SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PUBLIC STORAGE, INC.
-------------------
(Name of Registrant as Specified in Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
____________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
____________________________________
(4) Proposed maximum aggregate value of transaction:
____________________________________
(5) Total fee paid:
____________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
____________________________________
(2) Form, schedule or registration statement no.:
____________________________________
(3) Filing party:
____________________________________
(4) Date filed:
____________________________________
PRELIMINARY COPY
PUBLIC STORAGE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 10, 2001
The Annual Meeting of Shareholders of Public Storage, Inc., a California corporation (the
"Company"), will be held at the Hilton Glendale, 100 West Glenoaks Boulevard, Glendale, California, on May 10,
2001, at the hour of 1:00 p.m. Los Angeles time, for the following purposes:
1. To elect directors for the ensuing year.
2. To vote upon an amendment to the Certificate of Determination of the Equity Stock, Series A
to extend the date on or after which the Company may redeem the Equity Stock, Series A from
March 31, 2005 to March 31, 2010.
3. To approve the adoption of the Company's 2001 Stock Option and Incentive Plan.
4. To consider and act upon such other matters as may properly come before the meeting or any
adjournment of the meeting.
The Board of Directors has determined that only holders of record of Common Stock and
Depositary Shares ("Depositary Shares") Each Representing 1/1,000 of a Share of Equity Stock, Series A ("Equity
Stock") at the close of business on March 15, 2001 will be entitled to receive notice of, and to vote at, the
meeting or any adjournment of the meeting. Each Depositary Share represents 1/1,000 of a share of Equity Stock,
which has been deposited with Fleet National Bank, as Depositary (the "Depositary").
Please mark your vote on the enclosed Proxy/Instruction Card, then date, sign and promptly mail
the Proxy/Instruction Card in the stamped return envelope included with these materials.
Holders of record of Common Stock and Depositary Shares are cordially invited to attend the
meeting in person. If a holder of Common Stock and/or Depositary Shares does attend and has already signed and
returned the Proxy/Instruction Card, the holder may nevertheless change his or her vote at the meeting, in which
case the holder's Proxy/Instruction Card will be disregarded. Therefore, whether or not you presently intend to
attend the meeting in person, you are urged to mark your vote on the Proxy/Instruction Card, date, sign and
return it.
By Order of the Board of Directors
SARAH HASS, Secretary
Glendale, California
March 27, 2001
PUBLIC STORAGE, INC.
701 Western Avenue
Glendale, California 91201-2349
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 10, 2001
GENERAL
This Proxy Statement (first mailed to shareholders on or about April 10, 2001) is furnished in
connection with the solicitation by the Board of Directors of Public Storage, Inc. (the "Company") of proxies for
use at the Company's Annual Meeting of Shareholders to be held at the Hilton Glendale, 100 West Glenoaks
Boulevard, Glendale, California at 1:00 p.m. Los Angeles time on May 10, 2001 or at any adjournment of the
meeting. The purposes of the meeting are: (1) to elect ten directors of the Company; (2) to vote upon an
amendment to the Certificate of Determination of the Equity Stock, Series A to extend the date on or after which
the Company may redeem the Equity Stock, Series A from March 31, 2005 to March 31, 2010; (3) to approve the
adoption of the Company's 2001 Stock Option and Incentive Plan; and (4) to consider such other business as may
properly be brought before the meeting or any adjournment of the meeting.
QUORUM AND VOTING
Record Date and Quorum
Only holders of record of Common Stock and Depositary Shares ("Depositary Shares") Each
Representing 1/1,000 of a Share of Equity Stock, Series A ("Equity Stock") at the close of business on March 15,
2001 (the "Record Date") will be entitled to vote at the meeting, or at any adjournment of the meeting. Each
Depositary Share represents 1/1,000 of one share of Equity Stock. The Equity Stock has been deposited with Fleet
National Bank, as Depositary (the "Depositary"). On the Record Date, the Company had 120,287,574 shares of
Common Stock issued and outstanding (before redemptions of 581,600 shares of Common Stock not reflected in the
transfer agent's records as of the Record Date) and 5,635,602 Depositary Shares, representing 5,635.602 shares of
Equity Stock, issued and outstanding.
The presence at the meeting in person or by proxy of the holders of a majority of the voting
power represented by the outstanding shares of Common Stock and Equity Stock, counted together as a single class,
is necessary to constitute a quorum for the transaction of business.
Voting of Proxy/Instruction Card
If a Proxy/Instruction Card in the accompanying form is properly executed and is received
before the voting, the persons designated as proxies will vote the shares of Common Stock represented thereby, if
any, in the manner specified, and the Depositary will vote the Equity Stock underlying the Depositary Shares
represented thereby, if any, in the manner specified. If no specification is made, the persons designated as
proxies will vote the shares of Common Stock represented by the Proxy/Instruction Card, if any, and the
Depositary will vote the Equity Stock underlying the Depositary Shares represented by the Proxy/Instruction Card,
if any, FOR the election as directors of the nominees named below and for the approval of proposals (2) and (3).
If any nominee becomes unavailable to serve, the persons designated as proxies and the Depositary will vote for
the person, if any, designated by the Board of Directors to replace that nominee. A Proxy/Instruction Card is
revocable by delivering a subsequently signed and dated Proxy/Instruction Card or other written notice to the
Company or the Depositary at any time before the voting. A Proxy/Instruction Card may also be revoked if the
person executing the Proxy/Instruction Card is present at the meeting and chooses to vote in person.
If you participate in the PS 401(k)/Profit Sharing Plan (the "401(k) Plan"), your
Proxy/Instruction Card will also serve as a voting instruction for the trustee of the 401(k) Plan (the "Trustee")
with respect to the amount of shares of Common Stock and/or Depositary Shares credited to your account as of the
Record Date. If you provide voting instructions via your Proxy/Instruction Card with respect to shares in the
401(k) Plan, the Trustee will vote those shares of Common Stock in the manner specified and/or the Trustee will
instruct the Depositary to vote the Equity Stock underlying those Depositary Shares in the manner specified. If
you execute and return the Proxy/Instruction Card without a specific voting instruction with respect to shares in
the 401(k) Plan, the Trustee will vote those shares of Common Stock, and will instruct the Depositary to vote the
Equity Stock underlying those Depositary Shares, FOR the election as directors of the nominees named below and
for the approval of proposals (2) and (3). If a properly executed Proxy/Instruction Card with respect to shares
in the 401(k) Plan is not received by the Trustee, the Trustee will vote those shares of Common Stock at its
discretion and/or the Trustee at its discretion will instruct the Depositary with respect to the voting of the
Equity Stock underlying those Depositary Shares.
Holders of Common Stock and holders of Equity Stock vote together as one class. With respect
to the election of directors, (i) each holder of Common Stock on the Record Date is entitled to cast as many
votes as there are directors to be elected multiplied by the number of shares registered in his name on the
Record Date and (ii) each holder of Equity Stock is entitled to cast as many votes as there are directors to be
elected multiplied by 100 times the number of shares of Equity Stock registered in its name (equivalent to 1/10
the number of Depositary Shares registered in the holder's name). The holder may cumulate his votes for
directors by casting all of his votes for one candidate or by distributing his votes among as many candidates as
he chooses. The ten candidates who receive the most votes will be elected directors of the Company. In voting
upon proposals (2) and (3) and any other proposal that might properly come before the meeting, each outstanding
share of Common Stock entitles the holder to one vote and each outstanding share of Equity Stock entitles the
holder to 100 votes (equivalent to 1/10 of a vote per Depositary Share). The number of votes required to approve
proposals (2) and (3) is set forth in the description of those proposals in this Proxy Statement.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Ten directors, constituting the entire Board of Directors, are to be elected at the Annual
Meeting of Shareholders, to hold office until the next annual meeting and until their successors are elected and
qualified. When the accompanying Proxy/Instruction Card is properly executed and returned before the voting, the
persons designated as proxies and the Trustee will vote the shares of Common Stock represented thereby, if any,
and the Depositary will vote the Equity Stock underlying the Depositary Shares represented thereby, if any, in
the manner indicated on the Proxy/Instruction Card. If any nominee below becomes unavailable for any reason or
if any vacancy on the Company's Board of Directors occurs before the election, the shares of Common Stock and/or
the shares of Equity Stock underlying Depositary Shares represented by a Proxy/Instruction Card voted for that
nominee, will be voted for the person, if any, designated by the Board of Directors to replace the nominee or to
fill the vacancy on the Board. However, the Board of Directors has no reason to believe that any nominee will be
unavailable or that any vacancy on the Board of Directors will occur. The following persons are nominees for
director:
Name Age Director Since
B. Wayne Hughes 67 1980
Harvey Lenkin 64 1991
Marvin M. Lotz 58 1999
B. Wayne Hughes, Jr. 41 1998
Robert J. Abernethy 61 1980
Dann V. Angeloff 65 1980
William C. Baker 67 1991
Thomas J. Barrack, Jr. 53 1998
Uri P. Harkham 52 1993
Daniel C. Staton 48 1999
B. Wayne Hughes has been a director of the Company since its organization in 1980 and was
President and Co-Chief Executive Officer from 1980 until November 1991 when he became Chairman of Board and sole
Chief Executive Officer. Mr. Hughes was Chairman of the Board and Chief Executive Officer from 1990 until March
1998 of Public Storage Properties XI, Inc., which was renamed PS Business Parks, Inc. ("PSBP"), an affiliated
REIT. From 1989-90 until the respective dates of merger, he was Chairman of the Board and Chief Executive
Officer of 18 affiliated REITs that were merged into the Company between September 1994 and May 1998
(collectively, the "Merged Public Storage REITs"). Mr. Hughes has been active in the real estate investment
field for over 30 years. He is the father of B. Wayne Hughes, Jr.
Harvey Lenkin became President and a director of the Company in November 1991. Mr. Lenkin has
been employed by the Company for 23 years. He has been a director of PSBP since March 1998 and was President of
PSBP (formerly Public Storage Properties XI, Inc.) from 1990 until March 1998. Mr. Lenkin was President of the
Merged Public Storage REITs from 1989-90 until the respective dates of merger and was also a director of one of
those REITs, Storage Properties, Inc. ("SPI"), from 1989 until June 1996. He is a member of the Board of
Governors of the National Association of Real Estate Investment Trusts, Inc. (NAREIT).
Marvin M. Lotz became a director of the Company in May 1999. Mr. Lotz has been a Senior Vice
President of the Company since November 1995 and President of the Property Management Division since 1988 with
overall responsibility for the Company's mini-warehouse operations. He had overall responsibility for the
Company's property acquisitions from 1983 until 1988.
B. Wayne Hughes, Jr. became a director of the Company in January 1998. He has been employed by
the Company since 1989 and has been Vice President - Acquisitions of the Company since 1992. Mr. Hughes, Jr. is
involved in the coordination and direction of the Company's acquisition and development activities. He is the
son of B. Wayne Hughes.
Robert J. Abernethy, Chairman of the Audit Committee, has been President of American Standard
Development Company and of Self-Storage Management Company, which develop and operate mini-warehouses, since 1976
and 1977, respectively. Mr. Abernethy has been a director of the Company since its organization. He is a member
of the board of trustees of Johns Hopkins University, a director of Marathon National Bank, a member of the
California State Board of Education and a California Transportation Commissioner. Mr. Abernethy is a former
member of the board of directors of the Los Angeles County Metropolitan Transportation Authority and the
Metropolitan Water District of Southern California and a former Planning Commissioner and Telecommunications
Commissioner and former Vice-Chairman of the Economic Development Commission of the City of Los Angeles.
Dann V. Angeloff has been President of the Angeloff Company, a corporate financial advisory
firm, since 1976. The Angeloff Company has rendered, and is expected to continue to render, financial advisory
and securities brokerage services for the Company. Mr. Angeloff is the general partner of a limited partnership
that owns a mini-warehouse operated by the Company and which secures a note owned by the Company. Mr. Angeloff
has been a director of the Company since its organization. He is a director of AremisSoft Corporation, Balboa
Capital Corporation, Nicholas/Applegate Fund, ReadyPac Produce, Inc., Royce Medical Company and xDimentional
Technologies, Inc. He was a director of SPI from 1989 until June 1996.
William C. Baker, a member of the Audit Committee, became a director of the Company in November
1991. Since 1970, Mr. Baker has been a partner in Baker & Simpson, a private investment entity. From August
1998 through April 2000, he was President and Treasurer of Meditrust Operating Company, a real estate investment
trust. From April 1996 to December 1998, Mr. Baker was Chief Executive Officer of Santa Anita Companies, which
then operated the Santa Anita Racetrack. From April 1993 through May 1995, he was President of Red Robin
International, Inc., an operator and franchisor of casual dining restaurants in the United States and Canada.
From January 1992 through December 1995, Mr. Baker was Chairman and Chief Executive Officer of Carolina
Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc. From 1991 to 1999, he was Chairman
of the Board of Coast Newport Properties, a real estate brokerage company. From 1976 to 1988, Mr. Baker was a
principal shareholder and Chairman and Chief Executive Officer of Del Taco, Inc., an operator and franchisor of
fast food restaurants in California. He is a director of Callaway Golf Company, Meditrust Operating Company and
Meditrust Corporation.
Thomas J. Barrack, Jr. became a director of the Company in February 1998. Mr. Barrack has been
the Chairman and Chief Executive Officer of Colony Capital, Inc. since September 1991. Colony Capital, Inc. is
one of the largest real estate investors in America, having acquired properties in the U.S., Europe and Asia.
Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack was a principal with the Robert M. Bass
Group, Inc., the principal investment vehicle for Robert M. Bass of Fort Worth, Texas. From 1985 to 1987, Mr.
Barrack was President of Oxford Ventures, Inc., a Canadian-based real estate development company. From 1984 to
1985 he was Senior Vice President at E.F. Hutton Corporate Finance in New York. Mr. Barrack was appointed by
President Ronald Reagan as Deputy Under Secretary at the U.S. Department of the Interior from 1982 to 1983. Mr.
Barrack currently is a director of Continental Airlines, Inc. and Kennedy-Wilson, Inc.
Uri P. Harkham became a director of the Company in March 1993. Mr. Harkham has been the
President and Chief Executive Officer of the Jonathan Martin Fashion Group, which specializes in designing,
manufacturing and marketing women's clothing, since its organization in 1976. Since 1978, Mr. Harkham has been
the Chairman of the Board of Harkham Properties, a real estate firm specializing in buying and managing fashion
warehouses in Los Angeles.
Daniel C. Staton, a member of the Audit Committee, became a director of the Company in March
1999 in connection with the merger of Storage Trust Realty, a real estate investment trust, with the Company.
Mr. Staton was Chairman of the Board of Trustees of Storage Trust Realty from February 1998 until March 1999 and
a Trustee of Storage Trust Realty from November 1994 until March 1999. He is President of Walnut Capital
Partners, an investment and venture capital company. Mr. Staton was the Chief Operating Officer and Executive
Vice President of Duke Realty Investments, Inc. from 1993 to 1997 and a director of Duke Realty Investments, Inc.
from 1993 until August 1999. From 1981 to 1993, Mr. Staton was a principal owner of Duke Associates, the
predecessor of Duke Realty Investments, Inc. Prior to joining Duke Associates in 1981, he was a partner and
general manager of his own moving company, Gateway Van & Storage, Inc. in St. Louis, Missouri. From 1986 to
1988, Mr. Staton served as president of the Greater Cincinnati Chapter of the National Association of Industrial
and Office Parks.
