SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-12
DUKE REALTY CORPORATION
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(Name of Registrant as Specified in Its Charter)
DUKE REALTY CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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[DUKE REALTY CORPORATION LOGO]
600 EAST 96TH STREET
SUITE 100
INDIANAPOLIS, INDIANA 46240
(317) 808-6000
March 15, 2002
Dear Shareholder:
The directors and officers of Duke Realty Corporation join me in extending
to you a cordial invitation to attend the annual meeting of our shareholders.
This meeting will be held on Wednesday, April 24, 2002, at 3:00 p.m. local time,
at the Indianapolis Marriott North Hotel, 3645 River Crossing Parkway,
Indianapolis, Indiana 46240. We believe that both the shareholders and
management of Duke Realty Corporation can gain much through participation at
this meeting. Our objective is to make it as informative and interesting as
possible.
The formal notice of this annual meeting and the proxy statement appear on
the following pages. After reading the proxy statement, PLEASE MARK, SIGN, AND
RETURN THE ENCLOSED PROXY CARD TO ENSURE THAT YOUR VOTES ON THE BUSINESS MATTERS
OF THE MEETING WILL BE RECORDED.
We hope that you will attend this meeting. Whether or not you attend, we
urge you to return your proxy promptly in the prepaid envelope attached.
We look forward to seeing you on April 24.
Sincerely,
THOMAS L. HEFNER SIG
Thomas L. Hefner
Chairman and Chief Executive Officer
[DUKE REALTY CORPORATION LOGO]
600 EAST 96TH STREET
SUITE 100
INDIANAPOLIS, INDIANA 46240
(317) 808-6000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 2002
Notice is hereby given that the Annual Meeting of Shareholders of Duke
Realty Corporation (the "Company") will be held at the Indianapolis Marriott
North Hotel, 3645 River Crossing Parkway, Indianapolis, Indiana 46240 on
Wednesday, April 24, 2002, at 3:00 p.m. local time. At this meeting, the
shareholders will be asked to act on the following matters:
1. To elect four (4) Directors of the Company;
2. To ratify the appointment by the Board of Directors of KPMG LLP as
the Company's independent auditors for the calendar year 2002; and
3. To transact such other business as may properly come before the
meeting and any adjournment or postponement thereof.
Only shareholders of record at the close of business on Monday, February
25, 2002 are entitled to notice of and to vote at the Annual Meeting. At least a
majority of the outstanding shares of common stock of the Company present in
person or by proxy is required for a quorum. Your vote is important regardless
of the number of shares you own.
The Company's Annual Report for the year ended December 31, 2001 is also
enclosed.
By order of the Board of Directors,
/s/ John R. Gaskin
John R. Gaskin
Secretary
Indianapolis, Indiana
March 15, 2002
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, DATE AND
SIGN YOUR PROXY, AND MAIL IT IN THE POSTAGE-PAID ENVELOPE ENCLOSED FOR YOUR
CONVENIENCE. IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY. RETURNING
THE PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON ON ALL MATTERS BROUGHT
BEFORE THE MEETING.
[DUKE REALTY CORPORATION LOGO]
600 EAST 96TH STREET
SUITE 100
INDIANAPOLIS, INDIANA 46240
(317) 808-6000
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 2002
The accompanying proxy is solicited by the Board of Directors of Duke
Realty Corporation (the "Company") for use at the annual meeting of shareholders
("Annual Meeting"). The approximate date of the mailing of this proxy statement
is March 15, 2002.
Only shareholders of record as of the close of business on Monday, February
25, 2002 (the "Record Date") will be entitled to vote at the Annual Meeting. As
of the Record Date, 131,777,158 shares of common stock were issued and
outstanding.
When the proxy is properly executed and returned, the shares it represents
will be voted at the Annual Meeting in accordance with any directions noted on
the proxy. If no direction is indicated, the proxy will be voted in favor of the
proposals set forth in the notice attached to this proxy statement. Any
shareholder giving a proxy has the power to revoke it at any time before it is
voted by delivering to the Company (to the attention of John R. Gaskin,
Secretary) a written notice of revocation or a properly executed proxy bearing a
later date, or by attending the Annual Meeting and voting in person. Each share
of common stock outstanding on the record date is entitled to one vote on each
item submitted to the shareholders for their consideration.
The Company will bear the entire expense of preparing, assembling, printing
and mailing this proxy statement, the accompanying proxy and any additional
materials furnished to shareholders. The Company does not expect that the
solicitation will be made by specially engaged employees or paid solicitors.
Although the Company might use such employees or solicitors if it deems them
necessary, no arrangements or contracts have been made with any such employees
or solicitors as of the date of this proxy statement. In addition to the use of
the mail, solicitation may be made by telephone, telegraph, facsimile,
electronically, cable or personal interview. The Company will request record
holders of shares beneficially owned by others to forward this proxy statement
and related materials to the beneficial owners of such shares, and will
reimburse such record holders for their reasonable expenses incurred in doing
so.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Company's Articles of Incorporation (the "Articles") provide that the
Board of Directors shall be divided into three classes with each class to be
nearly equal in number as possible. The Articles also provide that the three
classes of directors are to have staggered terms, so that the terms of only
approximately one-third of the Board will expire at each Annual Meeting of
Shareholders and each director serves a three-year term.
Four Directors are to be elected at the Annual Meeting. Barrington H.
Branch, Thomas L. Hefner, L. Ben Lytle and John W. Nelley, Jr. have been
nominated for three-year terms expiring in 2005. All nominees are members of the
present Board of Directors. If, at the time of the Annual Meeting, any nominee
is unable or declines to serve, the discretionary authority provided in the
proxy may be exercised to vote for a substitute or substitutes. The Board of
Directors has no reason to believe that any substitute nominee or nominees will
be required.
1
The election of each Director requires the affirmative vote of at least a
majority of the common shares present in person or represented by proxy and
entitled to vote for the election of Directors. The holder of each outstanding
share of common stock is entitled to vote for as many persons as there are
Directors to be elected. An abstention, broker non-vote, or direction to
withhold authority will result in a nominee receiving fewer votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE ELECTION OF THE FOLLOWING
NOMINEES:
NOMINEES FOR ELECTION AS DIRECTORS AT 2002 ANNUAL MEETING
FOR TERMS EXPIRING IN 2005
NAME, AGE, PRINCIPAL OCCUPATION(S) AND
BUSINESS EXPERIENCE DURING PAST 5 YEARS
BARRINGTON H. BRANCH, Age 61
Mr. Branch has served as President of The Branch-Shelton Company, LLC, a private
investment banking firm, since 1998. From October 1991 to February 1997, Mr.
Branch was President and Chief Executive Officer of DIHC Management Corporation,
a wholly owned U.S. real estate investment subsidiary of Pensioenfonds PGGM. He
has served as a director of the Company since 1999 and served as a director of
Weeks Corporation prior to its merger with the Company.
THOMAS L. HEFNER, Age 55
Mr. Hefner has served as Chairman of the Board and Chief Executive Officer of
the Company since 1993. Mr. Hefner has served as a director of the Company since
1993 and also serves as a member of the board of directors for the National
Association of Real Estate Investment Trusts, the Central Indiana Corporate
Partnership and the Nature Conservancy of Indiana. In addition, he serves on the
Dean's Advisory Council of Purdue University's Krannert School of Business.
