<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SHURGARD STORAGE CENTER, 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------
<PAGE> 2
[LOGO}
June 8, 1995
Dear Stockholder:
You are cordially invited to attend the 1995 Annual Meeting of Stockholders
of Shurgard Storage Centers, Inc., at 10:00 a.m. on Wednesday, July 26, 1995, at
the Fifth Avenue Room in the Westin Hotel, 1900 Fifth Avenue, Seattle,
Washington.
The Notice of Annual Meeting of Stockholders and the Proxy Statement that
follow provide details of the business to be conducted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, we hope that you will
have your stock represented by completing, signing, dating and returning your
proxy card in the enclosed envelope as soon as possible. Your stock will be
voted in accordance with the instructions you have given in your proxy.
Sincerely,
[SIG]
Charles K. Barbo
Chairman, President and
Chief Executive Officer
IMPORTANT
A proxy card is enclosed. All stockholders are urged to complete and mail
the proxy card promptly. The enclosed envelope for return of the proxy card
requires no postage. Any stockholder attending the Annual Meeting may personally
vote on all matters that are considered, in which event the signed proxy will be
revoked.
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 26, 1995
To the Stockholders:
The 1995 Annual Meeting of Stockholders of Shurgard Storage Centers, Inc.
will be held at the Fifth Avenue Room in the Westin Hotel, 1900 Fifth Avenue,
Seattle, Washington on Wednesday, July 26, 1995, at 10:00 a.m. for the following
purposes:
1. To elect members of the Board of Directors;
2. To approve an amendment to the Company's Certificate of Incorporation to
provide for a classified Board of Directors;
3. To approve an amendment to the Company's Certificate of Incorporation to
incorporate a New York Stock Exchange requirement;
4. To approve an amendment to Section 16 of the Company's By-Laws;
5. To approve the Company's 1995 Long-Term Incentive Compensation Plan;
6. To approve amendments to the Company's Stock Option Plan for Nonemployee
Directors; and
7. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
The nominees for election as directors are named in the enclosed Proxy
Statement.
The record date for the Annual Meeting is June 2, 1995. Only stockholders
of record at the close of business on that date are entitled to notice of and to
vote at the Annual Meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON, BUT,
EVEN IF YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION.
STOCKHOLDERS ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE
PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors
[SIG]
Kristin H. Stred
Secretary
Seattle, Washington
June 8, 1995
<PAGE> 4
PROXY STATEMENT FOR ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD JULY 26, 1995
GENERAL
The enclosed proxy is solicited by the Board of Directors of Shurgard
Storage Centers, Inc. (the "Company") for use at the 1995 Annual Meeting of
Stockholders to be held at 10:00 a.m. on Wednesday, July 26, 1995 at the Fifth
Avenue Room in the Westin Hotel, 1900 Fifth Avenue, Seattle, Washington and at
any postponement or adjournment thereof (the "1995 Annual Meeting"). Only
holders of record of the Company's Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock") at the close of business on June 2, 1995 will
be entitled to vote at the 1995 Annual Meeting. On that date, the Company had
18,095,988 shares of Class A Common Stock and 154,604 shares of Class B Common
Stock outstanding. Each share of Common Stock outstanding on the record date is
entitled to one vote.
The Company was formed on March 1, 1994 through the consolidation (the
"Consolidation") of 17 publicly held limited partnerships that had been
sponsored by Shurgard Incorporated (the "Management Company"). Following the
Consolidation, the Management Company managed the Company's business affairs and
properties. On March 24, 1995, the Management Company was merged with the
Company (the "Merger"), as a result of which the Company became self-managed and
self-administered. Certain information in this Proxy Statement refers to the
Consolidation, the Merger and the Management Company.
The address of the Company's principal executive offices is 1201 Third
Avenue, Suite 2200, Seattle, Washington 98101. This Proxy Statement and the
accompanying proxy card are being mailed to the Company's stockholders on or
about June 8, 1995.