Directors and Committee Meetings
The Board of Directors held seven meetings and the Audit Committee held one meeting during
2000. Each of the directors, except for Thomas J. Barrack, Jr., attended at least 75% of the meetings held by
the Board of Directors or, if a member of a committee of the Board of Directors, held by both the Board of
Directors and all committees of the Board of Directors on which he served, during 2000 (during the period that he
served). The primary functions of the Audit Committee are to meet with the Company's outside auditors, to
conduct a pre-audit review of the audit engagement, to conduct a post-audit review of the results of the audit,
to monitor the adequacy of internal financial controls of the Company, to review the independence of the outside
auditors and to make recommendations to the Board of Directors regarding the appointment and retention of
auditors. The Company does not have a compensation or a nominating committee. During 2000, executive officers
received grants of awards under the Company's 1996 Stock Option and Incentive Plan only with the approval of the
Audit Committee. In March 2001, the Board of Directors appointed an Executive Equity Awards Committee,
consisting of William C. Baker, Chairman, and Daniel C. Staton. If the Company's shareholders approve the 2001
Stock Option and Incentive Plan hereby submitted for approval, executive officers would receive grants of awards
under the 2001 Stock Option and Incentive Plan only with the approval of the Executive Equity Awards Committee.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of the dates indicated with respect to persons
known to the Company to be the beneficial owners of more than 5% of the outstanding shares of the Common Stock
("Common Shares") or the Depositary Shares:
Depositary Shares Each
Representing 1/1,000 of a
Share of Equity Stock,
Shares of Common Stock Series A
Beneficially Owned Beneficially Owned
Number Percent Number Percent
Name and Address of Shares of Class of Shares of Class
B. Wayne Hughes, B. Wayne Hughes, Jr., Tamara 38,157,815 32.8% 1,292,520 22.9%
Hughes Gustavson, PS Orangeco, Inc., a
California corporation ("PSOI")
701 Western Avenue,
Glendale, California 91201-2349,
PS Insurance Company, Ltd., a
Bermuda corporation ("PSIC")
41 Cedar Avenue
Hamilton, Bermuda (1)
FMR Corp. 8,157,765 7.0% -- --
82 Devonshire Street
Boston, Massachusetts 02109 (2)
- ----------------
(1) This information is as of March 27, 2001. The common stock of PSOI (representing approximately 5% of the
equity) is owned one-third each by B. Wayne Hughes, Tamara Hughes Gustavson (an adult daughter of
B. Wayne Hughes) and B. Wayne Hughes, Jr. (an adult son of B. Wayne Hughes), and the non-voting preferred
stock of PSOI (representing approximately 95% of the equity) is owned by the Company. The stock of PSIC
is owned approximately 45% by B. Wayne Hughes, 47% by Tamara Hughes Gustavson and 8% by B. Wayne Hughes,
Jr. B. Wayne Hughes has voting and dispositive power with respect to 30,777 Common Shares and 1,000
Depositary Shares owned by PSOI, and B. Wayne Hughes and Tamara Hughes Gustavson share voting and
dispositive power with respect to 301,032 Common Shares and 9,783 Depositary Shares owned by PSIC.
B. Wayne Hughes disclaims beneficial ownership of the shares owned by B. Wayne Hughes, Jr. and Tamara
Hughes Gustavson (Tamara Hughes Gustavson beneficially owns an aggregate of 16,759,304 Common Shares and
1,192,882 Depositary Shares (exclusive of the shares owned by PSIC) or approximately 14.4% of the Common
Shares and 21.2% of the Depositary Shares outstanding as of March 27, 2001). Each of the other persons
listed above disclaims beneficial ownership of the shares owned by any other person listed above.
The above table does not include 7,000,000 shares of the Company's Class B Common Stock which are owned
by B. Wayne Hughes, Jr. and Tamara Hughes Gustavson. The Class B Common Stock is convertible into Common
Stock on a share-for-share basis upon satisfaction of certain conditions, but in no event earlier than
January 1, 2003.
(2) This information is as of December 31, 2000 and is based on a Schedule 13G (Amendment No. 7) filed by FMR
Corp. (except that the percent shown in the table is based on the Common Shares outstanding at March 27,
2001). As of December 31, 2000, FMR Corp. beneficially owned 8,157,765 Common Shares. This number
includes 6,774,210 Common Shares beneficially owned by Fidelity Management & Research Company, as a
result of its serving as investment adviser to several investment companies registered under Section 8 of
the Investment Company Act of 1940, and 1,383,555 Common Shares beneficially owned by Fidelity Management
Trust Company, as a result of its serving as investment manager of various institutional accounts. FMR
Corp. has sole voting power with respect to 1,309,355 Common Shares and sole dispositive power with
respect to 8,157,765 Common Shares.
Security Ownership of Management
The following table sets forth information as of March 27, 2001 concerning the beneficial
ownership of the Common Shares and the Depositary Shares of each director of the Company, the Company's Chief
Executive Officer, the four most highly compensated persons who were executive officers of the Company on
December 31, 2000 and all directors and executive officers as a group:
Shares of Common Stock: Depositary Shares Each Representing
Beneficially Owned(1) 1/1,000 of a Share of Equity Stock,
Shares Subject to Options(2) Series A Beneficially Owned
Name Number of Shares Percent Number of Shares Percent
B. Wayne Hughes 20,322,643(1)(3) 17.5% 64,928(1)(3) 1.2%
Harvey Lenkin 85,716(1)(4) * 3,068(1)(4) *
151,332(2) 0.1%
-------- ----
237,048 0.2%
Marvin M. Lotz 74,871(1)(5) * 2,432(1)(5) *
176,332(2) 0.2%
------- ----
251,203 0.2%
B. Wayne Hughes, Jr. 1,075,868(1)(6) 0.9% 34,710(1)(6) 0.6%
Robert J. Abernethy 66,568(1) * 2,108(1) *
14,165(2) *
------ --
80,733 *
Dann V. Angeloff 78,500(1)(7) * -- --
9,165(2) *
------ --
87,665 *
William C. Baker 20,000(1) * 455(1) *
14,165(2) *
------ --
34,165 *
Thomas J. Barrack, Jr. -- -- 8,900(1)(12) 0.2%
16,666(2) *
------ --
16,666 *
Uri P. Harkham 13,376(1)(8) * 555(1)(8) *
6,665(2) *
------ --
20,041 *
Daniel C. Staton 1,458(1) * 47(1) *
20,239(2) *
------ --
21,697 *
Carl B. Phelps 8,910(1)(9) * 605(1)(9) *
84,999(2) *
------ --
93,909 *
David Goldberg 111,713(1)(10) * 4,048(1)(10) *
170,499(2) 0.1%
------- ----
282,212 0.2%
All Directors and Executive 21,977,887(1)(3)(4)(5) 128,542(1)(3)(4)(5)
Officers as a Group (6)(7)(8)(9) (6)(7)(8)(9)
(20 persons) (10)(11) 18.9% (10)(11)(12) 2.3%
1,162,550(2) 1.0%
----------- ------
23,140,437 19.7%
- ---------------
* Less than 0.1%
(1) Common Shares or Depositary Shares, as applicable, beneficially owned as of March 27, 2001. Except as
otherwise indicated and subject to applicable community property and similar statutes, the persons listed
as beneficial owners of the shares have sole voting and investment power with respect to such shares.
(2) Represents vested portion as of March 27, 2001, and portion of which will be vested within 60 days of
March 27, 2001, of Common Shares subject to options granted to the named individuals or the group pursuant
to the Company's stock option and incentive plans.
(3) The 20,322,643 Common Shares include 19,945,983 Common Shares held of record by the B. W. Hughes Living
Trust as to which Mr. Hughes has voting and investment power, 1,427 Common Shares held by a custodian of
an IRA for Mr. Hughes as to which he has investment power, 30,777 Common Shares held of record by PSOI as
to which Mr. Hughes has voting and dispositive power, 301,032 Common Shares held of record by PSIC as to
which Mr. Hughes and Tamara Hughes Gustavson share voting and dispositive power and 43,424 Common Shares
held in the 401(k) Plan.
The 64,928 Depositary Shares include 52,547 Depositary Shares held of record by the B.W. Hughes Living
Trust as to which Mr. Hughes has voting and investment power, 46 Depositary Shares held by a custodian of
an IRA for Mr. Hughes as to which he has investment power, 1,000 Depositary Shares held of record by PSOI
as to which Mr. Hughes has voting and dispositive power, 9,783 Depositary Shares held of record by PSIC as
to which Mr. Hughes and Tamara Hughes Gustavson share voting and dispositive power and 1,552 Depositary
Shares held in the 401(k) Plan.
(4) The 85,716 Common Shares include 1,249 and 734 Common Shares, held by custodians of IRAs for Mr. Lenkin
and Mrs. Lenkin as to which each has investment power, 468 Common Shares held by Mrs. Lenkin, 1,568 Common
Shares held by Mrs. Lenkin as custodian for a son, 107 Common Shares held by a custodian of an IRA for a
son and 24,292 Common Shares held in the 401(k) Plan.
The 3,068 Depositary Shares include 138 and 23 Depositary Shares, held by custodians of IRAs for Mr.
Lenkin and Mrs. Lenkin as to which each has investment power, 38 Depositary Shares held by Mrs. Lenkin,
100 Depositary Shares held by Mrs. Lenkin as custodian for a son, 100 Depositary Shares held by a
custodian of an IRA for a son and 789 Depositary Shares held in the 401(k) Plan.
(5) The 74,871 Common Shares include 17,384 Common Shares held in the 401(k) Plan.
The 2,432 Depositary Shares include 564 Depositary Shares held in the 401(k) Plan.
(6) The 1,075,868 Common Shares include 1,231 and 233 Common Shares, held by custodians of IRAs for Mr.
Hughes, Jr. and Mrs. Hughes, Jr. as to which each has investment power, 344 Common Shares held by Mrs.
Hughes, Jr., 8,506 and 3,390 Common Shares, held by Mr. Hughes, Jr. as custodian for a daughter and a son,
25,692 and 17,890 Common Shares held by Mrs. Hughes, Jr. as custodian for a daughter and a son, 11,348
Common Shares held by Mr. Hughes, Jr. and Tamara Hughes Gustavson - Separate Property and 17,585 Common
Shares held in the 401(k) Plan.
The 34,710 Depositary Shares include 40 and 7 Depositary Shares, held by custodians of IRAs for Mr.
Hughes, Jr. and Mrs. Hughes, Jr. as to which each has investment power, 11 Depositary Shares held by Mrs.
Hughes, Jr., 213 and 96 Depositary Shares, held by Mr. Hughes, Jr. as custodian for a daughter and a son,
772 and 581 Depositary Shares held by Mrs. Hughes, Jr. as custodian for a daughter and a son, 43
Depositary Shares held by Mr. Hughes, Jr. and Tamara Hughes Gustavson - Separate Property and 788
Depositary Shares held in the 401(k) Plan.
(7) The 78,500 Common Shares include 6,000 Common Shares held by a custodian of an IRA for Mr. Angeloff and
70,500 Common Shares held by Mr. Angeloff as trustee of Angeloff Family Trust.
(8) The 13,376 Common Shares include 500 Common Shares held by Harkham Industries, Inc. (dba Jonathan Martin,
Inc.), a corporation wholly owned by Mr. Harkham, 1,500 Common Shares held by Mr. Harkham as trustee of
Uri Harkham Trust, 1,440 Common Shares held by a custodian of an IRA for Mr. Harkham as to which he has
investment power, 4,716, 410, 210 and 600 Common Shares held by Mr. Harkham as custodian for four of his
children and 4,000 Common Shares held by Mr. Harkham as trustee of Harkham Industries Profit Sharing Plan.
The 555 Depositary Shares include 256 Depositary Shares held by Mr. Harkham as trustee of Uri Harkham
Trust, 146 Depositary Shares held by a custodian of an IRA for Mr. Harkham as to which he has investment
power and 153 Depositary Shares held by Mr. Harkham as custodian for a son.
(9) The 8,910 Common Shares include 6,330 Common Shares held by Mr. and Mrs. Phelps as trustee of Phelps
Family Trust, 296, 1,000 and 1,000 Common Shares held by custodians of IRAs for Mr. Phelps and 284 Common
Shares held in the 401(k) Plan.
The 605 Depositary Shares include 205 Depositary Shares held by Mr. and Mrs. Phelps as trustee of Phelps
Family Trust, 9, 32 and 32 Depositary Shares held by custodians of IRAs for Mr. Phelps and 327 Depositary
Shares held in the 401(k) Plan.
(10) The 111,713 Common Shares include 7,199 Common Shares held by a custodian of an IRA for Mr. Goldberg,
4,260 Common Shares held by David Goldberg Profit Sharing Plan and 499 Common Shares held in the 401(k)
Plan.
The 4,048 Depositary Shares include 233 Depositary Shares held by a custodian of an IRA for Mr. Goldberg,
138 Depositary Shares held by David Goldberg Profit Sharing Plan and 652 Depositary Shares held in the
401(k) Plan.
(11) Includes shares held of record or beneficially by members of the immediate family of executive officers
of the Company, shares held by custodians of IRAs for the benefit of executive officers of the Company and
shares credited to the accounts of the executive officers of the Company that are held in the 401(k) Plan.
(12) Shares held of record by Colony PSA, LLC, a limited liability company of which Mr. Barrack is a
controlling member.