L. BEN LYTLE, Age 55
Mr. Lytle has served as Chairman of Anthem, Inc., a national insurance and
financial services firm since October, 1999. Prior to October 1999 and since
1997, Mr. Lytle was the Chairman, President and Chief Executive Officer of
Anthem, Inc. From 1989 through 1997, he was the President and Chief Executive
Officer of Anthem, Inc. Mr. Lytle has served as a director of the Company since
1996 and is a director of Anthem, Inc. and Monarch Coach, Inc. He is an
Executive-in-Residence at the University of Arizona School of Business, Adjunct
Fellow at the American Enterprise Institute and Senior Fellow at the Hudson
Institute.
JOHN W. NELLEY, JR., Age 53
Mr. Nelley has served as a Managing Director of the Company with
responsibilities for the Company's office and industrial activities in
Nashville, Tennessee since 1999 and served in that same capacity for Weeks
Corporation from 1996 to 1999. He has served as a director of the Company since
1999 and served as a director of Weeks Corporation prior to its merger with the
Company.
CONTINUING DIRECTORS
The continuing Directors listed in the table below will continue in office
until expiration of their terms.
NAME, AGE, PRINCIPAL OCCUPATION(S) AND
BUSINESS EXPERIENCE DURING PAST 5 YEARS
DIRECTORS WHOSE TERMS EXPIRE IN 2003
HOWARD L. FEINSAND, Age 54
Mr. Feinsand has served as Executive Vice President and General Counsel of the
Company since August, 1999. Mr. Feinsand also directs the Company's real estate
acquisition and disposition division. Prior to joining the Company in August
1999 and since 1996, Mr. Feinsand was the Founder and Principal of Choir Capital
Ltd. He has served as a director of the Company since 1988.
2
WILLIAM O. MCCOY, Age 68
Mr. McCoy has been a partner of Franklin Street Partners, an investment
management firm in Chapel Hill, North Carolina since 1997. From April 1999 to
August 2000, Mr. McCoy also served as Interim Chancellor of the University of
North Carolina. Mr. McCoy was Vice President-Finance for the University of North
Carolina from February 1995 to November 1998. He retired as Vice Chairman of
Bell South Corporation in January 1995. He has served as a director of the
Company since 1999 and served as a director of Weeks Corporation prior to its
merger with the Company. Mr. McCoy also serves on the board of directors of
Progress Energy, Inc., Fidelity Investments, Liberty Corporation and Acterna
Corporation.
JAMES E. ROGERS, Age 54
Mr. Rogers has served Vice Chairman, President and Chief Executive Officer of
Cinergy Corp., a regional utility holding company since December 2000. He held
the position of Vice Chairman, President and Chief Operating Officer of Cinergy
Corp. from 1994 to December 2000. Mr. Rogers has served as a director of the
Company since 1994 and also currently serves on the board of directors of
Cinergy Corp. and Fifth Third Bancorp.
DIRECTORS WHOSE TERMS EXPIRE IN 2004
GEOFFREY BUTTON, Age 53
Mr. Button has been engaged as an independent real estate and financing
consultant since 1995. Prior to December 1995, he was the Executive Director of
Wyndham Investments, Ltd., a property holding company of Allied Domecq Pension
Funds. Mr. Button has served as a director of the Company since 1993.
WILLIAM CAVANAUGH III, Age 63
Mr. Cavanaugh has been the Chairman, President and Chief Executive Officer of
Progress Energy, Inc. and its predecessor companies since August 1999. He
previously served as President and Chief Executive Officer of Carolina Power &
Light Company (CP&L), one of the predecessors to Progress Energy, Inc., from
October 1996 to August 1999 and as President and Chief Operating Officer of CP&L
from September 1992 to October 1996. He has served as a director of the Company
since 1999 and served as a director of Weeks Corporation prior to its merger
with the Company.
NGAIRE E. CUNEO, Age 51
Ms. Cuneo served as a consultant to Conseco, Inc. from March 2001 through
December 2001. From 1992 through March 2001, she was an Executive Vice President
of Conseco, Inc., an owner, operator and provider of services to companies in
the financial services industry. Ms. Cuneo has served as a director of the
Company since 1995.
CHARLES R. EITEL, Age 52
Mr. Eitel has served as Chairman and Chief Executive Officer of The Simmons
Company, an Atlanta based manufacturer of mattresses, since 2000. From February
1997 through January 2000, Mr. Eitel was the President and Chief Operating
Officer of Interface, Inc. He currently serves on the board of directors of The
Simmons Company and American Fidelity Assurance. He has served as a director of
the Company since 1999 and served as a director of Weeks Corporation prior to
its merger with the Company.
DARELL E. ZINK, JR., Age 55
Mr. Zink has served as the Company's Executive Vice President and Chief
Financial Officer since 1993. He has been with the Company since 1982 and has
served a director since 1993. Mr. Zink also serves as a member of the board of
directors of Citizens Gas & Coke Utility, Fifth Third Bank of Indiana, the CICOA
Foundation, the Indianapolis Chamber of Commerce and VEI/IMM (a subsidiary of
Community Hospitals), Vanderbilt University Alumni Board and Educational Choice.
He also serves as the chairman of the Inroads Advisory Board.
3
INFORMATION ABOUT THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD
The Board of Directors of the Company has established the following
Committees:
ASSET COMMITTEE
The Asset Committee reviews and authorizes property developments, property
acquisitions, property dispositions and lease transactions exceeding certain
threshold amounts established by the committee. It also reviews and approves the
business terms of all significant joint ventures entered into by the Company.
AUDIT COMMITTEE
The Audit Committee provides assistance to the Board of Directors in
fulfilling its responsibility to the shareholders relating to corporate
accounting, reporting practices, the quality and integrity of the financial
reports and other operating controls of the Company. The committee also
recommends the selection of the independent auditors to the Board of Directors
and oversees the auditors' activities.
EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee reviews and approves the Company's
compensation strategies, programs, plans and policies. It also oversees the
administration of all Company officer and employee benefit plans. In addition,
the committee reviews and determines the individual elements of compensation for
the executive officers of the Company.
FINANCE COMMITTEE
The Finance Committee reviews the current and long-term capital raising
strategies and policies of the Company, including significant borrowings, the
issuance and redemption of preferred and common stock, the establishment and
payment of dividends and other significant financial transactions.
GOVERNANCE COMMITTEE
The purpose of the Governance Committee is to make recommendations to the
Board of Directors regarding corporate governance policies and practices, to
recommend criteria for membership on the Board of Directors, to nominate members
to the Board of Directors and to make recommendations to the Board of Directors
concerning the members, size and responsibilities of each of the Committees.
Shareholders who wish to suggest qualified Board candidates to the
Governance Committee should write to the Secretary of the Company, at 600 East
96th Street, Suite 100, Indianapolis, Indiana 46240, stating in detail the
candidate's qualifications for consideration by the Board. A shareholder who
wishes to nominate a director must also comply with certain procedures set forth
in the Company's By-Laws.
4
The members of the Board of Directors and the Committees, and the number of
meetings held during 2001, follow:
BOARD ASSET AUDIT COMPENSATION FINANCE GOVERNANCE
------ ------ ------ ------------ ------- ----------
Mr. Branch..................... Member Member Member
Mr. Button..................... Member Chair Member
Mr. Cavanaugh.................. Member Member Member Chair
Ms. Cuneo...................... Member Member Chair
Mr. Eitel...................... Member Chair Member
Mr. Feinsand................... Member
Mr. Hefner..................... Chair
Mr. Lytle...................... Member Member Member Member
Mr. McCoy...................... Member Member Member Member
Mr. Nelley..................... Member Member
Mr. Rogers..................... Member Member Chair Member
Mr. Zink....................... Member Member Member
Number of 2001 Meetings........ 4 7 4 4 5 4
In 2001, all directors attended at least 75% of the meetings of the Board
of Directors, including meetings of the Committees of which they were members.
