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|
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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
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PS BUSINESS PARKS, 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
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| | Check box if any part of the fee is offset as provided by Exchange Act
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was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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PS BUSINESS PARKS, INC.
Notice Of Annual Meeting Of Shareholders
May 6, 2003
The Annual Meeting of Shareholders of PS Business Parks, Inc.,
a California corporation, will be held at the Hilton Glendale, 100 West Glenoaks
Boulevard, Glendale, California, on May 6, 2003, at 1:00 p.m., Los Angeles time,
for the following purposes:
1. To consider and vote upon a proposal to elect seven
directors of the Company;
2. To consider and vote upon a proposal to approve the
adoption of the Company's 2003 Stock Option and
Incentive Plan;
3. To consider and vote upon a proposal to ratify the
selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended December
31, 2002; and
4. To consider and act upon such other matters as may
properly come before the meeting or any adjournment of
the meeting.
Only shareholders of record of the Company's Common Stock at
the close of business on March 14, 2003 will be entitled to receive notice of,
and to vote at, the annual meeting or any adjournment or postponement of the
meeting.
Please mark your vote on the enclosed proxy, then date, sign
and promptly mail the proxy in the stamped return envelope included with these
materials.
You are cordially invited to attend the meeting in person. If
you do attend and you have already signed and returned the proxy, you may
nevertheless change your vote at the meeting, in which case your proxy 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, date, sign and
return it.
By Order of the Board of Directors
JACK E. CORRIGAN, Secretary
Glendale, California
April 8, 2003
PS BUSINESS PARKS, INC.
701 Western Avenue
Glendale, California 91201-2349
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 6, 2003
GENERAL
This proxy statement (first mailed to shareholders on or about
April 11, 2003) is furnished in connection with the solicitation by the board of
directors of PS Business Parks, 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 6, 2003 or at any adjournment or postponement of the meeting. The purposes
of the meeting are (1) to consider and vote upon a proposal to elect seven
directors of the Company; (2) to consider and vote upon a proposal to approve
the adoption of the Company's 2003 Stock Option and Incentive Plan; (3) to
consider and vote upon a proposal to ratify the appointment of Ernst & Young LLP
as the Company's independent auditors for the fiscal year ending December 31,
2003; and (4) to consider such other business as may properly be brought before
the meeting or any adjournment or postponement of the meeting.
Shares of the Company's Common Stock represented by a proxy in
the accompanying form, if the proxy is properly executed and is received by the
Company before the voting, will be voted in the manner specified on the proxy.
If no specification is made, the shares will be voted (1) FOR the election as
directors of the nominees named hereinafter, (2) FOR adoption of the Company's
2003 Stock Option and Incentive Plan and (3) FOR ratification of Ernst & Young
LLP as the Company's independent auditors. The persons designated as proxies
reserve full discretion to cast votes for other persons if any of the nominees
become unavailable to serve. A proxy is revocable by delivering a subsequently
signed and dated proxy or other written notice to the secretary of the Company
at any time before its exercise. A proxy may also be revoked if the person
executing the proxy is present at the meeting and chooses to vote in person.
QUORUM AND VOTING
The presence at the meeting in person or by proxy of the
holders of a majority of the outstanding shares of the Common Stock is necessary
to constitute a quorum for the transaction of business. Abstentions and "broker
non-votes" are counted for purposes of whether a quorum exists, but will not
affect the outcome of any vote.
Only holders of record of Common Stock at the close of
business on the record date of March 14, 2003 will be entitled to vote at the
meeting, or at any adjournment or postponement of the meeting. On the record
date, the Company had 21,372,219 shares of Common Stock issued and outstanding.
If you participate in the PS 401(k)/Profit Sharing Plan (the
"401(k) Plan"), your proxy 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 credited to your account as of the record date. If you provide
voting instructions via your proxy with respect to shares in the 401(k) Plan,
the Trustee will vote those shares of Common Stock in the manner specified. If
you do not provide voting instructions via your proxy with respect to shares in
the 401(k) Plan, the Trustee will vote those shares of Common Stock at its
discretion.
With respect to the election of directors, 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 the
holder's name on the record date. The holder may cumulate its votes for
directors by casting all of its votes for one candidate or by distributing its
votes among as many candidates as it chooses. The seven 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 holder of Common Stock is entitled to one vote for each share
registered in its name. The number of votes required to approve proposals (2)
and (3) is set forth in the description of those proposals in the proxy
statement. A proxy will confer discretionary authority to cumulate votes
selectively among the nominees as to which authority to vote has not been
withheld.
ELECTION OF DIRECTORS
Seven 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 is properly executed and returned to the Company
before the voting, the persons named in the proxy and/or the Trustee will vote
the shares represented by the proxy as indicated on the proxy. 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 represented by any
proxy voting 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
--------------------- ------- --------------
Ronald L. Havner, Jr. 45 1998
Harvey Lenkin 66 1998
Vern O. Curtis 68 1990
Arthur M. Friedman 67 1998
James H. Kropp 54 1998
Alan K. Pribble 60 1998
Jack D. Steele 79 1990
Each of these nominees has been approved by a majority of the
independent directors of the Company.
Ronald L. Havner, Jr. has been Chairman and Chief Executive
Officer of the Company from March 1998 and President of the Company from March
1998 to September 2002. From December 1996 until March 1998, Mr. Havner was
Chairman, President and Chief Executive Officer of American Office Park
Properties ("AOPP"), a predecessor of the Company. In November 2002, he became
Vice-Chairman and Chief Executive Officer of Public Storage, Inc. ("PSI"), an
affiliate of the Company. He was Senior Vice President and Chief Financial
Officer of PSI, and Vice President of the Company and certain other REITs
affiliated with PSI, until December 1996. Mr. Havner became an officer of PSI in
1986, prior to which he was in the audit practice of Arthur Andersen & Company.
He is a member of the National Association of Real Estate Investment Trusts,
Inc. (NAREIT) and the Urban Land Institute (ULI) and a director of PSI, Business
Machine Security, Inc. and The Mobile Storage Group.
Harvey Lenkin, became a director of the Company in March 1998
and was President of the Company from its inception in 1990 until March 1998.
Mr. Lenkin has been employed by PSI and its predecessor for 25 years and has
been President and a director of PSI since November 1991. He was a director of
AOPP from December 1997 until March 1998. From 1989-90 until the respective
dates of merger, Mr. Lenkin was President of 18 affiliated REITs that were
merged into PSI between September 1994 and May 1998 (the "Merged Public Storage
REITs"), and he was also a director of one of the Merged Public Storage REITs
from 1989 until June 1996. Mr. Lenkin is a member of the Executive Committee of
the Board of Governors of NAREIT.
Vern O. Curtis, Chairman of the Audit Committee, is a private
investor. Mr. Curtis has been a director of the Company since its inception in
1990. Mr. Curtis is also a trustee of the Pimco Funds, and Pimco Variable
Annuity Trust, a group of 68 mutual funds, a director of Pimco Commercial
Mortgage Securities Trust, Inc., a closed-end mutual fund listed on the NYSE and
Fresh Choice, Inc., a restaurant company. From 1989-90 until the respective
dates of merger, he was a director of the Merged Public Storage REITs. Mr.