VOTING
Shares of Common Stock for which proxies are properly executed and returned
will be voted at the 1995 Annual Meeting in accordance with the directions noted
thereon or, in the absence of directions, will be voted "FOR" the election of
the nominees for the Board of Directors named herein, provided that if any of
such nominees should become unavailable for election for any reason, such shares
will be voted for the election of such substitute nominee as the Board of
Directors may propose, and "FOR" the approval of the amendment to the
Certificate of Incorporation to provide for a classified Board of Directors, the
amendment to the Certificate of Incorporation to incorporate a New York Stock
Exchange requirement, the amendment to the By-Laws, the 1995 Long-Term Incentive
Compensation Plan (the "1995 Incentive Plan") and the amendments to the Stock
Option Plan for Nonemployee Directors (the "Director Plan"). The nominees for
the Board of Directors who receive the greatest number of votes cast for the
election of directors by the shares present in person or represented by proxy,
and entitled to vote, shall be elected director. Any action other than a vote
for a nominee will have the practical effect of voting against a nominee. The
amendments to the Company's Certificate of Incorporation and By-Laws will be
approved if a majority of the shares issued and outstanding vote in favor of
approval. Abstentions from voting and broker nonvotes will have the practical
effect of voting against the proposals. The 1995 Incentive Plan and the
amendments to the Director Plan will be approved if a majority of shares present
in person or represented by proxy, and entitled to vote, vote in favor of
approval. Abstentions from voting will have the practical effect of voting
against the proposals and broker nonvotes will have no effect on the outcome
other than to reduce the number of "FOR" votes necessary to approve the
proposals.
REVOCATION
Any stockholder giving a proxy may revoke it at any time before it is voted
by delivering to the Company's Secretary a written notice of revocation or a
duly executed proxy bearing a later date, or by attending the 1995 Annual
Meeting and voting in person.
<PAGE> 5
ELECTION OF DIRECTORS AND DIRECTOR INFORMATION
Assuming adoption and effectiveness of the proposed amendment to the
Company's Certificate of Incorporation providing for a classified Board of
Directors, the Board of Directors will be divided into three classes, each class
to be as nearly equal in number as possible. Except as set forth below,
directors' terms will expire at the third annual meeting of stockholders after
their election by the stockholders. Five directors will be elected at the 1995
Annual Meeting, to be divided into the classes and to hold office for the terms
specified below. If, for any reason, this proposed amendment to the Company's
Certificate of Incorporation is not adopted or does not become effective, each
director elected at the 1995 Annual Meeting will hold office until the next
annual meeting of stockholders, and until a successor shall have been elected
and qualified.
It is intended that votes will be cast pursuant to the accompanying proxy
for the election of the nominees named below, all of whom are presently
directors of the Company. If a nominee should become unavailable for any reason,
it is intended that votes will be cast for a substitute nominee designated by
the Board of Directors. The Board of Directors has no reason to believe that any
nominee named will be unable to serve if elected.
Nominees For Election -- Terms Expire In 1998 (Class 3). The following
individuals are the nominees of the Board of Directors to serve, following the
effectiveness of the proposal to amend the Company's Certificate of
Incorporation, until the 1998 annual meeting of stockholders:
CHARLES K. BARBO (age 54) has been involved as a principal in the real
estate investment industry since 1969. Mr. Barbo is one of the co-founders of
the Management Company, which was organized in 1972 to provide property
management services for self- storage facilities and other real estate and
commercial ventures. Prior to the Merger, he served as Chairman of the Board and
President of the Management Company. Upon the closing of the Merger, he was
named Chairman of the Board, President and Chief Executive Officer of the
Company. Mr. Barbo is a graduate of the Owner/President Management Program of
Harvard Business School, has a Bachelor of Arts degree in history from the
University of Washington, and is a licensed real estate broker and a licensed
securities principal and salesman. He is an alumnus of the Young Presidents
Organization.
DONALD W. LUSK (age 67) has served as a director of the Company since March
1994. He is the President of Lusk Consulting Group, which is engaged in general
management consulting as well as the formation and delivery of management
development programs in the United States and Canada. From 1974 to 1991, Mr.
