group also incorporates the degree of expertise and experience needed to oversee and direct our active portfolio management strategy. For example, our strategy requires different skill sets than executives who focus primarily on managing cash flows from a more static investment portfolio. Further, our compensation levels reflect the need to attract, retain and incentivize talented and experienced individuals in the highly competitive West Coast employment and commercial real estate markets. For COMPENSATION GOVERNANCE PRACTICES We maintain a number of compensation and governance-related policies described below that we believe represent current best practices.
Compensation Clawback Policy Under our clawback policy, subject to the discretion and approval of our Board, we may require reimbursement and/or cancellation of any bonus or other incentive compensation, including equity-based compensation, awarded to an executive officer, in any case where all of the following factors are present: (i) the award was predicated upon the achievement of certain financial results during the three fiscal years preceding the date of the Company’s most recent audited balance sheet (or any interim or other portion of such period of three fiscal years, or any more recent period) that were subsequently the subject of an accounting restatement due to material noncompliance by us with any financial reporting requirements under securities laws; (ii) the Board determines that the executive officer engaged in misconduct that was a substantial contributing cause to the need for the restatement; and (iii) a lower award would have been made to the executive officer based upon the restated financial results. In each instance, we may recover the individual executive officer’s entire annual bonus or any gain received from the award within
the relevant period, plus a reasonable rate of interest. These clawback provisions are in addition to the provisions of theNon-Competition,Non-Solicitation andNon-Disclosure Agreements we have entered into with our NEOs, described below under “Named Executive Officer Compensation Tables — Potential Payments Upon Termination or Change in Control” that provide for the executive to forfeit certain equity awards if he fails to comply with certain restrictive covenants in our favor. Anti-Hedging Policy We maintain a policy that restricts our directors, officers, certain other employees and their family members from engaging in any transaction that might allow them to gain from declines in the price of Company securities. Employees subject to our anti-hedging policy include employees that participate in our equity compensation plans, employees who, because of their job responsibilities, are considered more likely to have access to materialnon-public information (including employees in accounting, legal, and administration) and other employees who are in possession of materialnon-public information from time to time. Specifically, we prohibit transactions by these individuals using derivative securities, or otherwise participating in hedging, “stop loss” or other speculative transactions involving Company securities, including short-selling Company securities, trading in any puts, calls, covered calls or other derivative products involving Company securities, or writing purchase or call options, short sales and other similar transactions. Anti-Pledging Policy We have a policy prohibiting our NEOs and other Section 16 officers from pledging, or using as collateral, Company securities in order to secure personal loans, lines of credit or other obligations, which includes holding Company securities in an account that has been margined. Exceptions to this policy are granted where the securities pledged (i) are not needed to satisfy the minimum ownership level required by the Company’s stock ownership guidelines, as discussed below, (ii) do not total more than 10% of the individual’s total beneficial ownership of Company securities and (iii) are not utilized as part of any hedging strategy that would potentially immunize the individual against economic exposure to such securities. In addition, our Board may grant other exceptions to this policy in such circumstances as it may consider appropriate; however, no such other exceptions have been made. Minimum Stock Ownership Guidelines As part of our compensation philosophy, we believe that our NEOs should hold a significant amount of the Company’s stock to help align their long-term interests with those of our stockholders. Accordingly, we maintain minimum stock ownership guidelines applicable to all of our NEOs as reflected in the table below. Under the guidelines, each NEO has six years from the point of first being subject to the guidelines to satisfy the minimum guideline level of ownership. As of December 31,
* The NEO has time remaining in which to meet the ownership guideline.
Stock Holding Requirements Our stock ownership guidelines also provide that, if an executive falls short of the applicable level of stock ownership, the executive is expected to hold (and not sell) at least 50% of the net shares acquired upon exercise, vesting or payment, as the case may be, of any equity award granted by us to the executive. “Net shares” for this purpose means the total number of shares acquired by the executive pursuant to the award, after reduction for shares having a fair market value equal to the exercise price of the award (in the case of a stock option) and shares having a fair market value equal to the executive’s expected tax liability resulting from the award. No Single Trigger Change in Control Severance Provisions None of our executives have the benefit of any “single trigger” severance or equity award acceleration arrangements, meaning that severance benefits and accelerated vesting of equity awards are not triggered simply because a change in control transaction occurs. No Excise TaxGross-Ups None of our executives’ agreements with the Company provide for tax“gross-up” payments. Tax Considerations Section 162(m) of the Internal Revenue Code generally prohibits a publicly-held company from deducting compensation paid to a current or former named executive officer that exceeds $1 million during the tax year. Certain awards granted before November 2, 2017 that were based upon attainingpre-established performance measures that were set by the Compensation Committee under a plan approved by our stockholders, as well as amounts payable to former executives pursuant to a written binding contract that was in effect on November 2, 2017, may qualify for an exception to the $1 million deductibility limit. The Compensation Committee notes this deductibility limitation as one of the factors in its consideration of compensation matters. However, the Compensation Committee generally has the flexibility to take any compensation-related actions that it determines are in the Company’s and its stockholders’ best interest, including designing and awarding compensation for our executive officers that is not fully deductible for tax purposes. In addition, we believe that we qualify as a REIT under the Internal Revenue Code and are not subject to federal income taxes, meaning that the payment of compensation that is not deductible under Section 162(m) should not have a material adverse consequence to us, provided we continue to remain qualified as a REIT under the Internal Revenue Code.
COMPENSATION COMMITTEE MATTERS The Compensation Committee has reviewed and discussed our Compensation Discussion and Analysis section with management and, based on the review and discussions, recommended to the Board that the Compensation Discussion and Analysis section be included in this Proxy Statement on Schedule 14A. Executive Compensation Committee Edward Brennan, PhD, Chair Jolie Hunt Gary Stevenson The foregoing report of the Compensation Committee is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language in such filing. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Dr. Brennan, Mr. Stevenson and Ms. Hunt were members of the Compensation Committee during all of
NAMED EXECUTIVE OFFICER COMPENSATION TABLES The Summary Compensation Table quantifies the value of the different forms of compensation earned by or awarded to our NEOs for The Summary Compensation Table should be read in conjunction with the tables and narrative descriptions that follow. A description of the material terms of each NEO’s employment agreement (other than Ms. Ngo and Mr. Paratte) regarding base salary and short-term incentive amounts is provided immediately following the Summary Compensation Table. The Grants of Plan-Based Awards table, and the accompanying disclosure following that table, provide information regarding the cash and equity awards granted to our NEOs in SUMMARY COMPENSATION TABLE — The following table sets forth summary information regarding compensation of our NEOs for all services rendered to us in all capacities in
As discussed in the CD&A, in
As discussed in the CD&A included in the Company’s 2019 Proxy Statement, the Company awarded additional RSUs to the NEOs in December 2018, the vesting of which is subject, in part, to the Company’s performance. For these purposes, the accounting fair value of the RSUs awarded in December 2018 that are subject to performance-based vesting conditions was included for the NEOs as Stock Award compensation for 2018 based on a Monte Carlo simulation pricing model (which probability weights multiple potential outcomes) as of the grant date of the awards. For more information on the assumptions made in this Monte Carlo simulation pricing model, refer to Note 15 “— Share-Based and Other Compensation” in the Notes to Consolidated Financial Statements in the Company’s 2018 Form 10-K filed with the SEC. Under the terms of these awards at grant, between 0% and 200% of the target number of shares subject to the awards can vest, based on performance and the other vesting conditions applicable to the awards. The following table presents the accounting fair value (determined as described above as of the grant date of the awards) of the December 2018 PRSUs awarded to the NEOs under two sets of assumptions: (a) using the Monte Carlo simulation pricing model, and (b) assuming that the highest level of performance would be achieved (200% of the target level).
Employment Agreements — Salary and Short-Term Incentive (Annual Cash Bonus) Amounts We have entered into employment agreements with each of Messrs. Kilroy, Hawken, Rose and John Kilroy Mr. Kilroy entered into a new amended and restated employment agreement with the Company effective December 27, 2018. The term of Mr. Kilroy’s amended and restated employment agreement is scheduled to end on December 31, 2023, subject to earlier termination in connection with a termination of Mr. Kilroy’s employment, and is not subject to automatic extensions of the term. The agreement provides for an initial annual base salary of $1,225,000 and that the Compensation Committee will review Mr. Kilroy’s base salary each year during the term of the agreement and has discretion to increase (but not decrease) his base salary level. The agreement also provides for Mr. Kilroy’s target short-term incentive award (annual cash bonus) to be set at not less than $3,000,000 and his annual equity incentive award to be set at not less than $6,000,000, with the Compensation Committee to determine Mr. Kilroy’s actual cash and equity incentive award amounts each year. The agreement also provides for Mr. Kilroy to participate in the Company’s long-term incentive plan applicable to senior executives, pursuant to which the Compensation Committee has the discretion to grant certain equity awards, as well as participation in the Company’s executive and employee compensation and benefit plans and programs, reimbursement of business expenses, an auto allowance, an annual physical examination, an annual payment equal to $130,768 for Mr. Kilroy’s supplemental life insurance premiums and an annual payment up to $250,000 for Mr. Kilroy’s disability insurance premiums. The agreement does not provide for taxgross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Mr. Kilroy’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Tyler Rose Mr. Rose entered into an employment agreement with the Company effective January 28, 2016. The term of the employment agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the agreement will not be extended, subject to earlier termination in connection with a termination of Mr. Rose’s employment. The employment agreement provides for an initial annual base salary of $500,000 and provides that the Compensation Committee will review Mr. Rose’s base salary each year during the term of the agreement and has discretion to increase (but not decrease) his base salary level. The agreement also provides for Mr. Rose’s target short-term incentive award to be set at not less than 100% of his annual base salary and his annual equity incentive award to have a target grant date value of not less than 100% of his annual base salary. The agreement also provides for Mr. Rose to participate in any outperformance incentive award plan applicable to
senior executives that may be adopted by the Board, as well as participation in the Company’s executive and employee compensation and benefit plans and programs and reimbursement of business expenses. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Mr. Rose’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Justin Smart Mr. Smart entered into an employment letter agreement with the Company dated January 28, 2016. The term of the employment letter agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the letter agreement will not be extended, subject to earlier termination in connection with a termination of Mr. Smart’s employment. The agreement provides for an initial base salary of $500,000 and provides that the Compensation Committee will review Mr. Smart’s base salary each year during the term of the agreement and has discretion to increase (not decrease) his base salary level. The agreement also provides for Mr. Smart’s target short-term incentive award to be set at not less than 100% of his annual base salary and his annual equity incentive award to have a target grant date value of not less than 100% of his annual base salary. The agreement also provides for Mr. Smart to participate in the Company’s executive and employee benefit plans and programs. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Mr. Smart’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Heidi Roth Ms. Roth entered into an employment letter agreement with the Company dated January 28, 2016. The term of the employment letter agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the letter agreement will not be extended, subject to earlier termination in connection with a termination of Ms. Roth’s employment. The agreement provides for an initial base salary of $350,000 and provides that the Compensation Committee will review Ms. Roth’s base salary each year during the term of the agreement and has discretion to increase (not decrease) her base salary level. The agreement also provides for Ms. Roth’s target short-term incentive award to be set at not less than 100% of her annual base salary and her annual equity incentive award to have a target grant date value of not less than 100% of her annual base salary. The agreement also provides for Ms. Roth to participate in the Company’s executive and employee benefit plans and programs. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Ms. Roth’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Jeffrey Hawken Mr. Hawken entered into an amended and restated employment agreement with the Company effective December 31, 2015. The term of Mr. Hawken’s amended and restated employment agreement was scheduled to end on March 1, 2019, but was extended through March 1, 2020, and again from March 1, 2020 through March 1, 2021, by the agreement of Mr. Hawken and the Company, subject to earlier termination in connection with a termination of Mr. Hawken’s
GRANTS OF PLAN-BASED AWARDS — The following table sets forth summary information regarding the incentive awards granted to our NEOs during
DESCRIPTION OF PLAN-BASED AWARDS Columns (d) and (e) of the Grants of Plan-Based Awards table above report the target and maximum, respectively, short-term incentive award levels for our NEOs for Each of the equity incentive awards reported in the above table was granted under, and is subject to, the terms of the 2006 Plan. The Compensation Committee administers the 2006 Plan. The Compensation Committee has authority to interpret the plan provisions and to make all required determinations under the plan. Awards granted under the plan are generally only transferable by the NEO by will or the laws of descent and distribution. Each NEO may be entitled to accelerated vesting of his or her outstanding equity incentive awards upon certain terminations of employment with the Company or if the awards are to be terminated in connection with a change in control of the Company. The terms of this accelerated vesting are described in this section and below under “— Potential Payments Upon Termination or Change in Control.” Each RSU subject to the awards described below represents a contractual right to receive one share of our common stock. Payment will generally be made as the RSUs become vested, although the NEO may generally elect to have the RSUs paid on a deferred basis. Subject to the NEO’s employment agreement or the award agreement evidencing the RSUs, if an NEO’s employment terminates for any reason during the vesting period, any RSUs that have not previously vested will terminate. The NEOs do not have the right to vote or dispose of the RSUs subject to these awards, but do have the right to receive dividend equivalents (in cash or stock) based on the amount of dividends (if any) paid by the Company during the term of the award on a number of shares equal to the number of outstanding and unpaid RSUs then subject to the award. Any such dividend equivalents are credited in the form of additional RSUs that are subject to the same vesting requirements as the RSUs to which they relate.
Tyler Rose Mr. Rose entered into an employment agreement with the
Justin Smart Mr. Smart entered into an employment letter agreement with the Company dated January 28, 2016. The term of the employment letter agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the letter agreement will not be extended, subject to earlier termination in connection with a termination of Mr. Smart’s employment. The agreement provides for an initial base salary of $500,000 and
Heidi Roth Ms. Roth entered into an employment letter agreement with the Company dated January 28, 2016. The term of the employment letter agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the letter agreement will not be extended, subject to earlier termination in connection with a termination of Ms. Roth’s employment. The agreement provides for an initial base salary of $350,000 and Jeffrey Hawken Mr. Hawken entered into an amended and restated employment agreement with the Company effective December 31, 2015. The term of Mr. Hawken’s amended and restated employment agreement was scheduled to end on March 1, 2019, but was extended through March 1, 2020, and again from March 1, 2020 through March 1, 2021, by the agreement of Mr. Hawken and the Company, subject to earlier termination in connection with a termination of Mr. Hawken’s employment. The agreement provided for
The following table sets forth summary information regarding the
Columns (d) and (e) of the Grants of Plan-Based Awards table above report the target and maximum, respectively, short-term incentive award levels for our NEOs for 2020. The Each of the
Each NEO may be entitled to accelerated vesting of his or
Each RSU subject to the awards described below represents a contractual right to receive one share of our common stock. Payment will generally be made as the RSUs become vested, although the NEO may generally elect to have the RSUs paid on a deferred basis. Subject to the NEO’s employment agreement or the award agreement evidencing the RSUs, if an NEO’s employment terminates for any reason during the vesting period, any RSUs that have not previously vested will terminate. The NEOs do not have the right to vote or dispose of the RSUs subject to these awards, but do have the right to receive dividend equivalents (in cash or stock) based on the amount of dividends (if any) paid by the Company during the term of the award on a number of shares equal to the number of outstanding and unpaid RSUs then subject to the award. Any such dividend equivalents are credited in the form of additional RSUs that are subject to the same vesting requirements as John Kilroy Mr. Kilroy entered into a new amended and restated employment agreement with the Company effective December 27, 2018. The term of Mr. Kilroy’s amended and restated employment agreement is scheduled to end on December 31, 2023, subject to earlier termination in connection with a termination of Mr. Kilroy’s employment, and is not subject to automatic extensions of the term. The agreement provides for an initial annual base salary of $1,225,000 and that the Compensation Committee will review Mr. Kilroy’s base salary each year during the term of the agreement and has discretion to increase (but not decrease) his base salary level. The agreement also provides for Mr. Kilroy’s target short-term incentive award (annual cash bonus) to be set at not less than $3,000,000 and his annual equity incentive award to be set at not less than $6,000,000, with the Compensation Committee to determine Mr. Kilroy’s actual cash and equity incentive award amounts each year. The agreement also provides for Mr. Kilroy to participate in the Company’s long-term incentive plan applicable to senior executives, pursuant to which the Compensation Committee has the discretion to grant certain equity awards, as well as participation in the Company’s executive and employee compensation and benefit plans and programs, reimbursement of business expenses, an auto allowance, an annual physical examination, an annual payment equal to $130,768 for Mr. Kilroy’s supplemental life insurance premiums and an annual payment up to $250,000 for Mr. Kilroy’s disability insurance premiums. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Mr. Kilroy’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Tyler Rose Mr. Rose entered into an employment agreement with the Company effective January 28, 2016. The term of the employment agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the agreement will not be extended, subject to earlier termination in connection with a termination of Mr. Rose’s employment. The employment agreement provides for an initial annual base salary of $500,000 and provides that the Compensation Committee will review Mr. Rose’s base salary each year during the term of the agreement and has discretion to increase (but not decrease) his base salary level. The agreement also provides for Mr. Rose’s target short-term incentive award to be set at not less than 100% of his annual base salary and his annual equity incentive award to have a target grant date value of not less than 100% of his annual base salary. The agreement also provides for Mr. Rose to participate in any outperformance incentive award plan applicable to
senior executives that may be adopted by the Board, as well as participation in the Company’s executive and employee compensation and benefit plans and programs and reimbursement of business expenses. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Mr. Rose’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Justin Smart Mr. Smart entered into an employment letter agreement with the Company dated January 28, 2016. The term of the employment letter agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the letter agreement will not be extended, subject to earlier termination in connection with a termination of Mr. Smart’s employment. The agreement provides for an initial base salary of $500,000 and provides that the Compensation Committee will review Mr. Smart’s base salary each year during the term of the agreement and has discretion to increase (not decrease) his base salary level. The agreement also provides for Mr. Smart’s target short-term incentive award to be set at not less than 100% of his annual base salary and his annual equity incentive award to have a target grant date value of not less than 100% of his annual base salary. The agreement also provides for Mr. Smart to participate in the Company’s executive and employee benefit plans and programs. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Mr. Smart’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Heidi Roth Ms. Roth entered into an employment letter agreement with the Company dated January 28, 2016. The term of the employment letter agreement was originally scheduled to end on March 1, 2020 but has been extended to March 1, 2021 pursuant to the agreement’s provision for an automatic one-year extension each year unless either party provides notice that the letter agreement will not be extended, subject to earlier termination in connection with a termination of Ms. Roth’s employment. The agreement provides for an initial base salary of $350,000 and provides that the Compensation Committee will review Ms. Roth’s base salary each year during the term of the agreement and has discretion to increase (not decrease) her base salary level. The agreement also provides for Ms. Roth’s target short-term incentive award to be set at not less than 100% of her annual base salary and her annual equity incentive award to have a target grant date value of not less than 100% of her annual base salary. The agreement also provides for Ms. Roth to participate in the Company’s executive and employee benefit plans and programs. The agreement does not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code. Provisions of Ms. Roth’s agreement relating to outstanding equity incentive awards and post-termination of employment benefits are discussed under the applicable sections of this Proxy Statement. Jeffrey Hawken Mr. Hawken entered into an amended and restated employment agreement with the Company effective December 31, 2015. The term of Mr. Hawken’s amended and restated employment agreement was scheduled to end on March 1, 2019, but was extended through March 1, 2020, and again from March 1, 2020 through March 1, 2021, by the agreement of Mr. Hawken and the Company, subject to earlier termination in connection with a termination of Mr. Hawken’s employment. The agreement provided for an initial annual base salary of $675,000 and that the Compensation Committee would review Mr. Hawken’s base salary each year during the term of the agreement and had discretion to increase (but not decrease) his base salary level. The agreement also provided for Mr. Hawken’s target short-term incentive award to be set at 200% of his annual base salary and his annual equity incentive award to have a target grant date fair value of not less than 200% of his annual base salary. The agreement also provided for Mr. Hawken to participate in any outperformance incentive award plan applicable to senior executives that may be adopted by the Board, as well as participation in the Company’s executive and employee compensation and benefit plans and programs, including an auto allowance, an annual physical examination and an annual payment up to $25,000 for tax and financial planning services. The agreement did not provide for tax gross-up payments from us for any elements of compensation, including for excise taxes imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code.
GRANTS OF PLAN-BASED AWARDS — 2020 The following table sets forth summary information regarding the incentive awards granted to our NEOs during 2020.
DESCRIPTION OF PLAN-BASED AWARDS Columns (d) and (e) of the Grants of Plan-Based Awards table above report the target and maximum, respectively, short-term incentive award levels for our NEOs for 2020. The 2020 short-term incentive awards actually paid to our NEOs are presented in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.” Ms. Ngo did not have a target or maximum 2020 short-term incentive and her 2020 short-term incentive is presented in the Summary Compensation Table under the heading “Bonus.” See the “Short-Term Incentives” section of the CD&A for a discussion of our performance measurement framework and the 2020 short-term incentive awards for our NEOs. Each of the equity incentive awards reported in the above table was granted under, and is subject to, the terms of the 2006 Plan. The Compensation Committee administers the 2006 Plan. The Compensation Committee has authority to interpret the plan provisions and to make all required determinations under the plan. Awards granted under the plan are generally only transferable by the NEO by will or the laws of descent and distribution. Each NEO may be entitled to accelerated vesting of his or her outstanding equity incentive awards upon certain terminations of employment with the Company or if the awards are to be terminated in connection with a change in control of the Company. The terms of this accelerated vesting are described in this section and below under “— Potential Payments Upon Termination or Change in Control.” Each RSU subject to the awards described below represents a contractual right to receive one share of our common stock. Payment will generally be made as the RSUs become vested, although the NEO may generally elect to have the RSUs paid on a deferred basis. Subject to the NEO’s employment agreement or the award agreement evidencing the RSUs, if an NEO’s employment terminates for any reason during the vesting period, any RSUs that have not previously vested will terminate. The NEOs do not have the right to vote or dispose of the RSUs subject to these awards, but do have the right to receive dividend equivalents (in cash or stock) based on the amount of dividends (if any) paid by the Company during the term of the award on a number of shares equal to the number of outstanding and unpaid RSUs then subject to the award. Any such dividend equivalents are credited in the form of additional RSUs that are subject to the same vesting requirements as the RSUs to which they relate. Time-Based RSUs Column (i) of the Grants of Plan-Based Awards table above reports awards of RSUs granted to our NEOs in January 2020 that vest based solely on the executive’s continued employment or service with the Company. Each of the annual long-term incentive awards granted in January 2020 is subject to a three-year vesting schedule, with one-third of the award vesting on January 5th in each of the three years following the year of the grant date. Performance-Based RSUs Columns (f) through (h) of the Grants of Plan-Based Awards table above report awards of performance-based RSUs granted to our NEOs in January 2020. As described more fully above under “Compensation Discussion and Analysis — 2020 Named Executive Officer Compensation,” the percentage of performance-based RSUs granted in February 2020 that become eligible to vest range from 0% to 225% of the RSUs subject to the award (0% to 306.25% in the case of the award granted to our CEO) depending on the Company’s FFO Per Share for 2020 and its TSR Percentile Ranking relative to the Company’s peer group and Average Debt to EBITDA Ratio for the 2020-2022 performance period. For 2020, the FFO Per Share performance condition was determined to have been satisfied at 100% of the target level. Accordingly, between approximately 50% and 150% of the target number of RSUs subject to each award (25% to 175% in the case of the award granted to our CEO) is eligible to vest based on the Company’s TSR Percentile Ranking and Average Debt to EBITDA Ratio for 2020-2022 and on the NEO’s continued employment through the date the Compensation Committee determines the level of achievement of the performance goals. In general, for purposes of these performance awards, “FFO Per Share” means the Company’s funds from operations during 2020, determined in accordance with the White Paper on Funds From Operations approved by the Board of Governors of the
National Association of Real Estate Investment Trusts, adjusted to exclude the impact of acquisition-related expenses, non-cash charges, non-budgeted compensation costs, any expense associated with variable accounting for certain equity-based awards, the impact of mergers, dispositions of property (to the extent that such dispositions exceed the midpoint of the range estimated in the Company’s business plan for the applicable year) and similar corporate transactions, the impact of any changes in accounting principles or practices, and the impact of other extraordinary items not contemplated by the Compensation Committee on the grant date, and including revenue that would have been included in earnings but is not recognized due to tenant delays and any lost revenue from restructuring of certain leases, divided by the weighted average common shares of the Company outstanding for 2020, calculated on a diluted basis, including participating share-based awards (i.e., unvested stock and time-based RSUs), the dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding. If the Company’s FFO Per Share for 2020 was less than $4.01, the award would be forfeited in full. If the Company’s FFO Per Share for 2020 was $4.01, the percentage of the target number of shares subject to the award that will become “Banked Shares” would be 50% (25% in the case of the award granted to our CEO). If the Company’s FFO Per Share for 2020 was $4.11 (target), the percentage of the target number of shares subject to the award that will become Banked Shares would be 100%. If the Company’s FFO Per Share for 2020 was $4.21 or greater, the percentage of the target number of shares subject to the award that will become Banked Shares would be 150% (175% in the case of the award granted to our CEO). For an FFO Per Share amount between these levels, the number of Banked Shares would be determined on a pro-rata basis. In general, for purposes of these awards, the “TSR Percentile Ranking” for the performance period (2020-2022) will be determined as follows: the percentile ranking of the Company’s TSR for the performance period will be determined against the TSRs for the performance period for the companies included in the SNL US REIT Office Index on the first date of the performance period that remain included in such Index through the end of the performance period. These calculations will be based on average closing stock prices during the twenty-trading day period immediately prior to the start of the performance period and the twenty-trading day period at the end of the performance period, assuming dividend reinvestment and adjusted to mitigate the impact of stock splits, stock dividends and reverse stock splits. If the TSR Percentile Ranking is the 80th percentile or greater, the TSR modifier as to 50% of the Banked Shares will be 150% (175% in the case of the award granted to our CEO). If the TSR Percentile Ranking is the 50th percentile, the TSR modifier as to 50% of the Banked Shares will be 100%. If the TSR Percentile Ranking is the 20th percentile or lower, the TSR modifier as to 50% of the Banked Shares will be 50% (25% in the case of the award granted to our CEO). For a TSR Percentile Ranking between these levels, the TSR modifier will be determined on a pro-rata basis. In general, for purposes of these awards, the “Average Debt to EBITDA Ratio” for the performance period (2020-2022) will be determined as the average of the Company’s Annual Debt to EBITDA Ratio (as defined below) for each of 2020, 2021 and 2022. The Company’s “Annual Debt to EBITDA Ratio” will be determined as the average of the Company’s consolidated net debt balances (that is debt less cash on hand) at the end of each quarter of the applicable year, divided by the Company’s EBITDA for the applicable year. The Company’s EBITDA will be determined as the Company’s consolidated earnings before interest expense, depreciation and amortization, gain/loss on early extinguishment of debt, gains and losses on depreciable real estate, net income attributable to noncontrolling interests, preferred dividends and distributions, original issuance costs of redeemed preferred stock and preferred units and impairment losses. EBITDA and net debt, as applicable, will be adjusted to exclude the impact of acquisition-related expenses, non-cash charges, non-budgeted compensation costs, any expense associated with variable accounting for certain equity-based awards, the impact of mergers, dispositions of property (to the extent that such dispositions exceed the midpoint of the range estimated in the Company’s business plan for the applicable year) and similar corporate transactions, the impact of any changes in accounting principles or practices, and the impact of other extraordinary items not contemplated by the Compensation Committee on the grant date, and including revenue that would have been included in earnings but is not recognized due to tenant delays, any lost revenue from restructuring of certain leases, and any unbudgeted earnings (to the extent no otherwise included in earnings) from leases that are entered into but for which the property has not been delivered for occupancy. If the Average Debt to EBITDA Ratio is 7.10x or less, the debt to EBITDA modifier as to 50% of the Banked Shares will be 150% (175% in the case of the award granted to our CEO). If the Average Debt to EBITDA Ratio is 7.60x, the debt to EBITDA modifier as to 50% of the Banked Shares will be 100%. If the Average Debt to EBITDA Ratio is 8.10x or higher, the debt to EBITDA modifier as to 50% of the Banked Shares will be 50% (25% in the case of the award granted to our CEO). For an Average Debt to EBITDA Ratio between these levels, the debt to EBITDA modifier will be determined on a pro-rata basis.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END — 2020 The following table sets forth summary information regarding the outstanding equity awards held by each of our NEOs as of December 31, 2020, including the vesting dates for the portions of these awards that had not vested as of that date.
OPTION EXERCISES AND STOCK VESTED — 2020 The following table summarizes the vesting of stock awards during 2020 that were previously granted to our NEOs. None of our NEOs exercised any Company stock options during 2020.
NONQUALIFIED DEFERRED COMPENSATION — 2020 The following table sets forth summary information regarding the contributions to and earnings on our NEOs’ deferred compensation balances during 2020, and the total deferred amounts for the NEOs as of December 31, 2020.
Deferrals of cash-settled compensation shown in this table are made under the Deferred Compensation Plan. Participant elections with respect to deferrals of compensation and distributions must generally be made in the year preceding that in which the compensation is earned, except that elections with respect to certain performance-based bonuses may be made as late as six months prior to the end of the applicable performance period (June 30th in the case of calendar-year performance period). In addition, newly eligible participants may be able to make deferral elections up to thirty days after they first become eligible to participate in the Deferred Compensation Plan, if later than the end of the year preceding that in which such deferred amounts will be earned. Participants may only change existing elections with respect to distributions if they satisfy certain requirements set forth in the Deferred Compensation Plan, including that they do so no later than twelve months prior to the first scheduled distribution and that they extend their deferral elections by at least five years.