Curtis was Dean of Business School of Chapman College from 1988 to 1990 and
President and Chief Executive Officer of Denny's, Inc. from 1980 to 1987.
2
Arthur M. Friedman, a member of the Audit Committee, became a
director of the Company in March 1998. Mr. Friedman, a certified public
accountant, has been an independent business and tax consultant since September
1995. He was a partner of Arthur Andersen from 1968 until August 1995. During
his 38-year career in public accounting, he specialized in tax consultation. He
was a member of the Andersen Board of Partners from 1980-1988.
James H. Kropp, a member of the Compensation Committee, became
a director of the Company in March 1998. Mr. Kropp has been Director of
Investment Management and Banking of Christopher Weil & Company, Inc. ("CWC"), a
securities broker-dealer and registered investment adviser, since April 1995.
CWC has from time to time rendered, financial advisory and securities brokerage
services for the Company, PSI and their affiliates. The Company has no intention
to engage CWC in the future. Mr. Kropp was a director of AOPP from December 1996
until December 1997. From July 1994 to November 1994, he was Executive Vice
President and Chief Financial Officer of Hospitality Investment Trust, a REIT.
From 1989 to July 1994, he was Managing Director of MECA Associates USA, a real
estate advisory and asset management company serving institutional property
owners. He is a member of the American Institute of Certified Public Accountants
and the National Association of Real Estate Investment Trusts and a director of
US Restaurant Properties, Inc. and Madison Park Real Estate Investment Trust.
Alan K. Pribble, chairman of the Compensation Committee,
became a director of the Company in March 1998. He has been an independent
business consultant since June 1997. Mr. Pribble was employed by Wells Fargo
Bank, N.A. for 30 years until June 1997. He was a Senior Vice President of Wells
Fargo from 1984 until June 1997. In 1992, Mr. Pribble opened a commercial
finance division for Wells Fargo and was involved in its operations until June
1997. From 1988 until 1992, he was a Senior Vice President and Regional Manager,
and from 1984 until 1988, Mr. Pribble was a Senior Credit Officer, for Wells
Fargo.
Jack D. Steele, a member of the Audit Committee, has been a
director of the Company since its inception in 1990. Dr. Steele is also a
director of M.C. Gill and a member of the Advisory Board of Clark/Bardes. Dr.
Steele is a business consultant. From 1989-90 until the respective dates of
merger, he was a director of the Merged Public Storage REITs. Dr. Steele was
Chairman - Board Services of Korn/Ferry International from 1986 to 1988 and Dean
of School of Business and Professor at the University of Southern California
from 1975 to 1986.
Directors and Committee Meetings
During 2002, the Board of Directors held four meetings (and
acted three times by unanimous written consent), the Audit Committee held three
meetings (and acted twice by unanimous written consent) and the Compensation
Committee held two meetings (and acted five times by unanimous written consent).
During 2002, each of the directors 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.
Vern O. Curtis (chairman), Arthur M. Friedman and Jack D.
Steele comprise the Audit Committee. The primary functions of the Audit
Committee include to select and meet with the Company's outside auditors, to
approve all audit engagement fees and terms to conduct a pre-audit review of the
audit engagement, to conduct a post-audit review of the results of the audit, to
oversee the Company's accounting and financial reporting policies, to monitor
the adequacy of internal financial controls of the Company, to review the
independence of the outside auditors and to approve all audit services and
non-audit services to be provided to the Company by its outside auditors. Until
March 2003, executive officers received grants of options under the Company's
stock option and incentive plan only with the approval of the Audit Committee.
The Audit Committee operates under a written charter adopted by the Board of
Directors, a copy of which is attached as Exhibit A. This charter was modified
by the Board of Directors in November 2002 to take into account the
Sarbanes-Oxley Act of 2002, the rules proposed and adopted by the Securities and
Exchange Commission and the rules proposed by the American Stock Exchange.
The Company has a Compensation Committee currently comprised
of Alan K. Pribble (chairman) and James H. Kropp. Harvey Lenkin resigned as a
member of the Compensation committee in March 2003.
3
The primary functions of the Compensation Committee are to
determine the salary and bonus compensation for the Company's executive officers
and to administer the Company's stock option and incentive plan, including,
after March 2003, grants of options to executive officers.
The Company does not have a nominating committee because, in
accordance with the proposed rules of the American Stock Exchange, all
nominations to the Board of Directors are approved by a majority of the
independent directors of the Company.
The Board of Directors has determined that each of the current
members of the Audit Committee and the Compensation Committee qualifies as
independent under the proposed rules of the American Stock Exchange and that the
chairman of the Audit Committee, Vern O. Curtis, qualifies as an audit committee
financial expert within the meaning of the rules of the Securities and Exchange
Commission.
The Board of Directors has determined that each of the
Company's directors, other than Ronald L. Havner, Jr. and Harvey Lenkin, is
"independent," as defined in the proposed rules of the American Stock Exchange.
The Company's independent directors intend to meet without the presence of the
non-independent directors and management. These meetings will be held at least
annually and more often upon the request of any independent director or if
required by the final rules of the American Stock Exchange.
In March 2003, the Board of Directors adopted a code of ethics
for its senior financial officers. The code covers those persons serving as the
Company's principal executive officer, principal financial officer and principal
accounting officer, currently Ronald L. Havner, Jr. and Jack E. Corrigan.
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 Company's Common Stock:
Shares of Common Stock
Beneficially Owned
--------------------------------
Number Percent
Name and Address of Shares of Class
---------------- --------- --------
5,418,273 25.4%
Public Storage, Inc. ("PSI"),
PS Texas Holdings, Ltd.,
PS GPT Properties, Inc.
701 Western Avenue,
Glendale, California 91201-2349 (1)
Acquiport Two Corporation ("Acquiport") 3,010,265 14.1%
c/o Heitman Capital Management Corporation
180 North LaSalle Street
Chicago, Illinois 60601,
New York State Common Retirement Fund
633 Third Avenue, 31st Floor
New York, New York 10017-6754 (2)
Heitman Real Estate Securities LLC 1,230,731 5.8%
180 North La Salle Street, Suite 3600
Chicago, Illinois 60601 (3)
----------------
(1) This information is as of March 14, 2003. The reporting persons listed
above have filed a joint Schedule 13D, amended as of September 3, 1998.
The 5,418,273 shares of Common Stock beneficially owned by the reporting
persons include (i) 5,151,567 shares as to which PSI has sole voting and
dispositive power and (ii) 266,706 shares held of record by PS Texas
Holdings, Ltd., a Texas limited partnership, as to which (a) PS GPT
4
Properties, Inc., the sole general partner of PS Texas Holdings, Ltd.
and a wholly-owned subsidiary of PSI, and (b) PSI, share voting and
dispositive power.