The following tables set forth information as of March 27, 2001 concerning the remaining
security ownership of each director of the Company, the Company's Chief Executive Officer, the four most highly
compensated persons who were executive officers of the Company on December 31, 2000 and all directors and
executive officers of the Company as a group:
Shares of Adjustable Rate
Shares of 10% Cumulative Shares of 9.20% Cumulative Cumulative Preferred Stock,
Preferred Stock, Series A Preferred Stock, Series B Series C
Beneficially Owned (1) Beneficially Owned (1) Beneficially Owned (1)
-------------------------- -------------------------- --------------------------
Number Number Number
of Shares Percent of Shares Percent of Shares Percent
--------- ------- --------- ------- --------- -------
B. Wayne Hughes - - - - - -
Harvey Lenkin - - - - - -
Marvin M. Lotz - - - - - -
B. Wayne Hughes, Jr. - - 400 (1)(3) * - -
Robert J. Abernethy - - 225 (1) * - -
Dann V. Angeloff - - - - - -
William C. Baker - - - - - -
Thomas J. Barrack, Jr. - - - - - -
Uri P. Harkham - - - - - -
Daniel C. Staton - - - - - -
Carl B. Phelps - - - - - -
David Goldberg - - - - 600 (1)(4) *
All Directors and 4,060 (1)(2) 0.2% 4,625 (1)(2)(3) 0.2% 600 (1)(4) *
Executive Officers as
a Group (20 persons)
Shares of 9.50% Cumulative Shares of 10% Cumulative Shares of 9.75% Cumulative
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Beneficially Owned(1) Beneficially Owned (1) Beneficially Owned (1)
-------------------------- -------------------------- --------------------------
Number Number Number
of Shares Percent of Shares Percent of Shares Percent
--------- ------- --------- ------- --------- -------
B. Wayne Hughes - - - - - -
Harvey Lenkin - - - - - -
Marvin M. Lotz - - - - - -
B. Wayne Hughes, Jr. - - - - - -
Robert J. Abernethy - - - - - -
Dann V. Angeloff - - - - - -
William C. Baker - - - - - -
Thomas J. Barrack, Jr. - - - - - -
Uri P. Harkham - - - - - -
Daniel C. Staton - - - - - -
Carl B. Phelps - - - - - -
David Goldberg - - - - - -
All Directors and 6,800 (1)(2) 0.6% 13,100 (1)(2) 0.6% 8,600 (1)(2) 0.4%
Executive Officers as
a Group (20 persons)
Depositary Shares Depositary Shares
Each Representing 1/1,000 Each Representing 1/1,000
of a Share of 8-7/8% of a Share of 8.45%
Cumulative Preferred Stock, Cumulative Preferred Stock,
Series G Series H Class B Common Stock
Beneficially Owned (1) Beneficially Owned(1) Beneficially Owned(1)
-------------------------- -------------------------- --------------------------
Number Number Number
of Shares Percent of Shares Percent of Shares Percent
--------- ------- --------- ------- --------- -------
B. Wayne Hughes - - - - - -
Harvey Lenkin - - - - - -
Marvin M. Lotz - - - - - -
B. Wayne Hughes, Jr. - - - - 3,204,758 (1) 45.8%
Robert J. Abernethy - - - - - -
Dann V. Angeloff - - - - - -
William C. Baker - - - - - -
Thomas J. Barrack, Jr. - - - - - -
Uri P. Harkham - - - - - -
Daniel C. Staton - - - - - -
Carl B. Phelps - - - - - -
David Goldberg - - - - - -
All Directors and 8,600 (1)(2) 0.1% 8,000 (1)(2) 0.1% 3,204,758 (1) 45.8%
Executive Officers as
a Group (20 persons)
- -----------------
* Less than 0.1%
(1) Shares of 10% Cumulative Preferred Stock, Series A, 9.20% Cumulative Preferred Stock, Series B,
Adjustable Rate Cumulative Preferred Stock, Series C, 9.50% Cumulative Preferred Stock, Series D, 10%
Cumulative Preferred Stock, Series E, 9.75% Cumulative Preferred Stock, Series F, Depositary Shares, each
representing 1/1,000 of a Share of 8-7/8% Cumulative Preferred Stock, Series G, Depositary Shares, each
representing 1/1,000 of Share of 8.45% Cumulative Preferred Stock, Series H, or Class B Common Stock, as
applicable, beneficially owned as of March 27, 2001. Except as otherwise indicated and subject to
applicable community property and similar statutes, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to such shares.
(2) Includes shares held of record or beneficially by members of the immediate family of executive officers
of the Company and shares held by custodians of IRAs for the benefit of executive officers of the Company.
(3) Shares held by Mr. Hughes, Jr. and Tamara Hughes Gustavson - Separate Property.
(4) Includes 500 shares held by a custodian of an IRA for Mr. Goldberg and 100 shares held by David Goldberg
Profit Sharing Plan.
As of March 27, 2001, the directors and executive officers of the Company did not own any
shares of the Company's Depositary Shares Each Representing 1/1,000 of a Share of 8-5/8% Cumulative Preferred
Stock, Series I, Depositary Shares Each Representing 1/1,000 of a Share of 8% Cumulative Preferred Stock,
Series J, Depositary Shares Each Representing 1/1,000 of a Share of 8 1/4% Cumulative Preferred Stock, Series K,
Depositary Shares Each Representing 1/1,000 of a Share of 8 1/4% Cumulative Preferred Stock, Series L, Depositary
Shares Each Representing 1/1,000 of a Share of 8.75% Cumulative Preferred Stock, Series M, Depositary Shares Each
Representing 1/1,000 of a Share of 8.600% Cumulative Preferred Stock, Series Q, Equity Stock, Series AA or Equity
Stock, Series AAA.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and
executive officers, and persons who own more than 10% of any registered class of the Company's equity securities
("10% owners"), to file with the Securities and Exchange Commission ("SEC") initial reports (on Form 3) of
ownership of the Company's equity securities and to file subsequent reports (on Form 4 or Form 5) when there are
changes in such ownership. The due dates of such reports are established by statute and the rules of the SEC.
Based on a review of the reports submitted to the Company, the Company believes that, with respect to the fiscal
year ended December 31, 2000, Uri P. Harkham, a director of the Company, failed to file on a timely basis three
reports on Form 4 to report 14 transactions.
COMPENSATION
Compensation of Executive Officers
The following table sets forth certain information concerning the annual and long-term
compensation paid to B. Wayne Hughes, the Company's Chief Executive Officer, and the four most highly compensated
persons who were executive officers of the Company on December 31, 2000 (the "Named Executive Officers") for
2000, 1999 and 1998.
Summary Compensation Table (1)
Long-Term
Annual Compensation Compensation
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(2) Options (#) Compensation(3)
B. Wayne Hughes 2000 $ 60,000(4) -- $28,800 -- $1,800
Chairman of the Board 1999 60,000 -- 34,200 -- 1,800
and Chief Executive 1998 60,300(5) -- 27,500 -- 1,800
Officer
Harvey Lenkin 2000 257,100(6) $150,500 (7) 160,000 4,800
President 1999 246,700(8) 175,500 (7) 60,000 4,700
1998 246,700(9) 150,500 (7) 22,000 4,700
Marvin M. Lotz 2000 279,400(10) 200,500 (7) 160,000 4,800
Senior Vice President 1999 214,600(11) 250,500 (7) 60,000 4,700
1998 199,000 200,500 (7) 22,000 4,700
Carl B. Phelps 2000 200,000 150,500 -- 160,000 4,800
Senior Vice President 1999 200,000 135,500 -- 20,000 4,700
1998 200,000 135,500 -- 75,000 4,700
David Goldberg 2000 188,600 150,500 (7) 145,000 4,800
Senior Vice President 1999 175,000 150,500 (7) 60,000 4,700
and General Counsel 1998 175,000 150,500 (7) 22,000 4,700
- ----------------
(1) Includes compensation paid by the Company and certain affiliated entities (PSBP and the Merged Public
Storage REITs).
(2) Other Annual Compensation consists solely of use of a company car.
(3) All Other Compensation consists solely of employer contributions to the PS 401(k)/Profit Sharing Plan.
(4) See "Employment Agreement" below.
(5) Includes $60,000 paid by the Company and $300 paid by PSBP and the Merged Public Storage REITs.
(6) Includes $246,700 of salary and $10,400 of directors' fees and meeting fees (see "Compensation of
Directors" below).
(7) Value did not exceed 10% of the annual salary and bonus of the individual for the years indicated.
(8) Includes $225,000 of salary and $21,700 of directors' fees and meeting fees.
(9) Includes $223,100 of salary and $21,700 of directors' fees and meeting fees paid by the Company and
$1,900 of salary paid by PSBP and the Merged Public Storage REITs.
(10) Includes $269,000 of salary and $10,400 of directors' fees and meeting fees.
(11) Includes $199,000 of salary and $15,600 of directors' fees and meeting fees.
The following table sets forth certain information relating to options to purchase shares of
Common Stock granted to the Named Executive Officers during 2000.
Option Grants in Last Fiscal Year
Individual Grants
- ----------------------------------------------------------------------------
Number of Percent of Potential Realizable Value
Securities Total Options at Assumed Annual Rates
Underlying Granted to Exercise of Share Price Appreciation
Options Employees in Price Expiration for Option Term
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10%
- --------------- ----------- ------------- -------- ---------- ----------------------------
B. Wayne Hughes -- -- -- -- -- --
Harvey Lenkin 160,000 4.3% $23.0625 12/13/10 $ 2,324,700 $ 5,867,100
Marvin M. Lotz 160,000 4.3% $23.0625 12/13/10 2,324,700 5,867,100
Carl B. Phelps 160,000 4.3% $23.0625 12/13/10 2,324,700 5,867,100
David Goldberg 145,000 3.9% $23.0625 12/13/10 2,106,759 5,317,059
All options granted in 2000 become exercisable in three equal installments beginning on the
first anniversary of the date of grant and have a term of ten years.
The following table sets forth certain information concerning exercised and unexercised options
held by the Named Executive Officers at December 31, 2000.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Value of Unexercised
Shares Securities Underlying In-the-Money
Acquired on Value Unexercised Options Options at
Name Exercise(#) Realized($) at December 31, 2000 December 31, 2000(1)
Exercisable Unexercisable Exercisable Unexercisable
B. Wayne Hughes -- -- -- -- -- --
Harvey Lenkin -- -- 144,665 207,335 $ 487,396 $ 226,667
Marvin M. Lotz 22,500 $177,794 169,665 207,335 545,833 226,667
Carl B. Phelps -- -- 56,666 198,334 3,333 206,667
David Goldberg 6,667 51,774 163,832 192,335 668,284 207,917
- --------------
(1) Based on closing price of $24.3125 per share of Common Stock on December 29, 2000, as reported by the New
York Stock Exchange. On March 23, 2001, the closing price per share of Common Stock as reported by the
New York Stock Exchange was $25.50.
Compensation of Directors
Each of the Company's directors, other than B. Wayne Hughes and commencing July 1, 2000, other
than Harvey Lenkin and Marvin M. Lotz, receives director's fees of $19,000 per year plus $450 for each meeting
attended (Mr. Lenkin and Mr. Lotz received directors' fees and meeting fees until July 1, 2000). In addition,
commencing May 1, 2000, each of the members of the Audit Committee (other than the chairman, who receives $1,300
per meeting) receives $1,000 for each meeting of the Audit Committee attended (the chairman received $900 and the
other members received $450 for each meeting of the Audit Committee attended prior to May 1, 2000). Each of the
members of the Executive Equity Awards Committee will receive $500 for each meeting of the committee attended.
The policy of the Company is to reimburse directors for reasonable expenses. Directors who are not officers or
employees of the Company ("Outside Directors") also receive grants of options under the Company's 1996 Stock
Option and Incentive Plan (and B. Wayne Hughes, Harvey Lenkin, Marvin M. Lotz and B. Wayne Hughes, Jr. are
eligible to receive grants of options and/or restricted stock thereunder) as described below. Under the 1996
Stock Option and Incentive Plan, each new Outside Director is, upon the date of his or her initial election to
serve as an Outside Director, automatically granted non-qualified options to purchase 15,000 shares of Common
Stock. In addition, after each annual meeting of shareholders, each Outside Director then duly elected and
serving is automatically granted, as of the date of such annual meeting, non-qualified options to purchase 2,500
shares of Common Stock, so long as such person has attended, in person or by telephone, at least 75% of the
meetings held by the Board of Directors during the immediately preceding calendar year. Substantially all of the
shares of Common Stock available for grant under the 1996 Stock Option and Incentive Plan have been exhausted.
If the Company's shareholders approve the 2001 Stock Option and Incentive Plan hereby submitted for approval, the
Outside Directors would receive grants of options thereunder (and Mr. Hughes, Mr. Lenkin, Mr. Lotz and Mr.
Hughes, Jr. would be eligible to receive grants of options and/or restricted stock thereunder).
Employment Agreement
B. Wayne Hughes, the Chairman of the Board and Chief Executive Officer of the Company, entered
into an employment agreement with the Company in November 1995 in connection with the merger of Public Storage
Management, Inc. into the Company. This agreement was for a term of five years (which ended in November 2000)
and provided for annual compensation of $60,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee. Messrs. Hughes, Lenkin, Lotz and Hughes,
Jr., who are officers of the Company, are members of the Board of Directors.
Certain Relationships and Related Transactions
Development Joint Venture with Affiliate. In November 1999, the Company, through wholly owned
entities ("PSA"), formed a joint venture (the "Development JV") to develop and own approximately $100 million of
mini-warehouses and $100 million of shares of the Company's Equity Stock, Series AAA. The partners of the
Development JV are PSA and a limited liability company (the "Investor LLC"). The members of the Investor LLC are
a state pension plan (the "Investor") and B. Wayne Hughes ("Hughes"). The Development JV was capitalized with
$200 million; PSA contributed $102 million and has a 51% ownership interest and the Investor LLC contributed $98
million and has a 49% ownership interest. The capital contributions were used to fund $100 million of
mini-warehouse development and $100 million was used to purchase the Equity Stock, Series AAA. The term of the
Development JV is 15 years. The Investor LLC has the right at the end of the sixth year to cause an early
termination of the Development JV. Operating cash flow from the Development JV is distributed as follows:
(1) during the first through sixth years of the Development JV, (a) 100% to the Investor LLC until the Investor
LLC has received cumulative distributions equal to a 10% compounded return on its investment and (b) then, 100%
to be reinvested by the Development JV; and (2) during the seventh through the 15th years of the Development JV,
(a) 100% to the Investor LLC until the Investor LLC has received cumulative distributions equal to a 10%
compounded return on its investment as determined through the first six years, (b) then, 100% to PSA until PSA
has received cumulative distributions equal to a 10% compounded return on its investment as determined through
the first six years and (c) then, 49% to the Investor LLC and 51% to PSA. The total capitalization of the
Investor LLC is expected to be $98 million (contributed in stages as required by the Investor LLC), of which
$64.043 million will be contributed by Hughes in exchange for his interest and $33.957 million will be
contributed by the Investor in exchange for its interest. As of December 31, 2000, Hughes had contributed
$55.375 million to the Investor LLC. Operating cash flow from the Investor LLC is distributed as follows:
(1) 100% to Hughes until Hughes has received cumulative distributions equal to a 7.9972% compounded annual return
on Hughes' unreturned investment and (2) then, 99% to the Investor and 1% to Hughes (Hughes' 1% interest is
estimated to be less than $50,000 per year). During 2000, distributions from the Investor LLC to Hughes were
$3,866,952. Hughes invested in the Investor LLC at the request of the Investor, and the transaction was approved
by the Company's disinterested directors based on advice from a financial advisor.
Purchase of Partnership Interests from Affiliate. In March 2000, the Company acquired by
merger the capital stock of PSI One, Inc. ("PSI One"), a California corporation which was owned by B. Wayne
Hughes, trustee of B.W. Hughes Living Trust. PSI One owned an equity interest in two partnerships. The price for
the capital stock of PSI One was 52,547 Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock,
Series A. The transaction was approved by the Company's disinterested directors.
Sales of Shares to Company. In January 2001, a corporation wholly-owned by Uri P. Harkham, a
director of the Company, sold to the Company in a privately negotiated transaction 10,000 shares of the Company's
Common Stock for an aggregate of $251,875.
In March 2001, a limited liability company of which Thomas J. Barrack, Jr., a director of the
Company, is a controlling member, sold to the Company in a privately negotiated transaction 2,619,893 shares of
the Company's Common Stock for an aggregate of $68,064,820.
Acquisition of PSIC. B. Wayne Hughes, B. Wayne Hughes, Jr. and Tamara Hughes Gustavson own all
of the capital stock of PS Insurance Company, Ltd. ("PSIC"), which is engaged in the business of reinsuring risks
relating to damage, destruction or other loss of goods stored by tenants in the mini-warehouses owned and
operated by the Company in the United States and to a much lesser extent by affiliates of the Hughes family in
Canada. In 1995, the Company acquired, in a tax-free reorganization, substantially all of the entities owned by
B. Wayne Hughes (and members of his family) that were engaged in the ownership and operation of mini-warehouses
and related activities in the United States. However, the federal and state income tax laws applicable to real
estate investment trusts (such as the Company) imposed restrictions that effectively prevented the Company from
owning PSIC or engaging in that business. As a result, PSIC was retained by and has continued to be operated by
the Hughes family. In the 1995 transaction, the Company was granted a right of first refusal pertaining to any
transfer of the stock or business of PSIC. Changes to the federal income tax laws that became effective
January 1, 2001, now permit the Company to acquire the stock of PSIC. Conforming changes to California's tax laws
are expected to be adopted and become effective in the near future.