Participants are permitted to allocate (and reallocate) their cash-settled deferrals, as well as Company contributions and any notional earnings on either of the foregoing, amongst the investment alternatives made available by the Deferred Compensation Plan administrator for purposes of determining any notional gains or losses on Participant account balances. The charts below show the investment alternatives available under the Deferred Compensation Plan from January 1, 2020 through December 31, 2020, with the performance of each investment alternative for the applicable period of time it was available under the Deferred Compensation Plan.
These allocations are hypothetical only and do not give participants ownership interests in any actual assets of the Company or any trust funding obligations under the Deferred Compensation Plan; however, the Company may set aside assets to fund its obligations under the Deferred Compensation Plan in a limited (“rabbi”) trust, subject to the claims of the Company’s creditors in the event of the Company’s bankruptcy or insolvency. Participants may elect to receive distributions of their accounts (other than distributions of Company contributions) (i) while still in the service of the Company, in either a lump sum or in two to five annual installments occurring (or beginning) no earlier than two years after such amounts were earned, (ii) upon retirement from service, in a lump sum or up to fifteen annual installments (in certain cases, beginning no earlier than six months after retirement) or (iii) upon a change in control, in full. Participant elections may also provide for payment upon the earliest to occur of any two or more of the foregoing events (subject to the distribution limitations applicable to Company contributions). If a participant separates from service with the Company and its affiliates for any reason other than due to the participant’s death, disability or retirement, the remaining balance of the participant’s account will generally be distributed in full (in certain cases, six months after the occurrence of such separation from service). In addition, a participant’s account balance will be distributed as soon as possible following the participant’s death or disability. All such separation, death and disability distributions will be made without regard to any participant election(s).
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The following section describes the benefits that may become payable to certain NEOs (other than Mr. Hawken) in connection with a termination of their employment with the Company and/or a change in control of the Company as of December 31, 2020. For Mr. Hawken, we have described the actual benefits he received in connection with his separation from employment effective July 13, 2020. John Kilroy Mr. Kilroy’s amended and restated employment agreement effective as of December 27, 2018 provides that, if his employment is terminated by the Company without “cause” or by Mr. Kilroy for “good reason” (as these terms are defined in his employment agreement), he will be entitled to receive the following payments and benefits (the “Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) a cash payment equal to $36,675,000; (iii) annual incentive compensation, based on actual performance prior to the date of termination and reasonably anticipated performance through the remainder of the year; (iv) vesting of equity awards as governed by the applicable plans, programs and agreements; (v) all payments due under any other compensatory or benefit plan; (vi) the settlement of any deferral arrangements in accordance with the plans and programs governing the deferral; (vii) continuation of health insurance coverage for Mr. Kilroy, his spouse and his dependents, as applicable, for three years after the date of termination, at our expense; and (viii) payment of an amount equal to $130,768 per year for the three-year period following the termination of his employment to cover premium payments incurred in connection with his life insurance policy. In addition, if Mr. Kilroy is terminated in such circumstances early in a calendar year prior to the granting of his annual long-term incentive award, the Company will grant him a long-term incentive award (or cash equivalent) for that year with all time-based vesting conditions deemed satisfied at grant. If Mr. Kilroy retires at or after age 70 with at least twelve months advance notice to the Company, he will be entitled to receive the Termination Benefits described above, except that the cash payment described above will be $13,225,000 (or $16,225,000 if such retirement occurs at or after age 73). If Mr. Kilroy’s employment is terminated due to his death or “disability” (as this term is defined in his employment agreement), he will be entitled to receive the Termination Benefits described above, except that the cash payment described above will be $16,225,000. In addition, if Mr. Kilroy is terminated in such circumstances early in a calendar year prior to the granting of his annual long-term incentive award, the Company will grant him a long-term incentive award (or cash equivalent) for that year with all time-based vesting conditions deemed satisfied at grant. If any payments under Mr. Kilroy’s employment agreement would otherwise trigger the excise tax imposed by Section 4999 of the Internal Revenue Code, the payments will be reduced as provided in the agreement to a level that does not trigger the excise tax if the reduction results in his retaining a greater amount of the payments on anafter-tax basis if such reduction is not made. In the event of a “change in control” (as defined in the employment agreement), we will place the amount of the potential cash obligations to Mr. Kilroy in connection with such a change in control and a termination of his employment in a separate rabbi trust on behalf of Mr. Kilroy immediately prior to such change in control. Except in the event of a termination due to Mr. Kilroy’s death, the employment agreement requires Mr. Kilroy to sign a general release of claims in favor of the Company in order to receive the Termination Benefits described above, other than accrued but unpaid compensation through the date of termination. Mr. Kilroy’s amended and restated employment agreement provides that if his employment is terminated, his stock incentive awards granted by the Company will be governed by the terms and conditions of the applicable award agreements, including vesting of the awards upon his retirement. The retirement age applicable to the Company’s stock incentive awards granted to Mr. Kilroy before 2019 (age 70) was not changed, his retirement age for purposes of any stock incentive awards granted in 2019, 2020 or 2021 was or will be age 73, and his retirement age for purposes of any stock incentive awards granted in 2022 or 2023 will be ages 74 and 75, respectively. The terms of any new equity incentive award granted by the Company to Mr. Kilroy will condition retirement vesting on his providing at least twelve months’ advance written notice to the Company of his retirement and will otherwise include provisions regarding termination of employment that are not less favorable to him than the provisions applicable to his 2018 annual equity incentive award granted by the Company.
Tyler Rose Mr. Rose’s employment agreement provides that, if his employment is terminated by the Company without “cause” or by Mr. Rose for “good reason” (as these terms are defined in his employment agreement), he would be entitled to receive the following payments and benefits (together with the Severance Payment (as defined below), the “Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) annual incentive compensation, based on actual performance prior to the date of termination and reasonably anticipated performance through the remainder of the year; (iii) full vesting of time-based equity awards; (iv) vesting of performance-based cash or equity awards (excluding outperformance incentive awards) as governed by the applicable plans, programs and agreements, but (unless otherwise provided in an applicable award agreement) with the objectives of such awards deemed to be met at the greater of (a) target on the date of termination or (b) actual performance as of the date of termination and reasonably anticipated performance through the remainder of the year; (v) all payments due under any other compensatory or benefit plan; (vi) the settlement of any deferral arrangements in accordance with the plans and programs governing the deferral; and (vii) payment of the premiums charged for Mr. Rose, his spouse and his eligible dependents to continue medical coverage under COBRA for two years after the date of termination. In addition, Mr. Rose would be entitled to receive a cash severance payment (the “Severance Payment”) equal to the sum of (i) two times his annual base salary and (ii) two times the average of his two highest target “annual incentives” (that is, the sum of the short-term incentive award and the annual stock award (determined based on the target level of the award) as detailed in Mr. Rose’s employment agreement) during the three preceding full performance years. If Mr. Rose’s employment is terminated due to retirement, he would be entitled to receive the Termination Benefits described above, except that (i) his Severance Payment will be equal to zero and (ii) the payment of the premiums to continue medical coverage under COBRA for Mr. Rose, his spouse and his dependents, as applicable, will be for one year after the date of termination. If Mr. Rose’s employment is terminated due to his death, he would be entitled to receive the Termination Benefits described above, except that (i) his Severance Payment described above for a termination of employment without cause or with good reason will be determined using a multiplier of “one” instead of “two,” and (ii) the payment of the premiums to continue medical coverage under COBRA for Mr. Rose, his spouse and his dependents, as applicable, will be for one year after the date of termination. In the event that the employment of Mr. Rose is terminated due to his disability, Mr. Rose would be entitled to receive the Termination Benefits described above, except that the payment of the premiums to continue medical coverage under COBRA for Mr. Rose, his spouse and his dependents, as applicable, will be for one year after the date of termination. If any payments under Mr. Rose’s employment agreement would otherwise trigger the excise tax imposed by Section 4999 of the Internal Revenue Code, the payments will be reduced as provided in the agreement to a level that does not trigger the excise tax if the reduction results in his retaining a greater amount of the payments on anafter-tax basis if such reduction is not made. In the event of a “change in control” (as defined in the employment agreement), we will place the amount of the potential cash obligations to Mr. Rose in connection with such a change in control and a termination of his employment in a separate rabbi trust on behalf of Mr. Rose within thirty days after such change in control. The employment agreement requires Mr. Rose to sign a general release of claims in favor of the Company in order to receive the Termination Benefits (including the Severance Payment) described above, other than accrued but unpaid compensation through the date of termination.
Justin Smart Mr. Smart’s employment letter agreement provides that, if his employment is terminated by the Company without “cause” or by Mr. Smart for “good reason” (as these terms are defined in his employment letter agreement), he would be entitled to receive the following payments and benefits (together with the Severance Payment (as defined below), the “Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) in lieu of any annual incentive compensation, a partial year bonus based on actual performance against bonus targets as of the date of termination; (iii) full vesting of time-based equity awards; (iv) vesting of performance-based cash or equity awards (excluding outperformance incentive awards) as governed by the applicable plans, programs and agreements, but (unless otherwise provided in an applicable award agreement) with the objectives of such awards deemed to be met at the greater of (a) target on the date of termination or (b) actual performance as of the date of termination and reasonably anticipated performance through the remainder of the year; (v) all payments due under any other compensatory or benefit plan, including any deferrals; and (vi) payment of the premiums charged for Mr. Smart, his spouse and his eligible dependents to continue medical coverage under COBRA for two years after the date of termination. In addition, Mr. Smart would be entitled to receive a cash severance payment (the “Severance Payment”) equal to the sum of (i) two times his annual base salary and (ii) two times the average of his two highest target “annual incentives” (that is, the sum of the
If Mr. Smart’s employment is terminated due to his death, he would be entitled to receive the Termination Benefits described above, except that (i) his Severance Payment described above will be determined using a multiplier of “one” instead of “two,” and (ii) the payment of the premiums to continue medical coverage under COBRA for Mr. Smart, his spouse and his dependents, as applicable, will be for one year after the date of termination. If Mr. Smart’s employment is terminated due to his disability, he would be entitled to receive the Termination Benefits described above, except that the payment of the premiums to continue medical coverage under COBRA for Mr. Smart, his spouse and his dependents, as applicable, will be for one year after the date of termination. The employment agreement requires Mr. Smart to sign a general release of claims in favor of the Company in order to receive benefits in connection with a termination of employment described above (including the Severance Payment).
Ms. Roth’s employment letter agreement provides that, if her employment is terminated by the Company without “cause” or by Ms. Roth for “good reason” (as these terms are defined in her employment letter agreement), she would be entitled to receive the following payments and benefits (together with the Severance Payment (as defined below), the “Termination Benefits”): (i) accrued but unpaid compensation through the date of termination; (ii) in lieu of any annual cash incentive compensation, a partial year bonus based on actual performance against bonus targets as of the date of termination; (iii) full vesting of time-based equity awards; (iv) vesting of performance-based cash or equity awards as governed by the applicable plans, programs and agreements, but (unless otherwise provided in an applicable award agreement) with the objectives of such awards deemed to be met at the greater of (a) target on the date of termination or (b) actual performance as of the date of termination and reasonably anticipated performance through the remainder of the year; (v) all payments due under any other compensatory or benefit plan, including any deferrals; and (vi) payment of the premiums charged for Ms. Roth and her eligible dependents to continue medical coverage under COBRA for eighteen months after the date of termination. In addition, Ms. Roth would be entitled to receive a cash severance payment (the “Severance Payment”) equal to the sum of (i) one and one-half times her annual base salary and (ii) one and one-half times the average of her two highest annual cash incentive awards received by Ms. Roth in the preceding three completed performance years. If Ms. Roth’s employment is terminated due to her death, she would be entitled to receive the Termination Benefits described above, except that (i) her Severance Payment described above will be determined using a multiplier of “one” instead of “one and one-half,” and (ii) the payment of the premiums to continue medical coverage under COBRA for Ms. Roth and her dependents, as applicable, will be for one year after the date of termination. If Ms. Roth’s employment is terminated due to her disability, she would be entitled to receive the Termination Benefits described above, except that the payment of the premiums to continue medical coverage under COBRA for Ms. Roth and her dependents, as applicable, will be for one year after the date of termination.
The employment agreement requires Ms. Roth to sign a general release of claims in favor of the Company in order to receive benefits in connection with a termination of employment described above (including the Severance Payment). Jeffrey Hawken In As required under the terms of Mr. Hawken’s employment agreement for any termination of Mr. Hawken’s employment (including but not limited to a termination without cause), the Separation Agreement provided that Mr. As required by the terms of Mr. As required under the terms of As required by the terms of Mr. Hawken’s employment agreement for a termination of Mr. Hawken’s employment without cause, and subject to his compliance with the releases, promises and obligations of the Separation Agreement, the Company will pay the premiums charged for Mr. Under the Separation Agreement,
Each of the NEOs has entered into aNon-Competition,Non-Solicitation andNon-Disclosure Agreement, or aNon-Solicitation andNon-Disclosure Agreement, as the case may be, with the Company. Under their respective agreements, each of them has agreed to (i) restrictions on competitive activities during his or her employment, (ii) restrictions on solicitation during his or her employment and for two years following a termination of his or her employment, (iii) restrictions on disclosure of confidential information, (iv) restrictions on disparaging the Company and its affiliates, and (v) certain cooperation with the Company regarding any litigation to which the Company may be party. If the executive fails to comply with the restrictions onnon-competition,non-solicitation andnon-disclosure of confidential information under the agreement, he or she may be required to forfeit equity awards granted to him or her by the Company after the date that is three years before the breach of the obligation. Equity Awards Under the terms of the 2006 Plan, if there is a change in control of the Company, each NEO’s outstanding awards granted under the plan will not automatically accelerate and become vested under the terms of the 2006 Plan. If, however, the awards will not continue, be substituted for, or assumed after the change in control event (that is, the awards are to be terminated in connection with the change in control event), the awards would generally become fully vested and, in the case of options, exercisable. The Committee also has discretion to establish other change in control provisions with respect to awards granted under the 2006 Plan. The annual long-term incentive award agreement generally provides that upon a termination of the NEO’s employment by the Company without “cause,” by the NEO for “good reason,” or due to the NEO’s death, “disability” or “retirement” (as such terms are defined in the NEO’s employment agreement), subject to the NEO providing a general release of claims in favor of the Company, the time-based RSU award will fully vest and the time-based vesting requirements of performance-based RSU award will be deemed satisfied. Our outstanding annual performance-based RSU awards granted to the NEOs in 2019 and 2020 generally provide that, in the event the NEO is entitled to accelerated vesting of the award in connection with a termination of the NEO’s employment described above or in the event of a change in control of the Company, the performance period will be deemed to end in connection with such event and the number of shares subject to the award in such circumstances will be determined: (1) if the termination or change in control occurs in the first three months in the performance period applicable to the award, the FFO Per Share goal, the Average Debt to EBITDA Ratio goal and, in the case of a qualifying termination of employment, the TSR Percentile Ranking goal shall each be deemed to be satisfied at the applicable “target” levels; (2) if the termination or change in control occurs after the first three months but within the first year of the performance period applicable to the award, by measuring the Company’s actual FFO Per Share for the completed quarters that occur prior to the fiscal quarter in which the termination or change in control occurs and adding that to the Company’s target FFO Per Share goals for the remaining fiscal quarters in the performance period, and measuring such performance against the applicable FFO Per Share goals (or in the case of a change in control, the FFO Per Share goal will be deemed to be satisfied at the applicable “target” level if greater); (3) if the termination or change in control occurs during the performance period but after the first year of the performance period, the FFO Per Share performance will be measured based on actual performance for the first year of the performance period; (4) if the termination or change in control occurs during the performance period but after the first three months of the performance period, the Average Debt to EBITDA Ratio performance will be determined by measuring the Company’s actual Average Debt to EBITDA Ratio for any completed fiscal year in the performance period that occur prior to the fiscal year in which the termination or change in control occurs and adding that to the Company’s target Average Debt to EBITDA goals for the remaining fiscal years in the performance period, and measuring such performance against the applicable Average Debt to EBITDA goals (or in the case of a change in control, the Average Debt to EBITDA goal will be deemed to be satisfied at the applicable “target” level if greater); and (5) if the termination occurs after the first three months in the performance period or the change in control occurs at any time in the performance period applicable to the award, by measuring the Company’s TSR Percentile Ranking based on actual stock price performance through the date prior to which the termination or change in control occurs (or if such change in control is due to a board change, the Company’s TSR Percentile Ranking will be deemed to be satisfied at the applicable “target” level). In connection with a change in control, the awards will continue to be subject to the time-based vesting requirements applicable to the awards (subject to accelerated vesting of the awards should the award holder’s employment terminate in the circumstances described above or should the award be terminated and not assumed by a successor in connection with the change in control).
Our outstanding annual performance-based RSU awards granted to the NEOs in February 2018 generally provide that, in the event the NEO is entitled to accelerated vesting of the award in connection with a termination of the NEO’s employment described above or in the event of a change in control of the Company, the performance period will be deemed to end in connection with such event and the number of shares subject to the award in such circumstances will be determined: (1) if the termination or change in control occurs in the first year of the performance period applicable to the award, (a) bypro-rating the FFO Per Share goals applicable to the award for a short performance year ending with the last fiscal quarter prior to the fiscal quarter in which the termination or change in control occurs and by measuring FFO Per Share performance for that short period (unless such a termination of employment occurs during the first two fiscal quarters of the year, or such a change in control occurs during the first fiscal quarter of the year, in which case the FFO Per Share goal will be deemed satisfied at the applicable “target” level; for a change in control that occurs during the second, third or fourth fiscal quarter of the year, the number of shares will be the greater of the number determined based on the “target” level of performance or the number determined by measuring actual performance for such shortened performance period), and (b) as to the The December 2018 Time-Based RSU awards granted to our NEOs generally provide that upon a termination of the NEO’s employment by the Company without “cause,” by the NEO for “good reason,” or due to the NEO’s death, “disability” or, in the case of 80,645 of the Time-Based RSUs granted to Mr. Kilroy, “retirement” (each, a “qualifying termination,” as such terms are defined in NEO’s employment agreement), subject to the NEO providing a general release of claims in favor of the Company, the December 2018 Time-Based RSU award will fully vest. The December 2018 PRSU awards granted to our NEOs generally provide that, in the event the NEO is entitled to accelerated vesting of the award in connection with a “qualifying termination” of the NEO’s employment (as described in the preceding paragraph, but excluding “retirement”) or in the event of a change in control of the Company, the performance period will be deemed to end in connection with such event and the number of shares subject to the award in such circumstances will be determined based on the Company’s Relative TSR for such shortened performance period. In the event of such a qualifying termination of the NEO’s employment, the number of performance-based RSUs that are eligible to vest shall be deemed to vest on the date of such termination, subject to the NEO providing a general release of claims in favor of the Company. In the event of a termination of the NEO’s employment by the Company without cause or by the NEO for good reason, the performance period will be deemed to end on the last day of the calendar month immediately prior to the first public announcement of such termination. Additionally, in the event of a change in control of the Company due to a board change that occurs prior to December 31, 2021, the target number of performance-based RSUs will be eligible to vest, or if such change in control occurs after December 31, 2021 and before December 31, 2022, the greater of the target number of performance-based RSUs and the Initial Number of PRSUs will be eligible to vest. In connection with a change in control, the awards will continue to be subject to the time-based vesting requirements applicable to the awards (subject to accelerated vesting of the awards should the award holder’s employment terminate in the circumstances described above or should the award be terminated and not assumed by a successor in connection with the change in control).
ESTIMATED SEVERANCE AND CHANGE IN CONTROL BENEFITS The information in this section sets forth the value of benefits and payments to each of the NEOs who was employed by us on December 31, John Kilroy
The value of the accelerated vesting of equity awards in the table above ($
Tyler Rose
Michelle Ngo
A. Robert Paratte
The preceding estimated severance and change in control benefits tables assume that equity awards outstanding under our 2006 Plan would be substituted for, assumed or otherwise continued following a change in control transaction. If the awards were not substituted for, assumed or otherwise continued following a change in control transaction (that is, the awards were to be terminated in connection with the transaction), they would generally accelerate and become fully vested. In these cases, the value of the accelerated equity award vesting would, for each NEO and assuming that the change in control and termination of the awards occurred on December 31,
Pursuant to the Exchange Act, we are required to disclose in this Proxy Statement the ratio of the total annual compensation of our CEO to the median of the total annual compensation of all of our employees (excluding our CEO). Based on SEC rules for this disclosure and applying the methodology described below, we have determined that our CEO’s total compensation for We identified the median employee by taking into account the total cash compensation for Once the median employee was identified as described above, that employee’s total annual compensation for
EQUITY COMPENSATION PLAN INFORMATION The Company currently maintains one equity compensation plan, the 2006 Plan. The plan has been approved by the Company’s stockholders. The following table provides certain information as of December 31,
For their service on the Board, ournon-employee directors receive cash compensation and an annual equity award. Our officers who are directors, specifically John Kilroy, are not paid any additional compensation for their service as a director. Under ournon-employee director compensation program in effect for Non-employee directors are reimbursed for reasonable expenses incurred to attend director and committee meetings and incident to their service as a director. Ournon-employee directors may defer receipt of their cash compensation pursuant to the terms of our Deferred Compensation Plan. In addition, eachnon-employee director receives an annual grant authorized under the 2006 Plan of RSUs valued at $100,000 on the date of grant that vest in full on the date of the annual meeting of stockholders following the grant, subject to continued service. Eachnon-employee director grant provides that the RSUs subject to the grant will vest in full in the event of a “change in control” of the Company (as defined in the 2006 Plan) or due to thenon-employee director’s death or “disability” (as defined for purposes of Section 409A of the Internal Revenue Code). Ournon-employee directors may elect a deferred payment date for any RSUs that they may receive. RSUs awarded tonon-employee directors include the right to receive dividend equivalents (in the form of additional RSUs) based on the amount of dividends (if any) paid by the Company during the term of the award on a number of shares equal to the number of outstanding and unpaid RSUs then subject to the award. RSUs credited as dividend equivalents have the same vesting and payment terms as the original RSUs to which they relate. The Board also has discretion to determine the terms of any equity award for a newly elected or appointed member of the Board. Under our minimum stock ownership guidelines fornon-employee directors, eachnon-employee director is to own or to acquire, within five years of first becoming a director, shares of our common stock having a market value at least equal to five times the director’s annual retainer. As of December 31, The Board may change the terms of our director compensation program from time to time.
DIRECTOR COMPENSATION TABLE — The following table sets forth summary information regarding our compensation practices for each of ournon-employee directors for
On May The aggregate number of unvested stock awards (including the dividend equivalents granted with respect to such awards) and the aggregate number of unexercised option awards outstanding as of December 31,
(2) These RSUs vest in in two substantially equal installments on 10/30/21 and 10/30/22.
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PROXY STATEMENT |
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS
The following table sets forth certain information, as of February 29, 2020,March 1, 2021, regarding the beneficial ownership of common stock (or common stock issuable, at the Company’s option, upon the redemption of common limited partnership interests (the “Units”) in the Operating Partnership) for (i) each person or entity known by the Company to be the beneficial owner of more than 5% of the Company’s outstanding common stock (or common stock issuable, at the Company’s option, upon the redemption of Units); (ii) each director and director nominee and each NEO named in the Summary Compensation Table; and (iii) the current directors and executive officers of the Company as a group. Except as indicated below, all shares of common stock are owned directly, and the indicated person or entity has sole voting and investment power with respect to all of the shares of common stock beneficially owned by such person or entity other than restricted stock, as to which a person has sole voting power but no dispositive power. In preparing this table, the Company has relied upon information supplied by its officers, directors and certain stockholders, in addition to information contained in filings with the SEC.
Name of Beneficial Owner(1) | Number of Shares of Common Stock Beneficially Owned(2)
| Percentage of Outstanding Shares of Common Stock(2) | Number of Shares of Common Stock Beneficially Owned(2)
| Percentage of Outstanding Shares of Common Stock(2) | ||||||||||||||||||||
More than 5% Stockholders:
| ||||||||||||||||||||||||
The Vanguard Group, Inc. and affiliates(3)
| 15,207,367 | 14.32 | % | 15,465,252 | 13.28 | % | ||||||||||||||||||
BlackRock, Inc.(4)
| 11,759,666 | 11.08 | % | 13,472,484 | 11.57 | % | ||||||||||||||||||
Cohen & Steers, Inc. and affiliates(5)
| 11,591,994 | 10.92 | % | |||||||||||||||||||||
Norges Bank (The Central Bank of Norway)(6)
| 8,653,509 | 8.15 | % | |||||||||||||||||||||
APG Asset Management US Inc.(7)
| 5,568,000 | 5.24 | % | |||||||||||||||||||||
Norges Bank (The Central Bank of Norway)(5) | 9,057,009 | 7.78 | % | |||||||||||||||||||||
Cohen & Steers, Inc. and affiliates(6) | 4,592,289 | 3.94 | % | |||||||||||||||||||||
Directors, Director Nominees and NEOs:
| ||||||||||||||||||||||||
John Kilroy
| 1,615,859 | (8) | 1.50 | % | 1,724,536 | (7) | 1.46 | % | ||||||||||||||||
Jeffrey Hawken
| 429,398 | (9) | * | 326,982 | (8) | * | ||||||||||||||||||
Michelle Ngo | 17,414 | (9) | * | |||||||||||||||||||||
A. Robert Paratte | 23,595 | (10) | * | |||||||||||||||||||||
Tyler Rose
| 106,750 | (10) | * | 132,152 | (11) | * | ||||||||||||||||||
Heidi Roth | 49,094 | (12) | * | |||||||||||||||||||||
Justin Smart
| 117,381 | (11) | * | 123,509 | (13) | * | ||||||||||||||||||
Stephen Rosetta
| 1,897 | (12) | * | |||||||||||||||||||||
Scott Ingraham
| 34,387 | (13) | * | 36,789 | (14) | * | ||||||||||||||||||
Edward Brennan, PhD
| 19,160 | (14) | * | 21,096 | (15) | * | ||||||||||||||||||
Louisa Ritter | — | (16) | * | |||||||||||||||||||||
Gary Stevenson
| 9,447 | (15) | * | 11,133 | (17) | * | ||||||||||||||||||
Peter Stoneberg
| 12,287 | (16) | * | 13,802 | (18) | * | ||||||||||||||||||
Jolie Hunt
| 2,856 | (17) | * | 4,281 | (19) | * | ||||||||||||||||||
All Directors and Executive Officers as a Group |
|
2,402,161 |
(18) |
|
2.22 |
% | ||||||||||||||||||
(11 persons): | ||||||||||||||||||||||||
All Directors and Executive Officers as a Group (13 persons) | 2,160,255 | (20) | 1.83 | % |
* | Represents less than 1.0% of the outstanding shares of our common stock. |
PROXY STATEMENT |
(1) | Unless otherwise indicated, the address for each of the persons listed is c/o Kilroy Realty Corporation, 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. |
(2) | The number of shares of common stock beneficially owned by a stockholder is based on SEC regulations regarding the beneficial ownership of securities. The number of shares of common stock beneficially owned by a person includes any stock options or RSUs of such person that are vested or will vest within 60 days of |
(3) | Represents the number of shares of common stock beneficially owned as of December 31, |
(4) | Represents the number of shares of common stock beneficially owned as of December 31, |
(5) | Represents the number of shares of common stock beneficially owned as of December 31, |
(6) | Represents the number of shares of common stock beneficially owned as of December 31, 2020, as reported on Schedule 13G/A filed with the SEC on December 16, 2020, by Cohen & Steers, Inc. (“Cohen”), either directly or through its affiliates. Such report indicates that Cohen has sole voting power over |
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(7) |
|
Includes (i) 783,192 shares of common stock issuable, at the Company’s option, upon the redemption of Units (including Units beneficially owned by Kilroy Airport Imperial Co. (“KAICO”) and allocated to Mr. Kilroy); (ii) |
(8) | Mr. Hawken’s employment terminated in July 2020. Under SEC rules, he is considered an NEO for 2020. The amount reported as beneficially owned by Mr. Hawken is based on Mr. Hawken’s last Form 4 as filed with the SEC on April 17, 2020, as adjusted to give effect to subsequent transactions of which we are aware in connection with employment-related equity awards. |
(9) | Includes (i) |
(10) | Includes 23,595 shares of common stock held directly. Excludes 82,974 RSUs that are not vested and will not vest within 60 days of March 1, 2021. |
(11) | Includes (i) |
Includes (i) |
|
|
Includes (i) 4,000 shares of common stock held directly; and (ii) |
Includes (i) |
Excludes 2,143 RSUs that are not vested and will not vest within 60 days of March 1, 2021. |
(17) | Includes |
Includes (i) |
KILROY REALTY | PROXY STATEMENT | 105 |
(19) | Includes |
Includes (i) |
PROXY STATEMENT |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transactions Policy
Our Board has adopted a written Related Party Transactions Policy that is intended to comply with Item 404 of RegulationS-K and Article III, Section 7 of the Company’s Bylaws. The purpose of the policy is to describe the procedures used to identify, review, approve and disclose, if necessary, any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which (i) the Company (including any of its subsidiaries) was, is or will be a participant; (ii) the amount involved exceeds $120,000 in any calendar year; and (iii) a related party had, has or will have a direct or indirect material interest (a “Related Party Transaction”). For purposes of the policy, a related party is (a) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company; (b) any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (c) any immediate family member of any of the foregoing persons; or (d) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position, or in which such person has a 5% or greater beneficial ownership interest (each such person, a “Related Person”). The policy also describes the procedures used to identify, review, approve and disclose, if necessary, any transaction between the Company and any subsidiary of the Company, on the one hand, and John B. Kilroy, Sr. (or his estate) or John B. Kilroy, Jr. and their respective affiliates (each such person, a “Principal Party”), on the other hand (a “Principal Party Transaction”).