The 5,418,273 shares of Common Stock in the above table does not include
7,305,355 units of limited partnership interest in PS Business Parks,
L.P. ("Units") held by PSI and affiliated partnerships which (pursuant
to the terms of the agreement of limited partnership of PS Business
Parks, L.P.) are redeemable by the holder for cash or, at the Company's
election, for shares of the Company's Common Stock on a one-for-one
basis. Upon conversion of the Units to Common Stock, PSI and its
affiliated partnerships would own 44.4% of the Common Stock (based upon
the Common Stock outstanding at March 14, 2003, assuming such
conversion).
(2) This information is as of March 14, 2003. The reporting persons listed
above have filed a joint Schedule 13D, amended as of June 10, 2002. The
3,010,265 shares of Common Stock beneficially owned by the reporting
persons are held of record by Acquiport. New York State Common
Retirement Fund, as the sole stockholder of Acquiport, shares voting and
dispositive power with respect to the 3,010,265 shares.
(3) This information is as of December 31, 2002 (except that the percent
shown in the table is based on the Common Stock outstanding at March 14,
2003) and is based on a Schedule 13G filed by Heitman Real Estate
Securities LLC. Heitman Real Estate Securities LLC serves as
sub-investment adviser to, and has been given dispositive power, as to
these securities by, the PBHG REIT Fund and the Penn Series Funds, Inc.,
REIT Fund, registered investment companies, and 1,451 separate account
clients.
Security Ownership of Management
The following table sets forth information as of February 28,
2003 concerning the beneficial ownership of Common Stock of each director of the
Company, the Company's Chief Executive Officer, the Company's President, the
other four most highly compensated persons who were executive officers of the
Company on December 31, 2002 and all directors and executive officers as a
group:
Shares of Common Stock:
Beneficially Owned (1)
Shares Subject to Options (2)
---------------------------------------
Name Number of Shares Percent
---- ---------------- -------
Ronald L. Havner, Jr. 121,598(1)(3) .6%
175,035(2) .8%
------- ---
296,633 1.4%
Harvey Lenkin 1,552(1)(4) *
1,999(2) *
------- ---
3,551 *
Vern O. Curtis 5,000(1) *
6,999(2) *
------- ---
11,999 *
Arthur M. Friedman 3,500(1)(6) *
6,999(2) *
------- ---
10,499 *
James H. Kropp 7,191(1)(5) *
6,999(2) *
------- ---
14,190 *
5
Shares of Common Stock:
Beneficially Owned (1)
Shares Subject to Options (2)
---------------------------------------
Name Number of Shares Percent
---- ---------------- -------
Alan K. Pribble -- --
6,999(2) *
------- ---
6,999 *
Jack D. Steele 2,100(1)(7) *
6,999(2) *
------- ---
9,099 *
Joseph D. Russell, Jr. 2,000 *
-- --
------- ---
2,000 *
Jack E. Corrigan 6,310(1) *
89,999(2) .4%
------- ---
96,309 .5%
J. Michael Lynch 283(1) *
89,999(2) .4%
------- ---
90,282 .4%
Stephen S. King 661 *
39,999(2) .2%
------- ---
40,660 .2%
Maria R. Hawthorne 4,428 *
14,961(2) .1%
------- ---
19,389 .1%
All Directors and Executive Officers 155,540(1)(3)(4)(5)(6)(7)
as a Group .7%
(16 persons) 507,819(2) 2.4%
------- ---
663,359 3.1%
---------------
* Less than 0.1%
(1) Represents shares of Common Stock beneficially owned as of February 28,
2003. 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. Includes shares credited to the accounts of the executive
officers of the Company that are held in the 401(k) Plan as of December
31, 2002. Does not include restricted stock units described in note (1)
to the summary compensation table under "Compensation -- Compensation
of Executive Officers."
(2) Represents options exercisable within 60 days of February 28, 2003 to
purchase shares of Common Stock.
(3) Includes 500 shares held by a custodian of an IRA for Mr. Havner's
spouse as to which she has investment power.
(4) Includes 173 shares as to which Mr. Lenkin's spouse has investment
power.
(5) Includes 100 shares held by Mr. Kropp's son as to which he has
investment power, and 600 shares held by CWC Good Company Portfolio, a
general partnership of which Mr. Kropp is a general partner, as to
which Mr. Kropp shares investment power.
(6) Includes 3,000 shares held by Mr. Friedman and his spouse as trustees
of the Friedman Family Trust as to which they share investment power.
6
(7) Shares held by Mr. Steele and his spouse as trustees of Jack D. Steele
Retirement Trust as to which they share investment power. The Company
has outstanding a class of preferred stock, consisting of various
series of non-voting preferred stock. As of February 28, 2002, Arthur
M. Friedman owned 2,000 depositary shares representing interests in the
preferred stock (as to which he shared investment power), Alan K.
Pribble owned 6,000 depositary shares, Jack D. Steele owned 3,000
depositary shares (as to which he shared investment power), and the
directors and executive officers as a group owned a total of 11,000
shares, representing less than 1% of the outstanding shares.
COMPENSATION
Compensation of Executive Officers
The following table sets forth certain information concerning
the annual and long-term compensation paid to Ronald L. Havner, Jr., the
Company's Chief Executive Officer, Joseph D. Russell, Jr., the Company's
President, and the other four most highly compensated persons who were executive
officers of the Company on December 31, 2001 (the "Named Executive Officers")
for 2002, 2001 and 2000.
Summary Compensation Table
Long-Term Compensation
----------------------------
Annual Compensation Awards
---------------------------------------- ----------------------------
Restricted Securities
Name and Other Annual Stock Unit Underlying All Other
Principal Position Year Salary Bonus Compensation Awards ($)(1) Options (#) Compensation
------------------ ---- ------ ----- ------------ ------------- ----------- ------------
Ronald L. Havner, Jr. (2) 2002 $285,000 $400,500 (3) -- -- $6,000(4)
Chairman of the Board
Chief Executive Officer 2001 285,000 450,500 (3) -- 50,000 5,100(4)
2000 285,000 350,500 (3) -- 100,000 4,800(4)
Joseph D. Russell, Jr. 2002 62,500(5) 63,300(6) $120,000(7) -- 100,000 --
President
Jack E. Corrigan 2002 175,000 75,000 -- $164,300 75,000 16,400(4)
Vice President and
Chief Financial Officer 2001 175,000 100,000 -- -- 25,000 10,300(4)
2000 145,000 125,500 -- 96,000 25,000 6,800(4)
J. Michael Lynch 2002 175,000 75,000 (3) 164,300 75,000 18,800(4)
Vice President-Director
of Acquisitions and 2001 175,000 100,500 (3) 54,960 25,000 13,000(4)
Development
2000 145,000 125,500 (3) 96,000 25,000 6,800(4)
Stephen S. King 2002 150,000 65,000 (3) -- -- 11,800(4)
Vice President
2001 110,000 46,000 (3) 137,400 40,000 7,700(4)
2000 110,000 50,000 (3) -- 35,000 4,800(4)
Maria R. Hawthorne 2002 110,000 51,000 (3) 65,700 -- 9,200(4)
Vice President
2001 90,000 46,000 (3) 53,300 25,000 6,000(4)
2000 76,000 42,800 (3) 48,000 5,000 4,600(4)
----------------
(1) Represents the value of grants of restricted stock units made under the
1997 Stock Option and Incentive Plan (with the value of one restricted
stock unit deemed equivalent to the value of one share of Common Stock
7
and based on the closing price of the Common Stock on the American Stock
Exchange on the date of grant). The restricted stock units set forth in
this table vest 30% on the third anniversary, 30% on the fourth
anniversary and 40% on the fifth anniversary, of the date of grant. On
each vesting date, the holder will receive shares of Common Stock
representing the applicable percentage of the total number of restricted
stock units granted. Holders of restricted stock units receive payments
equal to the dividends that would have been paid on an equivalent number
of shares of Common Stock. The grants of restricted stock units do not
entitle the holders to any current voting rights. As of December 31,
2002, the total holdings of restricted stock units of the Named Executive
Officers and the market value of such holdings (with the value of one
unit deemed equivalent to the value of one share of Common Stock on the
American Stock Exchange on December 31, 2002) were as follows: Mr.