Due principally to the interrelationship of the businesses of the Company and PSIC, the Company
believes that it is in its best interest to acquire the stock of PSIC assuming California law is appropriately
conformed to the federal provisions and to continue to operate PSIC as a wholly-owned taxable REIT subsidiary.
Accordingly, in March 2001, the Company agreed to acquire all of the capital stock of PSIC from the Hughes family
in a tax-free reorganization. In the transaction, the Hughes family would receive an aggregate of 1,243,298
shares of the Company's Common Stock, subject to adjustment for changes in PSIC's net working capital. PSIC owns
301,032 shares of the Company's Common Stock, which would continue to be owned by PSIC after the transaction.
The transaction (1) is conditioned on, among other things, adoption of changes to California's tax laws that
would permit the Company to acquire PSIC and (2) is scheduled to close on December 31, 2001, although there can
be no assurance. The transaction was approved by the Company's disinterested directors. A financial advisor
issued a fairness opinion to the Company's Board on the transaction.
REPORT OF THE BOARD OF DIRECTORS AND THE AUDIT COMMITTEE
ON EXECUTIVE COMPENSATION
Subject to certain considerations applicable to the Chief Executive Officer as discussed below,
the Company pays its executive officers compensation deemed appropriate in view of the nature of the Company's
business, the performance of individual executive officers, and the Company's objective of providing incentives
to its executive officers to achieve a level of individual and Company performance that will maximize the value
of shareholders' investment in the Company. To those ends, the Company's compensation program consists of
payment of a base salary and, potentially, bonus compensation, and making incentive awards of options to purchase
Common Stock. During 2000, grants of options to executive officers were made under the 1996 Stock Option and
Incentive Plan (the "1996 Plan").
Cash Compensation. Base salary levels are based generally (other than in the case of the Chief
Executive Officer) on market compensation rates and each individual's role in the Company. The Company
determines market compensation rates by reviewing public disclosures of compensation paid to executive officers
by other REITs of comparable size and market capitalization. Some of the REITs whose executive compensation the
Company considered in establishing the compensation it pays to executive officers are included in the NAREIT
Equity Index referred to below under the caption "Stock Price Performance Graph." Generally, the Company seeks
to compensate its executives at levels consistent with the middle of the range of amounts paid by REITs deemed
comparable by the Company. Individual salaries may vary based on the experience and contribution to overall
corporate performance by a particular executive officer.
For the year 2000, the Chief Executive Officer's base compensation was established in his
employment agreement (which expired in November 2000) at $60,000. The compensation paid to the Chief Executive
Officer is less than that paid to the chief executive officers of other publicly traded REITs and reflected the
judgment of the Board of Directors and the Chief Executive Officer that the Chief Executive Officer's performance
was rewarded primarily through his significant equity stake in the Company.
The Company bases its payment of annual bonuses on corporate, business unit and individual
performance. In establishing individual bonuses, the Company takes into account the Company's overall
profitability, the Company's internal revenue growth, the Company's revenue growth due to acquisitions, and the
executive officer's contribution to the Company's growth and profitability.
Equity-Based Compensation. The Company believes that its executive officers should have an
incentive to improve the Company's performance by having an ongoing stake in the success of the Company's
business. The Company seeks to create this incentive by granting to appropriate executive officers stock options
that have an exercise price of not less than 100% of the fair market value of the underlying stock on the date of
grant, so that the executive officer may not profit from the option unless the price of the Common Stock
increases. Options granted by the Company also are designed to help the Company retain executive officers in
that options are not exercisable at the time of grant, and achieve their maximum value only if the executive
remains in the Company's employ for a period of years. The Company did not grant any options to the Chief
Executive Officer during 2000. Options were granted to the other named executive officers as reflected above in
the table captioned "Option Grants in Last Fiscal Year." The number of options granted to individual executive
officers is based on a number of factors, including seniority, individual performance, and the number of options
previously granted to such executive officer.
The 1996 Plan also authorizes the Company to compensate its executive officers and other
employees with grants of restricted stock. Restricted stock would increase in value as the value of the Common
Stock increased, and would vest over time provided that the executive officer remained in the employ of the
Company. Accordingly, awards of restricted stock would serve the Company's objectives of retaining its executive
officers and other employees and motivating them to advance the interests of the Company and its shareholders.
The Company did not grant any shares of restricted stock during 2000.
If shareholders approve the 2001 Stock Option and Incentive Plan as described in Proposal No. 3
below, the Company will continue to implement its philosophy underlying the grant of stock options to executive
officers and other employees, and the Company also will be able to compensate its executive officers and other
employees with grants of restricted stock.
BOARD OF DIRECTORS AUDIT COMMITTEE
B. Wayne Hughes Robert J. Abernethy (Chairman)
Harvey Lenkin William C. Baker
Marvin M. Lotz Daniel C. Staton
B. Wayne Hughes, Jr.
Robert J. Abernethy
Dann V. Angeloff
William C. Baker
Thomas J. Barrack, Jr.
Uri P. Harkham
Daniel C. Staton
STOCK PRICE PERFORMANCE GRAPH
The graph set forth below compares the yearly change in the Company's cumulative total
shareholder return on its Common Stock for the five-year period ended December 31, 2000 to the cumulative total
return of the Standard and Poor's 500 Stock Index ("S&P 500 Index") and the National Association of Real Estate
Investment Trusts Equity Index ("NAREIT Equity Index") for the same period (total shareholder return equals price
appreciation plus dividends). The stock price performance graph assumes that the value of the investment in the
Company's Common Stock and each index was $100 on December 31, 1995 and that all dividends were reinvested. The
stock price performance shown in the graph is not necessarily indicative of future price performance.
Comparison of Cumulative Total Return
Public Storage, Inc., S&P 500 Index and NAREIT Equity Index
December 31, 1995 - December 31, 2000
AUDIT COMMITTEE REPORT
The Audit Committee of the Public Storage Board of Directors is composed of three directors who
qualify as independent under the rules of the New York Stock Exchange. The Audit Committee operates under a
written charter adopted by the Board of Directors in May 2000 (Exhibit A). The members of the Audit Committee
are Robert J. Abernethy (Chairman), William C. Baker and Daniel C. Staton. The Audit Committee recommends to the
Board of Directors the selection of the Company's independent auditors.
Management is responsible for the Company's internal controls and the financial reporting
process. The independent auditors are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing standards and for issuing a
report thereon. The Audit Committee's responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has met with management and the independent auditors and
has reviewed and discussed with them the audited consolidated financial statements. Management represented to
the Audit Committee that the Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles. The Audit Committee discussed with the independent auditors matters
required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Company's independent auditors also provided to the Audit Committee the written disclosures
required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the
Audit Committee discussed with the independent auditors that firm's independence. In addition, the Audit
Committee has considered whether the independent auditors' provision of non-audit services to the Company is
compatible with the auditors' independence.
Based on the Audit Committee's discussions with management and the independent auditors, the
representation of management and the report of the independent auditors, the Audit Committee recommended to the
Board of Directors, and the Board has approved, that the audited consolidated financial statements be included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Robert J. Abernethy (Chairman)
William C. Baker
Daniel C. Staton
INDEPENDENT AUDITORS
The Audit Committee has recommended, and the Board of Directors has selected, Ernst & Young
LLP, independent auditors, to audit the accounts of the Company for the fiscal year ending December 31, 2001.
It is anticipated that representatives of Ernst & Young LLP, which has acted as the independent
auditors for the Company since the Company's organization, will be in attendance at the Annual Meeting of
Shareholders and will have the opportunity to make a statement if they desire to do so and to respond to any
appropriate inquiries of the shareholders or their representatives.
Fees Billed to the Company by Ernst & Young LLP for 2000:
Audit Fees:
Audit fees billed (or expected to be billed) to the Company by Ernst & Young LLP for the audit
of the Company's annual financial statements for the 2000 fiscal year and review of the quarterly financial
statements included in the Company's quarterly reports on Form 10-Q for the 2000 fiscal year totaled $193,925.
Financial Information Systems Design and Implementation Fees:
The Company did not engage Ernst & Young LLP to provide advice to the Company regarding
financial information systems design and implementation during the 2000 fiscal year.
All Other Fees:
Fees billed (or expected to be billed) to the Company by Ernst & Young LLP for the Company's
2000 fiscal year for all other non-audit services rendered to the Company totaled $1,280,038.
PROPOSAL NO. 2
AMENDMENT TO TERMS OF EQUITY STOCK
Under the Company's restated articles of incorporation, the Board of Directors is authorized
without further shareholder action to provide for the issuance of up to 200,000,000 shares of equity stock, in
one or more series, with such rights as are set forth in resolutions adopted by the Board of Directors.
In 1999, the Board of Directors adopted resolutions creating the Equity Stock, Series A (the
"Equity Stock"). At March 27, 2001, the Company had outstanding 5,635.602 shares of Equity Stock represented by
5,635,602 Depositary Shares Each Representing 1/1,000 of a Share of Equity Stock (the "Depositary Shares"). The
Depositary Shares are traded on the New York Stock Exchange under the symbol "PSA.A". The notes to the financial
statements included in the Company's 2000 annual report to shareholders includes a brief description of the terms
of the Equity Stock. The terms of the Equity Stock are set forth in detail in the Certificate of Determination
of the Equity Stock.
The Certificate of Determination of the Equity Stock (and the deposit agreement providing for
the issuance of the Depositary Shares) provides that the Company may (but is not obligated to) redeem any or all
of the Equity Stock (and the Depositary Shares) on or after March 31, 2005 at $24,500 per share of Equity Stock
($24.50 per Depositary Share). The Company may redeem Equity Stock (and Depositary Shares) before March 31,
2005, but only to preserve its status as a real estate investment trust.
The Company believes that its right to redeem the Equity Stock (and the Depositary Shares) may
impede increases in the trading price of the Depositary Shares, particularly as the date for potential redemption
approaches. Accordingly, the Board of Directors has proposed an amendment to the Certificate of Determination of
the Equity Stock to extend that date from March 31, 2005 to March 31, 2010. The Company would continue to have
the right at any time to redeem Equity Stock (and Depositary Shares) to preserve its status as a real estate
investment trust. There can be no assurance as to the trading price of the Depositary Shares or that the
proposed amendment will in fact impact the trading price of the Depositary Shares.
The affirmative vote of the holders of (i) a majority of the outstanding shares of Equity Stock
and (ii) a majority of the voting power represented by the outstanding shares of Equity Stock and Common Stock,
voting together as a single class, is required to approve the amendment to the Certificate of Determination of
the Equity Stock. For these purposes, an abstention or broker non-vote will have the effect of a vote against
the proposal. The officers and directors of the Company intend to vote their shares in favor of the amendment.
The Board of Directors recommends that you vote FOR this amendment.
PROPOSAL NO. 3
APPROVAL OF ADOPTION OF 2001 STOCK OPTION AND INCENTIVE PLAN
On March 15, 2001, the Board of Directors adopted the 2001 Stock Option and Incentive Plan (the
"2001 Plan") for the benefit of employees of the Company and its subsidiaries (including any employee who is an
officer or director of the Company or any of its subsidiaries), key Service Providers (as defined below) and
Outside Directors, subject to approval of the Company's shareholders. There are approximately 4,600 employees
and Service Providers of the Company and its subsidiaries, and six Outside Directors, who are eligible to
participate in the 2001 Plan. The persons who will receive grants of awards under the 2001 Plan and the timing,
nature and amount of awards to grantees will be determined from time to time by one or more authorized committees
of the Board of Directors based on a number of factors, including position, responsibilities, and contribution to
the Company's performance and objectives. Grants of options to the Outside Directors will be automatic in
accordance with a formula contained in the 2001 Plan.
The principal provisions of the 2001 Plan are summarized below. The summary does not purport
to be complete and is qualified in its entirety by the terms of the 2001 Plan, the entire text of which is
attached hereto as Exhibit B and incorporated herein by reference.
REASONS FOR THE 2001 PLAN
The purpose of the 2001 Plan is to promote the best interests of the Company and its
shareholders by providing eligible participants with an opportunity to acquire or increase a direct proprietary
interest in the Company's operations and success. The Board of Directors believes that the 2001 Plan will
advance the interests of the Company by enhancing the Company's ability to attract and retain highly qualified
officers, key employees, Service Providers and Outside Directors and by providing such persons with stronger
incentives to expend maximum effort to improve the business results and earnings of the Company. The Board of
Directors believes that adoption of the 2001 Plan is appropriate to assure that a meaningful number of
stock-based awards will continue to be available for grant to eligible participants. At March 27, 2001, options
to purchase an aggregate of 6,412,576 shares of Common Stock were outstanding under the Company's prior stock
option and incentive plans, and an aggregate of 533,171 shares were available for future grants under those plans.
The 2001 Plan provides for the grant of incentive stock options ("ISOs"), intended to qualify
as such under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory stock
options which do not so qualify. The 2001 Plan also provides for the grant of restricted stock and restricted
stock units to eligible persons. There is no specified termination date for the 2001 Plan, which may be
terminated by the Board of Directors at any time. However, no ISOs may be granted under the 2001 Plan after
March 15, 2011.
To date, no stock options, restricted stock or restricted stock units have been granted under
the 2001 Plan. Based on the closing sale price of the Common Stock on March 23, 2001 of $25.50 per share, the
aggregate market value of the 5,000,000 shares to be reserved under the 2001 Plan is approximately $127,500,000.
DESCRIPTION OF THE 2001 PLAN
Administration
The 2001 Plan may be administered by one or more committees of the Board of Directors as
designated by the Board of Directors. Two committees of the Board of Directors currently have authority to
administer the 2001 Plan. The Executive Equity Awards Committee (currently consisting of William C. Baker and
Daniel C. Staton) is authorized to make grants to any eligible person. The Equity Awards Committee (currently
consisting of B. Wayne Hughes and Harvey Lenkin) is authorized to make grants to any eligible person other than
any officer of the Company who is subject to Section 16 of the Securities Exchange Act of 1934 (the "1934 Act").
At least one committee with authority to administer the 2001 Plan must consist of no fewer than two members of
the Board of Directors, none of whom may be an officer or other salaried employee of the Company, and each of
whom must qualify in all respects as a "non-employee director" as defined in Rule 16b-3 under the 1934 Act and as
an "outside director" within the meaning of Section 162(m) of the Code (the Executive Equity Awards Committee
currently meets these requirements). Subject to the limitations set forth in the 2001 Plan, each administering
committee has the authority to determine, among other things: (i) to which eligible persons options, restricted
stock and restricted stock units will be granted, (ii) the type or types of grants to be made, (iii) the number
of shares subject to each grant, and (iv) the terms and conditions of the options, restricted stock and
restricted stock units. For grants to Outside Directors, the 2001 Plan is intended to be a "formula plan," and,
accordingly, the administering committee will have no discretion in establishing the material terms of such
grants. Subject to the express provisions of the 2001 Plan, each administering committee will have full
authority to administer and interpret the 2001 Plan with respect to grants made by that committee.
Eligibility
Discretionary Grants. Grants may be made under the 2001 Plan to (i) employees (including
officers and directors) of the Company and of any "subsidiary" of the Company (within the meaning of Section
424(f) of the Code), as designated from time to time by the administering committee, and (ii) any consultant or
adviser to the Company, any manager of the Company's properties or affairs, any other similar service provider or
affiliate of the Company, any corporation or other entity in which the Company owns at least a 90% economic
interest, and any employee of any of the foregoing ("Service Providers"). Subject to restrictions set forth in
the 2001 Plan, an eligible person may receive successive grants of options, restricted stock and/or restricted
stock units.