Under the policy, our Governance Committee is responsible for reviewing and approving or ratifying each Related Person Transaction and Principal Party Transaction (individually and collectively, as applicable, an “Interested Transaction”). In determining whether to approve or ratify an Interested Transaction, the Governance Committee is required to consider the relevant facts and circumstances of the Interested Transaction available to the Governance Committee and to take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unaffiliated third party under the same or similar circumstances, the extent of the related party’s interest in the transaction and the conflicts of interest and corporate opportunity provisions of the Company’s Code of Conduct. If a Related Party Transaction falls within one of certain specifiedpre-approved transaction categories set forth in the policy, it shall not require review by the Governance Committee and shall be deemed approved.
No member of the Governance Committee who is a Related Party is permitted to vote on the approval or ratification of an Interested Transaction, but may, if requested by the Chair of the Governance Committee, participate in some or all of the Governance Committee’s discussions of the Interested Transaction.
In the event that an Interested Transaction would constitute a conflict of interest or a corporate opportunity under the Company’s Code of Conduct, the provisions of the Code of Conduct shall also apply to the Interested Transaction. Any such Interested Transaction may not be approved under the policy unless it is also approved in accordance with the provisions of the Code of Conduct and disclosed to the public to the extent required by law or the listing rules of the NYSE.
In addition, the Audit Committee is responsible for discussing with management and the independent auditor any related party transactions brought to the Audit Committee’s attention which could reasonably be expected to have a material impact on the Company’s financial statements.
PROXY STATEMENT |
Certain Transactions with Related Persons
During 2016, the Company entered into a time-sharing agreement with each of Messrs. Kilroy, Hawken, Rose and Smart, and during 2020, the Company entered into a time-sharing agreement with Mr. Paratte and Ms. Roth, for the lease from time to time on a time-sharing basis by such executive officers of an aircraft that is owned by the Company. Mr. Rosetta entered into a time-sharing agreement with the Company in 2018. Pursuant to each time-sharing agreement, these executive officers pay the Company for the aggregate incremental cost of their respective personal use of the aircraft. These amounts are calculated based on the variable operating costs of the flight (subject to applicable maximum payment levels established under Federal Aviation Administration rules) and include, among other things, fuel, crew travel expenses, any insurance for the flight, hangar andde-icing costs away from aircraft base location, landing fees and airport taxes, customs and foreign permit fees,in-flight food and beverages and certain other miscellaneous costs. Fixed costs that do not change based on usage are excluded. Each executive officer pays to the Company an upfront deposit of an amount reasonably estimated to cover the anticipated payments for the executive’s personal use of the aircraft based upon the projected number of trips and their duration and profiles. The Company deducts from the deposited amount the actual payments incurred by each executive under the time-sharing agreement. For 2019, reimbursementsReimbursements received from Mr.each of Messrs. Kilroy, pursuant to this arrangement were $123,318Hawken, Rose, Smart, Paratte and Ms. Roth for the executive’s use of the aircraft during 2020 did not exceed $120,000 for each of Messrs.$120,000. Mr. Hawken Rose, Smart, and Rosetta. Mr. Rosetta ceased serving as the Company’s Executive Vice President and Chief InvestmentOperating Officer, effective August 28, 2019.July 13, 2020.
PROPOSALS AND NOMINATIONS FOR 20212022 ANNUAL MEETING OF STOCKHOLDERS
Stockholder Proposals and Nomination of Director Candidates Not Intended for Inclusion in Proxy Materials. A stockholder seeking to present a proposal or nominate a director for election to our Board at the 20212022 annual meeting of stockholders but not intending for such proposal or nomination to be included in the proxy statement for the meeting must comply with the advance notice requirements set forth in our Bylaws. The Company’s Bylaws require a stockholder desiring to present a proposal or nominate a director for the 20212022 annual meeting of stockholders to provide written notice to the Company’s Secretary at the Company’s principal executive offices (i) not earlier than December 20, 2020,21, 2021, 150 days prior to theone-year anniversary of the Annual Meeting, and not later than January 19, 2021,20, 2022, 120 days prior to suchone-year anniversary, or (ii) if the date of the 20212022 annual meeting of stockholders is more than 30 days before or more than 60 days after theone-year anniversary of the Annual Meeting, not later than the 120th day prior to such annual meeting of stockholders or, if later, the 10th day following the day on which public disclosure of the date of the annual meeting of stockholders was first made. Other specifics regarding the notice procedures, including the required content of the notice, can be found in Section 2 of Article II (with respect to stockholder proposals) and Section 2 of Article III (with respect to director nominations) of our Bylaws.
Proposals for Inclusion in Proxy Materials.A stockholder seeking to have a proposal included in the Company’s proxy statement for the 20212022 annual meeting of stockholders must comply with Rule14a-8 under the Exchange Act, which sets forth the requirements for including stockholder proposals in Company-sponsored proxy materials. In accordance with Rule14a-8, any such proposal must be received by the Company’s Secretary at the Company’s principal executive offices by December [__], 2020,[ ], 2021, which is 120 days prior to theone-year anniversary of the date this Proxy Statement was first mailed or made available to stockholders. However, if the date of the 20212022 annual meeting of stockholders changes by more than 30 days from theone-year anniversary of the date of the Annual Meeting, then such proposals must be received a reasonable time before the Company begins to print and send its proxy materials for the 20212022 annual meeting of stockholders.
Director Nominations for Inclusion in Proxy Materials (Proxy Access).Under certain circumstances specified in our Bylaws, a stockholder, or group of up to twenty stockholders, owning at least 3% of the Company’s outstanding common stock continuously for at least the prior three years, may nominate for election to our Board and inclusion in the Company’s proxy statement for its annual meeting of stockholders up to 25% of the number of directors then serving on our Board. The Company’s Bylaws require a stockholder desiring to nominate a director for inclusion in the Company’s proxy materials for the 20212022 annual meeting of stockholders to provide written notice to the Company’s Secretary at the Company’s principal executive offices (i) not earlier than December 20, 2020,21, 2021, 150 days prior to theone-year anniversary of the Annual Meeting, and not later than January 19, 2021,20, 2022, 120 days prior to suchone-year anniversary, or (ii) if the date of the 20212022 annual meeting of stockholders is more than 30 days before or more than 60 days after theone-year anniversary of the Annual Meeting, not later than the 120th day prior to such annual meeting of stockholders or, if later, the 10th day following the day on which public disclosure of the date of the annual
PROXY STATEMENT |
meeting of stockholders was first made. Other specifics regarding the foregoing proxy access right, including the required content of the notice and certain other eligibility and procedural requirements, can be found in Section 3 of Article III of our Bylaws.
Stockholder proposals or director nominations submitted to the Company’s Secretary that do not comply with the above requirements may be excluded from the Company’s proxy statement and/or may not be brought before the 20212022 annual meeting of stockholders, as applicable. For specific information with respect to the process for recommending a director candidate, see “Corporate Governance — Director Selection, Evaluation and Communications — Stockholder-Recommended Director Candidates” above.
PROXY STATEMENT |
ABOUT THE ANNUAL MEETING
AND VOTING PROCEDURES
Why did I receive a notice in the mail regarding Internet availability of the proxy materials instead of a paper copy of the proxy materials?
Pursuant to SEC rules, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record, while brokers, banks and other nominees who hold shares on behalf of beneficial owners will be sending their own similar Notice to the beneficial owners. All stockholders will have the ability to access the proxy materials, including this Proxy Statement and our 20192020 Annual Report, on the website referred to in the Notice or to request to receive a printed copy of the proxy materials. Instructions on how to request a printed copy by mail or electronically, including an option to request paper copies on an ongoing basis, may be found in the Notice and on the website referred to in the Notice. If a stockholder properly requests paper copies of this Proxy Statement, we intend to mail the Proxy Statement, together with a proxy card, to such stockholder within three business days of his or her request.
What is the purpose of the Annual Meeting?
At the Annual Meeting, stockholders will be asked to consider and vote on the following matters, as well as any other business properly brought before the Annual Meeting:
Proposal No. 1: Elect as directors the sixseven nominees named in this Proxy Statement.
Proposal No. 2: Approve, on an advisory basis, the compensation of our NEOs.
Proposal No. 3: Approve the Amendedamendment and Restated 2006 Incentive Award Plan.restatement of our Bylaws to remove the Independent Committee approval requirement separately governed by our related party transactions policy.
Proposal No. 4: Approve an amendment and restatement of our Charter to increase the number of shares of common stock that we are authorized to issue from 150,000,000 to 280,000,000.
Proposal No. 5: Ratify the appointment of Deloitte as our independent auditor for the fiscal year ending December 31, 2020.2021.
What are the Board’s recommendations on each of the proposals?
The Board recommends that stockholders vote:
1. | “FOR” each of the Board’s |
2. | “FOR” approval, on an advisory basis, of the compensation of our NEOs; |
3. | “FOR” approval of the |
4. | “FOR” |
|
Who is entitled to vote?
Only the holders of record of the shares of our common stock at the close of business on March 6, 20208, 2021 (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 each matter voted upon at the Annual Meeting. As of the Record Date, 106,170,814116,450,370 shares of common stock were outstanding.
PROXY STATEMENT |
May I attend the Annual Meeting?
We will be hosting the Annual Meeting in a virtual-only meeting format, via live audio webcast at www.virtualshareholdermeeting.com/KRC2021. You will not be able to attend the Annual Meeting in person. You may attend the virtual-only Annual Meeting if you were a stockholder of record or a beneficial holder of shares of common stock at the close of business on the Record Date or you hold a valid legal proxy forand will need the Annual Meeting. If you are a stockholder of record,16-digit control number included on your name will be verified against the list of stockholders of record prior to your being admitted to the Annual Meeting. You should also be prepared to present a valid government-issued photo identification, such as a driver’s license or passport, before being admitted. If you are not a stockholder of record but you are a beneficial holder of shares of common stock because you hold your shares in “street name,” you should provide proof of beneficial ownership as of the Record Date, such as an account statement reflecting your stock ownership as of the Record Date, a copy of the Notice or voting instruction form provided by your broker, bank or other nominee, or other similar evidence of ownership, as well as your photo identification, for admission. We reserveproxy card.
Why is the right to determine the validity of any purported proof of beneficial ownership. If you do not have proof of ownership, you may not be admitted to the Annual Meeting. Cameras, recording devices and other electronic devices will not be permitted, and attendees may be subject to security inspections and other security precautions. For directions toCompany holding the Annual Meeting contactvirtually?
We believe a virtual-only meeting format facilitates stockholder attendance and participation by enabling all stockholders to participate fully, equally and without cost, using an Internet-connected device from any location around the Company in writing at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064, Attn: Secretaryworld. In addition, the virtual-only meeting format increases our ability to engage with all stockholders, regardless of size, resources or by telephone at (310)481-8400.
Important Notice — Contingent Virtual Meeting. We are closely monitoringphysical location and enables us to protect the developments regarding the coronavirus (COVID-19). Although we currently intend to hold our Annual Meeting in person, we are sensitive to the public health and travel concerns stockholders may have andsafety of all attendees, particularly in light of the protocols that federal, state, and local governments are imposing. InCOVID-19 pandemic. See the event we determine that we need to conductsection titled “Virtual Annual Meeting” for more information about our Annual Meeting solely by means of remote communication, we will announce the change and provide instructions on how stockholders can participate in the Annual Meeting via press release and by filing additional solicitation materials with the SEC. The press release will also be available on the Investors section of our website at http://www.kilroyrealty.com. If you currently plan to attend the Annual Meeting in person, please check our website one week prior to the Annual Meeting.virtual-only meeting format.
How do I vote?
You may vote by submitting a proxy or voting instructions prior to the Annual Meeting or you may vote by attending the Annual Meeting and voting in person.Meeting.
Submitting a Proxy for Shares Registered Directly in the Name of the Stockholder. If you hold your shares of common stock as a record holder and you are viewing this Proxy Statement on the Internet, you may vote by submitting a proxy over the Internet by following the instructions on the website referred to in the Notice previously mailed to you. If you hold your shares of common stock as a record holder and you are reviewing a printed copy of this Proxy Statement, you may vote your shares by completing, dating and signing the proxy card that was included with this Proxy Statement and promptly returning it in the preaddressed, postage paid envelope provided to you, or by submitting a proxy over the Internet or by telephone by following the instructions on the proxy card. If you vote by Internet or telephone, then you need not return a written proxy card by mail.
Submitting Voting Instructions for Shares Registered in Street Name.If you hold your shares of common stock in street name, which means your shares are held of record by a broker, bank or nominee, you will receive instructions from your broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee will allow you to deliver your voting instructions over the Internet and may also permit you to vote by telephone. In addition, if you received a printed copy of this Proxy Statement, you may submit your voting instructions by completing, dating and signing the voting instruction form that was included with this Proxy Statement and promptly returning it in the preaddressed, postage paid envelope provided to you. If you vote by Internet or telephone, then you need not return a written voting instruction form by mail.
Vote in Person at the Annual Meeting.If you plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. Please note that if your shares are held of record by a broker, bank or other nominee and you decide to attend and vote at the Annual Meeting, your vote in person atyou will be given the opportunity to do so by following the instructions available on the Annual Meeting will not be effective unless you present a legal proxy, issued in your name from your broker, bank or other nominee.website.
What is the deadline for voting my shares if I do not attend the Annual Meeting?
If you are a stockholder of record, your proxy must be received by telephone or the Internet by 11:59 p.m. Eastern time on May 18, 202019, 2021 in order for your shares to be voted at the Annual Meeting. If you are a stockholder of record and you received a printed set of proxy materials, you also have the option of completing, signing, dating and returning the proxy card enclosed with the proxy materials before the Annual Meeting in order for your shares to be voted at the meeting. If you are a beneficial owner of shares of our common stock, please comply with the deadlines included in the voting instructions provided by the bank, broker or other nominee that holds your shares.
KILROY REALTY | PROXY STATEMENT | 111 |
Can I revoke or change my vote after I submit my proxy or voting instructions?
A stockholder of record may revoke a previously submitted proxy at any time before it is exercised by (i) delivering a later dated proxy card or by submitting another proxy by telephone or the Internet (your latest telephone or Internet voting instructions will be followed); (ii) delivering to the Secretary of the Company a written notice of revocation prior to the voting of the proxy at the Annual Meeting; or (iii) by voting in person at the Annual Meeting. Simply attending the Annual Meeting will not revoke your proxy. If your shares are held in “street name,” you must contact your broker, bank or other nominee to find out how to change or revoke your voting instructions. Any change to your proxy that is provided by telephone or the Internet must be submitted by 11:59 p.m. Eastern time on May 18, 2020.19, 2021.
How will my shares be voted on the proposals at the Annual Meeting?
The shares of common stock represented by all properly submitted proxies will be voted at the Annual Meeting as instructed or, if no instruction is given, will be voted “FOR” each of the director nominees named in Proposal No. 1, “FOR” Proposal No. 2, “FOR” Proposal No. 3 “FOR” Proposal No. 4 and “FOR” Proposal No. 5.4.
If you hold your shares of common stock in street name through a brokerage account and you do not submit voting instructions to your broker, your broker may generally vote your shares in its discretion on routine matters. However, a broker cannot vote shares held in street name onnon-routine matters unless the broker receives voting instructions from the street name holder. Proposal No. 4 (approval of an amendment to our Charter to increase the number of authorized shares of common stock) and Proposal No. 5 (the ratification of the appointment of Deloitte as our independent auditor for the fiscal year ending December 31, 2020) are each2021) is considered routine under applicable rules of the NYSE, while each of the other proposals to be submitted for a vote of stockholders at the Annual Meeting is considerednon-routine. Accordingly, if you hold your shares of common stock in street name through a brokerage account and you do not submit voting instructions to your broker, your broker may exercise its discretion to vote on Proposal No. 4 and Proposal No. 5 at the Annual Meeting, but will not be permitted to vote your shares on any of the other proposals at the Annual Meeting. If your broker exercises this discretion, your shares will be counted as present for determining the presence of a quorum at the Annual Meeting and will be voted on Proposal No. 4 and Proposal No. 5 in the manner directed by your broker, but your shares will constitute “brokernon-votes” on each of the other items at the Annual Meeting.
How will voting on any other business be conducted?
As to any other business that may properly come before the Annual Meeting, all properly submitted proxies will be voted by the proxyholders named in the proxy card, in their discretion. We do not presently know of any other business that may come before the Annual Meeting.
What constitutes a quorum?
A majority of the shares of common stock issued and outstanding on the Record Date must be represented at the Annual Meeting in person (i.e., by attending the virtual-only meeting) or by proxy to constitute a quorum for the transaction of business at the Annual Meeting. Shares represented by proxies that reflect abstentions or “brokernon-votes” will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum.
What vote is required to approve each proposal?
Proposal No. 1 — Election of Directors. Each director nominee will be elected at the Annual Meeting if he or she receives a majority of the votes cast with respect to his or her election (that is, the number of votes cast “FOR” the nominee must exceed the number of votes cast “AGAINST” the nominee). This majority voting standard is discussed further under “Proposal 1 — Election of Directors — Vote Required.”
112 | PROXY STATEMENT | KILROY REALTY |
Proposal No. 2 — Advisory Approval of Compensation of our NEOs. The affirmative vote of a majority of votes cast at the Annual Meeting will be required for theSay-on-Pay vote. TheSay-on-Pay vote is advisory only, and therefore not binding on the Company, the Compensation Committee or our Board. Althoughnon-binding, our Board values the opinions that our stockholders express with their votes and the votes will provide information to the Compensation Committee regarding investor sentiment about our executive compensation philosophy, policies and practices, which the Compensation Committee will be able to consider when determining executive compensation in the future.
Proposal No. 3 — Approval of Amendedthe Amendment and Restated 2006 Incentive Award Plan.Restatement of our Bylaws to Remove the Independent Committee Approval Requirement Separately Governed by Our Related Party Transactions Policy. The affirmative vote of a majority of votes cast at the Annual Meeting will be required for the approval of the amendment and restatement of the 2006 Plan.
Proposal No. 4 — Approval of an Amendment and Restatement of our Charter to Increase the Number of Authorized Shares of Common Stock. The affirmative vote oftwo-thirds of all votes entitled to be cast at the Annual Meeting will be required for the approval of the amendment and restatement of our Charter.Bylaws.
Proposal No. 54 — Ratification of the Appointment of Deloitte as our Independent Auditor. The affirmative vote of a majority of votes cast at the Annual Meeting will be required for the approval of the ratification of the appointment of Deloitte as our independent auditor for the fiscal year ending December 31, 2020.2021.
Note on “Abstentions” and “BrokerNon-Votes.” For purposes of determining the number of votes cast for Proposal No. 1, Proposal No. 2 and Proposal No. 5,4, only shares voted “FOR” or “AGAINST” are counted. Abstentions and brokernon-votes are not treated as votes cast on Proposal No. 1, Proposal No. 2 and Proposal No. 5,4, although they are counted for purposes of determining whether a quorum is present at the Annual Meeting. For purposes of Proposal No. 3, all shares of our common stock outstanding as of the Record Date are entitled to be cast on Proposal No. 3. Abstentions and broker non-votes will have the effect of a vote “AGAINST” Proposal No. 4. In addition, under NYSE listing standards applicable to stockholder approval of equity compensation plans, abstentions are treated as votes cast. Accordingly, for purposes of Proposal No. 3, abstentions will have the effect of a vote “AGAINST” the proposal.3.
KILROY REALTY | PROXY STATEMENT | 113 |
The cost of soliciting proxies will be borne by the Company. These costs will include reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation material regarding the Annual Meeting to beneficial owners of the Company’s common stock. Proxies may be solicited by directors, officers and employees of the Company in person or by mail, telephone, email or facsimile transmission, but such persons will not be specifically compensated therefor. The Company may use the services of Innisfree M&A Incorporated, a third-party solicitor, to solicit proxies for the Annual Meeting for a fee that we do not expect to exceed $15,000 plus a reasonable amount to cover expenses.
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 SEC. Reports, proxy statements and other information electronically filed by the Company with the SEC are available without charge on the SEC’s website at http://www.sec.gov. These materials are also available free of charge in the Investors section of the Company’s website at http://www.kilroyrealty.com as soon as reasonably practicable after they are filed or furnished with the SEC.
The Company will provide without charge to each person solicited hereby, upon the written or oral request of any such persons, copies of the Company’s and the Operating Partnership’s Annual Report on Form10-K for the year ended December 31, 2019,2020, including financial statements and financial statement schedules. Requests for such copies should be addressed to: Kilroy Realty Corporation, 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064, Attn: Secretary; telephone (310)481-8400.
A copy of the Company’s Bylaws referenced in this Proxy Statement may be obtained without charge by request to the Company’s Secretary at the Company’s principal executive offices. Requests should be addressed to: Kilroy Realty Corporation, 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064, Attn: Secretary; telephone (310)481-8400.
You may also access additional information about the Company at our Internet address, http://www.kilroyrealty.com. References to our website throughout this Proxy Statement are provided for convenience only and the content on our website does not constitute a part of this Proxy Statement.
114 | PROXY STATEMENT | KILROY REALTY |
We do not know of any other matter that will be brought before the Annual Meeting. However, if any other matter properly comes before the Annual Meeting or any adjournment(s) or postponement(s) thereof, which may properly be acted upon, the proxies solicited hereby will be voted at the discretion of the named proxy holders.
As permitted by the Exchange Act, only one copy of our proxy materials is being delivered to stockholders of record residing at the same address and who did not receive a Notice of Internet Availability or otherwise receive their proxy materials electronically, unless such stockholders have notified us of their desire to receive multiple copies of our proxy materials. This is known as householding. We will promptly deliver, upon oral or written request, a separate copy of the proxy materials to any stockholder residing at an address to which only one copy was mailed. Stockholders who currently receive multiple copies of proxy materials at their address and would like to request householding of their communications should contact us. Requests for additional copies or requests for householding for this year or future years should be directed in writing to our principal executive offices at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064, Attn: Secretary or by telephone at (310)481-8400.
You may vote on the Internet, or if you are receiving a paper copy of this Proxy Statement, by telephone (if available), or by completing and mailing a proxy card or voting instruction form in the preaddressed, postage paid envelope provided to you. Voting over the Internet, by telephone or by written proxy will ensure your shares are represented at the meeting.
WE URGE YOU TO SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE WHETHER OR NOT YOU EXPECT TO ATTEND AND VOTE AT THE ANNUAL MEETING AND VOTE IN PERSON.MEETING. IF YOU ATTEND AND VOTE AT THE ANNUAL MEETING, AND VOTE IN PERSON, YOUR PROXY WILL NOT BE USED.
April [ ], 20202021
By Order of the Board of Directors,
Tyler Rose
Executive Vice President
Chief Financial Officer and Secretary
KILROY REALTY | PROXY STATEMENT |
APPENDIX A – DEFINITIONS AND RECONCILIATIONS OFNON-GAAP FINANCIAL MEASURES
FUNDS FROM OPERATIONS (“FFO”), FFO PER SHARE, ADJUSTED FFO AND ADJUSTED FFO PER SHARE
FFO:
We calculate funds from operations available to common stockholders and common unitholders, or “FFO,” in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation ofnon-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.
We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.
Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using
historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.
However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.
Adjusted FFO:
Adjusted FFO isfor 2020 was calculated as FFO, adjusted for original issuanceseverance costs, of redeemed preferred stock, lossacquisition-related expenses, accelerated financing costs, political contributions and additional interest on early extinguishment of debt, and accrued future executive retirement benefits.revenue not recognized due to tenant delays.
FFO Per Share:
FFO Per Share is calculated as FFO divided by the weighted average common shares/units and restricted stock units (“RSUs”) outstanding. FFO Per Share is used in this Proxy Statement as defined in thisAppendix A, except when such term is capitalized (i.e., “FFO Per Share”) and used in the context of the performance-based RSUs (where the defined term on page 89 will apply).
Adjusted FFO Per Share:
Adjusted FFO Per Share is calculated as Adjusted FFO divided by the weighted average common shares/units and RSUs outstanding.
KILROY REALTY | PROXY STATEMENT | A-1 |
The following table presents our FFO, FFO Per Share, Adjusted FFO and Adjusted FFO Per Share for the years ended December 31, 20192020 and 2018:2019:
(unaudited, $ and shares in thousands, except per share amounts) | ||||||||
|
Year Ended December 31,
|
| ||||||
2019
|
2018
| |||||||
FUNDS FROM OPERATIONS:
| ||||||||
Net Income Available to Common Stockholders
| $ | 195,443 | $ | 258,415 | ||||
Adjustments:
| ||||||||
Net income attributable to noncontrolling common units of |
|
3,766 |
|
|
5,193 |
| ||
the Operating Partnership
| ||||||||
Net income attributable to noncontrolling interests in |
|
16,020 |
|
|
14,318 |
| ||
consolidated property partnerships
| ||||||||
Depreciation and amortization of real estate assets
|
|
268,045 |
|
|
249,882 |
| ||
Gains on sales of depreciable real estate
|
|
(36,802 |
) |
|
(142,926 |
) | ||
Funds from Operations attributable to noncontrolling |
|
(27,994 |
) |
|
(24,391 |
) | ||
interests in consolidated property partnerships
| ||||||||
Funds From Operations(1)(2)
|
$ |
418,478 |
|
$ |
360,491 |
| ||
Weighted average common shares/units outstanding — diluted(3)
|
|
106,991 |
|
|
103,677 |
| ||
FFO per common share/unit — diluted(2)
|
$ |
3.91 |
|
$ |
3.48 |
| ||
Funds From Operations(1)(2)
|
$ |
418,478 |
|
$ |
360,491 |
| ||
Adjustments:
| ||||||||
Accrued future executive retirement benefits
|
|
— |
|
|
12,103 |
| ||
Loss and additional interest on early extinguishment of |
|
— |
|
|
13,359 |
| ||
debt
| ||||||||
Adjusted Funds From Operations(1)(2)
|
$ |
418,478 |
|
$ |
385,953 |
| ||
Weighted average common shares/units outstanding — diluted(3)
|
|
106,991 |
|
|
103,677 |
| ||
Adjusted FFO per common share/unit — diluted(2) |
$ |
3.91 |
|
$ |
3.72 |
| ||
(1) Reported amounts are attributable to common stockholders, common unit holders and restricted stock unitholders.
(2) FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $19.2 million and $18.4 million for the year ended December 31, 2019 and 2018, respectively.
(3) Calculated based on weighted average shares outstanding including participating andnon-participating share-based awards (i.e.non-vested stock and certain time-based RSUs), dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding. |
|
(unaudited, $ and shares in thousands, except per share amounts) | ||||||||
|
Year Ended December 31,
|
| ||||||
2020
|
2019
| |||||||
FUNDS FROM OPERATIONS:
| ||||||||
Net Income Available to Common Stockholders
| $ | 187,105 | $ | 195,443 | ||||
Adjustments:
| ||||||||
Net income attributable to noncontrolling common units of |
|
2,869 |
|
|
3,766 |
| ||
the Operating Partnership
| ||||||||
Net income attributable to noncontrolling interests in |
|
17,319 |
|
|
16,020 |
| ||
consolidated property partnerships
| ||||||||
Depreciation and amortization of real estate assets
| 290,353 | 268,045 | ||||||
Gains on sales of depreciable real estate
| (35,536 | ) | (36,802 | ) | ||||
Funds from Operations attributable to noncontrolling | (28,754 | ) | (27,994 | ) | ||||
interests in consolidated property partnerships
| ||||||||
Funds From Operations(1)(2)
| $ | 433,356 | $ | 418,478 | ||||
Weighted average common shares/units outstanding — diluted(3)
| 116,711 | 106,991 | ||||||
FFO per common share/unit — diluted(2)
| $ | 3.71 | $ | 3.91 | ||||
Funds From Operations(1)(2)
| $ | 433,356 | $ | 418,478 | ||||
Adjustments:
| ||||||||
Severance costs
| 20,525 | — | ||||||
Acquisition-related expenses
| 734 | — | ||||||
Accelerated financing and political contributions
| 29,175 | — | ||||||
Revenue not recognized due to tenant delays
| 836 | — | ||||||
Adjusted Funds From Operations(1)(2)
| $ | 484,626 | $ | 418,478 | ||||
Weighted average common shares/units outstanding — diluted(3)
| 116,711 | 106,991 | ||||||
Adjusted FFO per common share/unit — diluted(2)
| $ | 4.15 | $ | 3.91 | ||||
(1) Reported amounts are attributable to common stockholders, common unit holders and restricted stock unitholders.
(2) FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $22.5 million and $19.2 million for the year ended December 31, 2020 and 2019, respectively.
(3) Calculated based on weighted average shares outstanding including participating and non-participating share-based awards (i.e. non-vested stock and certain time-based RSUs), dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding. |
|
A-2 | PROXY STATEMENT | KILROY REALTY |
NET OPERATING INCOME AND SAME STORE NET OPERATING INCOME (ON A GAAP AND CASH BASIS)
Net Operating Income:
We believe that Net Operating Income (“NOI”) is a useful supplemental measure of our operating performance. We define NOI after the adoption of the new lease accounting standard ASC 842 as follows: consolidated operating revenues (rental income and other property income) less consolidated property and related expenses (property expenses, real estate taxes, provision for bad debts and ground leases). We define NOI prior to the adoption of the new lease accounting standard ASC 842 as consolidated operating revenues (rental income, tenant reimbursements and other property income) less consolidated property and related expenses (property expenses, real estate taxes, provision for bad debts and ground leases). Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.
Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expenses, othernon-property income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the consolidated revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing a perspective on operations not immediately apparent from net income. We use NOI to evaluate our operating performance on a portfolio basis since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, rental rates and tenant base have on our results, margins and returns. In addition, we believe that NOI provides useful information to the investment community about our financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry.
However, NOI should not be viewed as an alternative measure of our financial performance since it does not reflect general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, othernon-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations.