COMPENSATION OF DIRECTORS
Each non-employee director is entitled to receive 1,200 shares of Company
common stock as annual compensation. Non-employee directors also receive a fee
of $2,500 for attendance at each meeting of the Board of Directors. In addition,
the non-employee directors receive $500 for participation in each telephonic
meeting of the Board and for participation in each committee meeting not held in
conjunction with a regularly scheduled Board meeting. Directors who serve as the
chairperson of a Committee receive an additional $1,000 per year for such
service. Officers of the Company who are also directors receive no additional
compensation for their services as directors.
The non-employee directors may elect to defer the receipt of their annual
cash and stock director fees pursuant to the Company's Directors' Deferred
Compensation Plan. The deferred fees and earnings thereon are to be paid to the
directors after they cease to be members of the Board. Deferred fees that are
otherwise payable in stock must be invested in a "deferred stock account".
Annual cash fees may be deferred in either a deferred stock account or an
"interest account."
- Deferred Stock Account. This account allows the director, in effect, to
invest his or her deferred compensation in Company stock. Funds in this account
are credited as hypothetical shares of Company stock based on the market price
of the stock at the time the compensation would otherwise have been paid.
Dividends on these hypothetical shares are deemed to be paid and reinvested in
additional hypothetical shares based upon the market price of the stock on the
date the dividends are paid. Actual shares are only issued when a director ends
his or her service.
- Interest Account. Amounts in this account earn interest at the prime
rate. The rate is adjusted quarterly. The aggregate amount of interest that
accrued in 2001 for the participating directors was $1,135.
Directors are entitled to receive grants of stock options and dividend
increase units under the Company's 1999 Director's Stock Option and Dividend
Increase Unit Plan. Pursuant to this plan, Directors that do not receive grants
of stock options under any other Company plan for a year are entitled to receive
a grant of 2,500 stock options and dividend increase units at the first meeting
of the Company's Executive Compensation Committee of each year.
5
OWNERSHIP OF COMPANY SHARES
The Company has one class of voting common stock (the "Common Shares")
outstanding of which 131,777,158 Common Shares were outstanding as of the close
of business on March 1, 2002. The Company indirectly owns approximately 88.6% of
the partnership interests of Duke Realty Limited Partnership ("DRLP"). Each
limited partnership unit ("Unit") of DRLP may be redeemed for one Common Share
at the option of the unitholder. The total number of Common Shares and Units
(other than Units owned by the Company) outstanding as of the close of business
on March 1, 2002 was 148,707,282.
The following table shows, as of March 1, 2002, the number and percentage
of Common Shares and Units held by (i) the Directors, (ii) Mr. Hefner and the
four most highly compensated executive officers other than Mr. Hefner (the
"Named Executive Officers"), (iii) the Company's Directors and executive
officers as a group, and (iv) each person known to the Company that beneficially
owned more than 5% of the issued and outstanding Common Shares.
NUMBER OF
COMMON SHARES PERCENT OF ALL EFFECTIVE ECONOMIC
AND UNITS PERCENT OF COMMON OWNERSHIP OF
BENEFICIALLY COMMON SHARES AND DIRECTORS AND
BENEFICIAL OWNER OWNED(1) SHARES(2) UNITS EXECUTIVE OFFICERS(3)
---------------- ------------- ---------- -------------- ---------------------
DIRECTORS AND OFFICERS:
Darell E. Zink, Jr.................... 1,753,563(4) 1.32% 1.18% 1,585,500
Thomas L. Hefner...................... 1,542,168(5) 1.16% 1.04% 1,318,418
John W. Nelley, Jr.................... 4,247,843(6) 3.13% 2.85% 948,588
Gary A. Burk.......................... 347,422(7) (9) (9) 231,421
Geoffrey Button....................... 120,080(8) (9) (9) 111,080
Howard L. Feinsand.................... 139,418(8) (9) (9) 104,281
William E. Linville, III.............. 197,738(8) (9) (9) 102,643
Richard W. Horn....................... 228,164(8) (9) (9) 85,288
Ngaire E. Cuneo....................... 94,080(8) (9) (9) 85,080
James E. Rogers....................... 85,287(8) (9) (9) 76,287
Dennis D. Oklak....................... 177,269(8) (9) (9) 77,050
Barrington H. Branch.................. 62,670(8) (9) (9) 52,890
L. Ben Lytle.......................... 25,752(8) (9) (9) 16,752
William O. McCoy...................... 42,034(8) (9) (9) 15,694
William Cavanaugh III................. 22,098(8) (9) (9) 8,178
Charles R. Eitel...................... 28,548(8) (9) (9) 2,760
All Directors and executive officers
as a group (18 persons)............. 9,224,730 6.69% 6.16% 4,958,758
5% OWNERS:
Stichting Pensioenfonds ABP(10)....... 8,000,000 6.07% 5.38% N/A
FMR Corp.(11)......................... 7,245,134 5.50% 4.87% N/A
---------------
(1) Unless otherwise indicated, each person listed in the table possesses sole
voting and investment power with respect to the Common Shares and Units
reported in this column to be owned by such person.
(2) Assumes that only Units owned by the reporting person are redeemed for
Common Shares and that any stock options held by the reporting person and
exercisable within the next 60 days are exercised.
(3) Excludes the portion of any beneficial interest in Common Shares and Units
in which the economic benefit of such Common Shares and Units are
attributable to persons other than the reporting person and his or her
family. Also excludes any beneficial interest in stock options.
(4) Includes 1,010,414 Common Shares owned by Mr. Zink, members of his family
and a family partnership controlled by Mr. Zink, 17,042 Common Shares owned
by a private charitable foundation controlled by Mr. Zink and his family
and 99,058 stock options that are exercisable within the next 60 days by
Mr. Zink. Also includes 561,514 Units owned directly by Mr. Zink and 65,535
Units owned by a corporation in which Mr. Zink owns a 20.71% beneficial
interest.
6
(5) Includes 679,239 Common Shares and 71,787 stock options that are
exercisable within the next 60 days by Mr. Hefner, members of his family
and a family partnership controlled by Mr. Hefner; 100,000 Common Shares
owned by a private charitable foundation controlled by Mr. Hefner and his
family; 46,100 Common Shares owned by a charitable trust in which Mr.
Hefner's children are residual beneficiaries; 579,506 Units owned directly
by Mr. Hefner; and 65,535 Units owned by a corporation in which Mr. Hefner
owns a 20.71% beneficial interest.
(6) Includes 91,576 Common Shares owned by Mr. Nelley, 12,749 Common Shares
held by trusts of which Mr. Nelley is a trustee but in which he disclaims
any beneficial interest, 1,380 Common Shares held by a partnership in which
Mr. Nelley is a 34% general partner and 169,877 stock options that are that
are exercisable within the next 60 days by Mr. Nelley. Also includes
138,000 Common Shares and 3,834,261 Units held by a partnership in which
Mr. Nelley is a general partner and a 21.6% owner.