Formula Plan for Outside Directors. On and after March 15, 2001, and subject to shareholder
approval of the 2001 Plan, each new Outside Director will, upon the date of his or her initial election by the
Board of Directors or the shareholders of the Company to serve as an Outside Director, automatically be granted
nonstatutory options to purchase 15,000 shares of Common Stock. In addition, if the 2001 Plan is approved by
shareholders, after each annual meeting (including the 2001 Annual Meeting), each Outside Director then duly
elected and serving will automatically be granted, as of the date of such annual meeting, nonstatutory stock
options to purchase 2,500 shares, so long as such Outside Director has attended, in person or by telephone, at
least 75% of the meetings held by the Board of Directors during the immediately preceding calendar year. The
administering committee has no discretion to alter the foregoing provisions of the 2001 Plan governing options
granted to Outside Directors. Six Outside Directors are currently eligible to receive option grants under the
Plan.
Shares Subject to the Plan
Under the terms of the 2001 Plan, 5,000,000 authorized but unissued shares of Common Stock, or
approximately 4.3% of the outstanding shares of Common Stock at March 27, 2001, will be reserved for issuance.
In the event any change is made to the Common Stock subject to the 2001 Plan (whether by reason of
recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock
dividend, or other increase, decrease or change in such shares), the Board of Directors will adjust
proportionately and accordingly the number and kinds of shares that may be purchased. Any such adjustment in an
outstanding option, however, will be made without a change in the total price applicable to the unexercised
portion of the option but with a corresponding adjustment in the per share option price. No adjustment to any
outstanding grant will be required in the event of a spin-off by the Company of the shares of a subsidiary, a
stock dividend for which the Company will claim a dividends paid deduction under Section 561 of the Code (or any
successor provision), or a pro rata distribution to all shareholders of other assets of the Company.
Options
General. All options granted under the 2001 Plan are intended to be treated as nonstatutory
stock options, unless the administering committee specifically designates a stock option as an ISO within the
limitations of the 2001 Plan. The option exercise price of options granted under the 2001 Plan will be determined
by the administering committee in accordance with the 2001 Plan. For both ISOs and nonstatutory options, the
exercise price per share (the "Option Price") will be equal to 100% of the fair market value (determined in
accordance with the 2001 Plan) of a share of Common Stock upon the date of grant (but not less than the par value
per share). No person may receive an ISO if, at the time of grant, such person owns directly or indirectly more
than 10% of the total combined voting power of the Company, unless the option price is at least 110% of the fair
market value of the Common Stock and the exercise period of such ISO is limited to five years. There is also a
$100,000 limit on the value of stock (determined at the time of grant) with respect to which ISOs granted to an
optionee may first become exercisable in any calendar year. The maximum number of shares subject to options that
can be granted under the 2001 Plan to any executive officer, other employee or Service Provider of the Company or
any subsidiary is 2,500,000 shares during the first ten years of the 2001 Plan and 250,000 shares per year
thereafter. Shares underlying any option that expires unexercised will again be available for grant under the
2001 Plan.
Vesting. Unless otherwise provided in the applicable option agreement, each option granted
under the 2001 Plan will vest in three equal annual installments beginning on the first anniversary of the date
of grant, subject to acceleration of vesting under certain circumstances or (except in the case of options
granted to Outside Directors) in the discretion of the administering committee. Each option granted to an
Outside Director under the 2001 Plan will vest in three equal annual installments beginning on the first
anniversary of the date of grant. Subject to certain limitations, options will remain exercisable for ten years
from the date of grant. Options will expire prior to their scheduled termination upon the thirtieth day after
termination of the optionee's employment with the Company or a Service Provider, or termination of the optionee's
service relationship with the Company (other than, for individuals, by reason of death or "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code)). Special rules will govern the vesting and
expiration of options following the death or "permanent and total disability" of an optionee. The administering
committee may extend the period during which an option (other than an option granted to an Outside Director) may
be exercised (but not later than the date the option would otherwise expire).
Transferability. Options granted under the 2001 Plan are exercisable only by the optionee or
his or her permitted transferees during the optionee's lifetime. Options are transferable by the optionee only
as provided in the agreement evidencing the grant or as may be provided by will or the laws of descent and
distribution.
Payment of Option Price. Payment for shares purchased under the 2001 Plan may be made in cash
or cash equivalents, by exchanging shares of Common Stock valued at their fair market value on the date of
exercise, or by a combination of the foregoing. An optionee also may pay the exercise price by directing that
certificates for the shares purchased upon exercise be delivered to a licensed broker acceptable to the Company
as agent for the optionee, and that the broker tender to the Company cash or cash equivalents equal to the option
exercise price plus the amount of any taxes that the Company may be required to withhold in connection with the
exercise of the option.
Restricted Stock and Restricted Stock Units
The administering committee may grant to eligible persons (but not to Outside Directors) shares
of Common Stock (or units representing shares of Common Stock) subject to vesting based on the passage of time,
the achievement by the grantee or the Company of specified performance objectives, or other conditions deemed
appropriate by the administering committee. The administering committee will establish the conditions to
vesting, and the period of time during which the conditions will apply (the "Restricted Period"), at the time of
grant.
Any applicable performance objectives will be established in writing by the administering
committee prior to March 31 of the year in which the grant is made and while the outcome is substantially
uncertain. Performance objectives will be based on stock price, market share, sales, earnings per share, return
on equity or costs, and may include positive results, maintaining the status quo or limiting economic losses.
During the Restricted Period, restricted stock or restricted stock units may not be transferred by the employee.
In its discretion, the administering committee may shorten or terminate the Restricted Period or waive any other
restrictions applicable to the award.
If the termination of a grantee's employment with the Company or a Service Provider, or the
termination of a grantee's service relationship with the Company, occurs during the Restricted Period, the award
will be forfeited unless the administering committee, in its discretion, determines otherwise. Special rules
will apply to the vesting of an award upon the death or "permanent and total disability" of a grantee. Any
shares of restricted stock that are forfeited will again be available for award under the 2001 Plan. The maximum
number of shares of restricted stock, or shares represented by restricted stock units, that can be granted under
the 2001 Plan to any eligible person is 250,000 shares per year.
The administering committee may, in the agreement evidencing a grant of restricted stock,
provide that the grantee will be entitled to vote and to receive dividends on the shares of Common Stock subject
to the award. The administering committee may, in the agreement evidencing a grant of restricted stock units,
provide that the grantee will be entitled to receive payments equal to the dividends paid on an equivalent number
of shares of Common Stock. Upon vesting of an award of restricted stock or restricted stock units, including the
satisfaction, lapse or waiver of all applicable restrictions and conditions, the grantee will be entitled to
receive a stock certificate representing the vested shares. The shares will be issuable to the grantee free of
charge, other than payment of the par value of such shares.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2001 PLAN
The grant of an option will not be a taxable event for the optionee or the Company.
An optionee will not recognize taxable income upon exercise of an ISO, and any gain realized
upon a disposition of shares of stock received pursuant to the exercise of an ISO will be taxed as long-term
capital gain if the optionee holds the shares for at least two years after the date of grant and for one year
after the date of exercise. However, the excess of the fair market value of stock subject to an ISO on the
exercise date over the option exercise price will be included in the optionee's alternative minimum taxable
income in the year of exercise (except that, if the optionee is subject to certain securities law restrictions,
determination of the amount included in alternative minimum taxable income will be deferred, unless the optionee
elects within 30 days following exercise to have income determined without regard to such restrictions) for
purposes of the alternative minimum tax. An optionee may be entitled to a credit against regular tax liability
in future years for minimum taxes paid with respect to the exercise of ISOs. The Company will not be entitled to
any business expense deduction with respect to the exercise of an ISO, except as discussed below.
For the exercise of an option to qualify for the foregoing tax treatment, the optionee
generally must be an employee of the Company or a subsidiary from the date the option is granted through a date
within three months before the date of exercise of the option. In the case of an optionee who is disabled, the
three-month period for exercise following termination of employment is extended to one year. In the case of an
employee who dies, both the time for exercising ISOs after termination of employment and the holding period for
stock received pursuant to the exercise of the option are waived.
If all of the foregoing requirements are met except the special holding period rules mentioned
above, the optionee will recognize ordinary income upon the disposition of the stock in an amount generally equal
to the excess of the fair market value of the stock at the time the option was exercised over the option exercise
price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be
capital gain. The Company will be allowed a business expense deduction to the extent the optionee recognizes
ordinary income.
If an optionee exercises an ISO by tendering shares of Common Stock with a fair market value
equal to part or all of the option exercise price, the exchange of shares will be treated as a nontaxable
exchange (except that this treatment would not apply if the optionee had acquired the shares being transferred
pursuant to the exercise of an ISO and had not satisfied the special holding period requirements summarized
above). If the exercise is treated as a tax free exchange, the optionee would have no taxable income from the
exchange and exercise (other than minimum taxable income as discussed above) and the tax basis of the shares
exchanged would be treated as the substituted basis for the shares received. If the optionee used shares
received pursuant to the exercise of an ISO (or another statutory option) as to which the optionee had not
satisfied the applicable holding period requirement, the exchange would be treated as a taxable disqualifying
disposition of the exchanged shares.
Upon exercising a nonstatutory option, an optionee will recognize ordinary income in an amount
equal to the difference between the exercise price and the fair market value of the stock on the date of exercise
(except that, if the optionee is subject to certain restrictions imposed by the securities laws, the measurement
date will be deferred, unless the optionee makes a special tax election within 30 days after exercise to have
income determined without regard to the restrictions). If the Company complies with applicable reporting
requirements, it will be entitled to a business expense deduction in the same amount and at the same time as the
optionee recognizes ordinary income. Upon a subsequent sale or exchange of shares acquired pursuant to the
exercise of a nonstatutory option, the optionee will have taxable gain or loss, measured by the difference
between the amount realized on the disposition and the tax basis of the shares (generally, the amount paid for
the shares plus the amount treated as ordinary income at the time the option was exercised).
If the optionee surrenders shares of Common Stock in payment of part or all of the exercise
price for nonstatutory options, no gain or loss will be recognized with respect to the shares surrendered
(regardless of whether the shares were acquired pursuant to the exercise of an ISO) and the optionee will be
treated as receiving an equivalent number of shares pursuant to the exercise of the option in a nontaxable
exchange. The basis of the shares surrendered will be treated as the substituted tax basis for an equivalent
number of option shares received and the new shares will be treated as having been held for the same holding
period as had expired with respect to the transferred shares. The difference between the aggregate option
exercise price and the aggregate fair market value of the shares received pursuant to the exercise of the option
will be taxed as ordinary income. The optionee's basis in the additional shares will be equal to the amount
included in the optionee's income.
An award of restricted stock units will create no immediate tax consequences for the employee
or the Company, and an award of restricted stock will create no immediate tax consequences for the employee or
the Company unless the employee makes an election pursuant to Section 83(b) of the Code. The employee will,
however, realize ordinary income when restricted stock or restricted stock units become vested, in an amount
equal to the fair market value of the underlying shares of Common Stock on the date of vesting less any
consideration paid by the employee for such stock. If the employee makes an election pursuant to Section 83(b)
of the Code with respect to a grant of restricted stock, the employee will recognize income at the time the
restricted stock is awarded (based upon the value of such stock at the time of award), rather than when the
restricted stock becomes vested. The Company will be allowed a business expense deduction for the amount of any
taxable income recognized by the employee at the time such income is recognized (assuming the Company complies
with applicable reporting requirements).
The foregoing provides only a general description of the federal income tax consequences of
transactions contemplated by the 2001 Plan. Participants should consult a tax advisor as to their individual
circumstances.
NEW PLAN BENEFITS
The following table sets forth the aggregate benefits or amounts that would have been received
by or allocated to the Outside Directors for the last completed fiscal year if the 2001 Plan had been in effect.
2001 Plan
- -------------------------------------- ----------------------------------- -----------------------------------
Name and Position (1) Dollar Value Number of Units
- -------------------------------------- ----------------------------------- -----------------------------------
Non-Executive Director Group $0 (2) 15,000 (3)
- -------------------------------------- ----------------------------------- -----------------------------------
(1) Benefits or amounts for persons other than those in the Non-Executive Director Group are not
determinable, either as of the date hereof or for the last completed fiscal year had the 2001 Plan
then been in effect.
(2) The exercise price of options granted to Non-Executive Directors will be the fair market value of
the underlying shares on the date of grant.
(3) Based on the number of eligible Non-Executive Directors as of March 27, 2001.
REQUIRED VOTE
Approval of the 2001 Plan requires approval by a majority of the votes cast on the proposal,
provided that the total votes cast represent a majority of the voting power represented by all shares entitled to
vote on the matter. For these purposes, an abstention or broker non-vote will not be treated as a vote cast.
The officers and directors of the Company intend to vote their shares for approval of the 2001 Plan.
The Board of Directors recommends that you vote FOR approval of the 2001 Plan.
EXPENSES OF SOLICITATION
The Company will pay the cost of soliciting Proxy/Instruction Cards. In addition to
solicitation by mail, certain directors, officers and regular employees of the Company and its affiliates may
solicit the return of Proxy/Instruction Cards by telephone, telegram, personal interview or otherwise. The
Company may also reimburse brokerage firms and other persons representing the beneficial owners of the Company's
stock for their reasonable expenses in forwarding proxy solicitation materials to such beneficial owners.
Shareholder Communications Corporation, New York, New York may be retained to assist the Company in the
solicitation of Proxy/Instruction Cards, for which Shareholder Communications Corporation would receive normal
and customary fees and expenses from the Company.
DEADLINES FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR
CONSIDERATION AT 2002 ANNUAL MEETING
Any proposal that a holder of Common Stock or Depositary Shares wishes to submit for inclusion
in the Company's Proxy Statement for the 2002 Annual Meeting of Shareholders ("2002 Proxy Statement") pursuant to
Securities and Exchange Commission Rule 14a-8 must be received by the Company no later than December 14, 2001.
In addition, notice of any proposal that a holder of Common Stock or Depositary Shares wishes to propose for
consideration at the 2002 Annual Meeting of Shareholders, but does not seek to include in the Company's 2002
Proxy Statement pursuant to Rule 14a-8, must be delivered to the Company no later than February 28, 2002 if the
proposing holder of Common Stock or Depositary Shares wishes for the Company to describe the nature of the
proposal in its 2002 Proxy Statement as a condition to exercising its discretionary authority to vote proxies on
the proposal. Any shareholder proposals or notices submitted to the Company in connection with the 2002 Annual
Meeting of Shareholders should be addressed to: Sarah Hass, Secretary, Public Storage, Inc., 701 Western Avenue,
Glendale, California 91201-2349.
OTHER MATTERS
The management of the Company does not intend to bring any other matter before the meeting and
knows of no other matters that are likely to come before the meeting. If any other matters properly come before
the meeting, the persons designated as proxies in the accompanying Proxy/Instruction Card and the Trustee will
vote the shares of Common Stock represented thereby, if any, and the Depositary will vote the Equity Stock
underlying the Depositary Shares represented thereby, if any, in accordance with their best judgment on such
matters.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company pursuant to Section 13 of the 1934 Act (File No.