Same Store NOI (on a GAAP and Cash Basis):
We believe that Same Store NOI is a useful supplemental measure of our operating performance. Same Store NOI represents the consolidated NOI for all of the properties that were owned and included in our stabilized portfolio for two comparable reporting periods. Because Same Store NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Same Store Cash NOI represents the consolidated GAAP NOI for all of the properties that were owned and included in our stabilized portfolio for two comparable reporting periods, adjusted fornon-cash revenue andnon-cash expenses in both periods. Other REITs may use different methodologies for calculating Same Store GAAP and Cash NOI, and accordingly, our Same Store GAAP and Cash NOI may not be comparable to other REITs.
However, Same Store NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, interest expense, depreciation and amortization costs, othernon-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations.
KILROY REALTY | PROXY STATEMENT | A-3 |
The following table reconciles our net income available to common stockholders to NOI and Same Store NOI for the years ended December 31, 20192020 and 2018:2019:
(unaudited, $ in thousands) | ||||||||||||||||
Year Ended December 31,
|
|
Year Ended December 31,
|
| |||||||||||||
2019
|
2018
|
2020
|
2019
| |||||||||||||
Net Income Available to Common Stockholders
|
$ |
195,443 |
|
$ |
258,415 |
| $ | 187,105 | $ | 195,443 | ||||||
Net income attributable to noncontrolling common units of the Operating Partnership
|
|
3,766 |
|
|
5,193 |
| 2,869 | 3,766 | ||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships
|
|
16,020 |
|
|
14,318 |
| 17,319 | 16,020 | ||||||||
Net Income
|
$ |
215,229 |
|
$ |
277,926 |
| $ | 207,293 | $ | 215,229 | ||||||
Adjustments:
| ||||||||||||||||
General and administrative expenses
|
|
88,139 |
|
|
90,471 |
| 99,264 | 88,139 | ||||||||
Leasing Costs
|
|
7,615 |
|
|
— |
| 4,493 | 7,615 | ||||||||
Depreciation and amortization
|
|
273,130 |
|
|
254,281 |
| 299,308 | 273,130 | ||||||||
Interest income and other net investment loss (gain)
|
|
(4,641 |
) |
|
559 |
| ||||||||||
Interest income and other net investment gain
| (3,424 | ) | (4,641 | ) | ||||||||||||
Interest expense
|
|
48,537 |
|
|
49,721 |
| 70,772 | 48,537 | ||||||||
Loss on early extinguishment of debt
|
|
— |
|
|
12,623 |
| ||||||||||
Net Gain on sales of land
|
|
— |
|
|
(11,825 |
) | ||||||||||
Gains on sales of depreciable operating properties
|
|
(36,802 |
) |
|
(142,926 |
) | (35,536 | ) | (36,802 | ) | ||||||
Net Operating Income, as defined
|
$ |
591,207 |
|
$ |
530,830 |
| $ | 642,170 | $ | 591,207 | ||||||
Non-Same Store GAAP Net Operating Income
|
|
(71,395 |
) |
|
(37,148 |
) | (115,423 | ) | (56,755 | ) | ||||||
Same Store GAAP Net Operating Income
|
$ |
519,812 |
|
$ |
493,682 |
| $ | 526,747 | $ | 534,452 | ||||||
GAAP to Cash Adjustments:
| ||||||||||||||||
GAAP Operating Revenues Adjustment, net
|
|
(69,257 |
) |
|
(46,192 |
) | (28,506 | ) | (74,271 | ) | ||||||
GAAP Operating Expenses Adjustments, net
|
|
(48 |
) |
|
5,662 |
| (71 | ) | (48 | ) | ||||||
Same Store Cash Net Operating Income
|
$ |
450,507 |
|
$ |
453,152 |
| $ | 498,170 | $ | 460,133 |
A-4 | PROXY STATEMENT | KILROY REALTY |
FUNDS AVAILABLE FOR DISTRIBUTION (“FAD”), FAD PER SHARE, AND FAD PAYOUT RATIO
Funds Available for Distribution:
We believe that FAD is a useful supplemental measure of the Company’s liquidity. We compute FAD by adding to FFO thenon-cash amortization of deferred financing costs, debt discounts and premiums and share-based compensation awards and amortization of above (below) market rents for acquisition properties andnon-cash executive compensation expense, then subtracting recurring tenant improvements, leasing commissions and capital expenditures and eliminating the net effect of straight-line rents, amortization of deferred revenue related to tenant improvements, adjusting for other lease related adjustments, leasing costs and other items and after adjustment for amounts attributable to noncontrolling interests in consolidated property partnerships. FAD provides an additional perspective on our ability to fund cash needs and make distributions to stockholders by adjusting FFO for the impact of certain cash andnon-cash items, as well as adjusting FFO for recurring capital expenditures and leasing costs. We also believe that FAD provides useful information to the investment community about our financial position as compared to other REITs since FAD is a liquidity measure used by other REITs. However, other REITs may use different methodologies for calculating FAD and, accordingly, the Company’s FAD may not be comparable to other REITs.
FAD Per Share:
FAD Per Share is calculated as FAD divided by the weighted average common shares/units outstanding. FAD Per Share is used in this Proxy Statement as defined in thisAppendix A.
FAD Payout Ratio:
FAD Payout Ratio is calculated as annual dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by FAD. FAD Payout Ratio is used in this Proxy Statement as defined in thisAppendix A.
KILROY REALTY | PROXY STATEMENT | A-5 |
The following table presents our FAD and FAD Per Share for the years ended December 31, 20192020 and 2018:2019:
(unaudited, $ in thousands, except per share amounts) | ||||||||||||||||
Year Ended December 31,
|
|
Year Ended December 31,
|
| |||||||||||||
2019 |
2018 |
2020
|
2019
| |||||||||||||
Net Income Available to Common Stockholders
|
$ |
195,443 |
|
$ |
258,415 |
|
$
|
187,105
|
|
$
|
195,443
|
| ||||
Adjustments
| ||||||||||||||||
Net income attributable to noncontrolling common units of the Operating Partnership
|
|
3,766 |
|
|
5,193 |
|
|
2,869
|
|
|
3,766
|
| ||||
Net income attributable to noncontrolling interests in consolidated property partnerships
|
|
16,020 |
|
|
14,318 |
|
|
17,319
|
|
|
16,020
|
| ||||
Depreciation and amortization of real estate assets
|
|
268,045 |
|
|
249,882 |
|
|
290,353
|
|
|
268,045
|
| ||||
Gains on sales of depreciable real estate
|
|
(36,802 |
) |
|
(142,926 |
) |
|
(35,536
|
)
|
|
(36,802
|
)
| ||||
Funds from Operations attributable to noncontrolling interests in consolidated property |
|
(27,994 |
) |
|
(24,391 |
) |
|
(28,754 |
) |
|
(27,994 |
) | ||||
partnerships
| ||||||||||||||||
Funds From Operations
|
$ |
418,478 |
|
$ |
360,491 |
|
$
|
433,356
|
|
$
|
418,478
|
| ||||
Adjustments
| ||||||||||||||||
Recurring tenant improvements, leasing commissions and capital expenditures
|
|
(123,395 |
) |
|
(110,540 |
) |
|
(90,440
|
)
|
|
(123,395
|
)
| ||||
Amortization of deferred revenue related to tenant-funded tenant improvements(1)
|
|
(19,190 |
) |
|
(18,429 |
) |
|
(22,500
|
)
|
|
(19,190
|
)
| ||||
Net effect of straight-line rents
|
|
(75,323 |
) |
|
(26,811 |
) |
|
(50,487
|
)
|
|
(75,323
|
)
| ||||
Amortization of net below market rents(2)
|
|
(9,206 |
) |
|
(9,748 |
) |
|
(10,253
|
)
|
|
(9,206
|
)
| ||||
Amortization of deferred financing costs and net debt discount/premium
|
|
1,427 |
|
|
1,884 |
|
|
2,958
|
|
|
1,427
|
| ||||
Non-cash executive compensation expense(3)
|
|
28,503 |
|
|
40,034 |
|
|
31,749
|
|
|
28,503
|
| ||||
Other lease related adjustments, net(4)
|
|
11,448 |
|
|
2,507 |
| ||||||||||
Lease related adjustments, leasing costs and other(4)
|
|
15,241
|
|
|
11,448
|
| ||||||||||
Adjustments attributable tonon-controlling interests in consolidated property |
|
16,082 |
|
|
8,652 |
|
|
6,083 |
|
|
16,082 |
| ||||
partnerships
| ||||||||||||||||
Funds Available for Distribution
|
$ |
248,824 |
|
$ |
248,040 |
|
$
|
315,707
|
|
$
|
248,824
|
| ||||
Weighted average common shares/units outstanding — diluted(5)
|
|
106,991 |
|
|
103,677 |
|
|
116,711
|
|
|
106,991
|
| ||||
FAD per common share/unit — diluted(6)
|
$ |
2.33 |
|
$ |
2.39 |
|
$
|
2.71
|
|
$
|
2.33
|
|
(1) | Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements. |
(2) | Represents thenon-cash adjustment related to the acquisition of buildings with above and/or below market rents. |
(3) | Includesnon-cash amortization of share-based compensation and accrued future executive retirement benefits. |
(4) | Includes other cash andnon-cash adjustments attributable to lease-related GAAP revenue recognition timing |
(5) | Calculated based on weighted average shares outstanding including participating andnon-participating share-based awards (i.e. unvested stock and certain time-based RSUs), dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding. |
(6) | Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders. |
A-6 | PROXY STATEMENT | KILROY REALTY |
The following table presents a reconciliation of GAAP net cash provided by operating activities to FAD for the years ended December 31, 20192020 and 2018:2019:
(unaudited, $ in thousands) | ||||||||||||||||
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
| |||||||||||
2019
|
2018
|
2020
|
2019
| |||||||||||||
GAAP Net Cash Provided by Operating Activities
|
$ |
386,521 |
|
$ |
410,043 |
|
$
|
455,590
|
|
$
|
386,521
|
| ||||
Adjustments:
| ||||||||||||||||
Recurring tenant improvements, leasing commissions and capital expenditures
|
|
(123,395 |
) |
|
(110,540 |
) |
|
(90,440
|
)
|
|
(123,395
|
)
| ||||
Loss on early extinguishment of debt
|
|
— |
|
|
(11,823 |
) | ||||||||||
Net gain on sale of land
|
|
— |
|
|
11,825 |
| ||||||||||
Depreciation ofnon-real estate furniture, fixtures and equipment
|
|
(5,085 |
) |
|
(4,400 |
) |
|
(8,955
|
)
|
|
(5,085
|
)
| ||||
Provision for uncollectible tenant receivables
|
|
— |
|
|
(5,520 |
) | ||||||||||
Net changes in operating assets and liabilities(1)
|
|
4,427 |
|
|
(17,310 |
) |
|
(13,863
|
)
|
|
4,427
|
| ||||
Noncontrolling interests in consolidated property partnerships’ share of FFO and FAD
|
|
(11,912 |
) |
|
(15,739 |
) |
|
(22,671
|
)
|
|
(11,912
|
)
| ||||
Cash adjustments related to investing and financing activities
|
|
(1,732 |
) |
|
(8,496 |
) |
|
(3,954
|
)
|
|
(1,732
|
)
| ||||
Funds Available for Distribution |
$ |
284,824 |
|
$ |
248,040 |
|
$
|
315,707
|
|
$
|
284,824
|
|
(1) | Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; and rents received in advance and tenant security deposits. |
ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
AND EBITDA, AS ADJUSTED
Adjusted Net Income Available to Common Stockholders:
Adjusted net income available to common stockholders is calculated by adjusting net income available to common stockholders to exclude gains on sales of depreciable operating properties, loss and additional interest on early extinguishment of debt, original issuance costs of redeemed preferred stock and accrued future executive retirement benefits.
EBITDA, as Adjusted:
We believe that consolidated earnings before interest expense, depreciation and amortization, gain/loss on early extinguishment of debt, gains and losses on depreciable real estate, net income attributable to noncontrolling interests, preferred dividends and distributions, original issuance costs of redeemed preferred stock and preferred units, severance costs, and impairment losses (“EBITDA, as adjusted”) is a useful supplemental measure of our operating performance. When considered with other GAAP measures and FFO, we believe EBITDA, as adjusted, gives the investment community a more complete understanding of our consolidated operating results, including the impact of general and administrative expenses and acquisition-related expenses, before the impact of investing and financing transactions and facilitates comparisons with competitors. We also believe it is appropriate to present EBITDA, as adjusted, as it is used in several of our financial covenants for both our secured and unsecured debt. However, EBITDA, as adjusted, should not be viewed as an alternative measure of our operating performance since it excludes financing costs as well as depreciation and amortization costs which are significant economic costs that could materially impact our results of operations and liquidity. Other REITs may use different methodologies for calculating EBITDA, as adjusted, and, accordingly, our EBITDA, as adjusted, may not be comparable to other REITs.
KILROY REALTY | PROXY STATEMENT | A-7 |
The following table presents a reconciliation of net income available to common stockholders to adjusted net income available to common stockholders to EBITDA, as adjusted, for the years ended December 31, 20192020 and 2018:2019:
(unaudited, $ in thousands) | ||||||||||||||||
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
| |||||||||||
2019 |
2018 |
2020
|
2019
| |||||||||||||
Net Income Available to Common Stockholders
|
$ |
195,443 |
|
$ |
258,415 |
|
$
|
187,105
|
|
$
|
195,443
|
| ||||
Adjustments
| ||||||||||||||||
Gains on sales of depreciable real estate
|
|
(36,802 |
) |
|
(142,926 |
) |
|
(35,536
|
)
|
|
(36,802
|
)
| ||||
Loss and additional interest on early extinguishment of debt
|
|
— |
|
|
13,359 |
| ||||||||||
Accrued future executive retirement benefits
|
|
— |
|
|
12,103 |
| ||||||||||
Adjusted Net Income Available to Common Stockholders
|
$ |
158,641 |
|
$ |
140,951 |
|
$
|
151,569
|
|
$
|
158,641
|
| ||||
Adjustments
| ||||||||||||||||
Interest expense
|
|
48,537
|
|
|
49,721 |
|
|
70,772
|
|
|
48,537
|
| ||||
Depreciation and amortization
|
|
273,130 |
|
|
254,281 |
|
|
299,308
|
|
|
273,130
|
| ||||
Net income attributable to noncontrolling common units of the Operating Partnership
|
|
3,766 |
|
|
5,193 |
|
|
2,869
|
|
|
3,766
|
| ||||
Net income attributable to noncontrolling interests in consolidated property partnerships
|
|
16,020 |
|
|
14,318 |
|
|
17,319
|
|
|
16,020
|
| ||||
Additional interest expense in connection with early redemption of debt
|
|
— |
|
|
(736 |
) | ||||||||||
Accrued future executive retirement benefits
|
|
— |
|
|
(12,103 |
) | ||||||||||
Severance expense
|
|
20,525
|
|
|
—
|
| ||||||||||
EBITDA, as Adjusted |
$ |
500,094 |
|
$ |
451,625 |
|
$
|
562,362
|
|
$
|
500,094
|
| ||||
EBITDA, as Adjusted, attributable to noncontrolling interest in consolidated property partnerships
|
|
(27,398
|
)
|
|
(28,476
|
)
| ||||||||||
Company’s share of EBITDA, as Adjusted(1)
|
$
|
534,964
|
|
$
|
471,618
|
|
(1) | Assuming stabilization of The Exchange on 16th on January 1, 2019 based on the midpoint of our underwritten stabilized yield for the project of 10%, we estimate that the Company’s share of EBITDA, as adjusted, would have been $509.7 million and our debt to EBITDA, as adjusted, ratio would have been 6.5x as of and for the year ended December 31, 2019, respectively. We calculate underwritten stabilized yield by dividing the underwritten net operating income (i.e., underwritten operating revenues (rental income and other property income) less underwritten operating expenses (property expenses and real estate taxes)) of the project for the 12 month period following stabilization (i.e., the earlier of anticipated 95% occupancy date or one year from substantial completion of base building components) by the total estimated investment in the project. |
The EBITDA, as adjusted, and the debt to EBITDA, as adjusted, ratio assuming stabilization of The Exchange on 16th as reflected above and elsewhere in this Proxy Statement are not historical financial measures and are provided solely for information purposes as they reflect measures used by the Compensation Committee to assess the Company’s performance under its performance measurement framework. Actual EBITDA, as adjusted, earned from The Exchange on 16th may differ from our underwritten stabilized yield based on various factors, including difficulties collecting anticipated rental income and other property income and unanticipated operating expenses that we cannot pass on to tenants, as well as the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020.
A-8 | PROXY STATEMENT | KILROY REALTY |
APPENDIX B – SEVENTH AMENDED AND RESTATED 2006 INCENTIVE AWARD PLANBYLAWS
SEVENTH AMENDED AND RESTATED BYLAWS
OF
KILROY REALTY
2006 INCENTIVE AWARD PLAN
(AMENDED AND RESTATED AS OF FEBRUARY 12, 2020) CORPORATION
ARTICLE 1.I.
PURPOSEOFFICES
Section 1.The purpose of the Kilroy Realty 2006 Incentive Award Plan (the “Plan”) is to promote the success and enhance the valueprincipal executive office of Kilroy Realty Corporation, a Maryland corporation (the “CompanyCorporation”), Kilroy Realty, L.P. (theshall be located at such place or places as the Board of Directors may designate.
Section 2. The Corporation may also have offices at such other places as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders shall be held in the City of Los Angeles, State of California, at such place as may be fixed from time to time by the Board of Directors, or at such other place as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting.
Section 2. An annual meeting of stockholders shall be held on such date and at such time as may be determined by resolution adopted by the Board of Directors, at which the stockholders shall elect directors to succeed the directors whose terms are expiring, and transact such other business as may properly be brought before the meeting in accordance with these Bylaws.
(a) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) brought before the meeting by the Corporation and specified in the notice of meeting given by or at the direction of the Board of Directors; (ii) brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a stockholder who (A) was a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2 and at the time of the meeting; (B) is entitled to vote at the meeting, and (C) has complied with this Section 2 as to such business. Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations, the “PartnershipExchange Act”), and Kilroy Realty TRS, Inc. (the “TRS”) by linking the personal interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company, the TRS, the Partnership and their subsidiaries in their ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s, the TRS’s and the Partnership’s operation is largely dependent.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are usedincluded in the Plan they shall havenotice of meeting given by or at the meanings specified below, unless otherwise defined herein and unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
2.1 “Award” means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Performance Stock Unit award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, a Profits Interest Unit award, an Other Incentive Award, or a Performance Bonus Award granted to a Participant pursuant to the Plan (subject, in each case, to the no repricing provisionsdirection ofSection 14.1).
2.2 “Award Agreement”means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium.
2.3 “Board”means the Board of Directors, the foregoing clause (iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the Company.stockholders. Stockholders seeking to nominate persons for election to the Board of Directors must comply with Article III, Section 3 or Article III, Section 2, as applicable, and this Section 2 shall not be applicable to nominations except as expressly provided in such sections.
2.4 “Change(b) Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (i) provide Timely Notice (as defined below) thereof in Control”meanswriting and includes eachin proper form to the Secretary of the following:
(a) A transactionCorporation and (ii) provide any updates or seriessupplements to such notice at the times and in the forms required by this Section 2. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of transactions (otherthe Corporation not less than an offering of Stockone hundred twenty (120) days nor more than one hundred fifty (150) days prior to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2)one-year anniversary of the Exchange Act) (otherpreceding year’s annual meeting; provided, however, that if the date of the annual meeting is more than the Company, any of its subsidiaries, an employee benefit plan maintainedthirty (30) days before or more than sixty (60) days after such anniversary date, notice by the Companystockholder to be timely must be so delivered, or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with,mailed and received, not later than the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule13d-3 under the Exchange Act) of securities of the Company and immediately after such acquisition possesses more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
KILROY REALTY | PROXY STATEMENT | B-1 |
(b) During any periodone hundred twentieth (120th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of two consecutive years, individuals who, at the beginningdate of such annual meeting was first made (such notice within such time periods, “Timely Notice”). In no event shall any adjournment of an annual meeting or the announcement thereof commence a new time period constitutefor the Board together with any new director(s) (other thangiving of Timely Notice as described above.
(c) To be in proper form for purposes of this Section 2, a director designated by a person whostockholder’s notice to the Secretary shall have entered into an agreement withset forth:
(i) As to each Proposing Person (as defined below), (A) the Company to effect a transaction described inSection 2.4(a) hereofname and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); and (B) the class orSection 2.4(c) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote series and number of at leasttwo-thirdsshares of the directors then still in office who either were directors at the beginning of thetwo-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whetherCorporation that are, directly involving the Company or indirectly, involvingowned of record or beneficially owned (within the Company through onemeaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially allseries of the Company’s assetsCorporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Stockholder Information”);
(ii) As to each Proposing Person, (A) any singlederivative, swap or other transaction or series of related transactions engaged in, directly or (z)indirectly, by such Proposing Person, the acquisitionpurpose or effect of assetswhich is to give such Proposing Person economic risk similar to ownership of shares of any class or stock of another entity, in each case other than a transaction:
(i) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securitiesseries of the CompanyCorporation, including due to the fact that the value of such derivative, swap or other transactions are determined by reference to the person that, as a resultprice, value or volatility of any shares of any class or series of the transaction, controls,Corporation, or which derivative, swap or other transactions provide, directly or indirectly, the Companyopportunity to profit from any increase in the price or owns,value of shares of any class or series of the Corporation (“Synthetic Equity Interests”), which Synthetic Equity Interests shall be disclosed without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such shares to such Proposing Person; (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares; or (z) such Proposing Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions; (B) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to vote any shares of any class or series of the Corporation; (C) any agreement, arrangement, understanding or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, allby such Proposing Person, the purpose or substantially alleffect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the Company’s assetsCorporation by, manage the risk of share price changes for, or otherwise succeedsincrease or decrease the voting power of, such Proposing Person with respect to the businessshares of any class or series of the Company (the CompanyCorporation, or such person, the “Successor Entity”))which provides, directly or indirectly, at least a majoritythe opportunity to profit from any decrease in the price or value of the combined voting powershares of any class or series of the Successor Entity’s outstanding voting securities immediately afterCorporation (“Short Interests”); (D) any rights to dividends on the transaction; and
(ii) After which no personshares of any class or group beneficially owns voting securities representing 50% or moreseries of the combined voting powerCorporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Successor Entity;provided, however,Corporation; (E) any performance related fees (other than an asset based fee) that no personsuch Proposing Person is entitled to based on any increase or group shall be treated for purposesdecrease in the price or value of thisSection 2.4(c)(ii) as beneficially owning 50%shares of any class or more of combined voting powerseries of the Successor EntityCorporation, or any Synthetic Equity Interests or Short Interests, if any; and (F) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (F) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the voting power held instockholder directed to prepare and submit the Company priornotice required by these Bylaws on behalf of a beneficial owner; and
(iii) As to each item of business that the consummationstockholder proposes to bring before the annual meeting, (A) a reasonably brief description of the transaction; or
(d) The Company’s stockholders approve a liquidation or dissolutionbusiness desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person; (B) the text of the Companyproposal or business (including the text of any resolutions proposed for consideration); and (C) a reasonably detailed description of all material contingencies to such liquidationagreements, arrangements and understandings (x) between or dissolution have been satisfied or waived.
2.5 “Code”means the Internal Revenue Code of 1986, as amended.
2.6 “Committee”means the committeeamong any of the Board described inArticle 12 hereof.
2.7 “Company”has the meaning set forth inArticle 1 hereof.
2.8 “Company Consultant”meansProposing Persons or (y) between or among any consultant or adviser if:
(a) The consultant or adviser renders bona fide services to the Company or Company Subsidiary;
(b) The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and
(c) The consultant or adviser is a natural person who has contracted directly with the Company or Company Subsidiary to render such services.
2.9 “Company Employee”means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or of any Company Subsidiary.
2.10 “Company Subsidiary”means (i) a corporation, association or other business entity of which 50% or more of the total combined voting power of all classes of capital stock is owned, directly or indirectly, by the Company or by one or more Company Subsidiaries or by the Company and one or more Company Subsidiaries, (ii) any partnership or limited liability company of which 50% or more of the capital and profits interests is owned, directly or indirectly, by the Company or by one or more Company Subsidiaries or by the Company and one or more Company Subsidiaries, and (iii) any other entity not described in clauses (i) or (ii) above of which 50% or more of the ownership and the power, pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlled by the Company or by one or more other Company Subsidiaries or by the Company and one or more Company Subsidiaries; provided, however, that “Company Subsidiary” shall not include the TRS, any TRS Subsidiary, the Partnership or any Partnership Subsidiary.
B-2 | PROXY STATEMENT | KILROY REALTY |
2.11 “Consultant”meansProposing Person and any Company Consultant, TRS Consultantother record or Partnership Consultant.
2.12 “Deferred Stock”means a right to receive a specified numberbeneficial owner of the shares of Stock during specified time periods pursuant toany class or series of the Corporation (including their names) in connection with the proposal of such business by such stockholder.
For purposes of this Section 8.52 hereof.
2.13, the term “Disability”means that the Participant qualifies to receive long-term disability payments under the Company’s or the Partnership’s long-term disability insurance program, as it may be amended from time to time.
2.14 “Dividend Equivalents”means a right granted to a Participant pursuant toSection 8.3 hereof to receive the equivalent value (in cash or Stock) of dividends paid on Stock.
2.15 “Effective Date”shall have the meaning set forth inSection 13.1 hereof.
2.16 “Eligible Individual”means any person who is an Employee, a Consultant, a member of the Board or a TRS Director, as determined by the Committee.
2.17 “Employee”means any Company Employee, TRS Employee or Partnership Employee.
2.18 “Equity RestructuringProposing Person” shall mean anon-reciprocal transaction between(i) the Company and its stockholders, such as a stock dividend, stock split,spin-off, rights offeringstockholder providing the notice of business proposed to be brought before an annual meeting; (ii) the beneficial owner or recapitalization through a large, nonrecurring cash dividend, that affectsbeneficial owners, if different, on whose behalf the shares of Stock (or other securitiesnotice of the Company)business proposed to be brought before the annual meeting is made; and (iii) any affiliate or associate (each within the share pricemeaning of Stock (or other securities of the Company) and causes a change in the per share value of the Stock (or other securities of the Company) underlying outstanding Awards.
2.19 “Exchange Act”means the Securities Exchange Act of 1934, as amended.
2.20 “Fair Market Value”means, as of any given date, (a) if the Stock is traded on an exchange, the closing price of a share of Stock as reported in theWall Street Journal (or such other source as the Company may deem reliable for such purposes) for such date, or if no sale occurred on such date, the first trading date immediately prior to such date during which a sale occurred; or (b) if the Stock is not traded on an exchange but is quoted on a quotation system, the mean between the closing representative bid and asked prices for the Stock on such date, or if no sale occurred on such date, the first date immediately prior to such date on which sales prices or bid and asked prices, as applicable, are reported by such quotation system; or (c) if the Stock is not publicly traded, or with respect to anyRule non-Stock based Award or the settlement of an Award, the fair market value established by the Committee acting in good faith.
2.21 “Incentive Stock Option”means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
2.22 “Independent Director”means a member of the Board who is not a Company Employee.
2.23 “Non-Employee Director”means a member of the Board who qualifies as a“Non-Employee Director” as defined in Rule16b-3(b)(3)12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial owner.
(d) A stockholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any successor rule.adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable, or, if not practicable, on the first practicable date prior to the meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
2.24(e) Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with this Section 2. The presiding officer of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 2, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(f) This Section 2 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other than any proposal made pursuant to Rule 14a-8 under the Exchange Act. In addition to the requirements of this Section 2 with respect to any business proposed to be brought before an annual meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in this Section 2 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(g) For purposes of these Bylaws, “Non-Qualified Stock Optionpublic disclosure”means an Option that is not intended shall mean disclosure in a press release reported by a national news service or in a document publicly filed, or incorporated by reference in a document publicly filed, by the Corporation with the Securities and Exchange Commission pursuant to be an Incentive Stock Option.
2.25 “Option”means a right granted to a Participant pursuant toArticle 5 hereof to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock OptionSections 13, 14 or aNon-Qualified Stock Option.
2.26 “Other Incentive Award”means an Award granted pursuant toSection 8.815(d) of the Plan.Exchange Act.
2.27 “ParticipantSection”means any Eligible Individual who, as a member 3. A majority of the Board, Consultant, Employee,stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or TRS Director, has been granted an Award pursuantrepresented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by law or by the Corporation’s charter. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the Plan.
2.28 “Partnership”hasvotes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any meeting of the meaning set forthstockholders, the chairman of the meeting or a majority of the voting stock represented inArticle 1.
2.29 “Partnership Agreement”means person or by proxy may adjourn the Fifth Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P., as the same may be amended, modified or restatedmeeting from time to time.time until a date not more than one hundred twenty (120) days after the original record date, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is more than one hundred twenty (120) days after the original record date, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat.
2.30 “Partnership ConsultantSection”means 4. (a) When a quorum is present at any consultant or advisor if:
(a) The consultant or adviser renders bona fide servicesmeeting of the stockholders, a majority of the votes cast at the meeting shall decide any question brought before such meeting, except as otherwise provided in this Section 4 with respect to the Partnershipelection of directors, unless the question is one upon which by express provision of the Maryland General Corporation Law (“MGCL”) or Partnership Subsidiary;the rules of any securities exchange on which the Corporation’s capital stock is listed or the Corporation’s charter a different vote is required, in which case such express provision shall govern and control the decision of such question.