(7) Includes 140,721 Common Shares owned by Mr. Burk, 55,388 stock options that
are exercisable within the next 60 days by Mr. Burk, 85,778 Units owned
directly by Mr. Burk, and 65,535 Units owned by a corporation in which Mr.
Burk owns a 7.51% beneficial interest.
(8) Includes the following shares issuable upon the exercise of stock options
that are currently exercisable or exercisable within 60 days:
Mr. Button................. 9,000 Mr. Horn................... 142,876
Mr. Branch................. 9,780 Mr. Linville............... 95,095
Mr. Cavanaugh.............. 13,920 Mr. Lytle.................. 9,000
Ms. Cuneo.................. 9,000 Mr. McCoy.................. 26,340
Mr. Eitel.................. 25,788 Mr. Oklak.................. 100,219
Mr. Feinsand............... 35,137 Mr. Rogers................. 9,000
(9) Less than 1%.
(10) According to Amendment No. 1 to Schedule 13D dated December 19, 2000 filed
by Stichting Pensioenfonds ABP ("ABP") with the Securities and Exchange
Commission (the "SEC"), ABP has the sole voting and dispositive power with
respect to 8,000,000 Common Shares. The address of ABP is Oude Lindestraat
70, Postbus 2889, 6401 DL Heerlen, The Netherlands.
(11) According to a Schedule 13G dated February 14, 2002 filed by FMR Corp.
("FMR") and related parties with the SEC, of the total shares reported: FMR
beneficially owns 7,245,134 Common Shares; Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR, beneficially owns 5,569,886
Common Shares; Fidelity Management Trust Company, a wholly-owned subsidiary
of FMR, beneficially owns 1,673,558 Common Shares and Strategic Advisers,
Inc., a wholly-owned subsidiary of FMR, beneficially owns 1,690 Common
Shares. Also included as reporting persons are Edward C. Johnson 3d,
chairman of FMR, and Abigail P. Johnson, a director of FMR. The address of
FMR and the other reporting persons is 82 Devonshire Street, Boston,
Massachusetts 02109.
7
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Audit Committee is composed of five directors, each of whom is independent
as defined by the listing standards of the New York Stock Exchange. The Audit
Committee operates under a written charter approved by the Board of Directors.
Management is responsible for the Company's internal controls and financial
reporting process. The independent accountants are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes.
In connection with these responsibilities, the Audit Committee met with
management and the independent accountants to review and discuss the Company's
2001 consolidated financial statements. The Audit Committee also discussed with
the independent accountants the matters required by Statement on Auditing
Standards No. 61 (Communication with Audit Committees). In addition, the Audit
Committee received written disclosures from the independent accountants required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and the Audit Committee discussed with the independent
accountants that firm's independence.
Based upon the Audit Committee's discussions with management and the
independent accountants, and the Audit Committee's review of the representations
of management and the independent accountants, the Audit Committee recommended
that the Board of Directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 to be filed with the Securities and Exchange Commission.
AUDIT COMMITTEE
Ngaire E. Cuneo, Chair
Barrington H. Branch
William Cavanaugh, III
L. Ben Lytle
William O. McCoy
FEES PAID TO INDEPENDENT ACCOUNTANTS
The Company incurred the following fees for services rendered by KPMG LLP,
the Company's independent accountants, during 2001:
AUDIT SERVICES
$410,000 was incurred for annual audit fees and quarterly review fees
associated with the Company's annual financial statements and quarterly reports.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION SERVICES
None.
ALL OTHER SERVICES
$45,000 was paid to KPMG LLP for matters primarily related to audits of
employee benefit plans and the review of certain SEC filings. In addition,
$525,000 was paid to KPMG Corporate Finance, LLC (an entity 20% owned by KPMG
LLP) for capital markets services rendered in connection with the sale of a
division of the Company.
The Audit Committee has determined that the rendering of the non-audit
services by KPMG LLP is compatible with maintaining the auditor's independence.
8
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
This report contains information on various aspects of the compensation of
the Company's executives. In particular, it contains information regarding the
cash and equity compensation of the Named Executive Officers.
EXECUTIVE COMPENSATION PHILOSOPHY
The Executive Compensation Committee (the "Compensation Committee") of the
Board of Directors makes all decisions about compensation for the Company's
executive officers, including the Named Executive Officers. The primary
objectives of the Compensation Committee in determining total compensation of
the Company's executive officers are (i) to enable the Company to attract and
retain high quality executives by providing total compensation opportunities
with a combination of compensation elements which are at or above competitive
opportunities, and (ii) to align shareholder interests and executive rewards by
providing substantial incentive opportunities to be earned by the executives if
they meet pay-for-performance standards designed to increase long-term
shareholder value. In order to accomplish these objectives, the Compensation
Committee established an executive compensation program which provides (i)
annual base salaries at or near the market median, (ii) annual incentive
opportunities which reward the executives for achieving or surpassing
performance goals which represent norms of excellence for the real estate
industry, and (iii) long-term incentive opportunities which are directly related
to increasing shareholder value. The Compensation Committee has also adopted a
Special Compensation Plan to provide compensation incentives to executives based
upon earnings realized by the Company outside of its core business of commercial
real estate.
The Compensation Committee reviews compensation levels for the executive
officers of the Company near the beginning of each calendar year. In determining
compensation for a specific executive, the Compensation Committee considers many
factors including the nature of the executive's job, the executive's job
performance, the compensation levels of competitive jobs, and the financial
performance of the Company. For executive officers other than the Chief
Executive Officer, the Compensation Committee also considers the recommendations
of the Chief Executive Officer. The Compensation Committee also considers
competitive market data compiled from independent sources.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), imposes a limitation on the deductibility of nonperformance based
compensation in excess of $1 million paid to certain executive officers.
Although the Company's long-term incentive plans have been designed to comply
with the performance-based requirements of Section 162(m), not all compensation
paid by the Company to its executives in 2001 met such requirements. However,
the Company did not pay any compensation in 2001 that was not deductible under
Section 162(m), and does not anticipate paying any nondeductible compensation in
2002.
BASE SALARIES AND ANNUAL CASH INCENTIVES
The base salaries for the Company's executive officers (including the Named
Executive Officers) are established after a review by the Compensation Committee
of the salaries paid to executive officers of a comparison group of other
publicly traded real estate investment trusts. Other factors considered include
the individual's experience, performance and level of responsibility.
The Committee establishes an annual cash incentive target at the beginning
of each year for each executive officer. The actual amount paid to an executive
is based upon the Committee's assessment of (i) the Company's overall
performance versus goals established by the Committee, and (ii) each executive's
individual performance, with a higher emphasis on overall Company performance
for the most senior executives. The overall Company performance factor is based
upon a three-tier measurement system consisting of funds from operations ("FFO")
growth per Common Share, return on shareholders' equity and return on real
estate investments.
LONG-TERM INCENTIVE OPPORTUNITIES
The amount of long-term incentive awarded to the Company's executive
officers (including the Named Executive Officers) on an annual basis is
determined at the discretion of the Compensation Committee but is
9
tied to overall corporate and business segment performance, the participant's
level of responsibility within the Company and the participant's individual
performance. The long-term incentive opportunities consist of stock options
("Options"), dividend increase units ("DIUs"), shareholder value plan grants and
performance share plan grants.