1-8389), are incorporated by reference: (i) the Annual Report on Form 10-K for the year ended December 31, 2000
and (ii) the Current Report on Form 8-K dated January 16, 2001. The Company will furnish, without charge, upon
written or oral request of any shareholder to whom a copy of this Proxy Statement is delivered, by first class
mail within one business day of receipt of such request, a copy of any and all information described above (not
including exhibits). Requests should be addressed to: Sarah Hass, Secretary, Public Storage, Inc., 701 Western
Avenue, Glendale, California 91201-2349.
You are urged to vote the accompanying Proxy/Instruction Card and sign, date and return it in
the enclosed stamped envelope at your earliest convenience, whether or not you currently plan to attend the
meeting in person.
By Order of the Board of Directors
SARAH HASS, Secretary
Glendale, California
March 27, 2001
Exhibit A
PUBLIC STORAGE, INC.
CHARTER OF AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
ADOPTED BY THE BOARD OF DIRECTORS ON MAY 1, 2000
1. The Audit Committee of the Board of Directors (the "Board") shall consist of at least three directors,
none of whom shall have any relationship to the Company that may interfere with the exercise of their
independence from management and the Company, each of whom shall be financially literate, as such qualification
is interpreted by the Board in its business judgment, and at least one of whom shall have accounting or related
financial management expertise, as the Board interprets such qualification in its business judgment, all in
accordance with the requirements of the New York Stock Exchange.
2. The purposes of the Audit Committee are:
o to oversee the Company's accounting and financial reporting policies and practices and its internal
controls;
o to oversee the quality and appropriateness of accounting processes and qualitative aspects of the
Company's financial statements and the audit thereof; and
o to act as a liaison between the Company's outside auditor and the Board.
3. The function of the Audit Committee is oversight; it is the responsibility of the Company to maintain
appropriate systems for accounting and internal control, and the auditor's responsibility to plan and carry out a
proper audit. To this end, the Audit Committee shall have unrestricted access to the Board, the outside auditor
and the executive and financial management of the Company. The outside auditor shall be ultimately accountable
to the Audit Committee and the Board, and therefore the Audit Committee and the Board shall have the ultimate
authority and responsibility to select, evaluate and, where appropriate, replace the outside auditor.
4. To carry out its purposes, the Audit Committee shall have the following responsibilities:
o to recommend to the Board the selection, engagement and replacement of the outside auditor;
o to require the outside auditor to submit to the Audit Committee, on a periodic basis, a formal written
statement delineating all relationships between the auditor and the Company, to engage in a dialogue
with the outside auditor with respect to any disclosed relationship or services that may impact the
objectivity and independence of the outside auditor, and to recommend that the Board take appropriate
action in response to the outside auditor's report to satisfy itself of the outside auditor's
independence;
o to meet with the Company's outside auditor, including private meetings, as necessary (i) to review the
arrangements for, procedures to be utilized, and scope of the annual audit and any specific audits,
(ii) to discuss any matters of concern relating to the Company's financial statements, including any
adjustments to such statements recommended by the auditor, disagreements with management or other
significant issues encountered in connection with the audit work, (iii) to review the annual financial
statements of the Company and significant accounting policies underlying the statements and their
presentation to the public in the annual or other reports, (iv) to consider the auditor's comments and
recommendations with respect to the Company's financial policies, procedures and adequacy of internal
accounting controls and the Company's responses thereto, and (v) to review the form of opinion the
auditor proposes to render;
o to consider the appropriateness of and effect upon the Company of any significant changes in
accounting principles or practices proposed by the Company or the auditor;
o to review legal and regulatory matters that may have a material impact on the financial statements of
the Company, including company compliance policies and procedures;
o to review the fees charged by the auditor for audit or non-audit services;
o to investigate improprieties or suspected improprieties in the Company's financial operations;
o to perform such other functions as required by law, the Company's bylaws or the Board; and
o to report activities to the Board on a regular basis and to make such recommendations with respect to
the above and other matters as the Audit Committee may deem necessary or appropriate.
5. The Audit Committee shall have a chairman, who shall be elected by a majority vote of the Board, shall
meet on a regular basis, and shall hold special meetings as circumstances require. The Audit Committee shall act
by majority vote of its members.
6. The Audit Committee shall meet regularly with the financial officers of the Company, with the internal
auditor, if any, and with other officers as it deems appropriate.
7. The Audit Committee shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to retain special counsel and other experts or consultants at the
expense of the Company.
8. The Audit Committee shall prepare a report for inclusion in the Company's proxy statement for its annual
meeting of shareholders in accordance with applicable requirements of the U.S. Securities and Exchange Commission.
9. The Audit Committee shall review and reassess the adequacy of this Charter on an annual basis and
recommend any changes to the Board.
Exhibit B
PUBLIC STORAGE, INC.
2001 STOCK OPTION AND INCENTIVE PLAN
Public Storage, Inc., a California corporation (the "Company"), sets forth herein the terms of its 2001
Stock Option and Incentive Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to enhance the Company's ability to attract and retain highly qualified officers,
key employees, outside directors, and other persons to advance the interests of the Company by providing such
persons with stronger incentives to continue to serve the Company and its affiliates (as defined herein) and to
expend maximum effort to improve the business results and earnings of the Company. The Plan is intended to
accomplish this objective by providing to eligible persons an opportunity to acquire or increase a direct
proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the
grant of stock options, restricted stock and restricted stock units in accordance with the terms hereof. Stock
options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein,
except that stock options granted to outside directors shall in all cases be non-qualified stock options.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including Award Agreements), the following
definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any company or other trade or
business that controls, is controlled by or is under common control with such person within the meaning of Rule
405 of Regulation C under the 1933 Act (as defined herein).
2.2 "Award Agreement" means the stock option agreement, restricted stock agreement, restricted
stock unit agreement or other written agreement between the Company and a Grantee that evidences and sets out the
terms and conditions of a Grant.
2.3 "Benefit Arrangement" shall have the meaning set forth in Section 14 hereof.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended.
2.6 "Committee" means one or more committees of the Board, as designated from time to time by
resolution of the Board, each of which shall have all powers, privileges and obligations vested by the Plan in
the Committee to the extent specified in such resolution. At least one committee of the Board that is designated
by the Board as a Committee shall consist of no fewer than two members of the Board, none of whom shall be an
officer or other salaried employee of the Company or any affiliate, and each of whom shall qualify in all
respects as a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act or any successor
rule or regulation and as an "outside director" within the meaning of Section 162(m) of the Code. Until such
time as the Board shall determine otherwise, the Executive Equity Awards Committee of the Board shall be such
Committee, and the Equity Awards Committee of the Board also shall be a Committee.
2.7 "Company" means Public Storage, Inc.
2.8 "Effective Date" means March 15, 2001, the date on which the Plan was adopted by the Board.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as now in effect or as hereafter
amended.
2.10 "Fair Market Value" means the value of a share of Stock, determined as follows: if on the
Grant Date or other determination date the Stock is listed on an established national or regional stock exchange,
is admitted to quotation on the Nasdaq National Market, or is publicly traded on an established securities
market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in
such market (the closing price on the principal such exchange or market if there is more than one such exchange
or market) on the Grant Date or such other determination date (or if there is no such reported closing price, the
Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low
sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding
day on which any sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such
system or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the
Committee in good faith.
2.11 "Grant" means an award of an Option, Restricted Stock or Restricted Stock Units under the Plan.
2.12 "Grant Date" means (a) for Grants other than Grants to Outside Directors, the later of (i) the
date as of which the Committee approves the Grant or (ii) the date as of which the Grantee and the Company or
Service Provider enter into the relationship resulting in the Grantee's becoming eligible to receive a Grant, and
(b) for Grants to Outside Directors, the date on which such Grant is made in accordance with Section 7 hereof.
2.13 "Grantee" means a person who receives or holds an Option, Restricted Stock or Restricted Stock
Units under the Plan.
2.14 "Incentive Stock Option" means an "incentive stock option" within the meaning of Section 422 of
the Code, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.
2.15 "Option" means an option to purchase one or more shares of Stock pursuant to the Plan.
2.16 "Option Period" means the period during which Options may be exercised as set forth in
Section 11 hereof.
2.17 "Option Price" means the purchase price for each share of Stock subject to an Option.
2.18 "Other Agreement" shall have the meaning set forth in Section 14 hereof.
2.19 "Outside Director" means a member of the Board who is not an officer or employee of the Company.
2.20 "Plan" means the Public Storage, Inc. 2001 Stock Option and Incentive Plan.
2.21 "Reporting Person" means a person who is required to file reports under Section 16(a) of the
Exchange Act.
2.22 "Restricted Period" means the period during which Restricted Stock or Restricted Stock Units
are subject to restrictions or conditions pursuant to Section 13.2 hereof.
2.23 "Restricted Stock" means shares of Stock, awarded to a Grantee pursuant to Section 13 hereof,
that are subject to restrictions and to a risk of forfeiture.
2.24 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to Section 13 hereof, which
represents a conditional right to receive a share of Stock in the future, and which is subject to restrictions
and to a risk of forfeiture.
2.25 "Securities Act" means the Securities Act of 1933, as now in effect or as hereafter amended.
2.26 "Service Provider" means a consultant or adviser to the Company, a manager of the Company's
properties or affairs, or other similar service provider or affiliate of the Company, or any corporation or other
entity in which the Company owns at least a ninety percent (90%) economic interest, and employees of any of the
foregoing, as such persons may be designated from time to time by the Committee pursuant to Section 6 hereof.
2.27 "Stock" means the common stock, par value $0.10 per share, of the Company.
2.28 "Subsidiary" means any "subsidiary corporation" of the Company within the meaning of
Section 424(f) of the Code.
2.29 "Termination Date" shall be the date upon which an Option shall terminate or expire, as set
forth in Section 11.2 hereof.
3. ADMINISTRATION OF THE PLAN
3.1 General. Subject to Section 3.2 hereof, the Plan shall be administered by the Committee. The
Board may remove members, add members, and fill vacancies on the Committee from time to time, all in accordance
with the Company's articles of incorporation and by-laws and applicable law.
3.2 Plenary Authority of the Committee. Subject to Section 3.4 hereof, the Committee shall have
such powers and authorities related to the administration of the Plan as are consistent with the Company's
articles of incorporation and by-laws and applicable law. The Committee shall have full power and authority to
take all actions and to make all determinations required or provided for under the Plan, subject to any
limitations imposed by the resolutions of the Board designating and empowering such Committee, and shall have
full power and authority to take all such other actions and make all such other determinations not inconsistent
with the specific terms and provisions of the Plan that the Committee deems to be necessary or appropriate to the
administration of the Plan. In the event, however, that more than one committee of the Board is authorized to
act as the Committee, (i) each such committee shall have the power and authority to take actions and make
determinations required or provided for under an outstanding Grant or Award Agreement only if such Grant or Award
Agreement was initially authorized by such committee, and (ii) only a committee comprised solely of "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act and "outside directors" within the meaning of
Section 162(m) of the Code shall have the authority to approve a Grant to any officer who is then a Reporting
Person. All such actions and determinations shall be by the affirmative vote of a majority of the members of the
Committee present at a meeting or by unanimous consent of the Committee executed in writing in accordance with
the Company's articles of incorporation and by-laws and applicable law. The interpretation and construction by
the Committee of any provision of the Plan, any Grant or any Award Agreement shall be final and conclusive.
3.3 Discretionary Grants. Subject to Section 3.4 hereof and to the other terms and conditions of
the Plan, the Committee shall have full and final authority to designate Grantees, (i) to determine the type or
types of Grant to be made to a Grantee, (ii) to determine the number of shares of Stock to be subject to a Grant,
(iii) to establish the terms and conditions of each Grant (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to
the vesting, exercise, transfer, or forfeiture of a Grant or the shares of Stock subject thereto, and any terms
or conditions that may be necessary to qualify Options as Incentive Stock Options), (iv) to prescribe the form of
each Award Agreement evidencing a Grant, and (v) to amend, modify, or supplement the terms of any outstanding
Grant; provided, however, that the Committee shall not have the authority to reduce the exercise price of any
outstanding Option other than pursuant to Section 17 hereof. Such authority specifically includes the authority,
in order to effectuate the purposes of the Plan but without amending the Plan, to modify Grants to eligible
individuals who are foreign nationals or are individuals who are employed outside the United States to recognize
differences in local law, tax policy, or custom. As a condition to any subsequent Grant, the Committee shall
have the right, at its discretion, to require Grantees to return to the Company Grants previously awarded under
the Plan. Subject to the terms and conditions of the Plan, any such new Grant shall be upon such terms and
conditions as are specified by the Committee at the time the new Grant is made.
3.4 Grants to Outside Directors. With respect to Grants of Options to Outside Directors pursuant
to Section 7 hereof, the Committee's responsibilities under the Plan shall be limited to taking all legal actions
necessary to document the Options so granted, to interpret the Award Agreements evidencing such Options, to
maintain appropriate records and reports regarding such Options, and to take all acts authorized by this Plan or
otherwise reasonably necessary to effect the purposes hereof.
3.5 No Liability. No member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Grant or Award Agreement.
3.6 Applicability of Rule 16b-3. Those provisions of the Plan that make express reference to
Rule 16b-3 under the Exchange Act shall apply only to Reporting Persons.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 17 hereof, the number of shares of Stock available for
issuance under the Plan shall be 5,000,000. Stock issued or to be issued under the Plan shall be authorized but
unissued shares. If any shares covered by a Grant are not purchased or are forfeited, or if a Grant otherwise
terminates without delivery of any Stock subject thereto, then the number of shares of Stock counted against the
aggregate number of shares available under the Plan with respect to such Grant shall, to the extent of any such
forfeiture or termination, again be available for making Grants under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1 Effective Date. The Plan shall be effective as of the Effective Date, subject to approval of
the Plan within one year of the Effective Date, by a majority of the votes cast on the proposal at a meeting of
shareholders, provided that the total votes cast represent a majority of all shares entitled to vote. Upon
approval of the Plan by the shareholders of the Company as set forth above, all Grants made under the Plan on or
after the Effective Date shall be fully effective as if the shareholders of the Company had approved the Plan on
the Effective Date. If the shareholders fail to approve the Plan within one year after the Effective Date, any
Grants made hereunder shall be null and void and of no effect.
5.2 Term. The Plan has no termination date; however, no Incentive Stock Option may be granted on
or after the tenth anniversary of the Effective Date.
6. DISCRETIONARY GRANTS
6.1 Company or Subsidiary Employees. Grants (including Grants of Incentive Stock Options) may be
made under the Plan to any employee of the Company or of any Subsidiary, including any such employee who is an
officer or director of the Company or of any Subsidiary, as the Committee shall determine and designate from time
to time.
6.2 Service Providers. Grants may be made under the Plan to any Service Provider whose
participation in the Plan is determined by the Committee to be in the best interests of the Company and is so
designated by the Committee; provided, however, that Grants to Service Providers who are not employees of the
Company or of any Subsidiary shall not be Incentive Stock Options.
6.3 Successive Grants. An eligible person may receive more than one Grant, subject to such
restrictions as are provided herein.
7. GRANTS TO OUTSIDE DIRECTORS
7.1 Initial Grants of Options. Each Outside Director who is initially elected to the Board on or
after the Effective Date shall, upon the date of his or her initial election by the Board or the shareholders of
the Company, automatically be awarded a Grant of an Option, which shall not be an Incentive Stock Option, to
purchase 15,000 shares of Stock (which amount shall be subject to adjustment as provided in Section 17 hereof).