(b) Except as otherwise provided in the Corporation’s charter with respect to directors to be elected by the holders of any class or series of preferred stock of the Corporation and in these Bylaws with respect to the filling of vacancies on the Board of
KILROY REALTY | PROXY STATEMENT | B-3 |
(b) The services renderedDirectors, each director shall be elected by a majority of the consultant or adviservotes cast with respect to such director at any meeting of stockholders duly called and at which a quorum is present and directors are notto be elected; provided, however, that the directors shall be elected by a plurality of the votes cast at a meeting of the stockholders duly called and at which a quorum is present and directors are to be elected if, in connection with such meeting (i) the offerSecretary of the Corporation shall have received one or salemore notices that a stockholder or group of securitiesstockholders has nominated or proposes to nominate a person or persons for election as a director, which notice(s) purports to be in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Partnership’s securities; and
(c) The consultant or adviser is a natural person who has contracted directlycompliance with the Partnershipadvance notice requirements set forth in Section 2 of Article III of these Bylaws or Partnership Subsidiary to renderthe proxy access requirements set forth in Section 3 of Article III of these Bylaws, irrespective of whether the Board of Directors thereafter determines that any such services.
2.31 “Partnership Employee”means any employee (as definednotice(s) is not in compliance with such requirements, and (ii) as of the fourteenth (14th) day preceding the date on which notice of such meeting of the stockholders is first mailed or otherwise given in accordance with Section 3401(c)applicable law to the stockholders of the Code)Corporation, such nomination or proposed nomination has not been withdrawn by such stockholder or group of stockholders and would thereby cause the number of nominees and proposed nominees to exceed the number of directors to be elected at such meeting, as determined by the Secretary of the PartnershipCorporation, irrespective of whether such nomination or any entity whichproposed nomination is thenthereafter withdrawn by such stockholder or group of stockholders (a “Contested Election”). If the directors are to be elected by a Partnership Subsidiary.
2.32 “Partnership Participant Purchased Shares”has the meaning set forth inSection 5.4 hereof.
2.33 “Partnership Purchase Price”has the meaning set forth inSection 5.4 hereof.
2.34 “Partnership Purchased Shares”has the meaning set forth inSection 5.4 hereof.
2.35 “Partnership Subsidiary”means (i) a corporation, association or other business entity of which 50% or moreplurality of the total combined voting powervotes cast pursuant to the provisions of all classes of capital stock is owned, directly or indirectly, by the Partnership or byimmediately preceding sentence, stockholders shall not be permitted to vote “against” any one or more Partnership Subsidiariesnominees but shall only be permitted to vote “for” one or more nominees or withhold their votes with respect to one or more nominees. For purposes hereof, a majority of the votes cast means the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that director nominee, with abstentions and broker non-votes not counted as a vote cast either “for” or “against” that director nominee.
(c) If, in any election of directors of the Corporation which is not a Contested Election, an incumbent director does not receive a majority of the votes cast and therefore is not re-elected, such incumbent director shall promptly tender his or her resignation as a director, subject to acceptance thereof by the Board, for consideration by the Nominating/Corporate Governance Committee of the Board of Directors. The Nominating/Corporate Governance Committee will promptly consider any such tendered resignation and will make a recommendation to the Board of Directors as to whether such tendered resignation should be accepted or rejected, or whether other action should be taken with respect to such offer to resign. Any incumbent director whose tendered resignation is under consideration may not participate in any deliberation or vote of the Nominating/Corporate Governance Committee or the Board of Directors regarding such tendered resignation. The Nominating/Corporate Governance Committee and the Board of Directors may consider any factors they deem relevant in deciding whether to accept, reject or take other action with respect to any such tendered resignation. Within ninety (90) days after the date on which certification of the stockholder vote on the election of directors is made, the Board of Directors will publicly disclose its decision and rationale regarding whether to accept, reject or take other action with respect to the tendered resignation in a press release, a periodic or current report filed with the Securities and Exchange Commission or by other public announcement. If any director’s tendered resignation is not accepted by the Board of Directors, such director will continue to serve until the next annual meeting of stockholders and until his or her successor is elected and qualified or his or her earlier death, retirement, resignation or removal. If any director’s tendered resignation is accepted by the Board of Directors, then such director will thereupon cease to be a director of the Corporation, and the Board of Directors, in its sole discretion, may fill the resulting vacancy under the provisions of the charter of the Corporation, Article III, Sections 1 or 2(h) hereof and applicable law or may decrease the size of the Board of Directors pursuant to the provisions of Article III,Section 1 hereof.
Section 5. At each meeting of the stockholders, each stockholder having the right to vote may vote in person or may authorize another person or persons to act for him by proxy appointed by an instrument executed by the stockholder or by the Partnership and one orstockholder’s duly authorized agent in any manner permitted by law, bearing a date not more Partnership Subsidiaries, (ii) any partnership or limited liability company of which 50% or morethan eleven (11) months prior to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the capital and profits interests is owned, directlyCorporation at the beginning of each meeting in order to be counted in any vote at the meeting. Subject to the provisions of the charter of the Corporation, each stockholder shall have one vote for each share of stock having voting power registered in his or indirectly,her name on the books of the Corporation on the record date set by the PartnershipBoard of Directors as provided in Article V, Section 6 hereof. In the election of directors, each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to vote. Stockholders are not entitled to cumulative voting in the election of directors.
Section 6. (a) Special meetings of the stockholders for any purpose or by one or more Partnership Subsidiaries orpurposes, unless otherwise proscribed by the Partnership and one or more Partnership Subsidiaries, and (iii) any other entity not described in clausesCorporation’s charter, may be called only (i) orby the President; (ii) above of which 50% or moreby the Chairman of the ownership and the power, pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlledBoard of Directors; (iii) by the Partnership or by one or more other Partnership Subsidiaries or by the Partnership and one or more Partnership Subsidiaries; provided, however, that “Partnership Subsidiary” shall not include the TRS or any TRS Subsidiary.
2.36 “Performance Bonus Award”has the meaning set forth inSection 8.9 hereof.
2.37 “Performance Criteria”means the criteria that the Committee selects for purposesBoard of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals may include (but are not limited to) the following: net earnings (either before or after interest, taxes, depreciation and amortization), economic value-added, sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), funds from operations, funds available for distribution, cash flow return on capital, return on net assets, return on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, tenant satisfaction, working capital, earnings per share, price per share of Stock, market share, debt, and ratio of debt to equity, any of which may be measured either in absolute terms (including on a per share basis), by comparison to comparable performance in an earlier period or periods, or as compared to results of a peer group, industry index, or other company or companies. The Committee may use other performance criteria as a basis for exercising negative discretion or in connection with an Award.
2.38 “Performance Goals”means, for a particular performance period established by the Committee with respect to an Award, the goals established in writing by the Committee for the performance period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall performance of the Company, the TRS, the Partnership, any Subsidiary, or the performance of a division, business unit, or an individual, or other basis established by the Committee. The Committee, in its discretion, may, provide for the calculation of Performance Goals for such Performance Period to be adjusted for such items as the Committee may specify.
2.39 “Performance Share”means a right granted to a Participant pursuant toSection 8.1 hereof, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.
2.40 “Performance Stock Unit”means a right granted to a Participant pursuant toSection 8.2 hereof, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee.
2.41 “Plan”has the meaning set forth inArticle 1.
B-4 | PROXY STATEMENT | KILROY REALTY |
2.42 “Directors, pursuant to a resolution approved by a majority of the entire Board of Directors; or (iv) by the Secretary of the Corporation, following his or her receipt of one or more written demands to call a special meeting of the stockholders in accordance with, and subject to, this Profits Interest UnitSection 6”means from stockholders of record as of the record date fixed in accordance with Section 6(d) who hold, in the aggregate, at least a majority of all the votes entitled to be cast at the meeting. The notice of a special meeting shall state the purpose or purposes of the special meeting, and the business to be conducted at the special meeting shall be limited to the extent authorizedpurpose or purposes stated in the notice. Except in accordance with this Section 6, stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders.
(b) No stockholder may demand that the Secretary of the Corporation call a special meeting of the stockholders pursuant to Section 6(a) unless a stockholder of record has first submitted a request in writing that the Board of Directors fix a record date for the purpose of determining the stockholders entitled to demand that the Secretary of the Corporation call such special meeting, which request shall be in proper form and delivered to, or mailed and received by, the Partnership Agreement, a unitSecretary of the Partnership that is intended to constitute a “profits interest” withinCorporation at the meaningprincipal executive offices of the Code, Treasury Regulations promulgated thereunder, and any published guidanceCorporation.
(c) To be in proper form for purposes of this Section 6, a request by a stockholder for the Internal Revenue Service with respect thereto.Board of Directors to fix a record date shall set forth:
2.43 “REIT”means a real estate investment trust within(i) As to each Requesting Person (as defined below), the meaningStockholder Information (as defined in Section 2(c)(i), except that for purposes of Sections 856 through 860 of the Code.
2.44 “this Restricted Stock”means Stock awarded to a Participant pursuant toArticleSection 6 hereof that is subject to certain restrictions and may be subject to risk of forfeiture.
2.45 “Restricted Stock Unit”means an Award granted pursuant toSection 8.6 hereof.
2.46 “Securities Act”shall mean the Securities Act of 1933, as amended.
2.47 “Stock”means the common stock of the Company, par value $.01 per share, and such other securities of the Company that mayterm “Requesting Person” shall be substituted for Stock pursuantthe term “Proposing Person” in all places it appears in Section 2(c)(i));
(ii) As to each Requesting Person, any Disclosable Interests (as defined in Article 11Section 2(c)(ii), except that for purposes of this Section 6 hereof.
2.48 “the term “Requesting Person” shall be substituted for the term “Proposing Person” in all places it appears in Stock Appreciation Right”or“SAR”means a right granted pursuant toArticle 7Section 2(c)(ii) hereof to receive a payment equaland the disclosure in clause (F) of Section 2(c)(ii) shall be made with respect to the excessbusiness proposed to be conducted at the special meeting); and
(iii) As to the purpose or purposes of the Fair Market Valuespecial meeting, (A) a reasonably brief description of the purpose or purposes of the special meeting and the business proposed to be conducted at the special meeting, the reasons for conducting such business at the special meeting and any material interest in such business of each Requesting Person; and (B) a specified numberreasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Requesting Persons or (y) between or among any Requesting Person and any other record or beneficial owner of the shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement.
2.49 “Stock Payment”means (a) a payment in the form of shares of Stock,any class or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portionseries of the compensation, granted pursuant toSection 8.4 hereof.
2.50 “Subsidiary”means any Company Subsidiary, TRS Subsidiary or Partnership Subsidiary.
2.51 “TRS”has the meaning set forth inArticle 1 hereof.
2.52 “TRS Consultant”means any consultant or advisor if:
(a) The consultant or adviser renders bona fide services to the TRS or TRS Subsidiary;
(b) The services rendered by the consultant or adviser are notCorporation (including their names) in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a marketrequest for the Company’s securities; andspecial meeting or the business proposed to be conducted at the special meeting.
(c) The consultant or adviser is a natural person who has contracted directly withFor purposes of this Section 6, the TRS or TRS Subsidiary to render such services.
2.53term “TRS DirectorRequesting Person”means shall mean (i) the stockholder making the request to fix a memberrecord date for the purpose of determining the stockholders entitled to demand that the Secretary call a special meeting; (ii) the beneficial owner or beneficial owners, if different, on whose behalf such request is made; and (iii) any affiliate or associate of such stockholder or beneficial owner.
(d) Within ten (10) days after receipt of a request to fix a record date in proper form and otherwise in compliance with this Section 6 from any stockholder of record, the Board of Directors may adopt a resolution fixing a record date for the purpose of determining the stockholders entitled to demand that the Secretary of the TRS.Corporation call a special meeting, which date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no resolution fixing a record date has been adopted by the Board of Directors within the ten (10) day period after the date on which such a request to fix a record date was received, the record date in respect thereof shall be deemed to be the twentieth (20th) day after the date on which such a request is received. Notwithstanding anything in this Section 6 to the contrary, no record date shall be fixed if the Board of Directors determines that the demand or demands that would otherwise be submitted following such record date could not comply with the requirements set forth in clauses (ii), (iv), or (v) of Section 6(f).
2.54 “(e) Without qualification, a special meeting of the stockholders shall not be called pursuant to TRS EmployeeSection 6(a)”means any officer or other employee (as defined unless stockholders of record as of the record date fixed in accordance with Section 3401(c)6(d) who hold, in the aggregate, at least a majority of all the Code) ofvotes entitled to be cast at the TRS or of any corporation, partnership or limited liability company which is then a TRS Subsidiary.
2.55meeting (the “TRS Participant Purchased SharesRequisite Percentage”has the meaning set forth inSection 5.5 hereof.
2.56 “TRS Purchase Price”has the meaning set forth inSection 5.5 hereof.
2.57 “TRS Purchased Shares”has the meaning set forth inSection 5.5 hereof.
2.58 “TRS Subsidiary”means (i) a corporation, association or other business entity of which 50% or more of the total combined voting power of all classes of capital stock is owned, directly or indirectly, by the TRS or by) timely provide one or more TRS Subsidiaries or bydemands to call such special meeting in writing and in proper form to the TRS and one or more TRS Subsidiaries, (ii) any partnership or limited liability company of which 50% or moreSecretary of the capital and profits interests is owned, directly or indirectly, byCorporation at the TRS or by one or more TRS Subsidiaries or by the TRS and one or more TRS Subsidiaries, and (iii) any other entity not described in clauses (i) or (ii) above of which 50% or moreprincipal executive offices of the ownership andCorporation. Only stockholders of record on the power,record date shall be entitled to demand that the Secretary of the Corporation call a special meeting of the stockholders pursuant to Section 6(a). To be timely, a written contractstockholder’s demand to call a special meeting must be delivered to, or agreement, to directmailed and received at, the policies and management orprincipal executive offices of the financial andCorporation not later than the other affairs thereof, are owned or controlled by the TRS or by one or more other TRS Subsidiaries or by the TRS and one or more TRS Subsidiaries.sixtieth (60th) day
KILROY REALTY | PROXY STATEMENT | B-5 |
ARTICLE 3.
SHARES SUBJECT TO THE PLAN
3.1 Numberfollowing the record date fixed in accordance with Section 6(d). To be in proper form for purposes of Shares.
(a) Subjectthis Section 6, a demand to adjustment as provided inSection 3.1(b)call a special meeting shall set forth (i) the business proposed to be conducted at the special meeting; (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration); andSection 11 hereof, a total of 10,720,000 shares of Stock shall be authorized for grants of Awards under the Plan, subject to the limitations contained in thisSection 3.1(a) (the “Share Limit”). Shares of Stock subject to Awards granted on or after May 22, 2014 shall be counted against the Share Limit on aone-for-one basis.
(b) To the extent that an Award terminates, is cancelled, is forfeited, expires, fails to vest, lapses or for any other reason are not paid or delivered under the Plan, any shares of Stock subject to the Award shall again be available for the grant of subsequent Awards pursuant to the Plan. Except as provided below with respect to Options and Stock Appreciation Rights, any shares of Stock that are exchanged by a Participant or withheld by the Company as full or partial payment in connection with any Award under the Plan, as well as any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation (iii) with respect to any Award,stockholder or stockholders submitting a demand to call a special meeting (except for any stockholder that has provided such demand in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A) (a “Solicited Stockholder”) the information required to be provided pursuant to this Section 6 of a Requesting Person. A stockholder may revoke a demand to call a special meeting by written revocation delivered to the Secretary at any time prior to the special meeting. If any such revocation(s) are received by the Secretary after the Secretary’s receipt of written demands from the holders of the Requisite Percentage of stockholders, and as a result of such revocation(s), there no longer are unrevoked demands from the Requisite Percentage of stockholders to call a special meeting, the Board of Directors shall have the discretion to determine whether or not to proceed with the special meeting.
(f) Upon receipt of a written demand from one or more stockholders to call a special meeting, the Secretary shall inform the requesting stockholder(s) of the reasonably estimated cost of preparing and mailing the notice of meeting (including the Corporation’s proxy materials). The Secretary shall not be counted as issuedrequired to call a special meeting upon stockholder request and transferred to the Participant under the Plan and shall again become available for the grant of an Award pursuant to the Plan. To the extent that an Award granted under the Plan is settled in cash or a form other than shares of Stock, the shares that would have been delivered had there been no such cash or other settlementmeeting shall not be counted againstheld unless, in addition to the shares available for issuance undersatisfaction of the Plan. Toother requirements set forth in these Bylaws, the extent permitted by applicable law or any exchange rule, sharesSecretary receives payment of Stock issued in assumption of, or in substitution for, any outstanding awardssuch reasonably estimated cost prior to the mailing of any entity acquirednotice of the meeting. The Secretary shall not accept, and shall consider ineffective, a written demand from one or more stockholders to call a special meeting (i) that does not comply with this Section 6; (ii) that relates to an item of business to be transacted at such meeting that is not a proper subject for stockholder action under applicable law; (iii) that includes an item of business to be transacted at such meeting that did not appear on the written request that resulted in the determination of the record date (the “Current Record Date”) to determine the stockholders entitled to submit such written demand; (iv) that relates to an item of business (other than the election of directors) that is identical or substantially similar to an item of business (a “Similar Item”) for which a record date (other than the Current Record Date) was previously fixed and such demand is delivered between the time beginning on the sixty-first (61st) day after such previous record date and ending on the one-year anniversary of such previous record date; or (v) if a Similar Item will be submitted for stockholder approval at any stockholder meeting to be held on or before the ninetieth (90th) day after the Secretary receives such demand.
(g) After receipt of demands in proper form and in accordance with this Section 6 from a stockholder or stockholders holding the Requisite Percentage, the Board of combinationDirectors shall duly call, and determine the place, date and time of, a special meeting of stockholders for the purpose or purposes and to conduct the business specified in the demands received by the Company or any SubsidiaryCorporation; provided, however, that the date and time of such special meeting shall not be counted against sharesmore than ninety (90) days after the record date for the special meeting. Notwithstanding anything in these Bylaws to the contrary, the Board of Stock availableDirectors may submit its own proposal or proposals for grantconsideration at such a special meeting. The record date for such a special meeting shall be fixed in accordance with Article V, Section 6 of these Bylaws. The Board of Directors shall provide written notice of such special meeting to the stockholders in accordance with Section 8.
(h) In connection with a special meeting called in accordance with this Section 6, the stockholder or stockholders (except for any Solicited Stockholder) who requested that the Board of Directors fix a record date in accordance with this Section 6 or who delivered a demand to call a special meeting to the Secretary shall further update and supplement the information previously provided to the Corporation in connection with such request or demand, if necessary, so that the information provided or required to be provided in such request or demand pursuant to this Section 6 shall be true and correct as of the Plan. Each Profits Interest Unit issued pursuant to an Award shall countrecord date for the special meeting and as one (1) share of Stock against the Share Limit (in accordance withSection 3.1(a)) and for purposes of applying the individual Award limitation set forth inSection 3.3. To the extentdate that shares of Stock are delivered pursuantis ten (10) business days prior to the exercise of a Stock Appreciation Rightmeeting or Option granted under the Plan, the number of underlying shares as to which the exercise relatedany adjournment or postponement thereof, and such update and supplement shall be counted againstdelivered to, or mailed and received by, the applicable Share Limit underSection 3.1(a)Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the special meeting (in the case of the update and supplement required to be made as of the record date), as opposed to only counting the shares issued. (For purposes of clarity, if a Stock Appreciation Right relates to 100,000 shares and is exercised at a time when the payment duenot later than eight (8) business days prior to the Participant is 15,000 shares, 100,000 shares shall be charged againstdate for the applicable share limits underSections 3.1 and3.3meeting, if practicable, or, if not practicable, on the first practicable date prior to the meeting or any adjournment or postponement thereof (in the case of the Plan with respectupdate and supplement required to such exercise.) The paymentbe made as of Dividend Equivalentsten (10) business days prior to the special meeting or any adjournment or postponement thereof).
(i) Notwithstanding anything in cash in conjunction with any outstanding Awardsthese Bylaws to the contrary, the Secretary shall not be counted against the shares available for issuance or transfer under the Plan. In the event that shares of Stock are delivered in respect of Dividend Equivalents granted under the Plan, the number of shares delivered with respectrequired to the Award shall be counted against the share limits of the Plan (including, for purposes of clarity, the limits ofSections 3.1 and3.3 of the Plan). (For purposes of clarity, if 1,000 Dividend Equivalents are granted and outstanding when the Company payscall a dividend, and 100 shares are delivered in payment of those rights with respect to that dividend, 100 shares shall be counted against the share limits of the Plan). Notwithstanding the provisions of thisSection 3.1(b), no shares of Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code. The Company may not increase the Share Limit by repurchasing shares of Stock on the market (by using cash received through the exercise of Options granted under the Plan or otherwise).
(c) Any shares subject to an Award that, on or after May 22, 2014, again become available for grant pursuant toSection 3.1(b) hereof shall be added back to the Share Limit on aone-for-one basis.
3.2 Stock Distributed. Any Stock distributedspecial meeting pursuant to an Award may consist,this Section 6 except in wholeaccordance with this Section 6. If the Board of Directors shall determine that any request to fix a record date or demand to call and hold a special meeting was not properly made in part, of authorized and unissued Stock, treasury Stockaccordance with this Section 6, or Stock purchased on the open market.
3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, and subject toArticle 11 hereof, the following limits also apply with respect to Awards granted under the Plan:
(a) The maximum number of shares of Stock that may be delivered pursuant to Options qualified as Incentive Stock Options granted under the Plan is 8,320,000 shares.
(b) The maximum number of shares of Stock subject to those Options and Stock Appreciation Rights that are granted during any calendar year to any one Participant under the Plan is 1,500,000 shares.
(c) The maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant during any calendar year (whether such Awards are payable in Stock or denominated in Stock and payable in cash) shall be
B-6 | PROXY STATEMENT | KILROY REALTY |
1,500,000 shares. Withdetermine that the stockholder or stockholders requesting that the Board of Directors fix such record date or submitting a demand to call the special meeting have not otherwise complied with this Section 6, then the Board of Directors shall not be required to fix a record date or to call and hold the special meeting. In addition to the requirements of this Section 6, each Requesting Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to oneany request to fix a record date or more Awardsdemand to call a special meeting.
Section 7. Business transacted at any one Participant whichspecial meeting of stockholders shall be limited to the purposes stated in the notice. Where the Company’s notice of meeting specifies that directors are not denominated in Stock,to be elected at such special meeting, nominations of persons for election to the maximum amount thatBoard of Directors may be paidmade (i) pursuant to the Company’s notice of meeting; (ii) by or at the direction of the Board of Directors or (iii) by any committee of persons appointed by the Board of Directors with authority therefor or by a stockholder as provided in cash duringSection 2 of Article III hereof.
Section 8. Whenever stockholders are required or permitted to take any calendar yearaction at a meeting, a notice of the meeting shall be $30,000,000.
(d) Awards that are granted undergiven in writing or by any other manner permitted by law, which notice shall state the Plan duringplace, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The notice of any one calendar yearmeeting shall be given to any person who, oneach stockholder entitled to vote at such meeting not less than ten (10) nor more than ninety (90) days before the grant date of the Award,meeting. If mailed, notice is an Independent Director are subjectgiven when deposited in the United States mail, postage prepaid, directed to the limits of thisSection 3.3(d). The maximum number of shares of Stock subject to those Awards that are granted under the Plan during any one calendar year to an individual who, on the grant date of the Award, is an Independent Director is the number of shares that produce a grant date fair value for the Award that, when combined with the grant date fair value of any other Awards granted under the Plan during that same calendar year to that individual instockholder at his or her capacityaddress as it appears on the records of the Corporation.
Section 9. [Intentionally Omitted.]
Section 10. Notwithstanding any other provision of the charter of the Corporation or these Bylaws, Subtitle 7 of Title 3 of the MGCL (as the same may hereafter be amended from time to time) shall not apply to the voting rights of any shares of stock of the Corporation now or hereafter held by any existing or future stockholder of the Corporation (regardless of the identity of such stockholder).
Section 11. Every meeting of stockholders shall be conducted by an Independent Director, is $300,000; provided that this limit is $500,000 asindividual appointed by the Board of Directors to (1) an Independent Director who is serving asbe chairman of the independent Chairmeeting or, in the absence of such appointment, by the Chairman of the Board of Directors or, asin the Company’s lead independent directorcase of a vacancy in the office or absence of the Chairman of the Board of Directors, by one of the following officers present at the timemeeting: the applicable grant is made or (2) any new Independent Director for the calendar year in which the Independent Director is first elected or appointed to the Board. For purposes of thisSection 3.3(d), “grant date fair value” means the valueVice Chairman of the Award asBoard of Directors, if there be one, the President, the Vice Presidents in their order of rank and seniority, or, in the absence of such officers, a chairman chosen by the stockholders by the vote of a majority of the datevotes cast by stockholders present in person or by proxy. The Secretary, or, in the Secretary’s absence, an Assistant Secretary, or in the absence of grantboth the Secretary and Assistant Secretaries, a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairman of the Award andmeeting shall act as determined usingSecretary. In the equity award valuation principles appliedevent that the Secretary presides at a meeting of the stockholders, an Assistant Secretary, or in the Company’s financial reporting. The limitsabsence of thisSection 3.3(d)do not apply to, and shall be determined without taking into account, any Award granted toAssistant Secretaries, an individual who, onappointed by the grant dateBoard of Directors or the chairman of the Award, is a Company Employee. The limits of thisSection 3.3(d) apply on an individual basis and not on an aggregate basis to all Independent Directors as a group.
ARTICLE 4.
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Each Eligible Individualmeeting, shall be eligible to be granted one or more Awards pursuant torecord the Plan.
4.2 Participation. Subject to the provisionsminutes of the Plan, the Committee may, from time to time, select from amongmeeting. The order of business and all Eligible Individuals, those to whom Awards shall be granted and shall determine the nature and amountother matters of each Award. No Eligible Individual shall haveprocedure at any right to be granted an Award pursuant to the Plan.
4.3 Foreign Participants. Notwithstanding any provisionmeeting of the Plan to the contrary, in order to comply with the laws in other countries in which the Company, the Partnership, the TRS, or any Subsidiary operates or has Eligible Individuals, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws and customs and meet the objectives of the Plan; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to the Plan as appendices);provided, however, that no such subplans and/or modifications shall increase the share limitations contained inSections 3.1 and3.3 hereof; and (v) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or local customs.
ARTICLE 5.
STOCK OPTIONS
5.1 General. The Committee is authorized to grant Options to Participants on the following terms and conditions:
(a)Exercise Price. The exercise price per share of Stock subject to an Optionstockholders shall be determined by the Committeechairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairman, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth inby the Award Agreement;provided, that, subjectchairman of the meeting; and (g) recessing or adjourning the meeting toSection 5.2(b) hereof, a later date and time and place announced at the per share exercise price for any Optionmeeting. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be less than 100%required to be held in accordance with the rules of the Fair Market Value of a share of Stock on the date of grant.
(b)Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part;provided that the term of any Option granted under the Plan shall not exceed ten years. The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised.
(c)Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation: (i) cash, (ii) shares of Stock having a fair market value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, including shares that would be issuable or transferable upon exercise of the Option, or (iii) other property acceptable to the Committee (including through the delivery of a notice that theparliamentary procedure.
KILROY REALTY | PROXY STATEMENT | B-7 |
Participant has placedARTICLE III.
DIRECTORS
Section 1. The Board of Directors shall consist of a market sell order withminimum of three (3) and a broker with respect to sharesmaximum of Stock then issuable upon exercisethirteen (13) directors. The number of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price;provided that payment of such proceeds is then made to the Company at such time as may be required by the Company not later than settlement of such sale), and the methods by which shares of Stockdirectors shall be deliveredfixed or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option, or continue any extension of credit with respect to the exercise price of an Option with a loan from the Company, the Partnership, the TRS or any Subsidiary or a loan arranged by the Company, the Partnership, the TRS or any Subsidiary in violation of Section 13(k) of the Exchange Act.
(d)Evidence of Grant. All Options shall be evidenced by an Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee.
5.2 Incentive Stock Options. Incentive Stock Options shall be granted only to Company Employees or to Employees of a corporation which constitutes a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code, and the terms of any Incentive Stock Options granted pursuant to the Plan, in addition to the requirements ofSection 5.1 hereof, must comply with the provisions of thisSection 5.2.
(a)Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be consideredNon-Qualified Stock Options.
(b)Ten Percent Owners. An Incentive Stock Option may not be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company or any “parent corporation” or “subsidiary corporation” of the Company within the meaning of Section 424(e) and 424(f), respectively, of the Code, unless such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.
(c)Notice of Disposition. The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such shares of Stock to the Participant.
(d)Right to Exercise. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant.
(e)Failure to Meet Requirements. Any Option (or portion thereof) purported to be an Incentive Stock Option, which, for any reason, fails to meet the requirements of Section 422 of the Code shall be considered aNon-Qualified Stock Option.
5.3 Transfer of Shares to a Company Employee, Consultant or Independent Director. As soon as practicable after receipt by the Company of payment for the shares with respect to which an Option (which in the case of a Company Employee, Company Consultant or Independent Director was issued to and is held by such Participant in such capacity), or portion thereof, is exercised by a Participant who is a Company Employee, Company Consultant or Independent Director, then, with respect to each such exercise, the Company shall transfer to the Participant the number of shares equal to:
(a) The amount of the payment made by the Participant to the Company pursuant toSection 5.1(c), divided by
(b) The price per share of the shares subject to the Option as determined pursuant toSection 5.1(a) or5.2(c), as applicable.