Stock Option and Dividend Increase Unit Plans: The objectives of the
Option and DI Uplans are to provide executive officers with long-term incentive
opportunities aligned with the shareholder benefits of an increased Common Share
value and increased annual dividends. The number of Options and DIUs issued to
each executive is determined annually by the Compensation Committee, with one
DIU granted for each Option that is granted. The Options and DIUs are for terms
of no more than ten years. With certain limited exceptions, awards made under
the Option and DIU plans vest 20% per year over a five-year period. The Options
may not be issued for less than the fair market value of the Company's Common
Shares on the date of grant. The value of each DIU at the date of exercise is
determined by calculating the percentage of the Company's annualized dividend
per Common Share to the market value of one Common Share (the "Dividend Yield")
on the that date the DIU is granted, and dividing the increase in the Company's
annualized dividend from the date of grant to the date of exercise by such
Dividend Yield.
Shareholder Value Plan: The objective of the shareholder value plan is to
provide executive officers with long-term incentive opportunities directly
related to providing total shareholder return in excess of the median of
independent market indices. The annual shareholder value plan award for each
executive is determined by the Compensation Committee. The award vests entirely
three years after the date of grant and the amount paid is based upon the
Company's total shareholder return for such three year period as compared to
independent market indices. The independent market indices used for comparison
are the S&P 500 Index and the Equity REIT Total Return Index published by the
National Association of Real Estate Investment Trusts ("NAREIT"). The amount of
the award payable may range from a low of zero, if both of the rankings of the
Company's returns are less than the 50th percentile of both of the indices, to a
high of 300% of the award if the rankings of both of the Company's returns are
in the 90th percentile or higher of both of the indices, with 100% of the award
being payable at the 60th percentile.
Performance Share Plan: The performance share plan provides payments to
executive officers based upon the Company's attainment of certain predefined
levels of earnings growth. At the beginning of each calendar year, the
Compensation Committee sets a targeted earnings growth percentage for the year.
Awards vest over a period determined by the Committee based upon the actual
earnings growth of the Company in comparison to the targeted growth. Awards are
granted at the discretion of the Compensation Committee after considering (i)
the participant's position and level of responsibilities within the Company, and
(ii) the overall compensation of the executive relative to competitive overall
compensation levels for such position. Awards under this plan will not
necessarily be made on an annual basis. Awards under the plan are made in the
form of "performance shares", with each performance share economically
equivalent to a Common Share. Upon the retirement of a participant or other
event causing a termination of employment, the value of vested performance
shares are paid in cash or in Common Shares.
SPECIAL COMPENSATION PLAN
The purpose of the Special Compensation Plan is to provide an incentive to
the Company's management (including the Named Executive Officers) to generate
additional earnings for the Company through the investment of the Company's
financial and/or intellectual capital outside of the core business of commercial
real estate. The Compensation Committee makes the determination of whether
income from a particular investment will be eligible for the Special
Compensation Plan at the time of the investment. The amount payable under the
Special Compensation Plan will equal 20% of the excess of any proceeds
ultimately received by the Company from the disposition of an eligible
investment over the sum of (i) the Company's capital used for the investment,
and (ii) a 15% compounded cumulative annual return on such capital. Participants
will share in the incentives paid from the plan based upon the ratio of their
total annual compensation to the total annual compensation of all eligible
participants. The amount payable under the plan for a particular investment will
be limited to a multiple of each participant's annual compensation. For
executive officers, the limit equals two times annual compensation. In addition
to this limitation, the Compensation Committee in all
10
cases has the sole discretion to determine the amount and timing of any payments
made under the plan. No awards have been paid under this plan to date and no
such payments are expected in 2002.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation awarded to Mr. Hefner in 2001 consisted of the same
elements as the other Named Executive Officers, including an annual base salary,
an annual cash incentive award, and grants under the Company's long-term
incentive plans.
Base Salary: The Compensation Committee determines Mr. Hefner's annual
salary after considering his performance level and experience with the Company
and after reviewing a survey of compensation paid to CEO's of comparable equity
based REITs. Based on these factors, Mr. Hefner received a salary of $360,000
for 2001.
Annual Cash Incentive: Mr. Hefner receives an annual cash incentive bonus
determined by the Compensation Committee. At the beginning of each calendar
year, the Committee establishes a target amount of the award. The amount
actually paid is based upon the attainment of certain corporate performance
measurements as compared to predetermined targets. These performance
measurements include FFO growth per Common Share, return on shareholders' equity
and return on real estate investments. For 2001, the Company's FFO growth was
6.50% per Common Share, its return on shareholders' equity was 13.74% and its
return on real estate investments was 10.47%. Based upon these results versus
the pre-determined targets, the Compensation Committee determined that Mr.
Hefner was entitled to an annual cash incentive award of $65,000 for 2001. At
Mr. Hefner's suggestion, the Compensation Committee eliminated this cash
incentive award and approved the payment of a like amount to a trust that will
be exclusively used to provide additional benefit programs to employees.
Long-Term Incentive Opportunity Awards: Mr. Hefner is eligible for Option
and DIU grants with a value equal to a percentage of his annual base salary. In
January 2001, Mr. Hefner received (i) the grant of an option to purchase 27,608
Common Shares at a price of $24.98 per share, (ii) the grant of 27,608 DIUs with
a Dividend Yield of 6.89%, and (iii) the award of a targeted amount of $100,000
under the Shareholder Value Plan.
Mr. Hefner received a performance share plan grant with a value of $200,000
in 2000. No awards were made under this plan in 2001. The award granted in 2000
contains annual variable vesting provisions, with the amount vested based upon a
comparison of actual FFO growth per Common Share to a target established
annually by the Compensation Committee. The annual vesting percentages range
from 0% to 30%. For 2000 and 2001, the actual FFO growth per Common Share for
the Company was 12.33% and 6.50%, respectively. The earnings growth targets
established by the Compensation Committee for those years were 10.01% and 7.32%,
respectively. Based upon the targets set by the Committee and the formulas
contained in the plan, Mr. Hefner was vested in 30% of the 2000 award on January
1, 2001 and in 12% of the 2000 award on January 1, 2002.
In February 2001, Mr. Hefner received a payment of $95,860 pursuant to a
grant under the shareholder value plan made in 1998. In February 2002, Mr.
Hefner received a payment of $70,546 pursuant to a grant under the shareholder
value plan made in 1999. The payout percentages of these awards as determined by
formulas contained in that plan were 143.79% and 84.66% for the grants made in
1998 and 1999, respectively.
COMPENSATION COMMITTEE
Geoffrey Button, Chair
William Cavanaugh III
L. Ben Lytle
William O. McCoy
James E. Rogers
11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Compensation Committee is comprised of five
non-employee directors: Messrs. Button. Cavanaugh, Lytle, McCoy and Rogers. No
member of the Compensation Committee is or was formerly an officer or an
employee of the Company. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors, nor has such interlocking relationship existed in the past.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Duke Realty Severance Pay Plan (the "Severance Plan") provides for the
payment of severance amounts to certain key Company officers if, within one year
following a change in control of the Company, the officer's employment with the
Company is terminated by the Company other than "for cause" or if an officer
voluntarily terminates his or her employment because of a reduction in the
officer's pay or his forced relocation. A "Level One" participant will receive
two times the sum of the compensation awarded to such terminated participant for
the calendar year preceding the date of termination and a "Level Two"
participant will receive an amount equal to his prior year compensation. All of
the Named Executive Officers participate in the Severance Plan, and the
Compensation Committee has designated each of these participants as eligible for
Level One benefits.