Corrigan - 9,000 restricted stock units ($286,200), Mr. Lynch -11,000
restricted stock units ($349,800), Mr. King - 5,000 restricted stock
units ($159,000) and Ms. Hawthorne - 6,000 restricted stock units
($190,800).
(2) Compensation to Mr. Havner in this table does not include compensation
paid to Mr. Havner by PSI as Chief Executive Officer of PSI.
(3) Value did not exceed 10% of the annual salary and bonus of the individual
for the years indicated.
(4) Consists of employer contributions to the 401(k) Plan in the case of Mr.
Havner and employer contributions and dividend equivalent payments based
on ownership of restricted stock units in the case of the other Named
Executive Officers.
(5) For the period September 30, 2002 through December 31, 2002.
(6) Represents the value of 2,000 shares of Common Stock based on the closing
price of the Common Stock on January 10, 2003, the date of issue.
(7) Represents estimated reimbursement of relocation expenses.
The following table sets forth certain information relating to
options to purchase shares of Common Stock granted to the Named Executive
Officers during 2002.
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------------------------ Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Options of Share Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees in Price Expiration ------------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10%
-------------------------- ------------- ---------------- ------------ ------------- ------------------------------
Ronald L. Havner, Jr. -- -- -- -- -- --
Joseph D. Russell, Jr. 100,000 33.6% $34.34 9/9/12 $2,159,624 5,472,912
Jack E. Corrigan 75,000 25.2% 32.85 2/19/12 1,549,439 3,926,583
J. Michael Lynch 75,000 25.2% 32.85 2/19/12 1,549,439 3,926,583
Stephen S. King -- -- -- -- -- --
Maria R. Hawthorne -- -- -- -- -- --
The options granted in 2002 to Mr. Corrigan and to Mr. Lynch
become exercisable in three equal installments beginning on the first
anniversary of the date of grant and have a term of ten years and the options
granted in 2002 to Mr. Russell become exercisable in five equal installments
beginning on the first anniversary of the date of grant and have a term of ten
years.
The following table sets forth certain information concerning
exercised and unexercised options held by the Named Executive Officers at
December 31, 2002.
8
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of
Shares Securities Underlying Value of Unexercised
Acquired on Value Unexercised Options In-the-Money Options at
Name Exercise(#) Realized($) at December 31, 2002 December 31, 2002(1)
---------------------------- ------------ -------------- ----------------------------- -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ -------------- ------------ --------------
Ronald L. Havner, Jr. -- -- 158,368 66,668 $1,584,496 $333,173
Joseph D. Russell, Jr. -- -- -- 100,000 -- --
Jack E. Corrigan -- -- 64,999 100,001 468,995 132,130
J. Michael Lynch -- -- 64,999 100,001 468,995 132,130
Stephen S. King -- -- 36,665 53,335 236,354 222,096
Maria R. Hawthorne -- -- 14,961 43,334 90,063 97,654
--------------
(1) Based on closing price of $31.80 per share of Common Stock on December
31, 2002, as reported by the American Stock Exchange. On April 4, 2003,
the closing price per share of Common Stock as reported by the American
Stock Exchange was $30.10.
Compensation of Directors
Each of the Company's directors, other than Ronald L. Havner,
Jr., receives directors' fees of $10,000 per year plus $1,000 for each meeting
attended and $500 for each telephone meeting. In addition, each member of the
Audit Committee receives $1,000 for each meeting of the Audit Committee attended
and $500 for each telephone meeting. Each member of the Compensation Committee
receives $1,000 for each meeting of the Compensation Committee attended and $500
for each telephone meeting. 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 automatic grants of options under the 1997
Stock Option and Incentive Plan (the "1997 Plan"), and Ronald L. Havner, Jr. is
eligible to receive discretionary grants of options and/or restricted stock
thereunder. Under the 1997 Plan, (1) each new Outside Director is, upon the date
of his or her initial election to serve as an Outside Director, automatically
granted a non-qualified option to purchase 5,000 shares of Common Stock (10,000
shares if the 2003 Stock Option and Incentive Plan is approved). 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, a non-qualified option to purchase 1,000 shares of Common Stock (2,000
shares if the 2003 Stock Option and Incentive Plan is approved).
Employment Agreement
In September 2002, Joseph D. Russell, Jr. entered into an
employment agreement with the Company that includes, among other terms, (1) an
annual base salary of $250,000, (2) a discretionary bonus of up to 2,000 shares
of Common Stock for 2002, (3) reimbursement of moving and relocation expenses of
up to $100,000, adjusted for any adverse personal income tax consequences to Mr.
Russell, (4) a discretionary target bonus of $250,000 for 2003 and (5) an award
of 100,000 stock options that vest in five equal installments beginning on the
first anniversary of his employment. In the event of a sale or other
extraordinary transaction resulting in a termination payment to other comparable
senior officers, Mr. Russell will receive a comparable payment, exclusive of
payments made in respect of stock options or restricted stock. Mr. Russell's
employment may be terminated by either party at any time with or without cause,
provided that, if the Company terminates his employment before December 31, 2003
other than for cause (as defined in the agreement), he will be entitled to one
year's salary up to a maximum of $250,000 and his pro rata share of his bonus
target up to a maximum of $187,500.
9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
After March 2003, the Compensation Committee is comprised of
James H. Kropp and Alan K. Pribble, neither of whom is or has ever been an
employee of the Company. No executive officer of the Company serves on the
compensation committee or board of directors of any other entity which has an
executive officer who also serves on the Compensation Committee or Board of
Directors of the Company.
Ronald L. Havner, Jr., who is an executive officer of the
Company, is a member of the Board of Directors.
Certain Relationships and Related Transactions
Loan from PSI. In December 2001, the Operating Partnership
borrowed a total of $35 million from PSI. The loan was repaid in January 2002.
The loan bore interest at 3.25% per year and was approved by the Company's
disinterested directors.
Assignment from PSI. At the Company's request, in June 2002,
PSI assigned to the Company PSI's right to acquire from an unaffiliated third
party a parcel of undeveloped land. The land is located adjacent to the
Company's business park known as Metro Park North in Rockville, Maryland. In
consideration for the assignment, the Company reimbursed PSI for all of its
costs incurred in connection with the acquisition and development of the land
(approximately $376,000, including $87,000 of land deposits paid by PSI to the
unaffiliated seller of the land). The land deposits were applied to the $800,000
purchase price for the land.