Lusk was Regional Managing Partner of Management Action Programs in the Pacific
Northwest. Mr. Lusk has a Bachelor of Arts degree from Pomona College. He
currently serves as a director of G.T. Development Corporation. He has
previously served as a director of Robert E. Bayley Construction Company,
Management Action Programs, Inc., The Bekins Company, California Pacific
National Bank, I.C.X. Corporation, Laguna Manufacturing Company, Ormand
Industries and Pacific United Services Corporation, and was Chairman of the
Board of the School of Business and Economics Advisory Board of Seattle Pacific
University.
Nominees for Election -- Terms Expire in 1997 (Class 2). The following
individuals are the nominees of the Board of Directors to serve, following the
effectiveness of the proposal to amend the Company's Certificate of
Incorporation, until the 1997 annual meeting of stockholders:
WENDELL J. SMITH (age 62) has served as a director of the Company since
March 1994. Mr. Smith is also currently a director of Franchise Finance
Corporation of America. He has previously served on the Western and National
Advisory Boards for FNMA and the Advisory Board of the Center for Real Estate
Research at the University of California. He retired in 1991 from the State of
California Public Employees Retirement System ("Calpers") after 27 years of
employment, the last 21 in charge of all real estate equities and mortgage
acquisitions for Calpers. During those 21 years, Calpers invested over $8
billion in real estate and mortgages. In 1991, Mr. Smith established W.J.S. &
Associates, which provides advisory and consulting services for pension funds
and pension fund advisors.
HARRELL L. BECK (age 38) has served as a director of the Company and as its
Chief Financial Officer and Treasurer since July 1993. Prior to the closing of
the Merger, Mr. Beck also served as the Company's
2
<PAGE> 6
President. He was named Senior Vice President of the Company upon the closing of
the Merger. Mr. Beck also served as the Chief Financial Officer and Treasurer of
the Management Company. He joined the Management Company in April 1986 as the
Eastern Regional Vice President and, in 1990, became its Chief Financial Officer
and, in 1992, its Treasurer. Prior to joining the Management Company, Mr. Beck
was a manager with Touche Ross & Co., where he was employed for approximately
six years, during which time he provided services primarily to clients in the
real estate and aerospace industries. Mr. Beck has a Bachelor of Arts degree in
Business Administration from Washington State University and is a member of the
American Institute of Certified Public Accountants.
Nominee for Election -- Term Expires in 1996 (Class 1). The following
individual is the nominee of the Board of Directors to serve, following the
effectiveness of the proposal to amend the Company's Certificate of
Incorporation, until the 1996 annual meeting of stockholders:
DAN KOURKOUMELIS (age 44) has served as a director of the Company since
March 1994. He is the President, Chief Operating Officer and a director of
Quality Food Centers, Inc. ("QFC"), a publicly held corporation that operates
the largest independent supermarket chain in the Seattle, Washington area. Mr.
Kourkoumelis joined QFC in 1967 and has since held a variety of positions. He
served as Executive Vice President from 1983 to 1987, when he also became Chief
Operating Officer, and became President in 1989 and a director in 1991. Mr.
Kourkoumelis also serves on the Board of Directors of Expeditors International,
Inc. He has a Bachelor of Arts degree in Marketing from the University of
Washington.
Nine Board of Directors meetings were held in 1994. All incumbent directors
were in attendance at all such meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established standing committees of its Board of Directors,
including an Audit Committee and a Compensation Committee. Each of these
committees is responsible to the full Board of Directors, and its activities are
therefore subject to approval of the Board of Directors. The functions performed
by these committees are summarized as follows:
Audit Committee. The Audit Committee recommends to the Board of Directors
the independent public accountants to be selected to audit the Company's annual
financial statements and approves any special assignments given to such
accountants. The Audit Committee also reviews the planned scope of the annual
audit and the independent accountants' letter of comments and management's
responses thereto, any major accounting changes made or contemplated and the
effectiveness and efficiency of the Company's internal accounting staff. The
members of the Audit Committee are Messrs. Lusk (Chairman) and Smith. The Audit
Committee met three times in 1994, with all incumbent members in attendance.