On July 2, 1999, Weeks Corporation ("Weeks") was merged with and into the
Company (the "Merger"). Prior to the Merger, Weeks entered into change of
control agreements with certain of its officers. The Company assumed the
obligations of Weeks under these agreements on the effective date of the merger.
Under these agreements, John W. Nelley, Jr., a director and officer of the
Company, is entitled to receive severance payments based upon a multiple of his
current compensation, plus immediate vesting of his stock options, if his
employment is terminated without cause before July 2, 2002.
12
PERFORMANCE GRAPH
The following graph compares, over the five years ending December 31, 2001,
the cumulative total shareholder return on the Company's Common Shares with the
cumulative total return of the S&P 500 Index and the cumulative total return of
the NAREIT Equity REIT Total Return Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
COMPANY COMMON SHARES, S&P 500 INDEX
AND NAREIT EQUITY REIT TOTAL RETURN INDEX *
[PERFORMANCE GRAPH]
FISCAL YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
----------------------------------------------------------------------------------------------------------------
THE COMPANY 100.00 132.81 134.85 121.07 164.90 175.20
NAREIT 100.00 120.26 99.21 94.63 119.58 136.24
S&P 100.00 133.36 171.47 207.55 188.66 166.23
* Assumes that the value of the investment in the Company's Common Shares and
each index was $100 on December 31, 1996 and that all dividends were
reinvested.
13
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded, earned by, or paid
to the Company's chief executive officer and the Company's four other most
highly compensated executive officers (the "Named Executive Officers") during
the last three fiscal years.
LONG-TERM LONG-TERM
COMPENSATION COMPENSATION
AWARDS PAYOUTS
-------------------------------------- ------------
ANNUAL COMPENSATION SHAREHOLDER PERFORMANCE SECURITIES SHAREHOLDER (3)
NAME AND ---------------------- VALUE PLAN SHARE PLAN UNDERLYING VALUE PLAN ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) AWARDS(4) OPTIONS(#) PAYMENTS(2) COMPENSATION
------------------ ---- -------- -------- ----------- ----------- ---------- ------------ ------------
Thomas L. Hefner(1)..... 2001 $360,000 $ 0 $100,000 $ 0 27,608 $ 95,860 $6,048
Chairman and 2000 360,000 0 91,667 200,000 31,609 41,951 6,285
Chief Executive
Officer 1999 304,000 300,000 70,546 0 24,920 64,238 6,184
Richard W. Horn......... 2001 $300,000 $125,000 $116,667 $ 0 32,210 $119,825 $6,048
President 2000 252,308 350,000 91,667 500,000 31,609 45,764 6,285
1999 196,000 325,000 77,601 0 27,412 85,650 6,184
William E. Linville
III................... 2001 $220,000 $125,000 $100,000 $ 0 27,608 $119,825 $6,048
Executive Vice
President, 2000 220,000 325,000 83,333 200,000 28,736 45,764 6,285
Midwest Region 1999 196,000 300,000 70,546 0 24,920 85,650 6,184
Gary A. Burk............ 2001 $220,000 $125,000 $100,000 $ 0 27,608 $ 71,895 $6,048
Executive Vice
President, 2000 220,000 325,000 91,667 175,000 31,609 41,951 6,285
Construction 1999 196,000 300,000 66,667 0 19,936 64,238 6,184
Dennis D. Oklak......... 2001 $220,000 $125,000 $ 91,667 $ 0 25,308 $ 71,895 $6,048
Executive Vice
President, 2000 220,000 300,000 83,333 175,000 28,736 22,882 6,285
Treasurer and 1999 196,000 275,000 56,437 0 19,936 39,256 6,184
Chief Admin. Officer
---------------
(1) As discussed in the Report of the Executive Compensation Committee, at Mr.
Hefner's request, Mr. Hefner did not receive a bonus for 2000 or 2001.
(2) Represents awards and payments made under the Company's shareholder value
plan. See a description of this plan under the heading above entitled
"Report of the Executive Compensation Committee -- Long-Term Incentive Plan
Opportunities."
(3) Represents Company match and profit sharing contributions to the Company's
401(k) and profit sharing plan.
(4) Under the performance share plan, awards are made in the form of performance
units, each of which is equivalent to one Common Share. The value of the
awards noted in the above table is based on the closing price of the
Company's Common Shares on the date of grant. The awards have variable
vesting provisions over 5-year terms that are based on the achievement of
certain FFO growth targets for the Company. Awards are not paid until
retirement or termination of employment. Dividends are paid on the awards in
cash or additional performance units, at the election of the participant. As
of December 31, 2001, the number of vested and unvested performance shares
for the Named Executive Officers were as follows:
$ VALUE $ VALUE
# VESTED # UNVESTED VESTED UNVESTED
-------- ---------- -------- --------
Mr. Hefner........................... 3,472 5,848 $ 84,474 $142,282
Mr. Horn............................. 8,679 14,622 211,160 355,753
Mr. Linville......................... 3,472 5,848 84,474 142,282
Mr. Burk............................. 2,193 5,118 53,356 124,521
Mr. Oklak............................ 3,038 5,118 73,915 124,521
14
STOCK OPTION GRANTS IN 2001
The following table contains information concerning stock option grants
made to each of the Named Executive Officers during 2001 under the Company's
1995 Stock Option Plan.
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS EXERCISE GRANT DATE
OPTIONS GRANTED TO PRICE PER EXPIRATION PRESENT
NAME GRANTED(1) EMPLOYEES SHARE DATE VALUE(2)
---- ----------- ---------- --------- ---------- ----------
Thomas L. Hefner.......................... 27,608 3.97% $24.98 1/31/11 $60,591
Richard W. Horn........................... 32,210 4.63% 24.98 1/31/11 70,691
William E. Linville, III.................. 27,608 3.97% 24.98 1/31/11 60,591
Gary A. Burk.............................. 27,608 3.97% 24.98 1/31/11 60,591
Dennis D. Oklak........................... 25,308 3.64% 24.98 1/31/11 55,543
---------------
(1) With the exception of options that qualify as incentive stock options under
Section 422 of the Code, the options may be transferred to immediate family
members or entities beneficially owned by such family members.
(2) These values were established using the Black-Scholes stock option valuation
model. The following assumptions were used in the model: expected volatility
of 20.1%, risk-free interest rate of 4.97%, dividend yield of 7.5%, and
expected life of the options of 6.0 years. The actual value of the options
will depend upon the performance of the Company during the period of time
the options are outstanding and the price of the Company's Common Shares on
the date of exercise.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning option exercises and
option holdings by each of the Named Executive Officers for 2001.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/01 AT 12/31/01(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Thomas L. Hefner........... 56,400 $732,707 64,466 78,033 $320,170 $141,781
Richard W. Horn............ 47,000 616,875 117,051 92,261 639,709 161,591
William E. Linville, III... 77,288 853,716 71,263 83,866 254,101 149,743
Gary A. Burk............... 74,218 800,867 34,111 73,146 117,684 137,839
Dennis D. Oklak............ 0 0 83,659 67,365 688,510 122,102
---------------
(1) Based upon the closing price of the Company's Common Shares on December 31,
2001 of $24.33 less the exercise price per Common Share.
15
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table sets forth awards made to the Named Executive Officers
in 2001 under the Company's dividend increase unit plan and shareholder value
plan.