Management Agreement with Affiliates. The Operating
Partnership operates industrial, retail and office facilities for PSI and
partnerships and joint ventures of which PSI is a general partner or joint
venturer ("Affiliated Entities") pursuant to a management agreement under which
PSI and the Affiliated Entities pay to the Operating Partnership a fee of 5% of
the gross revenues of the facilities operated for PSI and the Affiliated
Entities. During 2002, PSI and the Affiliated Entities paid fees of $561,000 to
the Operating Partnership pursuant to that management agreement. As to
facilities directly owned by PSI, the management agreement has a seven-year term
with the term being automatically extended for one year on each anniversary date
(thereby maintaining a seven-year term) unless either party (PSI or the
Operating Partnership) notifies the other that the management agreement is not
being extended, in which case it expires, as to such facilities, on the first
anniversary of its then scheduled expiration date. As to facilities owned by the
Affiliated Entities, the management agreement may be terminated as to such
facilities upon 60 days' notice by PSI (on behalf of the Affiliated Entity) and
upon seven years' notice by the Operating Partnership.
Transactions with Christopher Weil & Company. During 2002,
Christopher Weil & Company, Inc. ("CWC") rendered securities brokerage services
for the Company involving aggregate payments of approximately $1,000. The
Company has no intention to retain CWC in the future. James H. Kropp, a director
of the Company, is Director of Investment Management and Banking of CWC.
10
REPORT OF THE BOARD OF DIRECTORS,
THE COMPENSATION COMMITTEE AND THE AUDIT COMMITTEE
ON EXECUTIVE COMPENSATION
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 and restricted stock units.
Grants of options and restricted stock units to executive officers are made
under the 1997 Stock Option and Incentive Plan (the "1997 Plan").
Cash Compensation. Base salary levels are based generally 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. The base salary of Mr. Havner, the Chief
Executive Officer, for 2002 was determined to be appropriate based on a review
of total compensation paid to the chief executive officers of other REITs deemed
comparable by the Company and a review of the growth in the Company's net asset
value (NAV) per share and funds from operations (FFO) per share compared to the
growth in NAV per share and FFO per share of the REITs deemed comparable by the
Company.
The Company uses annual cash bonuses as an important method of
rewarding executive officers commensurate with the Company's performance,
departmental performance and individual performance. Early in 2002, the Company
established a target bonus amount for each executive officer (other than the
Chief Executive Officer). Payment of the target bonus amounts was based
primarily on each executive officer's achievement of individualized quantitative
financial and operational goals related to the activities he managed. The bonus
paid to the Chief Executive Officer was the same in 1998, 1999 and 2000 and was
increased in 2001 and 2002. Mr. Havner's bonus for 2002 was determined to be
appropriate based on a review of total compensation paid to the chief executive
officers of other REITs deemed comparable by the Company, a review of the growth
in the Company's NAV per share and FFO per share compared to the growth in NAV
per share and FFO per share of the REITs deemed comparable by the Company, the
services being rendered by him for the Company and the compensation paid to him
by PSI. In November 2002 Mr. Havner became the chief executive officer of PSI.
Mr. Havner also remains Chief Executive Officer of the Company. A portion of Mr.
Havner's 2002 bonus was paid by PSI. The allocation of Mr. Havner's 2002 bonus
between the Company and PSI was approved by the Compensation Committee. Mr.
Havner's compensation for 2003 will be allocated between the Company and PSI so
that the aggregate amount paid by the Company to Mr. Havner and to Mr. Russell,
President of the Company, approximates the amount previously paid to Mr. Havner
alone.
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. Options were granted to the named
executive officers during 2002 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. No options were granted to the Chief Executive Officer during
2002.
11
Beginning in 2000, the Company determined to make awards of
restricted stock units to its executive officers as another form of long-term
incentive compensation. Restricted stock units entitle the holder to receive
shares of Common Stock at a specified vesting date. Restricted stock units
increase in value as the value of the Common Stock increases, and vest over time
provided that the executive officer remains in the employ of the Company.
Accordingly, awards of restricted stock units serve the Company's objectives of
retaining its executive officers and motivating them to advance the interests of
the Company and its shareholders. The number of restricted stock units granted
to individual executive officers during 2002 was based on a number of factors,
including seniority and individual performance. The Company has not granted any
restricted stock units to the Chief Executive Officer.
BOARD OF DIRECTORS COMPENSATION COMMITTEE AUDIT COMMITTEE
Ronald L. Havner, Jr. Alan K. Pribble (Chairman) Vern O. Curtis (Chairman)
Harvey Lenkin James H. Kropp Arthur M. Friedman
Vern O. Curtis Jack D. Steele
Arthur M. Friedman
James H. Kropp
Alan K. Pribble
Jack D. Steele
12
STOCK PRICE PERFORMANCE GRAPH
The graph set forth below compares the yearly change in the
cumulative total shareholder return on the Common Stock (formerly Common Stock
Series A) of the Company (formerly Public Storage Properties XI, Inc.) for the
five-year period ended December 31, 2002 to the cumulative total return of the
American Stock Exchange Composite Index Market Cap-Weight ("AMEX 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, 1997 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
PS Business Parks, Inc., AMEX Index and NAREIT Equity Index
December 31, 1997 - December 31, 2002
[PERFORMANCE GRAPH APPEARS HERE]
MEASUREMENT PERIOD PS BUSINESS NAREIT
(FISCAL YEAR COVERED) PARKS, INC. AMEX EQUITY
------------------------ ------- ------- -------
Measurement Pt. 12/31/97 $100.00 $100.00 $100.00
FYE 12/31/98 113.17 100.64 82.50
FYE 12/31/99 112.47 128.10 78.69
FYE 12/31/00 143.21 131.13 99.43
FYE 12/31/01 169.82 123.81 113.29
FYE 12/31/02 177.41 120.42 117.61
13
AUDIT COMMITTEE REPORT
The Board of Directors believes that each of the directors
comprising the Audit Committee of the Board of Directors of the Company
qualifies as independent under the rules of the American Stock Exchange. The
Audit Committee operates under a written charter adopted by the Board of
Directors in May 2000 and amended and restated in November 2002 (Exhibit A). The
members of the Audit Committee are Vern O. Curtis (Chairman), Arthur M. Friedman
and Jack D. Steele. Under authority granted by the Board of Directors, the Audit
Committee appoints the Company's independent auditors and approves the audit and
non-audit services furnished by 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 and the letter 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 foregoing and 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, 2002 filed with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Vern O. Curtis (Chairman)
Arthur M. Friedman
Jack D. Steele
14
PROPOSAL NO. 2
APPROVAL OF ADOPTION OF 2003 STOCK OPTION AND INCENTIVE PLAN
On February 27, 2003, the Board of Directors adopted the 2003
Stock Option and Incentive Plan (the "2003 Plan") for the benefit of employees
of the Company and the Operating Partnership and their 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 130
employees and Service Providers of the Company and its subsidiaries, and six
Outside Directors, who are eligible to participate in the 2003 Plan. The persons
who will receive grants of awards under the 2003 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 2003 Plan.