7.2 Subsequent Grants of Options. Immediately following each Annual Meeting of Shareholders of the
Company held after the Effective Date, each Outside Director then duly elected and serving (other than an Outside
Director initially elected to the Board at such Annual Meeting of Shareholders) shall automatically be awarded a
Grant of an Option, which shall not be an Incentive Stock Option, to purchase 2,500 shares of Stock (which amount
shall be subject to adjustment as provided in Section 17 hereof); provided, however, that no Outside Director
shall be eligible to receive a Grant of Options under this Section 7.2 unless such person attended, in person or
by telephone, at least seventy-five percent of the meetings held by the Board or, if a member of a committee of
the Board, held by both the Board and all committees of the Board on which such person served, during the
immediately preceding calendar year (or such portion thereof during which the Outside Director served on the
Board and any such committees).
7.3 Vesting. Options granted to Outside Directors pursuant to Sections 7.1 and 7.2 shall vest in
three equal annual installments in accordance with the schedule set forth in the first sentence of Section 11.1
hereof.
8. LIMITATIONS ON GRANTS
8.1 Limitation on Shares of Stock Subject to Grants. The maximum number of shares of Stock subject
to Options that can be awarded under the Plan to any person eligible for a Grant under Section 6 hereof is
2,500,000 during the first ten years after the Effective Date and 250,000 per year thereafter. The maximum
number of shares of Restricted Stock that can be awarded under the Plan (including for this purpose any shares of
Stock represented by Restricted Stock Units) to any person eligible for a Grant under Section 6 hereof is 250,000
per year.
8.2 Limitations on Incentive Stock Options. An Option shall constitute an Incentive Stock Option
only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to
the extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair
Market Value (determined at the time the Option is granted) of the shares of Stock with respect to which all
Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year
(under the Plan and all other plans of the Grantee's employer and its affiliates) does not exceed $100,000. This
limitation shall be applied by taking Options into account in the order in which they were granted.
9. AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, to be executed by the Company
and by the Grantee, in such form or forms as the Committee shall from time to time determine. Award Agreements
granted from time to time or at the same time need not contain similar provisions but shall be consistent with
the terms of the Plan. Each Award Agreement evidencing a Grant of Options shall specify whether such Options are
intended to be non-qualified stock options or Incentive Stock Options.
10. OPTION PRICE
The Option Price of each Option shall be fixed by the Committee and stated in the Award Agreement
evidencing such Option. The Option Price shall be the aggregate Fair Market Value on the Grant Date of the
shares of Stock subject to the Option; provided, however, that in the event that a Grantee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of
the Code (relating to ownership of more than ten percent of the Company's outstanding Stock), the Option Price of
an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than the
greater of the par value of a share of Stock or 110 percent of the Fair Market Value of a share of Stock on the
Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.
11. VESTING, TERM AND EXERCISE OF OPTIONS
11.1 Vesting and Option Period. Unless otherwise provided in an Award Agreement evidencing the
Grant of an Option, each Option granted under the Plan shall become exercisable in accordance with the following
schedule: (i) prior to the first anniversary of the Grant Date, the Option shall not be exercisable; (ii) on the
first anniversary of the Grant Date, the Option shall become exercisable with respect to one-third of the shares
of Stock subject to such Option; (iii) on the second anniversary of the Grant Date, the Option shall become
exercisable with respect to an additional one-third of the shares of Stock subject to such Option and (iv) on the
third anniversary of the Grant Date, the Option shall become exercisable with respect to the remaining shares of
Stock subject to such Option and shall remain exercisable in full up to (but not including) the Termination Date
(as defined in Section 11.2 hereof). For purposes of this Section 11.1, fractional numbers of shares of Stock
subject to an Option shall be rounded down to the next nearest whole number. The period during which any Option
shall be exercisable in accordance with the foregoing schedule shall constitute the "Option Period" with respect
to such Option.
11.2 Term. Each Option granted under the Plan shall terminate, and all rights to purchase shares of
Stock thereunder shall cease, upon the expiration of ten years from the date such Option is granted, or under
such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Committee
and stated in the Award Agreement relating to such Option (the "Termination Date"); provided, however, that in
the event that the Grantee would otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership of more than ten percent of the
outstanding Stock), an Option granted to such Grantee that is intended to be an Incentive Stock Option shall not
be exercisable after the expiration of five years from its Grant Date.
11.3 Acceleration. Any limitation on the exercise of an Option contained in any Award Agreement may
be rescinded, modified or waived by the Committee, in its sole discretion, at any time and from time to time
after the Grant Date of such Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable in whole or in part prior to the
date the Plan is approved by the shareholders of the Company as provided in Section 5.1 hereof.
11.4 Termination of Employment or Other Relationship. Upon the termination (i) of the employment of
a Grantee with the Company or a Service Provider, (ii) of a Service Provider's relationship with the Company, or
(iii) of an Outside Director's service to the Company, other than, in the case of individuals, by reason of death
or "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code), any Option or portion
thereof held by such Grantee that has not vested in accordance with the provisions of Section 11.1 hereof shall
terminate immediately, and any Option or portion thereof that has vested in accordance with the provisions of
Section 11.1 hereof but has not been exercised shall terminate at the close of business on the thirtieth day
following the Grantee's termination of service, employment, or other relationship, unless the Committee, in its
discretion, extends the period during which the Option may be exercised (which period may not be extended beyond
the original term of the Option). Upon termination of an Option or portion thereof, the Grantee shall have no
further right to purchase shares of Stock pursuant to such Option or portion thereof. Whether a leave of absence
or leave on military or government service shall constitute a termination of employment for purposes of the Plan
shall be determined by the Committee, which determination shall be final and conclusive. For purposes of the
Plan, a termination of employment, service or other relationship shall not be deemed to occur if the Grantee is
immediately thereafter employed with the Company or any other Service Provider, or is engaged as a Service
Provider or an Outside Director of the Company. Whether a termination of a Service Provider's or an Outside
Director's relationship with the Company shall have occurred shall be determined by the Committee, which
determination shall be final and conclusive.
11.5 Rights in the Event of Death. If a Grantee dies while employed by the Company or a Service
Provider, or while serving as a Service Provider or an Outside Director, all Options granted to such Grantee
shall fully vest on the date of death, and the executors or administrators or legatees or distributees of such
Grantee's estate shall have the right, at any time within one year after the date of such Grantee's death (or
such longer period as the Committee, in its discretion, may determine prior to the expiration of such one-year
period) and prior to termination of the Option pursuant to Section 11.2 above, to exercise any Option held by
such Grantee at the date of such Grantee's death.
11.6 Rights in the Event of Disability. If a Grantee terminates employment with the Company or a
Service Provider, or (if the Grantee is a Service Provider who is an individual or is an Outside Director) ceases
to provide services to the Company, in either case by reason of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) of such Grantee, such Grantee's Options shall continue to vest, and
shall be exercisable to the extent that they are vested, for a period of one year after such termination of
employment or service (or such longer period as the Committee, in its discretion, may determine prior to the
expiration of such one-year period), subject to earlier termination of the Option as provided in Section 11.2
above. Whether a termination of employment or service is to be considered by reason of "permanent and total
disability" for purposes of the Plan shall be determined by the Committee, which determination shall be final and
conclusive.
11.7 Limitations on Exercise of Option. Notwithstanding any other provision of the Plan, in no
event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the
shareholders of the Company as provided herein, or after ten years following the date upon which the Option is
granted, or after the occurrence of an event referred to in Section 17 hereof which results in termination of the
Option.
11.8 Method of Exercise. An Option that is exercisable may be exercised by the Grantee's delivery
to the Company of written notice of exercise on any business day, at the Company's principal office, addressed to
the attention of the Committee. Such notice shall specify the number of shares of Stock with respect to which
the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for
which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may
be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set
forth in the applicable Award Agreement and (ii) the maximum number of shares available for purchase under the
Option at the time of exercise. Payment of the Option Price for the shares purchased pursuant to the exercise of
an Option shall be made (i) in cash or in cash equivalents; (ii) through the tender to the Company of shares of
Stock, which shares shall be valued, for purposes of determining the extent to which the Option Price has been
paid thereby, at their Fair Market Value on the date of exercise, and which shares, if acquired by the Grantee
from the Company, shall have been held by the Grantee for at least six months; or (iii) by a combination of the
methods described in (i) and (ii). The Committee may provide, by inclusion of appropriate language in an Award
Agreement, that payment in full of the Option Price need not accompany the written notice of exercise provided
that the notice of exercise directs that the certificate or certificates for the shares of Stock for which the
Option is exercised be delivered to a licensed broker acceptable to the Company as the agent for the individual
exercising the Option and, at the time such certificate or certificates are delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the Option Price for the shares of Stock
purchased pursuant to the exercise of the Option plus the amount (if any) of federal and/or other taxes which the
Company may in its judgment, be required to withhold with respect to the exercise of the Option. An attempt to
exercise any Option granted hereunder other than as set forth above shall be invalid and of no force and effect.
Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall
have none of the rights of a shareholder (for example, the right to receive cash or dividend payments or
distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock)
until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 17
hereof, no adjustment shall be made for dividends, distributions or other rights for which the record date is
prior to the date of such issuance.
11.9 Delivery of Stock Certificates. Promptly after the exercise of an Option by a Grantee and the
payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or
certificates evidencing his or her ownership of the shares of Stock subject to the Option.
12. TRANSFERABILITY OF OPTIONS
Each Option granted pursuant to this Plan shall, during a Grantee's lifetime, be exercisable only by the
Grantee or his or her permitted transferees, and neither the Option nor any right thereunder shall be
transferable by the Grantee, by operation of law or otherwise, other than as may be provided in the Award
Agreement evidencing such Option or as may be provided by will or the laws of descent and distribution. Except
as may be provided in the Award Agreement evidencing an Option, no Option shall be pledged or hypothecated (by
operation of law or otherwise) or subject to execution, attachment or similar processes.
13. RESTRICTED STOCK
13.1 Grant of Restricted Stock or Restricted Stock Units. The Committee may from time to time grant
Restricted Stock or Restricted Stock Units to persons eligible to receive such Grants as set forth in Section 6
hereof, subject to such restrictions, conditions and other terms as the Committee may determine.
13.2 Restrictions. At the time a Grant of Restricted Stock or Restricted Stock Units is made, the
Committee shall establish a period of time (the "Restricted Period") applicable to such Restricted Stock or
Restricted Stock Units. Each Grant of Restricted Stock or Restricted Stock Units may be subject to a different
Restricted Period. The Committee may, in its sole discretion, at the time a Grant of Restricted Stock or
Restricted Stock Units is made, prescribe restrictions in addition to or other than the expiration of the
Restricted Period, including the satisfaction of corporate or individual performance objectives, which may be
applicable to all or any portion of the Restricted Stock or Restricted Stock Units. Such performance objectives
shall be established in writing by the Committee prior to the ninetieth day of the year in which the Grant is
made and while the outcome is substantially uncertain. Performance objectives shall be based on Stock price,
market share, sales, earnings per share, return on equity or costs. Performance objectives may include positive
results, maintaining the status quo or limiting economic losses. The Committee also may, in its sole discretion,
shorten or terminate the Restricted Period or waive any other restrictions applicable to all or a portion of the
Restricted Stock or Restricted Stock Units. Neither Restricted Stock nor Restricted Stock Units may be sold,
transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or prior to
the satisfaction of any other restrictions prescribed by the Committee with respect to such Restricted Stock or
Restricted Stock Units.
13.3 Restricted Stock Certificates. The Company shall issue, in the name of each Grantee to whom
Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock
granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Secretary of the Company
shall hold such certificates for the Grantee's benefit until such time as the Restricted Stock is forfeited to
the Company, or the restrictions lapse.
13.4 Rights of Holders of Restricted Stock. Unless the Committee otherwise provides in an Award
Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any
dividends declared or paid with respect to such Stock. The Committee may provide that any dividends paid on
Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting
conditions and restrictions applicable to such Restricted Stock. All distributions, if any, received by a
Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of shares,
or other similar transaction shall be subject to the restrictions applicable to the original Grant.
13.5 Rights of Holders of Restricted Stock Units. Unless the Committee otherwise provides in an
Award Agreement, holders of Restricted Stock Units shall have no rights as stockholders of the Company. The
Committee may provide in an Award Agreement evidencing a Grant of Restricted Stock Units that the holder of such
Restricted Stock Units shall be entitled to receive, upon the Company's payment of a cash dividend on its
outstanding Stock, a cash payment for each Restricted Stock Unit held as of the record date for such dividend
equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment
will be deemed reinvested in additional Restricted Stock Units at a price per unit equal to the Fair Market Value
of a share of Stock on the date that such dividend is paid.
13.6 Termination of Employment or Other Relationship. Upon the termination of the employment of a
Grantee with the Company or a Service Provider, or of a Service Provider's relationship with the Company, in
either case other than, in the case of individuals, by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Restricted Stock or Restricted Stock Units held by such
Grantee that has not vested, or with respect to which all applicable restrictions and conditions have not lapsed,
shall immediately be deemed forfeited, unless the Committee, in its discretion, determines otherwise. Upon
forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall have no further rights with respect
to such Grant, including but not limited to any right to vote Restricted Stock or any right to receive dividends
with respect to shares of Restricted Stock or Restricted Stock Units. Whether a leave of absence or leave on
military or government service shall constitute a termination of employment for purposes of the Plan shall be
determined by the Committee, which determination shall be final and conclusive. For purposes of the Plan, a
termination of employment, service or other relationship shall not be deemed to occur if the Grantee is
immediately thereafter employed with the Company or any other Service Provider, or is engaged as a Service
Provider. Whether a termination of a Service Provider's relationship with the Company shall have occurred shall
be determined by the Committee, which determination shall be final and conclusive.
13.7 Rights in the Event of Death. If a Grantee dies while employed by the Company or a Service
Provider or while serving as a Service Provider, all Restricted Stock or Restricted Stock Units granted to such
Grantee shall fully vest on the date of death, and the shares of Stock represented thereby shall be deliverable
in accordance with the terms of the Plan to the executors, administrators, legatees or distributees of the
Grantee's estate.
13.8 Rights in the Event of Disability. If a Grantee terminates employment with the Company or a
Service Provider, or (if the Grantee is a Service Provider who is an individual) ceases to provide services to
the Company, in either case by reason of the "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code) of such Grantee, such Grantee's Restricted Stock or Restricted Stock Units shall
continue to vest in accordance with the applicable Award Agreement for a period of one year after such
termination of employment or service (or such longer period as the Committee, in its discretion, may determine
prior to the expiration of such one-year period), subject to the earlier forfeiture of such Restricted Stock or
Restricted Stock Units in accordance with the terms of the applicable Award Agreement. Whether a termination of
employment or service is to be considered by reason of "permanent and total disability" for purposes of the Plan
shall be determined by the Committee, which determination shall be final and conclusive.
13.9 Delivery of Stock and Payment Therefor. Upon the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee, the restrictions applicable to
shares of Restricted Stock or Restricted Stock Units shall lapse, and, upon payment by the Grantee to the
Company, in cash or by check, of the aggregate par value of the shares of Stock represented by such Restricted
Stock or Restricted Stock Units, a stock certificate for such shares shall be delivered, free of all such
restrictions, to the Grantee or the Grantee's beneficiary or estate, as the case may be.
14. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement, contract, or understanding
heretofore or hereafter entered into by a Grantee with the Company or any Subsidiary, except an agreement,
contract, or understanding hereafter entered into that expressly modifies or excludes application of this
paragraph (an "Other Agreement"), and notwithstanding any formal or informal plan or other arrangement for the
direct or indirect provision of compensation to the Grantee (including groups or classes of participants or
beneficiaries of which the Grantee is a member), whether or not such compensation is deferred, is in cash, or is
in the form of a benefit to or for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted Stock or Restricted Stock Unit
held by that Grantee and any right to receive any payment or other benefit under this Plan shall not become
exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into
account all other rights, payments, or benefits to or for the Grantee under this Plan, all Other Agreements, and
all Benefit Arrangements, would cause any payment or benefit to the Grantee under this Plan to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment")
and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the
- ---
Grantee from the Company under this Plan, all Other Agreements, and all Benefit Arrangements would be less than
the maximum after-tax amount that could be received by the Grantee without causing any such payment or benefit to
be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting,
payment, or benefit under this Plan, in conjunction with all other rights, payments, or benefits to or for the
Grantee under any Other Agreement or any Benefit Arrangement would cause the Grantee to be considered to have
received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount
received by the Grantee as described in clause (ii) of the preceding sentence, then the Grantee shall have the
right, in the Grantee's sole discretion, to designate those rights, payments, or benefits under this Plan, any
Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the
payment or benefit to the Grantee under this Plan be deemed to be a Parachute Payment.
15. REQUIREMENTS OF LAW
15.1 General. The Company shall not be required to sell or issue any shares of Stock under any
Grant if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual
exercising an Option, or the Company of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or regulations. If at any time the Company
shall determine, in its discretion, that the listing, registration or qualification of any shares subject to a
Grant upon any securities exchange or under any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be
issued or sold to the Grantee or any other individual exercising an Option pursuant to such Grant unless such
listing, registration, qualification, consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of
termination of the Grant. Specifically, in connection with the Securities Act, upon the exercise of any Option
or the delivery of any shares of Restricted Stock or Stock underlying Restricted Stock Units, unless a
registration statement under such Act is in effect with respect to the shares of Stock covered by such Grant, the
Company shall not be required to sell or issue such shares unless the Committee has received evidence
satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares
pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the
Committee shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to
take any affirmative action in order to cause the exercise of an Option or the issuance of shares of Stock
pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction
that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered
by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances
in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
15.2 Rule 16b-3. It is the intent of the Company that Grants pursuant to the Plan and the exercise
of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To
the extent that any provision of the Plan or action by the Committee does not comply with the requirements of
Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Committee,
and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board
may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to
take advantage of any features of, the revised exemption or its replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares
of Stock as to which Grants have not been made; provided, however, that the Board shall not, without approval of
the Company's shareholders, amend the Plan such that it does not comply with the Code. The Company may retain
the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of the Grantee
taking actions in "competition with the Company," as defined in the applicable Award Agreement. Furthermore, the
Company may annul a Grant if the Grantee is an employee of the Company or an affiliate and is terminated "for
cause" as defined in the applicable Award Agreement. Except as permitted under this Section 16 or Section 17
hereof, no amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, alter or
impair rights or obligations under any Grant theretofore awarded under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
17.1 Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities
of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or
decrease in such shares effected without receipt of consideration by the Company occurring after the Effective
Date, the number and kinds of shares for which Grants of Options, Restricted Stock and Restricted Stock Units may
be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number
and kind of shares for which Grants are outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the
same as immediately before such event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares that are subject to the unexercised portion of the Option outstanding
but shall include a corresponding proportionate adjustment in the Option Price per share. In the event of a
spin-off by the Company of the shares of a subsidiary, a stock dividend for which the Company will claim a
dividends paid deduction under Section 561 of the Code (or any successor provision), or a pro rata distribution
to all shareholders of other assets of the Company, the Committee may, but shall not be required to, make
appropriate adjustments to (i) the number and kind of shares or other assets for which outstanding Options are
exercisable and (ii) the per-share exercise price of outstanding Options.
17.2 Reorganization in Which the Company Is the Surviving Entity and in Which No Change of Control
Occurs. Subject to Section 17.3 hereof, if the Company shall be the surviving entity in any reorganization,
merger, or consolidation of the Company with one or more other entities, any Option theretofore granted pursuant
to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock
subject to such Option would have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in
an Award Agreement evidencing a Grant of Restricted Stock, any restrictions applicable to such Restricted Stock
shall apply as well to any replacement shares received by the Grantee as a result of the reorganization, merger
or consolidation.
17.3 Reorganization, Sale of Assets or Sale of Stock Which Involves a Change of Control. Subject to
the exceptions set forth in the last sentence of this Section 17.3, (i) upon the occurrence of a "Change of
Control" (as defined below), all outstanding shares of Restricted Stock and Restricted Stock Units shall be
deemed to have vested, and all restrictions and conditions applicable to such shares of Restricted Stock and
Restricted Stock Units shall be deemed to have lapsed immediately prior to the occurrence of such Change of
Control, and (ii) fifteen days prior to the scheduled consummation of a Change of Control, all Options
outstanding hereunder shall become immediately exercisable and shall remain exercisable for a period of fifteen
days. Any exercise of an Option during such fifteen-day period shall be conditioned upon the consummation of the
Change of Control and shall be effective only immediately before the consummation of the Change of Control. Upon
consummation of any Change of Control, the Plan and all outstanding but unexercised Options shall terminate.
The Committee shall send written notice of an event that will result in such a termination to all individuals who
hold Options not later than the time at which the Company gives notice thereof to its shareholders. For purposes
of this Section 17.3, a "Change of Control" shall be deemed to occur upon (i) the dissolution or liquidation of
the Company or upon a merger, consolidation, or reorganization of the Company with one or more other entities in
which the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the Company to
another entity, or (iii) any transaction (including without limitation a merger or reorganization in which the
Company is the surviving corporation) which results in any person or entity (other than B. Wayne Hughes and
members of his family and their affiliates) owning 50% or more of the combined voting power of all classes of
stock of the Company. This Section 17.3 shall not apply to any Change of Control to the extent that (A)
provision is made in writing in connection with such Change of Control for the continuation of the Plan or the
assumption of the Options, Restricted Stock and Restricted Stock Units theretofore granted, or for the
substitution for such Options, Restricted Stock and Restricted Stock Units of new options, restricted stock and
restricted stock units covering the stock of a successor corporation, or a parent, subsidiary or affiliate
thereof, with appropriate adjustments as to the number and kind of shares and exercise prices, in which event the
Plan and Options, Restricted Stock and Restricted Stock Units theretofore granted shall continue in the manner
and under the terms so provided or (B) a majority of the full Board determines that such Change of Control shall
not trigger application of the provisions of this Section 17.3.
17.4 Adjustments. Adjustments under this Section 17 related to shares of Stock or securities of the
Company shall be made by the Committee, whose determination in that respect shall be final, binding and
conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any
fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest
whole share.
17.5 No Limitations on Company. The making of Grants pursuant to the Plan shall not affect or limit
in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes
of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all
or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Grant or Award Agreement shall be construed to confer upon any
individual the right to remain in the employ or service of the Company or any affiliate, or to interfere in any
way with any contractual or other right or authority of the Company or any Service Provider either to increase or
decrease the compensation or other payments to any individual at any time, or to terminate any employment or
other relationship between any individual and the Company or a Service Provider. No provision in the Plan or in
any Grant awarded or Award Agreement entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the service of the Company as a director (including as an Outside Director), or
shall interfere with or restrict in any way the rights of the Company's shareholders to remove any director
pursuant to the provisions of the California General Corporation Law, as from time to time amended. In addition,
notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award
Agreement, no Grant awarded under the Plan shall be affected by any change of duties or position of the Optionee
(including a transfer to or from the Company or a Service Provider), so long as such Grantee continues to be a
director, officer, consultant, employee, or independent contractor (as the case may be) of the Company or a
Service Provider. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted
as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions
prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a
third party trustee or otherwise hold any amounts in trust or escrow for payment to any participant or
beneficiary under the terms of the Plan. No Grantee shall have any of the rights of a shareholder with respect
to the shares of Stock subject to an Option except to the extent the certificates for such shares of Stock shall
have been issued upon the exercise of the Option.
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such
other incentive compensation arrangements (which arrangements may be applicable either generally to a class or
classes of individuals or specifically to a particular individual or particular individuals) as the Board in its
discretion determines desirable, including, without limitation, the granting of stock options otherwise than
under the Plan.
20. WITHHOLDING TAXES
The Company, a Subsidiary or a Service Provider, as the case may be, shall have the right to deduct from
payments of any kind otherwise due to a Grantee any Federal, state, or local taxes of any kind required by law to
be withheld with respect to the vesting of or other lapse of restrictions applicable to Restricted Stock or
Restricted Stock Units or upon the issuance of any shares of Stock upon the exercise of an Option. At the time
of such vesting, lapse, or exercise, the Grantee shall pay to the Company, the Subsidiary or the Service
Provider, as the case may be, any amount that the Company, the Subsidiary or the Service Provider may reasonably
determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company,
the Subsidiary or the Service Provider, which may be withheld by the Company, the Subsidiary or the Service
Provider, as the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole
or in part, (i) by causing the Company, the Subsidiary or the Service Provider to withhold shares of Stock
otherwise issuable to the Grantee or (ii) by delivering to the Company, the Subsidiary or the Service Provider
shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an
aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock
used to satisfy such withholding obligation shall be determined by the Company, the Subsidiary or the Service
Provider as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an
election pursuant to this Section 20 may satisfy his or her withholding obligation only with shares of Stock that
are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
21. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the convenience of reference only and
shall not affect the meaning of any provision of the Plan or such Award Agreement.
22. OTHER PROVISIONS
Each Grant awarded under the Plan may contain such other terms and conditions not inconsistent with the
Plan as may be determined by the Committee, in its sole discretion.
23. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the plural form, the masculine
gender shall include the feminine gender, etc., as the context requires.
24. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable
by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and
enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
25. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing the Grants awarded hereunder
shall be governed by the laws of the State of California.
* * *
The Plan was duly adopted and approved by the Board of Directors of the Company as of the 15th day of
March, 2001.
/S/ SARAH HASS
Sarah Hass
Secretary of the Company
The Plan was duly approved by the shareholders of the Company on the ______ day of _______________, 2001.
Sarah Hass
Secretary of the Company
PRELIMINARY COPY
PROXY/INSTRUCTION CARD
PUBLIC STORAGE, INC.
701 Western Avenue
Glendale, California 91201-2349
This Proxy/Instruction Card is Solicited on Behalf of the Board of Directors
The undersigned, a record holder of Common Stock of Public Storage, Inc. and/or a record holder
of Depositary Shares ("Depositary Shares") Each Representing 1/1,000 of a Share of Equity Stock, Series A
("Equity Stock") of Public Storage, Inc. and/or a participant in the PS 401(k)/Profit Sharing Plan (the "401(k)
Plan"), hereby (i) appoints B. Wayne Hughes and Harvey Lenkin, or either of them, with power of substitution, as
Proxies, to appear and vote, as designated below, all the shares of Common Stock held of record by the
undersigned on March 15, 2001, at the Annual Meeting of Shareholders to be held on May 10, 2001 (the "Annual
Meeting"), and any adjournments thereof, and/or (ii) authorizes and directs Fleet National Bank (the
"Depositary"), through its nominee(s), to vote or execute proxies to vote, as instructed below, all Equity Stock
underlying the Depositary Shares held of record by the undersigned on March 15, 2001, at the Annual Meeting and
any adjournments thereof, and/or (iii) authorizes and directs the trustee of the 401(k) Plan (the "Trustee") to
vote or execute proxies to vote, as instructed below, all the shares of Common Stock credited to the
undersigned's account under the 401(k) Plan on March 15, 2001, at the Annual Meeting and any adjournments thereof,
and/or (iv) authorizes and directs the Trustee to instruct (in person or by proxy) the Depositary to vote or
execute proxies to vote, as instructed below, all Equity Stock underlying the Depositary Shares credited to the
undersigned's account under the 401(k) Plan on March 15, 2001, at the Annual Meeting and any adjournments
thereof. In their discretion, the Proxies and/or the Depositary and/or the Trustee are authorized to vote upon
such other business as may properly come before the meeting.
THE PROXIES, THE DEPOSITARY AND/OR THE TRUSTEE WILL VOTE ALL SHARES OF COMMON STOCK AND EQUITY
STOCK TO WHICH THIS PROXY/INSTRUCTION CARD RELATES, IN THE MANNER DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION
IS GIVEN WITH RESPECT TO COMMON STOCK AND/OR DEPOSITARY SHARES HELD OF RECORD BY THE UNDERSIGNED, THE PROXIES
WILL VOTE SUCH COMMON STOCK, AND/OR THE DEPOSITARY WILL VOTE THE EQUITY STOCK UNDERLYING SUCH DEPOSITARY SHARES,
FOR THE ELECTION OF ALL NOMINEES LISTED ON THE REVERSE AND IN FAVOR OF ITEMS 2 AND 3. IF NO DIRECTION IS GIVEN
WITH RESPECT TO COMMON STOCK AND/OR DEPOSITARY SHARES CREDITED TO THE UNDERSIGNED'S ACCOUNT UNDER THE 401(k)
PLAN, THE TRUSTEE WILL VOTE SUCH COMMON STOCK, AND/OR THE TRUSTEE WILL INSTRUCT THE DEPOSITARY TO VOTE THE EQUITY
STOCK UNDERLYING SUCH DEPOSITARY SHARES, FOR THE ELECTION OF ALL NOMINEES LISTED ON THE REVERSE AND IN FAVOR OF
ITEMS 2 AND 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
X Please mark votes as in this example.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY/INSTRUCTION CARD IN THE ENCLOSED ENVELOPE TO EQUISERVE, SHAREHOLDER
SERVICES DIVISION, P.O. BOX 9381, BOSTON, MA 02205-9381.
1. Election of Directors
Nominees: B. Wayne Hughes, Harvey Lenkin, Marvin M. Lotz, B. Wayne Hughes, Jr., Robert J. Abernethy,
Dann V. Angeloff, William C. Baker, Thomas J. Barrack, Jr., Uri P. Harkham and Daniel C. Staton.
FOR WITHHELD
ALL FROM ALL
___ NOMINEES ___ NOMINEES
___ __________________________________________
For all nominees except as noted above
2. Approval of an amendment to the Certificate of Determination of the Equity Stock to extend the date on or
after which the Company may redeem the Equity Stock from March 31, 2005 to March 31, 2010.
___ FOR ___ AGAINST ___ ABSTAIN
3. Approval of adoption of 2001 Stock Option and Incentive Plan in the form of Exhibit B to the accompanying
Proxy Statement.
___ FOR ___ AGAINST ___ ABSTAIN
4. Other matters: In their discretion, the Proxies and/or the Depositary and/or the Trustee are authorized to
vote upon such other business as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND
NOTE AT LEFT _____
The undersigned acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement dated
March 27, 2001.
Please sign exactly as your name appears. Joint owners should each sign. Trustees and others acting in a
representative capacity should indicate the capacity in which they sign.
Signature:____________________________ Date:_______________ Signature:_________________________ Date:______________
APPENDIX A
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Public Storage, Inc.
We have audited the accompanying consolidated balance sheets of Public Storage, Inc. as of December 31, 2000 and 1999,
and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at
Item 14 (a). These financial statements and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Public Storage, Inc. at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG L L P
Los Angeles, California
February 23, 2001