ESTIMATED FUTURE
PAYOUTS
NUMBER OF PERFORMANCE UNDER NON-STOCK
SHARES, PERIOD PRICED-BASED-PLANS
DATE OF DIUS, OR UNTIL -------------------
NAME GRANT OTHER RIGHTS PAYOUT THRESHOLD TARGET MAXIMUM
---- ------- ------------ ----------- --------- -------- --------
Thomas L. Hefner
Dividend Increase Unit
Plan(1).............. 1/31/01 27,608 DIUs N/A N/A N/A N/A
Shareholder Value
Plan(2) 1/1/01 N/A 3 Years $ 0 $100,000 $300,000
Richard W. Horn
Dividend Increase Unit
Plan(1).............. 1/31/01 32,210 DIUs N/A N/A N/A N/A
Shareholder Value
Plan(2) 1/1/01 N/A 3 Years $ 0 $116,667 $350,000
William E. Linville, III
Dividend Increase Unit
Plan(1).............. 1/31/01 27,608 DIUs N/A N/A N/A N/A
Shareholder Value
Plan(2) 1/1/01 N/A 3 Years $ 0 $100,000 $300,000
Gary A. Burk
Dividend Increase Unit
Plan(1).............. 1/31/01 27,608 DIUs N/A N/A N/A N/A
Shareholder Value
Plan(2) 1/1/01 N/A 3 Years $ 0 $100,000 $300,000
Dennis D. Oklak
Dividend Increase Unit
Plan(1).............. 1/31/01 25,308 DIUs N/A N/A N/A N/A
Shareholder Value
Plan(2) 1/1/01 N/A 3 Years $ 0 $ 91,667 $275,000
---------------
(1) Under the Company's dividend increase unit plan, DIUs are granted to key
employees. DIUs vest over a five-year period at 20% per year. The value of
each DIU at the date of exercise is determined by calculating the Dividend
Yield at the date the DIU is granted and dividing the increase in the
Company's annualized dividend from the date of grant to the date of exercise
by such Dividend Yield. DIUs not exercised within 10 years of the date of
grant are forfeited. Distribution of a participant's benefits under the plan
will be made in the form of the Company's Common Shares. The "in-the-money"
value of vested DIUs at December 31, 2001 for these executives was $748,748
for Mr. Hefner, $1,321,279 for Mr. Horn, $1,312,074 for Mr. Linville,
$699,400 for Mr. Burk and $452,786 for Mr. Oklak.
(2) Under the Company's shareholder value plan, awards are granted in specified
dollar amounts to selected key employees. The specified award is payable to
the participant on the third anniversary of the grant of the award. The
actual payments under the plan are determined based upon the Company's
cumulative total shareholder return for the three-year period beginning on
the date of grant as compared to the cumulative total return for the S&P 500
Index and the NAREIT Equity REIT Total Return Index (the "Indices") for the
same period. The Company's cumulative total shareholder return is calculated
by determining the average per share closing price of the Company's Common
Shares for the 30 day period preceding the end of the three year period,
increased by an amount that would be realized if all cash dividends paid
during the three year period were reinvested in Common Shares of the
Company, and comparing this amount to the average per share closing price of
the Company's Common Shares for the 30 day period preceding the date of
grant. The payment of one-half of the bonus award is adjusted based upon the
percentile ranking of the Company's cumulative total shareholder return as
compared to each of the Indices for the same period. The payment adjustment
may range from zero percent of the amount awarded, if both of the rankings
of the Company's returns are less than the 50th percentile of both of the
Indices, to 300 percent of the amount awarded if both of the rankings are in
the 90th percentile or higher
16
of both of the Indices, with 100 percent of the award being payable at the
60th percentile. Distribution of a participant's adjusted bonus award at the
end of the three-year period after the date of grant will be made one-half
in cash and one-half in the form of Common Shares of the Company. The amount
of the awards paid to these executives on January 1, 2002 for the awards
issued in January 1999 was $83,333 for Mr. Hefner, $91,667 for Mr. Horn,
$83,333 for Mr. Linville and $66,667 for Messrs. Burk and Oklak.
CERTAIN TRANSACTIONS
The Company is the sole general partner of Duke Realty Services Limited
Partnership (the "Services Partnership"). The Services Partnership operations
are included in the consolidated financial statements of the Company. This
partnership was formed in 1993 to provide property management, leasing,
construction management and development services to subsidiaries of the Company,
to joint ventures partially owned by the Company and to third parties. To ensure
that the income from these services did not cause the Company to fail to qualify
as a real estate investment trust, a portion of the Services Partnership was
acquired by certain officers of the Company upon its formation. Thomas L.
Hefner, Darell E. Zink, Jr., and Gary A. Burk (executive officers of the
Company) collectively own 49% of Duke Management, Inc. ("DMI"), which owns 90%
of the capital interests of the Services Partnership and a profits interest in
the Services Partnership that varies from 10% to 90%. The share of net income of
the Services Partnership allocated to DMI in 2001 was $1,880,846. The Company
has an option to acquire DMI's interest in the Services Partnership in exchange
for 833,334 Units. As a result of some recent tax law changes, the Company could
exercise this option without adversely effecting the Company's qualification as
a real estate investment trust. However, the Board of Directors has not yet
elected to exercise this option because a purchase of DMI's interest would have
a dilutive effect on the after-tax earnings per share of the Company. The
Company is required to purchase DMI's interest in the Services Partnership for
833,334 Units upon a change in control of the Company or upon the dissolution of
DRLP. DRLP has a $20.0 million loan to the Services Partnership, which requires
interest only payments at 12% through September 2003. The principal balance of
this loan is then repayable over a 15-year period with interest at 12% until
final maturity in September 2018. Repayment of this loan is guaranteed by DMI.
DRLP also provides working capital financing to the Services Partnership at a
rate of prime plus 2%.
Prior to 2001, DMI indirectly owned a 4.8% limited partnership interest in
Duke Construction Limited Partnership (the "Construction Partnership"). This
entity provides construction services to third parties and engages in the
development and sale of commercial real estate. Because of changes in the tax
laws that became effective on January 1, 2001, the Company was able to purchase
DMI's interest in the Construction Partnership without adversely impacting the
Company's qualification as a real estate investment trust. Effective January 1,
2001, DRLP acquired DMI's interest in the Construction Partnership in exchange
for 21,315 Units of DRLP. The value of the Units was $525,758. The unaffiliated
members of the Company's Board of Directors approved this acquisition.
The Services Partnership and the Construction Partnership provide property
management, leasing, construction and other tenant related services to
properties in which Messrs. Hefner, Zink and Burk have ownership interests. The
Company has an option to acquire these executive officers' interests in these
properties (the "Option Properties"). In 2001, the Services Partnership and the
Construction Partnership received fees totaling $1,664,109 for services provided
to the Option Properties. The fees charged by the Services Partnership and the
Construction Partnership for such services are equivalent to those charged to
third-party owners for similar services.
The Company contracts with Steel Frame Erectors, Inc. ("SFE"), an entity
49% owned by Messrs. Hefner, Zink and Burk, for certain construction-related
services. During 2001, the total costs under these contracts for Company related
projects were $938,646. The construction fees earned by SFE on Company related
projects were $28,775. A 50% owned subsidiary of SFE leases space in an office
building from a limited liability company partially owned by the Company. The
subsidiary paid $202,000 under this lease in 2001. Because of recent changes in
the tax laws, the Company was able to purchase SFE's interest in this subsidiary
without adversely impacting the Company's qualification as a real estate
investment trust. The Company purchased SFE's interest in this subsidiary for
$1,000 in January 2002.