The principal provisions of the 2003 Plan are summarized
below. The summary does not purport to be complete and is qualified in its
entirety by the terms of the 2003 Plan, the entire text of which is attached
hereto as Exhibit B and incorporated herein by reference.
REASONS FOR THE 2003 PLAN
The purpose of the 2003 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 2003
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 2003 Plan
is appropriate to assure that a meaningful number of stock-based awards will
continue to be available for grant to eligible participants. At December 31,
2002, options to purchase an aggregate of 1,057,090 shares of Common Stock were
outstanding under the Company's prior stock option and incentive plan, and an
aggregate of 217,725 shares were available for future grants under that plan.
The 2003 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 2003 Plan also provides for the grant of restricted
stock and restricted stock units to eligible persons. There is no specified
termination date for the 2003 Plan, which may be terminated by the Board of
Directors at any time. However, no ISOs may be granted under the 2003 Plan after
February 27, 2013.
To date, no stock options, restricted stock or restricted
stock units have been granted under the 2003 Plan. Based on the closing sale
price of the Common Stock on March 14, 2003 of $29.95 per share, the aggregate
market value of the 1,500,000 shares to be reserved under the 2003 Plan is
approximately $44,900,000.
DESCRIPTION OF THE 2003 PLAN
Administration
The 2003 Plan may be administered by one or more committees of
the Board of Directors as designated by the Board of Directors. The Compensation
Committee (currently consisting of James H. Kropp and Alan K. Pribble) of the
Board of Directors currently has authority to administer the 2003 Plan. At least
one committee with authority to administer the 2003 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 Compensation Committee currently meets these requirements). Subject to
the limitations set forth in the 2003 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
15
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 2003 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 2003 Plan, each administering committee
will have full authority to administer and interpret the 2003 Plan with respect
to grants made by that committee.
Eligibility
Discretionary Grants. Grants may be made under the 2003 Plan
to (i) employees (including officers and directors) of the Company, the
Operating Partnership and of any "subsidiary" or "parent" 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
2003 Plan, an eligible person may receive successive grants of options,
restricted stock and/or restricted stock units.
Formula Plan for Outside Directors. Subject to shareholder
approval of the 2003 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 10,000 shares of Common Stock (compared to 5,000 shares
under the prior plan). In addition, if the 2003 Plan is approved by
shareholders, after each annual meeting (including the 2003 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 2,000 shares (compared to 1,000 shares under the prior plan). The
administering committee has no discretion to alter the foregoing provisions of
the 2003 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 2003 Plan, 1,500,000 authorized but
unissued shares of Common Stock, or approximately 7% of the outstanding shares
of Common Stock at March 14, 2003, will be reserved for issuance. In the event
any change is made to the Common Stock subject to the 2003 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 2003 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
2003 Plan. The option exercise price of options granted under the 2001 Plan will
be determined by the administering committee in accordance with the 2003 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 2003 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 2003 Plan to
any executive officer, other employee or Service Provider of the Company or any
subsidiary is 800,000 shares during the first ten years of the 2003 Plan and
16
250,000 shares per year thereafter. Shares underlying any option that expires
unexercised will again be available for grant under the 2003 Plan.
Vesting. Unless otherwise provided in the applicable option
agreement, each option granted under the 2003 Plan will vest in five 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
2003 Plan will vest in five 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 30th 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 2003 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 2003 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
17
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 2003 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
18
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 2003 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 2003 Plan had been in effect.
2003 Plan
-------------------------------------- ------------------ --------------------
Name and Position (1) Dollar Value Number of Units
-------------------------------------- ------------------ --------------------
Non-Executive Director Group $0 (2) 12,000(3)
-------------------------------------- ------------------ --------------------
(1) Benefits or amounts for persons other than those in the Outside Director
Group are not determinable, either as of the date hereof or for the last
completed fiscal year had the 2003 Plan then been in effect.
(2) The exercise price of options granted to Outside Directors will be the fair
market value of the underlying shares on the date of grant.
(3) Based on the number of eligible Outside Executive Directors as of April 8,
2003. Would be 6,000 under the prior plan.
19
SECURITIES AUTHORIZED FOR ISSUANCE UNDER PRIOR PLANS
The following table sets forth information on equity
compensation to prior plans of the Company (excluding the 2003 Plan) as of
December 31, 2002:
---------------------------- ------------------------ ----------------------- -------------------------
Plan category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
---------------------------- ------------------------ ----------------------- -------------------------
Equity compensation plans 1,057,090 $27.35 217,725
approved by security
holders (1)
---------------------------- ------------------------ ----------------------- -------------------------
Equity compensation plans
not approved by security
holders
---------------------------- ------------------------ ----------------------- -------------------------
Total 1,057,090 $27.35 217,725
---------------------------- ------------------------ ----------------------- -------------------------
(1) Consists of the Company's 1997 Stock Option and Incentive Plan.
REQUIRED VOTE
Approval of the 2003 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.
PROPOSAL NO. 3
RATIFICATION OF AUDITORS
The Audit Committee of the Board of Directors, under authority
granted by the Board of Directors, has appointed Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 2003.
The Company's bylaws do not require that shareholders ratify
the appointment of Ernst & Young LLP as the Company's independent auditors. The
Company is asking its shareholders to ratify this appointment because it
believes such a proposal is a matter of good corporate practice. If the
shareholders do not ratify the appointment of Ernst & Young LLP the Audit
Committee will reconsider whether or not to retain Ernst & Young LLP as the
Company's independent auditors, but may determine to do so. Even if the
appointment of Ernst & Young LLP is ratified by the shareholders, the Audit
Committee may change the appointment at any time during the year if it
determines that a change would be in the best interest of the Company and its
shareholders.
It is anticipated that representatives of Ernst & Young LLP,
which has acted as the independent auditors for the Company since the Company's
organization in 1990, will be in attendance at the 2003 annual meeting 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.
20
Fees Billed to the Company by Ernst & Young LLP for 2001 and 2002:
Audit Fees:
Audit fees includes fees generated by all services performed
by Ernst & Young LLP to comply with generally accepted auditing standards or for
services related to the audit and review of the Company's financial statements.
Audit fees billed (or expected to be billed) to the Company by Ernst & Young LLP
for audit of the Company's annual financial statements, review of the quarterly
financial statements included in the Company's quarterly reports on Form 10-Q,
audit of financial statements included in the Company's periodic reports on Form
8-K and services in connection with the Company's registration statements and
securities offerings totaled $124,500 for 2001 and $142,300 for 2002.
Audit Related Fees:
Audit related fees billed (or expected to be billed) to the
Company by Ernst & Young LLP for the audit of an affiliated joint venture
totaled $13,800 in 2002. There were no audit related fees in 2001.
Tax Fees:
Tax fees billed (or expected to be billed) to the Company by
Ernst & Young LLP for tax services totaled $185,000 in 2001 and $133,600 in
2002.