5.4 Transfer of Shares to a Partnership Employee or Consultant. As soon as practicable after receipt by the Company, pursuant toSection 5.1(c), of payment for the shares with respect to which an Option (which was issued to and is held by a Partnership Employee or Partnership Consultant in such capacity), or portion thereof, is exercised by a Participant who is a Partnership Employee or Partnership Consultant, then, with respect to each such exercise:
(a) The Company shall transfer to the Participant the number of shares equal to (A) the amount of the payment made by the Participant to the Company pursuant toSection 5.1(c) divided by (B) the Fair Market Value of a share of Stock at the time of exercise (the “Partnership Participant Purchased Shares”);
(b) The Company shall sell to the Partnership the number of shares (the “Partnership Purchased Shares”) equal to the excess of (i) the amount obtained by dividing (A) the amount of the payment made by the Participant to the Company pursuant toSection 5.1(c) by (B) the price per share of the shares subject to the Option as determined pursuant toSection 5.1(a), over (ii) the Partnership Participant Purchased Shares. The price to be paid by the Partnership to the Company for the Partnership Purchased Shares (the “Partnership Purchase Price”) shall be an amount equal to the product of (x) the number of Partnership Purchased Shares multiplied by (y) the Fair Market Value of a share of Stock at the time of the exercise; and
(c) As soon as practicable after receipt of the Partnership Purchased Shares by the Partnership, the Partnership shall transfer such shares to the Participant at no additional cost, as additional compensation.
5.5 Transfer of Shares to a TRS Employee, Consultant or Director. As soon as practicable after receipt by the Company, pursuant toSection 5.1(c), of payment for the shares with respect to which an Option (which was issued to and is held by a TRS Employee, TRS Director or TRS Consultant in such capacity), or portion thereof, is exercised by a Participant who is a TRS Employee, TRS Director or TRS Consultant, then, with respect to each such exercise:
(a) The Company shall transfer to the Participant the number of shares equal to (A) the amount of the payment made by the Participant to the Company pursuant toSection 5.1(c) divided by (B) the Fair Market Value of a share of Stock at the time of exercise (the “TRS Participant Purchased Shares”);
(b) The Company shall sell to the TRS the number of shares (the “TRS Purchased Shares”) equal to the excess of (i) the amount obtained by dividing (A) the amount of the payment made by the Participant to the Company pursuant toSection 5.1(c) by (B) the price per share of the shares subject to the Option as determined pursuant toSection 5.1(a), over (ii) the TRS Participant Purchased Shares. The price to be paid by the TRS to the Company for the TRS Purchased Shares (the “TRS Purchase Price”) shall be an amount equal to the product of (x) the number of TRS Purchased Shares multiplied by (y) the Fair Market Value of a share of Stock at the time of the exercise; and
As soon as practicable after receipt of the TRS Purchased Shares by the TRS, the TRS shall transfer such shares to the Participant at no additional cost, as additional compensation.
5.6 Transfer of Payment to the Partnership. As soon as practicable after receipt by the Company of the amounts described inSections 5.1(c),5.4(b), and5.5(b), the Company shall contribute to the Partnership an amount of cash equal to such payments and the Partnership shall issue an additional interest in the Partnership on the terms set forth in the Partnership Agreement.
5.7 Allocation of Payment upon Option Exercise. Notwithstanding the foregoing, to the extent that a Participant provides services to more than one of the Company, the Partnership, the TRS or any Subsidiary, the Company may, in its discretion, allocate the payment or issuance of shares with respect to any Options exercised by such Participant (and the services performed by the Participant ) among such entities for purposes of the provisions ofSections 5.3,5.4,5.5 and5.6 in order to ensure that the relationship between the Company and the TRS, the Partnership or such Subsidiary remains at arms-length.
ARTICLE 6.
RESTRICTED STOCK AWARDS
6.1 Grant of Restricted Stock. The Committee is authorized to make Awards of Restricted Stock to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by an Award Agreement.
6.2 Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter.
6.3 Forfeiture. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited;provided, however, that, the Committee may (a) provide in any Restricted Stock Award Agreement
that restrictions or forfeiture conditions relating to Restricted Stock will lapse in whole or in part in the event of terminations resulting from specified causes, and (b) provide in other cases for the lapse in whole or in part of restrictions or forfeiture conditions relating to Restricted Stock.
6.4 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company, the TRS or the Partnership, as applicable, may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse.
ARTICLE 7.
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights.
(a) A Stock Appreciation Right may be granted to any Participant selected by the Committee. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement, provided, that the term of any Stock Appreciation Right granted under the Plan shall not exceed ten years.
(b) A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount equal to the product of (i) the excess of (A) the Fair Market Value of the Stock on the date the Stock Appreciation Right is exercised over (B) the Fair Market Value of the Stock on the date the Stock Appreciation Right was granted and (ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised, subject to any limitations the Committee may impose.
7.2 Payment and Limitations on Exercise.
(a) Subject toSection 7.2(b) below, payment of the amounts determined underSections 7.1(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee in the Award Agreement.
(b) To the extent any payment underSection 7.1(b) hereof is effected in Stock, it shall be made subject to satisfaction of all provisions ofArticle 5 above pertaining to Options.
ARTICLE 8.
OTHER TYPES OF AWARDS
8.1 Performance Share Awards. Any Participant selected by the Committee may be granted one or more Performance Share awards which shall be denominated in a number of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.2 Performance Stock Units. Any Participant selected by the Committee may be granted one or more Performance Stock Unit awards which shall be denominated in unit equivalent of shares of Stock and/or units of value including dollar value of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.3 Dividend Equivalents. Any Participant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award (other than an Option or SAR), to be credited as of
dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. Dividend Equivalents may be granted as a separate Award or in connection with another Award under the Plan; provided, however, that Dividend Equivalents may not be granted in connection with an Option or SAR granted under the Plan. In addition, effective with Awards granted after April 4, 2017, any dividends and/or Dividend Equivalents as to the unvested portion of a Restricted Stock Award that is subject to vesting requirements or the unvested portion of a Restricted Stock Unit award that is subject to vesting requirements will be subject to termination and forfeiture to the same extent as the corresponding portion of the Award to which they relate.
8.4 Stock Payments. Any Participant selected by the Committee may receive Stock Payments in the manner determinedchanged from time to time, by the Committee;provided, that unless otherwise determined by the Committee such Stock Payments shall be made in lieu of base salary, bonus, or other cash compensation otherwise payable to such Participant. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter.
8.5 Deferred Stock. Any Participant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock Award has vested and the Stock underlying the Deferred Stock Award has been issued.
8.6 Restricted Stock Units. The Committee is authorized to make Awards of Restricted Stock Units to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. At the time of grant, the Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. At the time of grant, the Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the grantee. On the maturity date, the Company, the TRS or the Partnership, as applicable, shall, subject toSection 10.5(b) hereof, transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited.
8.7 Profits Interest Units. Any Participant selected by the Committee may be granted an award of Profits Interest Units in such amount and subject to such terms and conditions as may be determined by the Committee;provided, however, that Profits Interest Units may only be issued to a Participant for the performance of services to or for the benefit of the Partnership (a) in the Participant’s capacity as a partner of the Partnership, (b) in anticipation of the Participant becoming a partner of the Partnership, or (c) as otherwise determined by the Committee, provided that the Profits Interest Units would constitute “profits interests” within the meaning of the Code, Treasury Regulations promulgated thereunderminimum and any published guidance by the Internal Revenue Service with respect thereto. At the time of grant, the Committee shall specify the date or dates on which the Profits Interest Units shall vest and become nonforfeitable, and may specify such conditions to vesting as it deems appropriate. Profits Interest Units shall be subject to such restrictions on transferability and other restrictions as the Committee may impose. These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. The Committee shall specify the purchase price, if any, to be paid by the grantee to the Partnership for the Profits Interest Units.
8.8 Other Incentive Awards. Any Participant selected by the Committee may be granted one or more Awards that provide Participants with shares of Stock or the right to purchase shares of Stock or that have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in or based on, shares of Stock or stockholder value or stockholder return, in each case on a specified date or dates or over any period or periods determined by the Committee. Other Incentive Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee. Amounts payable under Other Incentive Awards may be in cash, Stock, units of the Partnership, or a combination of any of the foregoing, as determined by the Committee.
8.9 Performance Bonus Awards. Any Participant selected by the Committee may be granted a cash bonus (a “Performance Bonus Award”) payable upon the attainment of Performance Goals that are established by the Committee and relate to one or more of the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. For clarity, the Plan does not limit the authority of the Company, the Partnership, or the TRS to grant or award any other compensation or benefit under any other plan or authority, and cash bonuses and bonus opportunities need not be structured as awards under or subject to the Plan.
8.10 Term. Except as otherwise provided herein, the term of any Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or an Other Incentive Award shall be set by the Committee in its discretion.
8.11 Exercise or Purchase Price. The Committee may establish the exercise or purchase price, if any, of any Award of Performance Shares, Performance Stock Units, Deferred Stock, Stock Payments, Restricted Stock Units or an Other Incentive Award;provided, however, that such price shall not be less than the par value of a share of Stock on the date of grant, unless otherwise permitted by applicable state law. The Committee shall determine the form of payment of any such exercise or purchase price, which may be in the form of any consideration permitted by applicable state law.
8.12 Exercise upon Termination of Employment or Service. An Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Deferred Stock, Stock Payments, Restricted Stock Units, Profits Interest Units, and an Other Incentive Award shall only vest or be exercisable or payable while the Participant is an Employee, Consultant, a member of the Board, or a TRS Director, as applicable;provided, however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units, Profits Interest Units or an Other Incentive Award may vest or be exercised or paid on or subsequent to a termination of employment or service, as applicable, or on or following a Change in Control of the Company, or because of the Participant’s retirement, death or Disability, or otherwise.
8.13 Form of Payment. Payments with respect to any Awards granted under thisArticle 8, other than Profits Interest Units, shall be made in cash, in Stock or a combination of both, as determined by the Committee.
8.14 Award Agreement. All Awards under thisArticle 8 shall be subject to such additional terms and conditions as determined by the Committee and shall be evidenced by an Award Agreement.
ARTICLE 9.
[RESERVED]1
ARTICLE 10.
PROVISIONS APPLICABLE TO AWARDS
10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.
10.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award.
10.3 Limits on Transfer. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company, the TRS, the Partnership or a Subsidiary, or shall be subject to any lien,
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obligation, or liability of such Participant to any other party other than the Company, the TRS, the Partnership or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution. The Committee by express provision in the Award or an amendment thereto may permit an Award to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish;provided, however, that no such transfer of an Incentive Stock Option shall be permitted to the extent that such transfer would cause the Incentive Stock Option to fail to qualify as an “incentive stock option” under Section 422 of the Code. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of employment or service with the Company, the TRS, the Partnership or a Subsidiary to assume a position with a governmental, charitable, educational or similarnon-profit institution) and on a basis consistent with the Company’s lawful issue of securities. Notwithstanding the foregoing, in no event shall any Award be transferable by a Participant to a third party for consideration.
10.4 Beneficiaries. NotwithstandingSection 10.3 hereof, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee.
10.5 Stock Certificates; Book Entry Procedures.
(a) Notwithstanding anything herein to the contrary, the Company, the TRS, nor the Partnership shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
(b) Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company shall not deliver to any Participant certificates evidencing shares of Stock issued in connection with any Award and instead such shares of Stock shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).
10.6 Paperless Exercise. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless exercise of Awards by a Participant may be permitted through the use of such an automated system.
10.7 Deferrals. The Committee may also require or permit Participants to elect to defer the issuance of shares or the settlement of Awards in cash under such rules and procedures as it may establish under the Plan. The Committee may also
provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares.
ARTICLE 11.
CHANGES IN CAPITAL STRUCTURE
11.1 Adjustments.
(a) Other than in the event of an Equity Restructuring, in the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation,spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock, the Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations inSections 3.1,3.3, and 9.5(c) hereof); (b) the number and kind of shares that may be issued with respect to any outstanding Awards under the Plan; (c) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (d) the grant or exercise price per share for any outstanding Awards under the Plan.
(b) Other than in the event of an Equity Restructuring, in the event of any transaction or event described inSection 11.1(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, the Partnership, any affiliate of the Company or the Partnership, or the financial statements of the Company, the Partnership or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(i) To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in thisSection 11.1(b) the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;
(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(iii) To make adjustments in the number and type of shares of Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future;
(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and
(v) To provide that the Award cannot vest, be exercised or become payable after such event.
(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary inSections 11.1(a) and11.1(b):
(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, will be proportionately adjusted. The adjustments provided under thisSection 11.1(c)(i) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.
(ii) The Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations inSections 3.1 and3.3 hereof).
11.2 Acceleration Upon a Change in Control if Awards Are To Be Terminated. Upon, or in anticipation of, a Change in Control, the Committee may cause any and all Awards outstanding hereunder to terminate at a specific time in the future, including but not limited to the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Committee, in its sole and absolute discretion, shall determine. In the event that the terms of any agreement between the Company, the TRS, the Partnership or any Subsidiary or affiliate and a Participant contains provisions that conflict with and are more restrictive than the provisions of thisSection 11.2, thisSection 11.2 shall prevail and control and the more restrictive terms of such agreement (and only such terms) shall be of no force or effect. NotwithstandingSection 11.1 hereof, and except as may otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company and a Participant, if a Change in Control occurs and a Participant’s Awards are not converted, assumed, or replaced by a successor entity and the Awards are to be terminated in accordance with the preceding sentence, then immediately prior to the Change in Control such Awards shall become fully exercisable, and all forfeiture restrictions on such Awards shall lapse.
For purposes of thisSection 11.2, an award shall be deemed to have been “assumed” if (without limiting other circumstances in which an award is assumed) the award continues after the Change in Control, and/or is assumed and continued by the surviving entity following such event (including, without limitation, an entity that, as a result of such event, owns the Company or all or substantially all of the Company’s assets directly or through one or more subsidiaries (a “Parent”)), and confers the right to purchase or receive, as applicable and subject to vesting and the other terms and conditions of the award, for each share of Stock subject to the award immediately prior to the event, the consideration (whether cash, shares, or other securities or property) received in the event by the stockholders of the Company for each share of Stock sold or exchanged in such event (or the consideration receivedmaximum, by a majority of the stockholders participating in such event ifentire Board of Directors, provided that the stockholders were offered a choicetenure of consideration); provided, however, that if the consideration offered for a share of Stock in the event is not solely the ordinary common stockoffice of a successor corporation ordirector shall not be affected by a Parent, the Committee may provide for the consideration to be received upon exercise or payment of the award, for each share subject to the award, to be solely ordinary common stock of the successor corporation or a Parent equal in fair market value to the per share consideration received by the stockholders participating in the event.
11.3 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect,directors, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award.
ARTICLE 12.
ADMINISTRATION
12.1 Committee. Unless and until the Board delegates administration of the Plan to a Committee as set forth below, the Plan shall be administered by the full Board, and for such purposes the term “Committee” as used in the Plan shall be deemed to refer to the Board. The Board, at its discretion (including to the extent it deems it advisable to comply with the requirements of Rule16b-3 promulgated under the Exchange Act or any other applicable rule or regulation), shall delegate administration of the Plan to a Committee. The Committee shall consist solely of two or more members of the Board each of whom, in the judgment of the Board, is an “independent director” under the rules of the New York Stock Exchange (or other principal securities market on which shares of Stock are traded). The governance of such Committee shall be subject to the charter of the Committee as approved by the Board. Any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in thisSection 12.1 or otherwise provided in the charter of the Committee. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all Awards granted to
Independent Directors and for purposes of such Awards the term “Committee” as used in the Plan shall be deemed to refer to the Board and (b) the Committee may delegate its authority hereunder to the extent permitted bySection 12.5 hereof. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan.
12.2 Support for the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company, the TRS, the Partnership or any Subsidiary, the independent certified public accountants of the Company, the TRS, or the Partnership, or any executive compensation consultant or other professional retained by the Company, the TRS, or the Partnership to assist in the administration of the Plan.
12.3 Authority of Committee. Subject to any specific designation in the Plan including, without limitation, the no repricing provision inSection 14.1, the Committee has the exclusive power, authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each Participant;
(c) Determine the number of Awards to be granted and the number of shares of Stock or Profits Interest Units to which an Award will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award (or determine that an Award will be fully vested and/or exercisable, as the case may be, at grant), and accelerations or waivers thereof, any provisions related tonon-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement;
(j) In the case of Awards to TRS Employees, TRS Consultants, Partnership Employees or Partnership Consultants, determine the mechanics for the transfer of rights under such Awards; and
(k) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.
12.4 Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all persons.
12.5 Delegation of Authority. To the extent permitted by applicable law, the Board or Committee may from time to time delegate to a committee of one or more members of the Board and/or one or more officers of the Company the authority to grant or amend Awards or to take other actions authorized pursuant to this Article 12; provided, however, that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, or (b) officers of the Company (or members of the Board) to whom authority to grant or amend Awards has been delegated hereunder; provided, further that any delegation of administrative authority shall only be permitted to the extent it is permissible under applicable law. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board or the Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee(s) appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Board and the Committee.
ARTICLE 13.
EFFECTIVE AND EXPIRATION DATE
13.1 Effective Date. The Plan is effective as of the date the Plan is approved by the Company’s stockholders (the “Effective Date”). The Plan will be deemed to be approved by the stockholders if it receives the affirmative vote of a majority of votes cast at a meeting duly held in accordance with the applicable provisions of the Company’s bylaws, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal.
13.2 Expiration Date. Unless earlier terminated by the Board, the Plan shall terminate at the close of business on April 3, 2027, subject to any extension approved by the Company’s stockholders. After the termination of the Plan either upon such stated expiration date or its earlier termination by the Board, no additional Awards may be granted pursuant to the Plan, but previously granted Awards (and the authority of the Committee with respect thereto, including the authority to amend such Awards) shall remain outstanding in accordance with the terms and conditions of the Plan and the terms and conditions of the applicable Award Agreement.
ARTICLE 14.
AMENDMENT, MODIFICATION, AND TERMINATION
14.1 Amendment, Modification, and Termination. Subject toSection 15.17 hereof, with the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan;provided, however, that (a) to the extent the Company deems it necessary or desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) stockholder approval shall be required for any amendment to the Plan that (i) increases the number of shares available under the Plan (other than any adjustment as provided byArticle 11 hereof), (ii) permits the Committee to grant Options or SARs with an exercise price that is below Fair Market Value on the date of grant, or (iii) permits the Committee to extend the exercise period for an Option or SAR beyond ten years from the date of grant. Subject toSection 14.2, the Committee may also amend an Award or Awards previously granted. However, notwithstanding any provision in the Plan to the contrary and except for an adjustment pursuant toArticle 11 or a repricing approved by the stockholders of the Company, in no case may the Committee (I) amend an outstanding Option or SAR to reduce the per share exercise or base price of the Award, (II) cancel, exchange or surrender an outstanding Option or SAR in exchange for an Option or SAR with an exercise or base price that is less than the exercise or base price of the original Award, or (III) cancel, exchange or surrender an outstanding Option or SAR in exchange for cash or other Awards for the purpose of repricing the Award.
14.2 Awards Previously Granted. Except with respect to amendments made pursuant toSection 15.17 hereof, no termination, amendment, or modification of the Plan or an Award shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant. Any amendment or other action that would constitute a repricing of an Award is subject to the limitations set forth inSection 14.1.
ARTICLE 15.
GENERAL PROVISIONS
15.1 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and none of the Company, the TRS, the Partnership, any Subsidiary or the Committee is obligated to treat Eligible Individuals, Participants or any other persons uniformly.
15.2 No Stockholders Rights. Except as otherwise provided herein, a Participant shall have none of the rights of a stockholder with respect to shares of Stock covered by any Award until the Participant becomes the record owner of such shares of Stock.
15.3 Withholding. The Company, the TRS, the Partnership or any Subsidiary, as applicable, shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, the TRS, the Partnership or any Subsidiary, as
applicable, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s employment tax obligations) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of the Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement require or allow a Participant to elect to have the Company, the TRS, the Partnership or any Subsidiary, as applicable, withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a fair market value on the date of withholding equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Participant of such Award within six months (or such other period as may be determined by the Committee) after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a fair market value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.
15.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company, the TRS, the Partnership or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company, the TRS, the Partnership or any Subsidiary.
15.5 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company, the TRS, the Partnership or any Subsidiary.
15.6 Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company, the TRS, and/or the Partnership from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her;provided he or she gives the Company, the TRS and the Partnership an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or bylaws, as a matter of law, or otherwise, or any power that the Company, the TRS, and/or the Partnership may have to indemnify them or hold them harmless.
15.7 Relationship to Other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company, the TRS, the Partnership or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
15.8 Expenses. The expenses of administering the Plan shall be borne by the Company, the TRS, the Partnership and their Subsidiaries.
15.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
15.10 Fractional Shares. Unless otherwise expressly provided by the Committee, no fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.
15.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule16b-3 under the Exchange Act) that are requirements for the application of such exemptive rule if and to the extent necessary in order that the Participant not have actual short-swing profits liability under Section 16(b) of the Exchange Act, and, to the extent permitted by applicable law, the Plan and such Awards shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
15.12 Government and Other Regulations. The obligation of the Company, the TRS and the Partnership to make payment of awards in Stock, Profits Interest Units or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act, as amended, any of the shares of Stock or Profits Interest Units paid pursuant to the Plan. If the shares or Profits Interest Units paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, as amended, the Company, the TRS and the Partnership may restrict the transfer of such shares or Profits Interest Units in such manner as it deems advisable to ensure the availability of any such exemption.
15.13 Section 83(b) Election Prohibited. No Participant may make an election under Section 83(b) of the Code with respect to any Award under the Plan without the consent of the Company or the Partnership, which the Company or the Partnership may grant or withhold in its sole discretion.
15.14 Grant of Awards to Certain Employees or Consultants. The Company, the TRS, the Partnership or any Subsidiary may provide through the establishment of a formal written policy or otherwise for the method by which shares of Stock or other securities and/or payment therefor may be exchanged or contributed between the Company and such other party, or may be returned to the Company upon any forfeiture of Stock or other securities by the Participant, for the purpose of ensuring that the relationship between the Company and the TRS, the Partnership or such Subsidiary remains at arms-length.
15.15 Restrictions on Awards. The Plan shall be interpreted and construed in a manner consistent with the Company’s status as a REIT. No Award shall be granted or awarded, and with respect to an Award already granted under the Plan, such Award shall not be exercisable or payable:
(a) To the extent that the grant, exercise or payment of such Award could cause the Participant to be in violation of the Ownership Limit (as defined in the Company’s Articles of Incorporation, as amended from time to time) or Subparagraph E(2) of Article IV (or any successor provision thereto) of the Company’s Articles of Incorporation, as amended from time to time; or
(b) If, in the discretion of the Committee, the grant or exercise of such Award could impair the Company’s status as a REIT.
15.16 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Maryland.
15.17 Section 409A. To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.
APPENDIX C – ARTICLES OF AMENDMENT AND RESTATEMENT
KILROY REALTY CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
KILROY REALTY CORPORATION, a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland (the “Department”) that:
FIRST: The Corporation desires to and does hereby amend and restate in its entirety the charter of the Corporation (the “Charter”) as currently in effect pursuant toSection 2-609 of the MARYLAND GENERAL CORPORATION LAW (the “MGCL”).
SECOND: The following provisions are all the provisions of the Charter currently in effect and as hereinafter amended and restated:
ARTICLE I
NAME OF THE CORPORATION
The name of the corporation (hereinafter the “Corporation”) is:
Kilroy Realty Corporation
ARTICLE II
RESIDENT AGENT; PRINCIPAL OFFICE IN STATE
The address of the Corporation’s principal office in the State of Maryland isc/o Paracorp Incorporated, 245 West Chase Street, Baltimore, Maryland 21201. The name of the Corporation’s resident agent is Paracorp Incorporated, whose address is 245 West Chase Street, Baltimore, Maryland 21201. The resident agent is a Maryland corporation.
ARTICLE III
PURPOSE OF THE CORPORATION
The purpose for which the Corporation is formed is to engage in any lawful act or activity (including, without limitation or obligation, engaging in business as a real estate investment trust (a “REIT”) under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended, or any successor statute of similar import (the “Code”)) for which corporations may be organized under the MARYLAND GENERAL CORPORATION LAW, as amended from time to time, and any successor statute hereafter enacted (the “MGCL”).
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 310,000,000, consisting of 280,000,000 shares of common stock, par value $0.01 per share (the “Common Stock”), and 30,000,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”) which may be issued in one or more classes as described in Paragraph C of this Article IV. The aggregate par value of all of the Corporation’s authorized shares having par value is $3,100,000. The Common Stock and each class of the Preferred Stock shall each constitute a separate class of capital stock of the Corporation.
The following is a description of each of the classes of stock of the Corporation and a statement of the powers, preferences and rights of such stock, and the qualifications, limitations and restrictions thereof:
A. Voting Rights.
1. Common Stock. Except as may otherwise be required by law, and subject to the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to Paragraph C of this Article IV granting the holders of one or more classes of Preferred Stock exclusive voting powers with respect to any matter, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders.
2. Preferred Stock. Except as may otherwise be required by law, and subject to the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to Paragraph C of this Article IV granting the holders of one or more classes of Preferred Stock voting powers with respect to any matter, the Preferred Stock shall have no voting rights and shall have no rights to receive notice of any meetings except as expressly provided in the resolution establishing any class thereof.
B. Terms of Common Stock. The Common Stock shall be subject to the express terms of the Preferred Stock or any classes thereof.
1. Dividend Rights. After the provisions with respect to preferential dividends on any class of Preferred Stock (fixed in accordance with the provisions of Paragraph C of this Article IV), if any, shall have been satisfied and after the Corporation shall have complied with all the requirements, if any, with respect to redemption of, or the setting aside of sums as sinking funds or redemption or purchase accounts with respect to, any class of Preferred Stock (fixed in accordance with the provisions of Paragraph C of this Article IV), and subject further to any other conditions that may be fixed in accordance with the provisions of Paragraph C of this Article IV, then, and not otherwise, the holders of Common Stock shall be entitled to receive such dividends as may be authorized and declared from time to time by the Board of Directors out of funds legally available therefor. All distributions paid with respect to the Common Stock shall be paid pro rata, with no preference to any share of Common Stock as compared with other shares of Common Stock.
2. Rights Upon Liquidation. In the event of the voluntary or involuntary liquidation, dissolution orwinding-up of the Corporation, after distribution in full of the preferential amounts, if any (fixed in accordance with the provisions of Paragraph C of this Article IV), to be distributed to the holders of Preferred Stock by reason thereof, the holders of Common Stock shall, subject to the additional rights, if any (fixed in accordance with the provisions of Paragraph C of this Article IV), of the holders of any outstanding shares of Preferred Stock, be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them.
C. Issuance and Terms of Preferred Stock. The Preferred Stock may be issued, from time to time, in one or more classes, and each class shall be known and designated by such designations, as may be stated and expressed in a resolution or resolutions adopted by the Board of Directors of the Corporation and as shall have been set forth in articles supplementary made, executed, acknowledged, filed and recorded in the manner required by the MGCL in order to make the same effective. Each class shall consist of such number of shares as shall be stated and expressed in such resolution or resolutions providing for the issue of Preferred Stock of such class together with such additional number of shares as the Board of Directors by resolution or resolutions may from time to time determine to issue as a part of such class. All shares of any one class of such Preferred Stock shall be alike in every particular except that shares issued at different times may accumulate dividends from different dates. The Board of Directors shall have power and authority to state and determine in the resolution or resolutions providing for the issue of each class of Preferred Stock the number of shares of each such class authorized to be issued, the voting powers (if any) and the designations, preferences and relative, participating, optional, conversion or other rights appertaining to each such class, and the qualifications, limitations or restrictions thereof (including, but not by way of limitation, full power and authority to determine as to the Preferred Stock of each such class, the rate or rates of dividends payable thereon, the times of payment of such dividends, the prices and manner upon which the Preferred Stock may be redeemed, the amount or amounts payable thereon in the event of liquidation, dissolution or winding up of the Corporation or in the event of any merger or consolidation of or sale of assets by the Corporation, the rights (if any) to convert the Preferred Stock into, and/or to purchase, stock of any other class or series, the terms of any sinking fund or redemption or purchase account (if any) to be provided for shares of such class of Preferred Stock,
restrictions on ownership and transfer to preserve tax benefits, and the voting powers (if any) of the holders of any class of Preferred Stock generally or with respect to any particular matter, which may be less than, equal to or greater than one vote per share, and which may, without limiting the generality of the foregoing, include the right, voting as a class by itself or together with the holders of any other class of Preferred Stock or all classes of Preferred Stock as a single class, to elect one or more directors of the Corporation generally or under such specific circumstances and on such conditions, as shall be provided in the resolution or resolutions of the Board of Directors adopted pursuant hereto, including, without limitation, in the event there shall have been a default in the payment of dividends on or redemption of any one or more classes of Preferred Stock). The Board of Directors may from time to time decrease the number of shares of any class of Preferred Stock (but not below the number thereof then outstanding) by providing that any unissued shares previously assigned to such class shall no longer constitute part thereof and may assign such unissued shares to an existing or newly created class. The foregoing provisions of this Paragraph C with respect to the creation or issuance of classes of Preferred Stock shall be subject to any additional conditions with respect thereto which may be contained in any resolutions then in effect which shall have theretofore been adopted in accordance with the foregoing provisions of this Paragraph C with respect to any then outstanding class of Preferred Stock.
D. Authorization of Capital Stock; Issuance and Reclassification of Shares. The Board of Directors may authorize the issuance from time to time of shares of its capital stock of any class or series whether now or hereafter authorized, or securities convertible into shares of its capital stock of any class or series, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the Charter of the Corporation or the Bylaws of the Corporation, or in the MGCL. In addition, the Board of Directors shall have the power, in its sole discretion without limitation, to classify or reclassify any unissued shares of capital stock of the Corporation, whether now or hereafter authorized, by setting, altering or eliminating, in any one or more respects, from time to time, before the issuance of such shares of capital stock of the Corporation, any feature of such shares including, but not limited to, the designation, par value, preferences or conversion or other rights, voting powers, qualifications and terms and conditions of redemption, limitations as to dividends and other distributions, restrictions on ownership and transfer to preserve tax benefits and any other restrictions on such shares.