17
In 1998, the Company purchased two mortgage loans to One North Capitol
Company from third party lenders ("ONCC") at a significant discount. The loans
were purchased for $9,400,000 and the outstanding principal amount of the loans
and the accrued but unpaid interest on the loans on the date of purchase was
$22,804,393. The loans are secured by mortgages on an office building. Under the
terms of the loans, substantially all of the cash flow from ONCC must be paid to
the Company as debt service on the loans. Since it is unlikely that ONCC will be
able to repay the entire balance of the loans upon their maturity in 2006, the
Company, for financial statement purposes, recorded the acquisition of the loans
in the same manner as if it had purchased the building. During 2001, ONCC paid
interest of $984,365 to the Company. As of December 31, 2001, the outstanding
principal amount of the loans plus the accrued but unpaid interest on those
loans totaled $24,358,964. Messrs. Hefner, Zink and Burk indirectly own a 10.9%
limited partnership interest in ONCC.
In connection with the acquisition of certain assets owned by NWI Warehouse
Group, L.P. ("NWI") in 1996, the Company agreed, subject to certain conditions,
to acquire additional properties from NWI over a period of time and to advance
funds to NWI under a demand loan agreement. The interest rate on the loan was
LIBOR plus 2.10% and was secured by real estate properties held by NWI. In 2001,
NWI repaid all of its obligations under the loan. At the time of repayment, the
principal balance of the loan was $2,374,922. The Company received interest
income of $17,362 under this loan in 2001. John W. Nelley, Jr., a Director and
officer of the Company, owns a general partnership interest in NWI.
On June 27, 2001, A. Ray Weeks, Jr. resigned his position as Vice Chairman
of the Company's Board of Directors. Effective on that date, Mr. Weeks entered
into a two-year noncompete agreement for which Mr. Weeks will be paid $200,000
over a 12-month period commencing in June 2002. In addition, Mr. Weeks' stock
options that were vested as of the resignation date will remain exercisable
until thirty-six months following such date.
On August 17, 2001, DRLP redeemed 620,156 Units beneficially owned by Mr.
Weeks and certain members of his immediate and extended family (the "Weeks
Affiliates"). The deemed value of the Units redeemed was $15,724,426, which was
based upon the average closing stock price of the Company's Common Shares for a
certain period of days preceding the redemption date. In exchange for the Units,
the Weeks Affiliates received a distribution of seven industrial rental
properties and one undeveloped tract of land located in the Atlanta, Georgia
metropolitan area with a value of $31,724,426. The Weeks Affiliates also assumed
a loan in the amount of $16 million from Wachovia Bank, N.A. to the Company. The
value of the properties distributed to the Weeks Affiliates was based upon
negotiations between Mr. Weeks and members of the Company's Executive Committee,
and the transaction was approved by the unaffiliated members of the Board of
Directors.
PROPOSAL NO. 2 -- RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 2002 and has further directed
that management submit the selection of independent auditors for ratification by
the shareholders at the Annual Meeting. KPMG LLP served as the Company's
independent auditor for 2001. Representatives of KPMG LLP will be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the Common Shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of KPMG LLP. Abstentions will
be counted toward the tabulation of votes cast on proposals presented to the
shareholders and will have the same effect as negative notes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 2.
18
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
The deadline for submitting a shareholder proposal for inclusion in the
Company's proxy statement for the Company's 2003 Annual Meeting of shareholders
is November 15, 2002. The deadline for submitting a shareholder proposal or a
nomination for director that is not to be included in such proxy statement is
also November 15, 2002. Shareholders are also advised to review the Company's
By-laws, which contain additional advance notice requirements, including
requirements with respect to advance notice of shareholder proposals and
director nominations.
The Board of Directors of the Company will review any shareholder proposals
that are filed as required, and will determine whether such proposals meet the
criteria for inclusion in the proxy solicitation materials or for consideration
at the 2003 Annual Meeting. In addition, the persons named in the proxies retain
the discretion to vote proxies on matters of which the Company is not properly
notified at its principal executive offices on or before 60 days prior to the
Annual Meeting, and also retain such authority under certain other
circumstances.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who beneficially own
more than 10% of a registered class of the Company's equity securities, to file
with the SEC initial reports of ownership and reports of changes in ownership of
Common Shares and other equity securities of the Company. Officers, directors
and greater than 10% beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater-than-10% beneficial owners were complied with
during the year ended December 31, 2001.
ANNUAL REPORT
A copy of the Company's Annual Report for the year ended December 31, 2001
has been provided to all shareholders of record as of the Record Date. The
Annual Report is not to be considered as proxy solicitation material.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before this
Annual Meeting. However, if other matters should properly come before the Annual
Meeting, it is the intention of each person named in the proxy to vote such
proxy in accordance with his or her judgment on such matters.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001, ON FILE WITH THE SEC, EXCLUDING CERTAIN EXHIBITS, MAY
BE OBTAINED WITHOUT CHARGE VIA THE INVESTOR RELATIONS SECTION OF THE COMPANY'S
WEBSITE AT WWW.DUKEREALTY.COM OR BY WRITING TO DUKE REALTY CORPORATION, 600 EAST
96TH STREET, SUITE 100, INDIANAPOLIS, INDIANA 46240, ATTENTION: INVESTOR
RELATIONS.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. Whether or not you plan
to attend the meeting, you are urged to execute and return the proxy.
For the Board of Directors,
THOMAS L. HEFNER SIG
Thomas L. Hefner
Chairman
March 15, 2002
19
DUKE REALTY CORPORATION
PROXY
600 EAST 96th STREET, SUITE 100
INDIANAPOLIS, INDIANA 46240
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Darell E. Zink, Jr., Howard L. Feinsand and John
R. Gaskin, and each of them, attorneys-in-fact and proxies, with full power of
substitution, to vote, as designated on the reverse side of this proxy, all
Common Shares of Duke Realty Corporation which the undersigned would be entitled
to vote if personally present at the Annual Meeting of Shareholders to be held
on April 24, 2002, at 3:00 p.m. and at any adjournment or postponement thereof.
To vote your proxy, please date and sign on the reverse side, and mail your
proxy card in the envelope provided as soon as possible.
(continued on the reverse side)
/x/ Please mark your votes as in this example.
FOR ALL NOMINEES WITHHOLD
LISTED AT RIGHT AUTHORITY NOMINEES:
(except as to vote for Barrington H. Branch
indicated to the nominee(s) Thomas L. Hefner
contrary below) listed at right L. Ben Lytle
John W. Nelley, Jr.
1. ELECTION OF
DIRECTORS FOR A
TERM OF THREE
YEARS. / / / /
For, except vote withheld from the following nominee(s):
-----------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal TO RATIFY APPOINTMENT OF KPMG LLP / / / / / /
AS INDEPENDENT AUDITORS
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2.
The undersigned acknowledges receipt from Duke Realty Corporation of, prior to
the execution of this proxy, a notice of the meeting, a proxy statement, and an
annual report to shareholders.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE __________________________________________ DATE ___________________
SIGNATURE __________________________________________ DATE ___________________
(SIGNATURE IF HELD JOINTLY)
NOTE: Please sign exactly as name appears above. When shares are held as joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
REVOCABLE PROXY