Other Fees:
During 2001 and 2002, Ernst & Young LLP did not bill the
Company for any services other than audit services, audit related services and
tax services.
The Audit Committee of the Company approves all services
performed by Ernst & Young LLP. At this time the Audit Committee has not
delegated approval authority to any member or members of the Audit Committee.
Required Vote
Ratification of the appointment of Ernst & Young LLP 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 Board of Directors recommends that you vote FOR this
proposal.
ANNUAL REPORT
The Company has filed, for its fiscal year ended December 31,
2002, an Annual Report on Form 10-K with the Securities and Exchange Commission,
together with applicable financial statements and schedules thereto. The Company
will furnish, without charge, upon written request of any shareholder as of
March 14, 2003, who represents in such request that he or she was the record or
beneficial owner of the Company's shares on that date, a copy of the Annual
Report together with the financial statements and any schedules thereto. Upon
written request and payment of a copying charge of 15 cents per page, the
Company will also furnish to any shareholder a copy of the exhibits to the
Annual Report. Requests should be addressed to: Jack E. Corrigan, Secretary, PS
Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349.
21
EXPENSES OF SOLICITATION
The Company will pay the cost of soliciting Proxies. In
addition to solicitation by mail, certain directors, officers and regular
employees of the Company and its affiliates may solicit the return of Proxies 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 Proxies, for which Shareholder Communications Corporation would
receive normal and customary fees and expenses from the Company estimated at
$8,000.
DEADLINES FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR
CONSIDERATION AT 2004 ANNUAL MEETING
Any proposal that a shareholder wishes to submit for inclusion
in the Company's Proxy Statement for the 2004 Annual Meeting of Shareholders
("2004 Proxy Statement") pursuant to Securities and Exchange Commission Rule
14a-8 must be received by the Company no later than December 15, 2003. In
addition, notice of any proposal that a shareholder wishes to propose for
consideration at the 2004 Annual Meeting of Shareholders, but does not seek to
include in the Company's 2004 Proxy Statement pursuant to Rule 14a-8, must be
delivered to the Company no later than February 26, 2004 if the proposing
shareholder wishes for the Company to describe the nature of the proposal in its
2004 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 2004 Annual Meeting of Shareholders should be
addressed to: Jack E. Corrigan, Secretary, PS Business Parks, 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 named in the accompanying Proxy and the Trustee will vote the shares
represented by the Proxy in accordance with their best judgment on such matters.
You are urged to vote the accompanying Proxy 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
JACK E. CORRIGAN, Secretary
Glendale, California
April 8, 2003
22
Exhibit A
PS BUSINESS PARKS, INC.
CHARTER OF AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Adopted by the Board of Directors on November 11, 2002
1. The Audit Committee of the Board of Directors (the "Board") shall have at
least three members and shall be composed entirely of independent members of the
Board as required by Section 10A(m) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the rules and regulations of the Securities and
Exchange Commission (the "Commission") and the requirements of the American
Stock Exchange ("Amex"). Each member of the Audit Committee shall be financially
literate, the chair shall be financially sophisticated, and at least one member
shall be a "financial expert" as defined in, and when required by, the rules and
regulations of the Commission and any similar requirements of Amex.
2. The purpose of the Audit Committee is to oversee the accounting and financial
reporting processes of the Company and audits of its financial statements.
3. To carry out its purpose, the Audit Committee shall have the following duties
and powers:
* to appoint and determine the compensation of the outside auditor,
oversee the work of any accounting firm employed by the Company
(including resolution of any disagreements between management and
the outside auditor regarding financial reporting) for the purpose
of preparing or issuing an audit report or related work, evaluate
the performance of the outside auditor and, if so determined by
the Audit Committee, replace the outside auditor; it being
acknowledged that the outside auditor is ultimately accountable to
the Board and the Audit Committee, as representatives of the
shareholders;
* to ensure that, as soon as practicable after the adoption of
registration guidelines or rules by the Public Company Accounting
Oversight Board and at all times thereafter, the Company's outside
auditor is a "registered public accounting firm" as defined in
Section 2(a)(12) of the Sarbanes-Oxley Act of 2002;
* to receive and evaluate the written disclosures and the letters
that the outside auditor is required to deliver to the Audit
Committee regarding its independence, discuss with the outside
auditor its independence and, if so determined by the Audit
Committee as part of its evaluation, discuss with the Board and
take appropriate action concerning independence of the outside
auditor;
* to meet with management and the outside auditor to discuss the
annual financial statements and the report of the outside auditor
thereon (including the matters described in SAS 61 with the
outside auditor), and to discuss significant issues encountered in
the course of the audit work, including: restrictions on the scope
of activities; access to required information; the adequacy of
internal financial controls; the adequacy of the disclosure of
off-balance sheet transactions, arrangements, obligations and
relationships in reports filed with the Commission; and the
appropriateness of the presentation of any pro forma financial
information included in any report filed with the Commission or in
any public disclosure or release;
* to meet and discuss with management and the outside auditor the
Company's Form 10-Q (including the matters described in SAS 61
with the outside auditor) prior to filing and preferably prior to
the public announcement of quarterly financial results;
* to instruct the outside auditor to report to the Audit Committee
on all critical accounting policies of the Company, all
alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative
disclosures and treatments and the treatment preferred by the
outside auditor, and other material written communications between
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the outside auditor and management, such as any management letter
or schedule of unadjusted differences;
* following such review and discussions, if so determined by the
Audit Committee, to recommend to the Board that the annual
financial statements be included in the Company's annual report;
* to meet at least once each year in separate executive sessions
with management and the outside auditor to discuss matters that
any of them or the Audit Committee believes could significantly
affect the financial statements and should be discussed privately;
* to conduct or authorize such inquiries into matters within the
Audit Committee's scope of its duties as the Audit Committee deems
appropriate;
* to establish a procedure for receipt, retention and treatment of
any complaints received by the Company regarding its accounting,
internal accounting controls or auditing matters and for the
confidential and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters;
* to review any disclosures made to the Audit Committee by the
Company's CEO and CFO as required in their certifications included
in Form 10-Q and Form 10-K about any significant deficiencies in
the design or operation of internal controls or material
weaknesses therein and any fraud that involves management or other
employees who have a significant role in its internal controls;
* to approve, in advance of their performance, all audit services
(which may entail providing comfort letters in connection with
securities underwritings) and non-audit services (including tax
services) to be provided to the Company by its outside auditor,
provided that the Audit Committee shall not approve any of the
following non-audit services proscribed by Section 10A(g) of the
Exchange Act in the absence of an applicable exemption: (a)
bookkeeping or other services related to the accounting records or
financial statements of the Company; (b) financial information
systems design and implementation; (c) appraisal or valuation
services, fairness opinions, or contribution-in-kind reports; (d)
actuarial services; (e) internal audit outsourcing services; (f)
management functions or human resources; (g) broker or dealer,
investment adviser, or investment banking services; (h) legal
services and expert services unrelated to the audit; and (i) any
other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible;
* to review and approve all related-party transactions;
* to perform such other functions as assigned by law, the Company's
bylaws or the Board; and
* to provide minutes of its meetings and reports of its 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.