E. Restrictions on Ownership and Transfer to Preserve Tax Benefits.
1. Definitions. For the purposes of Paragraph E of this Article IV, the following terms shall have the following meanings:
“Beneficial Ownership” shall mean ownership of Common Stock by a Person who is or would be treated as an owner of such Common Stock either actually or constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Own,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.
“Charitable Beneficiary” shall mean one or more beneficiaries of a Trust, as determined pursuant to Subparagraph E(3)(f) of this Article IV.
“Code” shall have the meaning set forth in Article III hereof. All section references to the Code shall include any successor provisions thereof as may be adopted from time to time.
“Common Stock” shall have the meaning set forth in the preamble to Article IV hereof.
“Corporation” shall have the meaning set forth in the preamble to these Articles of Amendment and Restatement.
“Constructive Ownership” shall mean ownership of Common Stock by a Person who is or would be treated as an owner of such Common Stock either actually or constructively through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Own,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.
“Initial Public Offering” shall mean the sale of Common Stock pursuant to the Corporation’s first effective registration statement for such Common Stock filed under the Securities Act of 1933, as amended.
“IRS” means the United States Internal Revenue Service.
“Market Price” shall mean the last reported sales price reported on the New York Stock Exchange of the Common Stock on the trading day immediately preceding the relevant date, or if the Common Stock is not then traded on the
New York Stock Exchange, the last reported sales price of the Common Stock on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over which the Common Stock may be traded, or if the Common Stock is not then traded over any exchange or quotation system, then the market price of the Common Stock on the relevant date as determined in good faith by the Board of Directors of the Corporation.
“Operating Partnership” shall mean Kilroy Realty, L.P., a Delaware limited partnership.
���OP Units” shall have the meaning set forth in Paragraph H of Article IV hereof.
“Ownership Limit” shall mean 7.0% (by value or by number of shares, whichever is more restrictive) of the outstanding Common Stock of the Corporation.
“Partnership Agreement” shall mean the Seventh Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of August 15, 2012, as such agreement has been and may be amended from time to time.
“Person” shall mean an individual, corporation, partnership, limited liability company, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity; but does not include an underwriter acting in a capacity as such in a public offering of shares of Common Stock provided that the ownership of such shares of Common Stock by such underwriter would not result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or otherwise result in the Corporation failing to qualify as a REIT.
“Purported Beneficial Transferee” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Subparagraph E(2)(b) of this Article IV, the purported beneficial transferee or owner for whom the Purported Record Transferee would have acquired or owned shares of Common Stock, if such Transfer had been valid under Subparagraph E(2)(a) of this Article IV.
“Purported Record Transferee” shall mean, with respect to any purported Transfer (or other event) which results in a transfer to a Trust, as provided in Subparagraph E(2)(b) of this Article IV, the record holder of the shares of Common Stock if such Transfer had been valid under Subparagraph E(2)(a) of this Article IV.
“REIT” shall mean a real estate investment trust under Sections 856 through 860 of the Code.
“Restriction Termination Date” shall mean the first day after the date of the Initial Public Offering on which (1) the Board of Directors of the Corporation determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT and (2) such determination is approved by the affirmative vote of the holders of not less thantwo-thirds of the shares of the Corporation’s capital stock outstanding and entitled to vote thereon.
“Transfer” shall mean any sale, transfer, gift, assignment, devise or other disposition of Common Stock, including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Common Stock or (ii) the sale, transfer, assignment or other disposition of any securities (or rights convertible into or exchangeable for Common Stock), whether voluntary or involuntary, whether such transfer has occurred of record or beneficially or Beneficially or Constructively (including but not limited to transfers of interests in other entities which results in changes in Beneficial or Constructive Ownership of Common Stock), and whether such transfer has occurred by operation of law or otherwise.
“Trust” shall mean each of the trusts provided for in Subparagraph E(3) of this Article IV.
“Trustee” shall mean any Person unaffiliated with the Corporation, or a Purported Beneficial Transferee, or a Purported Record Transferee, that is appointed by the Corporation to serve as trustee of a Trust.
2. Restriction on Ownership and Transfers.
(a) From the date of the Initial Public Offering and prior to the Restriction Termination Date:
(i) except as provided in Subparagraph E(9) of this Article IV, no Person shall Beneficially Own Common Stock in excess of the Ownership Limit;
(ii) except as provided in Subparagraph E(9) of this Article IV, no Person shall Constructively Own in excess of 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of Common Stock of the Corporation; and
(iii) no Person shall Beneficially or Constructively Own Common Stock to the extent that such Beneficial or Constructive Ownership would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or otherwise failing to qualify as a REIT (including but not limited to ownership that would result in the Corporation owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation (either directly or indirectly through one or more partnerships) from such tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).
(b) If, during the period commencing on the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer (whether or not such Transfer is the result of a transaction entered into through the facilities of the New York Stock Exchange (“NYSE”)) or other event occurs that, if effective, would result in any Person Beneficially or Constructively Owning Common Stock in violation of Subparagraph E(2)(a) of this Article IV, (i) then that number of shares of Common Stock that otherwise would cause such Person to violate Subparagraph E(2)(a) of this Article IV (rounded up to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in Subparagraph E(3), effective as of the close of business on the business day prior to the date of such Transfer or other event, and such Purported Beneficial Transferee shall thereafter have no rights in such shares or (ii) if, for any reason, the transfer to the Trust described in clause (i) of this sentence is not automatically effective as provided therein to prevent any Person from Beneficially or Constructively Owning Common Stock in violation of Subparagraph E(2)(a) of this Article IV, then the Transfer of that number of shares of Common Stock that otherwise would cause any Person to violate Subparagraph E(2)(a) shall be voidab initio, and the Purported Beneficial Transferee shall have no rights in such shares.
(c) Subject to Paragraph K of this Article IV and notwithstanding any other provisions contained herein, during the period commencing on the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of Common Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE) that, if effective, would result in the capital stock of the Corporation being beneficially owned by less than 100 Persons (determined without reference to any rules of attribution) shall be voidab initio, and the intended transferee shall acquire no rights in such Common Stock.
(d) It is expressly intended that the restrictions on ownership and Transfer described in this Subparagraph E(2) of Article IV shall apply to the redemption/exchange rights provided in Section 8.6 of the Partnership Agreement. Notwithstanding any of the provisions of the Partnership Agreement to the contrary, a partner of the Operating Partnership shall not be entitled to effect an exchange of an interest in the Operating Partnership for Common Stock if the actual or beneficial or Beneficial or Constructive ownership of Common Stock would be prohibited under the provisions of this Article IV.
3. Transfers of Common Stock in Trust.
(a) Upon any purported Transfer or other event described in Subparagraph E(2)(b) of this Article IV, such Common Stock shall be deemed to have been transferred to the Trustee in his capacity as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the business day prior to the purported Transfer or other event that results in a transfer to the Trust pursuant to Subparagraph E(2)(b). The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation, any Purported Beneficial Transferee, and any Purported Record Transferee. Each Charitable Beneficiary shall be designated by the Corporation as provided in Subparagraph E(3)(f) of this Article IV.
(b) Common Stock held by the Trustee shall be issued and outstanding Common Stock of the Corporation. The Purported Beneficial Transferee or Purported Record Transferee shall have no rights in the shares of Common Stock held by the Trustee. The Purported Beneficial Transferee or Purported Record Transferee shall not benefit economically from ownership of any shares held in trust by the Trustee, shall have no rights to dividends and shall not possess any rights to vote or other rights attributable to the shares of Common Stock held in the Trust.
(c) The Trustee shall have all voting rights and rights to dividends with respect to Common Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or distribution paid prior to the discovery by the Corporation that shares of Common Stock have been transferred to the Trustee shall be paid to the Trustee upon demand, and any dividend or distribution declared but unpaid shall be paid when due to the Trustee with respect to such Common Stock. Any dividends or distributions so paid over to the Trustee shall be held in trust for the Charitable Beneficiary. The Purported Record Transferee and Purported Beneficial Transferee shall have no voting rights with respect to the Common Stock held in the Trust and, subject to Maryland law, effective as of the date the Common Stock has been transferred to the Trustee, the Trustee shall have the authority (at the Trustee’s sole discretion) (i) to rescind as void any vote cast by a Purported Record Transferee with respect to such Common Stock prior to the discovery by the Corporation that the Common Stock has been transferred to the Trustee and (ii) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary;provided,however, that if the Corporation has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Article IV, until the Corporation has received notification that the Common Stock has been transferred into a Trust, the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of stockholders.
(d) Within 20 days of receiving notice from the Corporation that shares of Common Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares of Common Stock held in the Trust to a person, designated by the Trustee, whose ownership of the shares of Common Stock will not violate the ownership limitations set forth in Subparagraph E(2)(a). Upon such sale, the interest of the Charitable Beneficiary in the shares of Common Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and to the Charitable Beneficiary as provided in this Subparagraph E(3)(d). The Purported Record Transferee shall receive the lesser of (i) the price paid by the Purported Record Transferee for the shares of Common Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Common Stock at Market Price, the Market Price of such shares of Common Stock on the day of the event which resulted in the transfer of such shares of Common Stock to the Trust) and (ii) the price per share received by the Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares of Common Stock held in the Trust. Any net sales proceeds in excess of the amount payable to the Purported Record Transferee shall be immediately paid to the Charitable Beneficiary together with any dividends or other distributions thereon. If, prior to the discovery by the Corporation that shares of such Common Stock have been transferred to the Trustee, such shares of Common Stock are sold by a Purported Record Transferee then (x) such shares of Common Stock shall be deemed to have been sold on behalf of the Trust and (y) to the extent that the Purported Record Transferee received an amount for such shares of Common Stock that exceeds the amount that such Purported Record Transferee was entitled to receive pursuant to this Subparagraph E(3)(d), such excess shall be paid to the Trustee upon demand.
(e) Common Stock transferred to the Trustee shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price paid by the Purported Record Transferee for the shares of Common Stock in the transaction that resulted in such transfer to the Trust (or, if the event which resulted in the transfer to the Trust did not involve a purchase of such shares of Common Stock at Market Price, the Market Price of such shares of Common Stock on the day of the event which resulted in the transfer of such shares of Common Stock to the Trust) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer until the Trustee has sold the shares of Common Stock held in the Trust pursuant to Subparagraph E(3)(d). Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the shares of Common Stock sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Purported Record Transferee and any dividends or other distributions held by the Trustee with respect to such Common Stock shall thereupon be paid to the Charitable Beneficiary.
(f) By written notice to the Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Trust such that (i) the shares of Common Stock held in the Trust would not violate the restrictions set forth in Subparagraph E(2)(a) in the hands of such Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Code.
4. Remedies For Breach. If the Board of Directors or a committee thereof or other designees if permitted by the MGCL shall at any time determine in good faith that a Transfer or other event has taken place in violation of Subparagraph E(2) of this Article IV or that a Person intends to acquire, has attempted to acquire or may acquire beneficial ownership (determined without
reference to any rules of attribution), Beneficial Ownership or Constructive Ownership of any shares of the Corporation in violation of Subparagraph E(2) of this Article IV, the Board of Directors or a committee thereof or other designees if permitted by the MGCL shall take such action as it deems advisable to refuse to give effect or to prevent such Transfer, including, but not limited to, causing the Corporation to redeem shares of Common Stock, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer;provided,however, that any Transfers (or, in the case of events other than a Transfer, ownership or Constructive Ownership or Beneficial Ownership) in violation of Subparagraph E(2)(a) of this Article IV, shall automatically result in the transfer to a Trust as described in Subparagraph E(2)(b) and any Transfer in violation of Subparagraph E(2)(c) shall automatically be voidab initio irrespective of any action (ornon-action) by the Board of Directors.
5. Notice of Restricted Transfer. Any Person who acquires or attempts to acquire shares in violation of Subparagraph E(2) of this Article IV, or any Person who is a Purported Beneficial Transferee such that an automatic transfer to a Trust results under Subparagraph E(2)(b) of this Article IV, shall immediately give written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Corporation’s status as a REIT.
6. Owners Required to Provide Information. From the date of the Initial Public Offering and prior to the Restriction Termination Date each Person who is a beneficial owner or Beneficial Owner or Constructive Owner of shares of Common Stock and each Person (including the stockholder of record) who is holding shares of Common Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall, on demand, provide to the Corporation a completed questionnaire containing the information regarding their ownership of such shares, as set forth in the regulations (as in effect from time to time) of the U.S. Department of Treasury under the Code. In addition, each Person who is a beneficial owner or Beneficial Owner or Constructive Owner of shares of Common Stock and each Person (including the stockholder of record) who is holding shares of Common Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall, on demand, be required to disclose to the Corporation in writing such information as the Corporation may request in order to determine the effect, if any, of such stockholder’s actual and constructive ownership of shares of Common Stock on the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit, or such other limit as provided from time to time in these Articles of Amendment and Restatement or as otherwise permitted by the Board of Directors.
7. Remedies Not Limited. Nothing contained in this Article IV (but subject to Paragraph K of this Article IV) shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporation’s status as a REIT.
8. Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Paragraph E of this Article IV, including any definition contained in Subparagraph E(1), the Board of Directors shall have the power to determine the application of the provisions of this Paragraph E with respect to any situation based on the facts known to it (subject, however, to the provisions of Paragraph K of this Article IV). In the event Paragraph E requires an action by the Board of Directors and these Articles of Amendment and Restatement fail to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Paragraph E. Absent a decision to the contrary by the Board of Directors (which the Board may make in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Subparagraph E(2)(b)) acquired Beneficial or Constructive Ownership of Common Stock in violation of Subparagraph E(2)(a), such remedies (as applicable) shall apply first to the shares of Common Stock which, but for such remedies, would have been actually owned by such Person, and second to shares of Common Stock which, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such shares of Common Stock based upon the relative number of the shares of Common Stock held by each such Person.
9. Exceptions.
(a) Subject to Subparagraph E(2)(a)(iii), the Board of Directors, in its sole discretion, may exempt a Person from the limitation on a Person Beneficially Owning shares of Common Stock in excess of the Ownership Limit if the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership of such shares of Common Stock will violate the Ownership Limit or that any such violation will not cause the Corporation to fail to qualify as a REIT under the Code, and agrees that any violation of such representations or undertaking (or other action which is contrary to the restrictions contained in Subparagraph E(2) of this Article IV) or attempted violation will result in such Common Stock being transferred to a Trust in accordance with Subparagraph E(2)(b) of this Article IV.
(b) Subject to Subparagraph E(2)(a)(iii), the Board of Directors, in its sole discretion, may exempt a Person from the limitation on a Person Constructively Owning Common Stock in excess of 9.8% (by value or by number of shares of Common Stock, whichever is more restrictive) of the outstanding shares of Common Stock of the Corporation, if such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the Corporation (or a tenant of any entity owned in whole or in part by the Corporation) that would cause the Corporation to own, actually or Constructively more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Corporation obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact and agrees that any violation or attempted violation will result in such Common Stock being transferred to a Trust in accordance with Subparagraph E(2)(b) of this Article IV. Notwithstanding the foregoing, the inability of a Person to make the certification described in this Subparagraph E(9)(b) shall not prevent the Board of Directors, in its sole discretion, from exempting such Person from the limitation on a Person Constructively Owning Common Stock in excess of 9.8% of the outstanding shares of Common Stock if the Board of Directors determines that the resulting application of Section 856(d)(2)(B) of the Code would affect the characterization of less than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the Code) of the Corporation in any taxable year, after taking into account the effect of this sentence with respect to all other Common Stock to which this sentence applies.
(c) Prior to granting any exception pursuant to Subparagraph E(9)(a) or (b) of this Article IV, the Board of Directors may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Corporation’s status as a REIT.
F. Preemptive Rights. No holder of shares of stock of any class shall have any preemptive or preferential right to subscribe or to purchase any additional shares of any class, or any bonds or convertible securities of any nature;provided,however, that the Board of Directors may, in authorizing the issuance of shares of stock of any class or series, confer any preemptive or preferential right that the Board of Directors may deem advisable in connection with such issuance.
G. Legends. Each certificate for Common Stock and Preferred Stock shall bear the following legends:
Class of Stock
THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE CORPORATION’S CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
Restriction on Ownership and Transfer
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION’S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION’S CHARTER, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE CORPORATION’S COMMON STOCK IN EXCESS OF 7.0% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE CORPORATION; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE CORPORATION’S COMMON STOCK IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE
OUTSTANDING COMMON STOCK OF THE CORPORATION; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING “CLOSELY HELD” UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY TRANSFER SHARES OF COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOIDAB INITIO. ALL TERMS IN THIS LEGEND THAT ARE DEFINED IN THE CHARTER OF THE CORPORATION SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SHARES OF COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
H. Exchange of OP Units. So long as the Corporation remains the general partner of the Operating Partnership, the Board of Directors of the Corporation is hereby expressly vested with authority (subject to the restrictions on ownership, transfer and redemption of Common Stock set forth in this Article IV) to issue, and shall issue to the extent provided in the Partnership Agreement, Common Stock in exchange for the units into which partnership interests of the Operating Partnership are divided (the “OP Units”), and as the same may be adjusted, as provided in the Partnership Agreement.
I. Reservation of Shares. Pursuant to the obligations of the Corporation under the Partnership Agreement to issue Common Stock in exchange for OP Units, the Board of Directors is hereby required to reserve and authorize for issuance a sufficient number of authorized but unissued shares of Common Stock to permit the Corporation to issue Common Stock in exchange for OP Units that may be exchanged for or converted into Common Stock as provided in the Partnership Agreement.
J. Severability. If any provision of this Article IV or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.
K. NYSE. Nothing in this Article IV shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. The shares of Common Stock that are the subject of such transaction shall continue to be subject to the provisions of this Article IV after such settlement.
ARTICLE V
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI
BOARD OF DIRECTORS
A. The business and affairs of the Corporation shall be managed by and under the direction of the Board of Directors. The Corporation shall have a board of six (6) directors until that number is increased or decreased in accordance with the Bylaws of the Corporation, or as contemplated by the provisions of Paragraph D of this Article VI. However, the number of directors shall never be less than the minimum number required by the MGCL. At least a majority of the directors shall be Independent Directors“Independent Directors” (as defined in the next sentence). An Independent Director is a director who is not an employee, officer or affiliate of the
Corporation or Kilroy Industries or a subsidiary or 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 Corporation in addition to director’s fees. The following persons shalldirectors need not be the directors of the Corporation until their successors are duly elected and qualified, or until their earlier death, retirement, resignation or removal:
John Kilroy
Edward F. Brennan, PhD
Jolie A. Hunt
Scott S. Ingraham
Gary R. Stevenson
Peter B. Stoneberg
B.stockholders. Each director (other than any director who may be elected by holders of Preferred Stock as provided for pursuant to Article IV hereof), shall serve until the next annual meeting of stockholders following his or her election and until his or her successor is elected and qualified, or until his or her earlier death, retirement, resignation or removal. In the event of the occurrence of a vacancy on the Board of Directors which the remaining directors are otherwise permitted to fill under the provisions of the charter of the Corporation and applicable law, the Board of Directors may, in lieu of filling such vacancy, nominate, or authorize a committee or person appointed by the Board of Directors to nominate, a person to be elected by the stockholders to fill such vacancy at an annual meeting or a special meeting called for that purpose.
C.Section 2. (a) Except as provided in Section 3 of this Article III, nominations of any person for election to the Board of Directors at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (i) pursuant to the Company’s notice of meeting; (ii) by or at the direction of the Board of Directors, including by any committee or persons appointed by the Board of Directors; or (iii) by a stockholder who (A) was a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf such nomination is proposed to be made, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2 and at the time of the meeting; (B) is entitled to vote at the meeting; and (C) has complied with this Section 2 as to such nomination. Except as provided in Section 3 of this Article III, the foregoing clause (iii) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board of Directors at an annual meeting or special meeting.
(b) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board of Directors at an annual meeting pursuant to Section 2(a)(iii) of this Article III, the stockholder must (i) provide Timely Notice (as defined in Article II, Section 2) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2. Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board of Directors at a special meeting, the stockholder must (i) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred fiftieth (150th) day prior to such special meeting and not later than the one hundred twentieth (120th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Article II, Section 2) of the date of such special meeting was first made. In no event shall any adjournment of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.
(c) To be in proper form for purposes of this Section 2, a stockholder’s notice to the Secretary shall set forth:
(i) As to each Nominating Person (as defined below), the Stockholder Information (as defined in Article II, Section 2(c)(i), except that for purposes of this Section 2 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Article II, Section 2(c)(i));
(ii) As to each Nominating Person, any Disclosable Interests (as defined in Article II, Section 2(c)(ii), except that for purposes of this Section 2 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Article II, Section 2(c)(ii) and the disclosure in clause (F) of Article II, Section 2(c)(ii) shall be made with respect to the election of directors at the meeting);
B-8 | PROXY STATEMENT | KILROY REALTY |
(iii) As to each person whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 2 if such proposed nominee were a Nominating Person; (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (C) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among any Nominating Person, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant, and (D) a completed and signed questionnaire, representation and agreement as provided in Section 2(f) of this Article III; and
(iv) The Corporation may require any proposed nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such proposed nominee.
For purposes of this Section 2, the term “Nominating Person” shall mean (i) the stockholder providing the notice of the nomination proposed to be made at the meeting; (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, and (iii) any affiliate or associate of such stockholder or beneficial owner.
(d) A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable, or, if not practicable, on the first practicable date prior to the meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
(e) Except as provided in Section 3 of this Article III, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with this Section 2. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with this Section 2, and if he or she should so determine, he or she shall so declare such determination to the meeting and the defective nomination shall be disregarded.
(f) To be eligible to be a nominee for election as a director of the Corporation, the proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under this Section 2) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in form provided by the Secretary upon written request) that such proposed nominee (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law; (ii) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed to the Corporation and (iii) in such proposed nominee’s individual capacity and on behalf of the stockholder (or the beneficial owner, if different) on whose behalf the
KILROY REALTY | PROXY STATEMENT | B-9 |
nomination is made, would be in compliance, if elected as a director of the Corporation, and will comply with all corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation, and any other policies and guidelines of the Corporation applicable to directors.
(g) In addition to the requirements of this Section 2 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
(h) Except as may otherwise be provided pursuant to Article IV hereofof the Corporation’s charter with respect to any rights of holders of Preferred Stockpreferred stock to elect additional directors and any other requirement in these Bylaws or any agreement relating to the right to designate nominees for election to the Board of Directors, should a vacancy in the Board of Directors occur or be created (whether arising through death, retirement or resignation), such vacancy mayshall be filled by the affirmative vote of a majority of the remaining directors, even though less than a quorum of the Board of Directors or, in the case of a vacancy resulting from an increase in the number of directors, by a majority of the Board of Directors. In the case of a vacancy created by the removal of a director, the vacancy shall be filled by the stockholders of the Corporation at the next annual meeting of the stockholders or at a special meeting of the stockholders called for such purpose, provided, however, that such vacancy may be filled by the affirmative vote of a majority of the remaining directors (subject to approval by the stockholders at the next annual meeting of the stockholders or at a special meeting of the stockholders called for such purpose). A
(i) The provisions of this Section 2 shall not apply to any director so electednomination made pursuant to fill a vacancy shall serve untilSection 3 of this Article III, except to the nextextent expressly provided in Section 3 of this Article III.
Section 3. (a) Notwithstanding anything to the contrary in these Bylaws, whenever the Board of Directors solicits proxies with respect to the election of directors at an annual meeting of stockholders, and until his successor is elected and qualified or until his earlier death, retirement, resignation or removal. If the stockholders of any class or series of Preferred Stock are entitled separately to elect one or more directors, the stockholders of that class or series shall fill a vacancy on the Board of Directors which results from the removal of a director elected by that class or series.
D. During any period when the holders of any class of Preferred Stock have the right to elect additional directors as provided for or fixed pursuantsubject to the provisions of Article IV hereof, then upon commencement and for the duration of the period during which such right continues (i) the then otherwise total and authorized number of directors ofthis Section 3, the Corporation shall automaticallyinclude in its proxy statement and other applicable filings required to be increased by that numbermade in connection with solicitations of proxies for election of directors for such additional directors, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixedannual meeting pursuant to said provisions, and (ii) each such additional director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s rightSection 14(a) under the Exchange Act (“proxy materials”), in addition to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his earlier death, disqualification, resignation or removal. Except as otherwise providedany persons nominated for election by the Board of Directors inor any committee thereof, the resolution or resolutions establishing such class, whenevername, together with the holdersRequired Information (as defined below), of any class of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the term of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate and the total and authorized number of directors of the Corporation shall be reduced accordingly.
ARTICLE VII
RELATED PARTY TRANSACTIONS
Without limiting any other procedures available by law or otherwise to the Corporation, the Board of Directors may authorize any agreement or other transaction with any person corporation, association, company, trust, limited liability company, partnership (limited or general) or other organization, although one or more of the directors or officers of the Corporation may be a party to any such agreement or an officer, director, stockholder, member or partner (general or limited) of such other party (an “Interested Officer/Director”nominated for election (the “Stockholder Nominee”), and no such agreement or transaction shall be invalidated or rendered void or voidable solely by reason of the existence of any such relationship if: (i) the existence is disclosed or known to the Board of Directors by a stockholder or group of no more than twenty (20) stockholders (counting as one stockholder, for this purpose, any two or more funds that are part of the same Qualifying Fund Group (as defined below)) who satisfies the requirements of this Section 3 (the “Eligible Stockholder”), and who expressly elects at the time of providing the written notice required by this Section 3 (the “Notice of Proxy Access Nomination”) to have its nominee or nominees included in the Corporation’s proxy materials pursuant to this Section 3. For purposes of this Section 3, (i) a “Qualifying Fund Group” is a group of two or more funds that are (A) under common management and investment control, (B) under common management and funded primarily by the same employer, or (C) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, and (ii) the “Required Information” that the Corporation will include in its proxy materials is the information provided to the Secretary of the Corporation concerning the Stockholder Nominee and the contract or transactionEligible Stockholder that is authorized, approved or ratifiedrequired to be disclosed in such proxy materials by the affirmative vote of not less thanregulations promulgated under the Exchange Act, and if the Eligible Stockholder so elects, a majoritywritten statement in support of the disinterested directors, even if theycandidacy of the Stockholder Nominee(s), not to exceed 500 words, delivered to the Secretary of the Corporation at the time the Notice of Proxy Access Nomination required by this Section 3 is provided (the “Statement”). Notwithstanding anything to the contrary contained in this Section 3, the Corporation may omit from its proxy materials any information or Statement (or portion thereof) that it, in good faith, believes would violate any applicable law or regulation.
(b) To be eligible to have its nominee included in the Corporation’s proxy materials pursuant to this Section 3, an Eligible Stockholder must have owned (as defined below) at least three (3) percent or more of the Corporation’s outstanding Common Stock (the “Required Shares”) continuously for at least three (3) years (the “Minimum Holding Period”) as of both the date the Notice of Proxy Access Nomination is delivered to, or mailed to and received by, the Secretary of the Corporation in accordance with this Section 3 and the record date for determining the stockholders entitled to vote at the annual meeting, and must continue to own the Required Shares through the meeting date. For purposes of this Section 3, an Eligible Stockholder shall be deemed to “own” only those outstanding shares of Common Stock of the Corporation as to which the stockholder possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares (x) sold by such stockholder or any of its affiliates in any transaction that has not been settled or closed, including short sales, (y) borrowed by such stockholder or any of its affiliates for any purposes or purchased by such stockholder or
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constituteany of its affiliates pursuant to an agreement to resell or (z) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar instrument, agreement or arrangement entered into by such stockholder or any of its affiliates, whether any such instrument, agreement or arrangement is to be settled with shares or with cash based on the notional amount or value of shares of outstanding Common Stock of the Corporation, in any such case which instrument, agreement or arrangement has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder’s or its affiliates’ full right to vote or direct the voting of any such shares, and/or (2) hedging, offsetting or altering to any degree any gain or loss arising from the full economic ownership of such shares by such stockholder or affiliate. An Eligible Stockholder shall “own” shares of Common Stock held in the name of a nominee or other intermediary so long as the stockholder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. An Eligible Stockholder’s ownership of shares of Common Stock shall be deemed to continue during any period in which (i) the stockholder has loaned such shares, provided that the stockholder has the power to recall such loaned shares on five days’ notice, includes with the Notice of Proxy Access Nomination an agreement that it will promptly recall such loaned shares upon being notified that any of its Stockholder Nominees will be included in the Corporation’s proxy materials and continues to hold such recalled shares (including the right to vote such shares) through the date of the annual meeting, or (ii) the stockholder has delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement which is revocable at any time by the stockholder. For purposes of this Section 3, the terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings. Whether outstanding shares of the Common Stock of the Corporation are “owned” for these purposes shall be determined by the Board of Directors or any committee thereof. In addition, the term “affiliate” or “affiliates” shall have the meaning ascribed thereto the Exchange Act.
(c) To be eligible to have its nominee included in the Corporation’s proxy materials pursuant to this Section 3, an Eligible Stockholder must (i) provide, within the time period specified below, a Notice of Proxy Access Nomination in writing and in proper form to the Secretary of the Corporation, and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 3. To be timely, the Notice of Proxy Access Nomination must be delivered to, or mailed to and received by, the Secretary of the Corporation at the principal executive offices of the Corporation in proper form not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the one year anniversary of the preceding year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not later than one hundred twenty (120) days prior to such annual meeting or, if later, the tenth (10th) day following the date on which public disclosure of the date of such annual meeting was first made. In no event shall any postponement or adjournment of an annual meeting of stockholders or the announcement thereof commence a quorumnew time period for the giving of a stockholders notice as described above.
(d) To be in proper form for purposes of this Section 3, the Notice of Proxy Access Nomination to the Secretary shall include the following information:
(i) one or more written statements from the record holder of the Required Shares (or from each intermediary through which the Required Shares are or have been held during the Minimum Holding Period and, if applicable, each participant in the Depository Trust Company (“DTC”) or affiliate of a DTC participant through which the Required Shares are or have been held by such intermediary during the Minimum Holding Period if the intermediary is not a DTC participant or affiliate of a DTC participant) verifying that, as of a date within seven (7) days prior to the date the Notice of Proxy Access Nomination is delivered to, or mailed to and received by, the Secretary of the Corporation, the Eligible Stockholder owns, and has owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder’s agreement to provide, within five (5) business days after the record date for the annual meeting, written statements from the record holder and intermediaries verifying the Eligible Stockholder’s continuous ownership of the Required Shares through the record date;
(ii) a copy of the Schedule 14N that has been filed with the Securities and Exchange Commission as required by Rule 14a-18 under the Exchange Act;
(iii) information that is the same as would be required to be set forth in a stockholder’s notice of nomination pursuant to paragraphs (i), (ii), (iii)(A) and (iii)(C) of Section 2(c) of this Article III;
(iv) the questionnaire, representations, agreements and other information required by Section 2(f) of this Article III;
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(v) the consent of each Stockholder Nominee to being named in the proxy statement as a nominee and to serving as a director if elected;
(vi) a representation that the Eligible Stockholder (A) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and that neither the Eligible Stockholder nor any Stockholder Nominee being nominated thereby presently has such intent, (B) intends to continue to own the Required Shares through the date of the annual meeting, (C) has not engaged and will not engage in, and has not and will not be a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors;Directors, (D) has complied, and will comply, with all applicable laws and regulations applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting, (E) will not distribute to any stockholder any form of proxy for the annual meeting other than the form distributed by the Corporation, and (F) has not nominated and will not nominate for election to the Board of Directors at the annual meeting any person other than the Stockholder Nominee(s) being nominated pursuant to this Section 3 and (G) has not provided and will not provide facts, statements or other information in its communications with the Corporation and its stockholders that are not or will not be true, correct and complete in all material respects or which omitted or will omit to state a material fact necessary in order to make such information, in light of the circumstances under which it is or will be made or provided, not misleading;
(vii) a representation as to the Eligible Stockholder’s intentions with respect to continuing to own the Required Shares for at least one year following the annual meeting; and
(viii) an undertaking that the Eligible Stockholder agrees to (A) assume all liability stemming from any legal or regulatory violation arising out of communications with the stockholders of the Corporation by the Eligible Stockholder, its affiliates and associates or their respective agents or representatives, either before or after providing a Notice of Proxy Access Nomination pursuant to this Section 3, or out of the facts, statements or other information that the Eligible Stockholder or its Stockholder Nominee(s) provided to the Corporation pursuant to this Section 3 or otherwise in connection with the inclusion of such Stockholder Nominee(s) in the Corporation’s proxy materials pursuant to this Section 3, and (B) indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of any nomination submitted by the Eligible Stockholder pursuant to this Section 3.
The Corporation may also require each Stockholder Nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such Stockholder Nominee to serve as an independent director of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such Stockholder Nominee.
(e) A stockholder providing a Notice of Proxy Access Nomination pursuant to this Section 3 shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 3 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting, if practicable, or, if not practicable, on the first practicable date prior to the meeting or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
(f) The maximum number of Stockholder Nominees nominated by all Eligible Stockholders that will be included in the Corporation’s proxy materials with respect to an annual meeting of stockholders shall not exceed 25% of the number of directors in office as of the last day on which a Notice of Proxy Access Nomination may be timely delivered pursuant to and in accordance with this Section 3 (the “Final Proxy Access Nomination Date”), or if such amount is not a whole number, the closest whole number below 25%. In the event that one or more vacancies for any reason occurs on the Board of Directors after the Final Proxy Access Nomination Date but before the date of the annual meeting and the Board of Directors elects to reduce the size of the Board of Directors in connection therewith, the maximum number of Stockholder Nominees eligible for inclusion in the
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Corporation’s proxy materials pursuant to this Section 3 shall be calculated based on the number of directors in office as so reduced. Any individual nominated by an Eligible Stockholder for inclusion in the Corporation’s proxy materials pursuant to this Section 3 whose nomination is subsequently withdrawn or whom the Board of Directors or any committee thereof decides to nominate for election to the Board of Directors shall be counted as one of the Stockholder Nominees for purposes of determining when the maximum number of Stockholder Nominees provided for in this Section 3 has been reached. In the event the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 3 exceeds the maximum number of nominees provided for in this Section 3(f), each eligible Stockholder will select one Stockholder Nominee for inclusion in the Corporation’s proxy materials until the maximum number is reached, proceeding in order of the amount of shares of Common Stock of the Corporation (largest to smallest) disclosed as owned by each Eligible Stockholder in the Notice of Proxy Access Nomination submitted to the Corporation. If the maximum number is not reached after each Eligible Stockholder has selected one Stockholder Nominee, this selection process will continue as many times as necessary, following the same order each time, until the maximum number is reached.
(g) In the event that any facts, statements or other information provided by the Eligible Stockholder or the Stockholder Nominee to the Corporation or its stockholders ceases to be true, correct and complete in all material respects or omits a material fact necessary to make such information, in light of the circumstances under which it is made or provided, not misleading, each Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary of the Corporation of any defect in such previously provided information and of the information that is required to correct any such defect.
(h) The Corporation shall not be required to include, pursuant to this Section 3, a Stockholder Nominee in its proxy materials for any meeting of stockholders (i) for which the Secretary of the Corporation receives a notice that the Eligible Stockholder or any other stockholder of the Corporation has nominated one or more persons for election to the Board of Directors pursuant to the advance notice requirements for stockholder nominees for director set forth in Section 2 of this Article III, (ii) if the Eligible Stockholder who has nominated such Stockholder Nominee has engaged in or is currently engaged in, or has been or is a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the board of directors, (iii) if such Stockholder Nominee would not be an independent director under the Corporation’s Corporate Governance Guidelines, (iv) if the election of such Stockholder Nominee as a member of the Board of Directors would cause the Corporation to be in violation of these Bylaws, the Corporation’s charter, the rules and listing standards of any principal U.S. exchange upon which the Common Stock of the Corporation is traded, or any applicable state or federal law, rule or regulation, (v) if such Stockholder Nominee is or has been, within the past three (3) years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (vi) if the Stockholder Nominee is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past ten (10) years, (vii) if such Stockholder Nominee is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Exchange Act, (viii) if the Eligible Stockholder who has nominated such Stockholder Nominee or such Stockholder Nominee provides any facts, statements or other information to the Corporation or its stockholders required or requested pursuant to this Section 3 that is not true, correct and complete in all material respects or that omits a material fact necessary to make such information, in light of the circumstances in which it is made or provided, not misleading, or that otherwise contravenes any of the agreements or representations made by such Eligible Stockholder or Stockholder Nominee pursuant to this Section 3, or (ix) if the Eligible Stockholder who has nominated such Stockholder Nominee or such Stockholder Nominee fails to comply with its obligations pursuant to this Section 3.
(i) Notwithstanding anything to the contrary set forth herein, the Board of Directors or the presiding officer at the meeting shall declare a nomination by an Eligible Stockholder to be invalid, and such nomination shall be disregarded notwithstanding that proxies in respect of such vote may have been received by the Corporation, if (i) the Stockholder Nominee(s) and/or the applicable Eligible Stockholder shall have breached its or their obligations under this Section 3, as determined by the Board of Directors or the presiding officer, or (ii) the existenceEligible Stockholder (or a qualified representative thereof) does not appear at the meeting of stockholders to present any nomination pursuant to this Section 3. For purposes of this Section 3(i), to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction thereof, at the meeting of stockholders.
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(j) Whenever the Eligible Stockholder consists of a group of more than one stockholder, each provision in this Section 3 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to meet any other conditions shall be deemed to require each stockholder that is discloseda member of such group to provide such statements, representations, undertakings, agreements or other instruments and to meet such other conditions (which, if applicable, shall apply with respect to the portion of the Required Shares owned by such stockholder). No person may be a member of more than one group of persons constituting an Eligible Stockholder with respect to any annual meeting.
(k) Any Stockholder Nominee who is included in the Corporation’s proxy materials for a particular annual meeting of stockholders entitledbut either (i) withdraws from or becomes ineligible or unavailable for election to vote, and the contractBoard of Directors at the annual meeting or transaction is authorized, approved or ratified by a majority(ii) does not receive at least 25% of the votes cast in favor of his or her election at the annual meeting, will be ineligible to be a Stockholder Nominee pursuant to this Section 3 for the next two annual meetings. For the avoidance of doubt, this Section 3(k) shall not prevent any stockholder from nominating any person to the Board of Directors pursuant to and in accordance with Section 2 of this Article III.
(l) This Section 3 provides the exclusive method for a stockholder to include nominees for election to the Board of Directors in the Corporation’s proxy materials.
Section 4. The property and business of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the stockholders entitledCorporation’s charter or by these Bylaws directed or required to vote, other thanbe exercised or done by the votesstockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The directors may hold their meetings and have one or more offices, and keep the books of the sharesCorporation, outside the State of Maryland.
Section 6. Regular meetings of the Board of Directors may be held at such time and place as shall from time to time be determined by resolution of recordthe Board of Directors, and no additional notice shall be required.
Section 7. [Intentionally Omitted.]
Section 8. Special meetings of the Board of Directors may be called by the Interested Officers/President or the Chairman of the Board of Directors on twenty-four (24) hours’ notice to each director, either personally or by mail or by any corporation, association, company, trust, limited liability company, partnership (limitedother manner permitted by law; special meetings shall be called by the President or general) or other organizationthe Secretary in like manner and on like notice on the written request of two (2) directors unless the Board of Directors consists of only one director, in which case special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of the sole director.
Section 9. Unless otherwise restricted by the Corporation’s charter or these Bylaws, any Interested Officer/Director isaction required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a directormeeting, if all members of the Board of Directors or has a material financial interest; or (iii)committee, as the contract or transaction is fair and reasonable to the Corporation. Any Interested Officer/Director, or the stock owned by themcase may be, consent thereto in writing or by a corporation, association, company, trust, limited liability company, partnership (limitedelectronic transmission, and such consent is filed with the minutes of proceedings of the Board of Directors or general)committee.
Section 10. Unless otherwise restricted by the Corporation’s charter or other organizationthese Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in which an Interested Officer/Director may have an interest, may be counted in determining the presence of a quorum at a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
RESIGNATION FROM THE BOARD OF DIRECTORS
Section 11. A director may resign at any time upon written notice to the Corporation’s Board of Directors, Chairman of the Board of Directors, President or Secretary. Any such resignation shall take effect at the time or upon the satisfaction of any condition specified therein or, if the time or condition is not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.
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COMMITTEES OF DIRECTORS
Section 12. The Board of Directors may designate one or more committees, each such committee to consist of not less than the minimum number of directors required for committees of the Board of Directors under the MGCL. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, and to the maximum extent permitted under the MGCL, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which may require it.
Without limiting the power of the Board of Directors to designate and appoint, and delegate powers and authority to, other committees at any time and from time to time, the Corporation shall from and after the incorporation have the following committees, the specific authority and members of which shall be as designated herein or by resolution of the Board of Directors:
(i) An Audit Committee, which shall consist solely of Independent Directors and which shall make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the scope and results of the audit engagement, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Corporation’s internal accounting controls.
(ii) A Nominating/Corporate Governance Committee, which shall consist solely of Independent Directors and which shall: Identify individuals qualified to become members of the Board of Directors; select, or recommend that the Board of Directors select, nominees for election to the Board of Directors at the annual meetings of stockholders; develop and recommend to the Board of Directors corporate governance guidelines applicable to the Corporation; and oversee the evaluation of the Board of Directors and management.
(iii) An Executive Compensation Committee, which shall consist solely of Independent Directors and which shall determine compensation for the Corporation’s executive officers and administer a stock incentive plan adopted by the Corporation and any other incentive programs now or hereafter adopted by the Corporation.
Section 13. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The presence of a majority of the total membership of any committee shall constitute a quorum for the transaction of business at any meeting of such committee and the act of a majority of those present shall be necessary and sufficient for the taking of any action thereat. Notice of committee meetings shall be given in the same manner as notice of special meetings of the Board of Directors.
COMPENSATION OF DIRECTORS
Section 14. Unless otherwise restricted by the charter of the Corporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of non-employee directors. The non-employee directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or at a meeting of the stockholders,stated salary as the case may be, at which the contract or transaction is authorized, approved or ratified.
ARTICLE VIII
DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION
A. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers, no director or officerdirector. Officers of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provisionwho are also members of the CharterBoard of the Corporation or the Bylaws of the Corporation inconsistent with this Article,Directors shall apply to or affect innot be paid any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.director’s fees.
B.INDEMNIFICATION
Section 15. The Corporation shall indemnify, in the manner and to the maximum extent permitted by law, any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative, or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation or that such person while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, trustee, partner, member, agent or employee of another corporation, partnership, limited liability company, association, joint venture, trust or other enterprise. To the maximum extent permitted by law, the indemnification provided herein shall include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, and any such expenses may be paid by
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the Corporation in advance of the final disposition of such action, suit or proceeding. proceeding and without requiring a preliminary determination of the ultimate entitlement to indemnification.
Neither the amendment nor repeal of this Section 15 of this Article III, nor the adoption or amendment of any other provision of the Charter of the Corporationcharter or the Bylaws of the Corporation inconsistent with this Article,Section, shall apply to or affect in any respect the applicability of this Paragraph B of Article VIIIthe preceding paragraph with respect to any act or failure to act whichthat occurred prior to such amendment, repeal or adoption.
The indemnification and reimbursement of expenses provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person against any liability and expenses to the fullest extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Charter of the Corporationcharter or the Bylaws of the Corporation, a vote of stockholders or disinterested directors,Independent Directors, or otherwise, both as to action in such person’s official capacity as an officer or director and as to action in another capacity, at the request of the Corporation, while acting as an officer or director of the Corporation.
ARTICLE IXRATIFICATION
ELECTION OF DIRECTORS
ElectionsSection 16. The Board of directors need not be by written ballot unlessDirectors or the Bylaws ofstockholders may ratify and make binding on the Corporation, shall so provide.
ARTICLE X
CERTAIN POWERS OF THE DIRECTORS
A. Determinationsany action or inaction by Board. The determination as to any of the following matters, made in good faith byCorporation or pursuantits officers to the direction ofextent that the Board of Directors consistent withor the Charterstockholders could have originally authorized the matter. Moreover, any action or inaction questioned in any stockholders’ derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a director, officer or stockholder, non-disclosure, miscomputation, the Corporationapplication of improper principles or practices of accounting, or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders, and inif so ratified, shall have the absence of actual receipt of an improper benefit in money, propertysame force and effect as if the questioned action or services or activeinaction had been originally duly authorized, and deliberate dishonesty established by a court, shall be final and conclusive andsuch ratification shall be binding upon the Corporation and every holderits stockholders and shall constitute a bar to any claim or execution of sharesany judgment in respect of its stock:such questioned action or inaction.
ARTICLE IV.
OFFICERS
Section 1. The officers of this Corporation shall be chosen by the amountBoard of Directors and shall include a President, a Vice President, a Secretary and a Treasurer. The Corporation may also have at the discretion of the net incomeBoard of Directors such other officers as are desired, including a Chairman of the Board, additional Vice Presidents, a Chief Executive Officer, a Chief Financial Officer, a Chief Operating Officer, one or more Assistant Secretaries and one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article IV. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President or other similar or dissimilar title. At the time of the election of officers, the directors may by resolution determine the order of their rank. Any number of offices may be held by the same person, unless the charter or these Bylaws otherwise provide, except that one individual may not simultaneously hold the office of President and Vice President.
Section 2. The Board of Directors, at its first meeting after each annual meeting of stockholders, or at such other time as the Board of Directors may determine, shall elect the officers of the Corporation.
Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
Section 4. The compensation of the Corporation’s executive officers shall be determined by the Corporation’s Executive Compensation Committee.
Section 5. The officers of the Corporation for any periodshall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the amountBoard of assetsDirectors may be removed at any time, legally availablewith or without cause, by the affirmative vote of a majority of the Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors.
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Section 6. Any officer may resign at any time upon written notice to the Corporation’s Board of Directors, Chairman of the Board of Directors, President or Secretary. Any such resignation shall take effect at the time or upon the satisfaction of any condition specified therein or, if the time or condition is not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective. Any such resignation will not prejudice the rights, if any, of the Corporation under any contract to which the officer is a party.
CHAIRMAN OF THE BOARD
Section 7. The Chairman of the Board of Directors shall also be the Chief Executive Officer of the Corporation. The Chairman of the Board and Chief Executive Officer shall preside at all meetings of the Board of Directors and at all meetings of the stockholders. The Chairman of the Board and Chief Executive Officer shall have the supervisory powers and duties of management usually vested in the offices of Chairman of the Board and Chief Executive Officer and shall exercise and perform such other powers and duties as may be from time to time assigned to him or her by the Board of Directors or prescribed by these Bylaws.
PRESIDENT
Section 8. Subject to such supervisory powers and duties of management given by the Board of Directors to the Chairman of the Board and Chief Executive Officer, the President shall have the supervisory powers and duties of management usually vested in the office of the President and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the absence or disability of the Chairman of the Board and Chief Executive Officer, the President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors and shall perform all of the duties of the Chairman of the Board and Chief Executive Officer.
VICE PRESIDENTS AND CHIEF OPERATING OFFICER
Section 9. In the absence or disability of the President, the Vice Presidents and the Chief Operating Officer in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors (or the Chief Operating Officer if designated by the Board of Directors), shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents and the Chief Operating Officer shall have such other duties as from time to time may be prescribed for them, respectively, by the Board of Directors.
SECRETARY AND ASSISTANT SECRETARY
Section 10. The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the paymentstanding committees when required by the Board of dividends, redemptionDirectors. He or she shall give, or cause to be given, notice of itsall meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Bylaws. He or she shall keep in safe custody the seal of the Corporation, and when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed it shall be attested by his or her signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature.
Section 11. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, or if there be no such determination, the Assistant Secretary designated by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
CHIEF FINANCIAL OFFICER, TREASURER AND ASSISTANT TREASURERS
Section 12. The Chief Financial Officer of the Corporation shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by
KILROY REALTY | PROXY STATEMENT |
stockthe Board of Directors. He or she shall disburse the paymentfunds of other distributions on its stock; the amount ofpaid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); the fair value, or any sale, bid or asked price toCorporation as may be applied in determining the fair value, of any asset owned or heldordered by the Corporation;Board of Directors, taking proper vouchers for such disbursements, and any matters relatingshall render to the acquisition, holdingBoard of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Chief Financial Officer and disposition of any assetsthe financial condition of the Corporation. If required by the Board of Directors, he or she shall give the Corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. If no other person then be appointed to the position of Treasurer of the Corporation, the person holding the office of Chief Financial Officer shall also be the Treasurer of the Corporation.
B. REIT Qualification. Subject to Paragraph KSection 13. The Treasurer or Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Article IV hereof,Directors, or if there be no such determination, the Treasurer or Assistant Treasurer designated by the Board of Directors, shall, use its reasonable best efforts to take such actions as are necessaryin the absence or appropriate to preserve the statusdisability of the CorporationChief Financial Officer, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as a REIT;however, if the Board of Directors determines that it is no longermay from time to time prescribe.
ARTICLE V.
CERTIFICATES OF STOCK
Section 1. Except as otherwise provided in these Bylaws, this Section 1 and the best interestsother Sections of Article V of these Bylaws shall not be interpreted to limit the authority of the CorporationBoard of Directors to qualifyissue some or continue to be qualified as a REIT and such determination is approved by the affirmative vote of holders of at leasttwo-thirdsall of the shares of any or all classes or series of the Corporation’s capital stock outstanding andwithout certificates. Every holder of stock of the Corporation shall be entitled to vote thereon,have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board of Directors, or the President or a Vice President, and countersigned by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer of the Corporation, certifying the number of shares of capital stock represented by the certificate owned by such stockholder in the Corporation.
Section 2. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Section 3. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of capital stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. In addition, in the event that any stock issued by the Corporation is subject to a restriction on its transferability, the stock certificate shall on its face or back contain a full statement of the restriction or state that the Corporation will furnish information about the restriction to the stockholder on request and without charge.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 4. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, revokein its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or otherwise terminatedestroyed certificate or certificates, or his or her legal representative, to advertise the Corporation’s REIT election pursuantsame in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
B-18 | PROXY STATEMENT | KILROY REALTY |
TRANSFERS OF STOCK
Section 856(g) 5. Upon surrender to the Corporation, or the transfer agent of the Code. The BoardCorporation, of Directors alsoa certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books, subject, however, to the Ownership Limit (as defined in the charter of the Corporation) and other restrictions on transferability applicable thereto from time to time.
FIXING RECORD DATE
Section 6. In order that the Corporation may determine that compliance withthe stockholders entitled to notice of or to vote at any restrictionmeeting of the stockholders, or limitation onany adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock ownership and transfers set forth in Article IV is no longer requiredor for REIT qualification.
C. Advisor Agreements. Subject to such approvalthe purpose of stockholders andany other conditions, if any, as may be required by any applicable statute, rule or regulation,lawful action, the Board of Directors may authorizefix a record date, which shall not be more than ninety (90) nor less than ten (10) days before the execution and performance bydate of such meeting, nor more than ninety (90) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the Corporation of one or more agreements with any person, corporation, association, company, trust, partnership (limited or general) or other organization whereby, subject to the supervision and control ofmeeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than one hundred twenty (120) days after the original record date.
REGISTERED STOCKHOLDERS
Section 7. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, corporation, association, company, trust, partnership (limitedwhether or general)not it shall have express or other organization shall render or make availablenotice thereof, except as expressly provided by the laws of the State of Maryland.
ARTICLE VI.
GENERAL PROVISIONS DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject to the Corporation managerial, investment, advisory and/or related services, office spaceprovisions of the Corporation’s charter, if any, may be authorized and other services and facilities (including, if deemed advisabledeclared by the Board of Directors the managementat any regular or supervisionspecial meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the investmentscapital stock, subject to the provisions of the Corporation) upon such termsCorporation’s charter and conditions asthe MGCL.
Section 2. Before payment of any dividend there may be providedset aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such agreementother purpose as the directors shall think conducive to the interests of the Corporation, and the directors may abolish any such reserve.
CHECKS
Section 3. All checks or agreements (including, if deemed fairdemands for money and equitablenotes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the compensation payable thereunderCorporation shall be fixed by resolution of the Corporation).Board of Directors.
D. Irrevocable ResolutionsSEAL.
Section 5. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Maryland.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
KILROY REALTY | PROXY STATEMENT | B-19 |
NOTICES
Section 6. Whenever, under the provisions of the MGCL or of the charter of the Corporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by any other manner permitted by law.
Section 7. Whenever any notice is required to be given under the provisions of the MGCL or of the charter of the Corporation or of these Bylaws, a waiver thereof in writing or by any other manner permitted by law, from the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ANNUAL STATEMENT
Section 8. The Board of Directors may designate anypresent at each annual meeting of its resolutions to be “irrevocable.” Resolutions so designated may not be revoked subsequentlystockholders, and when called for by the Board of Directors without the approval of the issued and outstanding shares of Common Stock of the Corporation by the affirmative vote of a majority of all votes entitled to be cast in respect of such shares of Common Stock.
ARTICLE XI
REMOVAL OF DIRECTORS
Subject to the rights of one or more classes or series of Preferred Stock to elect one or more directors, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least two thirdsstockholders shall present to any annual or special meeting of the votes entitled to be cast instockholders, a full and clear statement of the electionbusiness and condition of directors.the Corporation.
ARTICLE XIIVII.
AMENDMENTS
Subject to the provisions hereof, the Corporation reserves the right at any time, and from time to time, to amend, alter, repeal,Section 1. These Bylaws may be altered, amended or rescind any provision of its Charter, in the manner nowrepealed or hereafter prescribed by law, including without limitation any amendment altering the terms or contract rights, as expressly set forth in the Charter of the Corporation, of any outstanding shares of stock; and other provisions authorized or permittednew Bylaws may be adopted by the lawsvote of the Statea majority of Maryland at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors, or any other persons whomsoever by and pursuant to the Charter of the Corporation in its present form or as hereafter amended are granted subject to this reservation.
THIRD: The amendment to and restatement of the Charter as hereinabove set forth have been duly advised by the Board of Directors and approvedor by the stockholdersaffirmative vote of a majority of all votes entitled to be cast by the holders of the Corporation as required by law.
FOURTH: The current addressissued and outstanding shares of Common Stock of the principal officeCorporation. Notwithstanding anything to the contrary herein, this Section 1 of Article VII and Section 10 of Article II hereof may not be altered, amended or repealed except by the affirmative vote of a majority of all votes entitled to be cast by the holders of the Corporation in Maryland is as set forth in Article IIissued and outstanding shares of Common Stock of the foregoing amendment and restatement of the Charter.Corporation.
PROXY STATEMENT | KILROY REALTY |
FIFTH: The name and address of the Corporation’s current resident agent is as set forth in Article II of the foregoing amendment and restatement of the Charter.
SIXTH: The number of directors of the Corporation and the names of those currently in office are as set forth in Article VI of the foregoing amendment and restatement of the Charter.WHERE INNOVATION WORKS
SEVENTH: The total number of shares of stock which the Corporation had authority to issue immediately prior to this amendment and restatement of the Charter was 180,000,000 shares of stock, consisting of 150,000,000 shares of common stock, par value $0.01 per share, and 30,000,000 shares of preferred stock, par value $0.01 per share. The aggregate par value of all authorized shares of stock having par value was $1,800,000.
EIGHTH: The total number of shares of stock which the Corporation has authority to issue pursuant to this amendment and restatement of the Charter is 310,000,000 shares of stock, consisting of 280,000,000 shares of common stock, par value $0.01 per share, and 30,000,000 shares of preferred stock, par value $0.01 per share. The aggregate par value of all authorized shares of stock having par value is $3,100,000.
NINTH: The undersigned Executive Vice President acknowledges these Articles of Amendment and Restatement to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned Executive Vice President acknowledges that to the best of his knowledge, information, and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its Executive Vice President and attested to by its Treasurer as of the day of , 2020.PRELIMINARY PROXY CARD
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KILROY REALTY CORPORATION 12200 WEST OLYMPIC BOULEVARD SUITE 200 LOS ANGELES, CA 90064 ATTN: LAUREN STADLER | ||||||||||||||||||||||||||||||
Before The Meeting - Go to www.proxyvote.com | ||||||||||||||||||||||||||||||
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time
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During The Meeting - Go to www.virtualshareholdermeeting.com/KRC2021 | ||||||||||||||||||||||||||||||
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VOTE BY PHONE - 1-800-690-6903 | ||||||||||||||||||||||||||||||
Use any touch-tone telephone to transmit your voting
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VOTE BY MAIL | ||||||||||||||||||||||||||||||
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
| KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
KILROY REALTY CORPORATION |
The Board of Directors recommends you voteFOR the following: | ||||||||||||||||||||
1. | Election of | For | Against | Abstain | ||||||||||||||||
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1a. John Kilroy | ☐ | ☐ | ☐ | |||||||||||||||||
1b. Edward Brennan, PhD | ☐ | ☐ | ☐ | |||||||||||||||||
1c. Jolie Hunt | ☐ | ☐ | ☐ | |||||||||||||||||
1d. Scott Ingraham | ☐ | ☐ | ☐ | |||||||||||||||||
1e. | ☐ | ☐ | ☐ | |||||||||||||||||
1f. Gary Stevenson | ☐ | ☐ | ☐ | |||||||||||||||||
1g. Peter Stoneberg | ☐ | ☐ | ☐ | |||||||||||||||||
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The Board of Directors recommends you vote FOR Proposals 2, 3 and 4. | For | Against | Abstain | |||||||||||||||||
Approval, on an advisory basis, of the compensation of the Company’s named executive officers. | ☐ | ☐ | ☐ | |||||||||||||||||
3. | Approval of | ☐ | ☐ | ☐ | ||||||||||||||||
Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditor for the fiscal year ending December 31,
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NOTE:At their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournments or postponements thereof. | ||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX]
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Important Notice Regarding the Availability of Proxy Materials for the 20202021 Annual Meeting of Stockholders:Meeting:
The Notice of Annual Meeting, Proxy Statement and 20192020 Annual Report on Form 10-K are available at
https://materials.proxyvote.com/49427Fwww.proxyvote.com.
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E95895-P33134D34915-P49282
KILROY REALTY CORPORATION
Annual Meeting of Stockholders
May 19, 2020,20, 2021, 8:3000 AM PDT
This proxy is solicited by the Board of Directors
The undersigned stockholder(s) of Kilroy Realty Corporation (the “Company”) acknowledge(s)acknowledges receipt of a copy of the proxy statement for the Company’s 20202021 Annual Meeting of Stockholders and, revoking any proxy heretofore given, hereby appoint(s) John Kilroy and Tyler Rose, and each of them, with full power of substitution, as proxies for the undersigned and to vote all the shares of common stock of the Company held of record by the undersigned at the close of business on March 6, 2020,8, 2021, at the Annual Meeting of Stockholders to be held on May 19, 2020,20, 2021, 8:00 AM PDT, or any adjournments or postponements thereof, and otherwise to represent the undersigned at the meeting with discretionary authority as to any and all other business that may properly come before the meeting and with all powers possessed by the undersigned as 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.EXCERCISE. 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” EACH OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1 AND “FOR” PROPOSALS 2, 3 4 AND 5.4.
Continued and to be signed on reverse side