4. The Audit Committee shall have a chair, who shall be elected by the Board or
by the Committee, shall meet on a regular basis at least quarterly, and shall
hold special meetings as circumstances require. The Audit Committee shall act by
majority vote of its members.
5. The Audit Committee shall meet regularly with the financial officers of the
Company, with the outside auditor, with the internal auditor, if any, and with
such other officers as it deems appropriate.
6. The Audit Committee shall have the resources and authority appropriate to
carry out its duties, including the authority to engage independent counsel and
other advisors and to cause the officers of the Company to provide such funding
as it determines is appropriate for payment of compensation to the outside
auditor, independent counsel and any other advisors employed by the Audit
Committee.
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7. The Audit Committee may delegate to a designated member or members the
authority to approve, as required by Section 10A(i) of the Exchange Act, any
audit and non-audit services to be provided to the Company by its outside
auditor, so long as any such approvals are disclosed to the Audit Committee at
its next scheduled meeting;
8. The Audit Committee shall prepare a report for inclusion in the Company's
annual proxy statement in accordance with applicable requirements of the
Commission.
9. The Audit Committee shall, at least annually, evaluate its performance,
review and reassess this Charter, and recommend any changes to the Board.
A-3
Exhibit B
PS BUSINESS PARKS, INC.
2003 STOCK OPTION AND INCENTIVE PLAN
PS Business Parks, Inc., a California corporation (the "Company"), sets
forth herein the terms of its 2003 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 Compensation Committee of the Board shall be such
Committee.
2.7 "Company" means PS Business Parks, Inc.
2.8 "Effective Date" means February 27, 2003, the date on which the
Plan was adopted by the Board.
B-1
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 "Partnership" means PS Business Parks, L.P., a California limited
partnership.
2.21 "Plan" means the PS Business Parks, Inc. 2003 Stock Option and
Incentive Plan.
2.22 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.23 "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.
2.24 "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.
2.25 "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.
2.26 "Securities Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.
B-2
2.27 "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.
2.28 "Stock" means the common stock, par value $0.10 per share, of the
Company.
2.29 "Subsidiary" means any "subsidiary corporation" of the Company
within the meaning of Section 424(f) of the Code and any "parent corporation" of
the Committee within the meaning of Section 442(e) of the Code.
2.30 "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
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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 16 hereof, the number of
shares of Stock available for issuance under the Plan shall be 1,500,000. 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 10,000 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
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Stock Option, to purchase 2,000 shares of Stock (which amount shall be subject
to adjustment as provided in Section 16 hereof).
7.3 Vesting. Options granted to Outside Directors pursuant to Sections
7.1 and 7.2 shall vest in five 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 800,000 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
At the option of the Company, 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-fifth 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-fifth of the shares of
Stock subject to such Option (iv) on the third anniversary of the Grant Date,
the Option shall become exercisable as to additional one-fifth of the shares of
Stock subject to such Option; (v) on the fourth anniversary of the Grant Date,
the Option shall become exercisable as to additional one-fifth of the shares of
Stock subject to such Option; and (vi) on the fifth 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.
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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
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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.
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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, the Partnership 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, the Partnership 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, the Partnership 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
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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
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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
B-10
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.
B-11
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 27th day of February, 2003.
/S/ JACK E. CORRIGAN
--------------------
Jack E. Corrigan
Secretary of the Company
The Plan was duly approved by the shareholders of the Company on the
day of May, 2003.
---
---------------------
Jack E. Corrigan
Secretary of the Company
B-12
PS BUSINESS PARKS, INC.
701 Western Avenue
Glendale, California 91201-2349
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned, a record holder of Common Stock of PS
Business Parks, Inc. and/or a participant in the PS 401(k)/Profit Sharing Plan
(the "401(k) Plan"), hereby (i) appoints Ronald L. Havner, Jr. and Harvey
Lenkin, or either of them, with power of substitution, as Proxies, to appear and
vote, as designated on the reverse side, all the shares of Common Stock held of
record by the undersigned on March 14, 2003, at the Annual Meeting of
Shareholders to be held on May 6, 2003 (the "Annual Meeting"), and any
adjournments thereof, and/or (ii) authorizes and directs the trustee of the
401(k) Plan (the "Trustee") to vote or execute proxies to vote, as instructed on
the reverse side, all the shares of Common Stock credited to the undersigned's
account under the 401(k) Plan on March 14, 2003, at the Annual Meeting and any
adjournments thereof. In their discretion, the Proxies and/or the Trustee are
authorized to vote upon such other business as may properly come before the
meeting.
THE PROXIES AND/OR THE TRUSTEE WILL VOTE ALL SHARES OF COMMON
STOCK TO WHICH THIS PROXY RELATES, IN THE MANNER DIRECTED BY THE UNDERSIGNED. IF
NO DIRECTION IS GIVEN WITH RESPECT TO COMMON STOCK HELD OF RECORD BY THE
UNDERSIGNED, THE PROXIES WILL VOTE SUCH COMMON STOCK FOR THE ELECTION OF ALL
NOMINEES LISTED ON THE REVERSE. IF NO DIRECTION IS GIVEN WITH RESPECT TO COMMON
STOCK CREDITED TO THE UNDERSIGNED'S ACCOUNT UNDER THE 401(k) PLAN, THE TRUSTEE
WILL VOTE SUCH COMMON STOCK FOR THE ELECTION OF ALL NOMINEES LISTED ON THE
REVERSE. THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO CUMULATIVE VOTES FOR ANY
AND ALL OF THE NOMINEES FOR ELECTION FOR WHICH AUTHORITY TO VOTE HAS NOT BEEN
WITHHELD.
(continued and to be signed on reverse side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOW HERE. |X|
1. Election of Directors
FOR WITHHELD NOMINEES:
ALL AUTHORITY FOR | | Ronald L. Havner, Jr.
| | NOMINEES | | ALL NOMINEES | | Harvey Lenkin
| | Vern O. Curtis
| | FOR ALL EXCEPT (see instructions below) | | Arthur M. Friedman
| | James H. Kropp
| | Alan K. Pribble
| | Jack D. Steele
INSTRUCTION: To withhold authority to vote for any individual
nominee(s), mark "FOR ALL EXCEPT" and fill in the circle next to each
nominee you wish to withhold, as shown here: ?
2. Approval of the adoption of the 2003 Stock Option and Incentive Plan of
PS Business Parks, Inc.
| | FOR | | AGAINST | | ABSTAIN
3. Ratification of appointment of Ernst & Young, independent auditors, to
audit the accounts of PS Business Parks, Inc. for the fiscal year ending
December 31, 2003.
| | FOR | | AGAINST | | ABSTAIN
4. Other matters: In their discretion, the Proxies and/or the Trustee are
authorized to vote upon such other business as may properly come before
the meeting.
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To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this
method. | |
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement dated April 8, 2003.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE TO
AMERICAN STOCK TRANSFER & TRUST COMPANY, 59 MAIDEN LANE, NEW YORK, NEW YORK
10038.
Signature of Shareholder Date
---------------------- ------------
Signature of Shareholder Date
---------------------- ------------
Note: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.