Compensation Committee. The Compensation Committee establishes the
remuneration levels for officers of the Company, reviews management organization
and development, reviews significant employee benefits programs and recommends
and administers executive compensation programs, including bonus plans, stock
option and other equity-based programs, deferred compensation plans and any
other cash or stock incentive programs. The members of the Compensation
Committee are Messrs. Lusk (Chairman), Kourkoumelis and Smith. The Compensation
Committee met four times in 1994, with all incumbent members in attendance.
DIRECTOR COMPENSATION
Fees. Directors who are employees of the Company do not receive any fees
for their services as directors. Directors who are not employees of the Company
are paid an annual retainer of $12,000 for serving on the Board of Directors and
an additional fee of $1,000 for attending each meeting of the Board of Directors
and $500 for attending each meeting of a committee of the Board of Directors.
The Company also reimburses each nonemployee director for travel expenses
incurred in connection with his or her activities on behalf of the Company.
Messrs. Lusk, Smith and Kourkoumelis each received $6,000 in fees in connection
with serving on the Board of Directors' Special Committee that was established
to review the Merger.
3
<PAGE> 7
Options. Under the Director Plan each nonemployee director automatically
receives an option to purchase 400 shares of Class A Common Stock on the first
business day following his or her initial election as a director of the Company
and thereafter receives annually, on the first business day following the date
of each annual meeting of stockholders of the Company, an option to purchase 400
shares of Class A Common Stock, at an exercise price equal to the fair market
value of the Class A Common Stock on the date of grant. Amendments to the
Director Plan to increase the annual grant to 3,000 shares are proposed below.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Officers, directors and greater than 10%
beneficial owner are required by Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file.
David K. Grant, Executive Vice President of the Company, filed a late
report on Form 4 with respect to a purchase of shares on behalf of his
grandfather. Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that during the 1994
fiscal year all other filing requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied with by such persons.
4
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 24, 1995, certain information
with respect to the beneficial ownership of shares of Common Stock by each
director and executive officer of the Company and all directors and executive
officers of the Company as a group. Except as otherwise noted, the Company
believes that the beneficial owners of the shares of Common Stock listed below,
based on information furnished by such owners, have sole voting and investment
power with respect to such shares. As of March 24, 1995, to the Company's
knowledge no stockholder beneficially owned more than 5% of the shares of Class
A Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS
------------------------ -------------- -------------------- ----------
<S> <C> <C> <C>
Charles K. Barbo................ Class A Common Stock 612,810(1)(2) 3.4%
1201 Third Avenue,
Suite 2200.................... Class B Common Stock 76,529(3) 49.5%
Seattle, WA 98101
Arthur W. Buerk................. Class A Common Stock 354,868(1) 1.9%
3831 49th N.E................. Class B Common Stock 76,529(3) 49.5%
Seattle, WA 98105
Michael Rowe.................... Class A Common Stock 68,888(1)(4) *
David K. Grant.................. Class A Common Stock 53,010(1)(5) *
Harrell L. Beck................. Class A Common Stock 18,698(1)(6) *
Kristin H. Stred................ Class A Common Stock 6,533(1)(7) *
Dan Kourkoumelis................ Class A Common Stock -- --
Donald W. Lusk.................. Class A Common Stock 200 *
Wendell J. Smith................ Class A Common Stock 300 *
All directors and executive
officers as a group
(8 persons)................... Class A Common Stock 760,439(1) 4.2%
Class B Common Stock 76,529(3) 49.5%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of Common Stock issued to Management Company shareholders at
the closing of the Merger.
(2) Includes 2,669 shares held for Mr. Barbo's individual account under the
Company's Employee Retirement Savings Plan and Trust.
(3) Class B Common Stock entitled each of Messrs. Barbo and Buerk to a loan in
an amount necessary to satisfy his general partner capital obligations
resulting from the Consolidation. Class B Common Stock is convertible into
Class A Common Stock at a one-to-one ratio upon repayment of the loan.
(4) Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 2,499 shares held for Mr.
Rowe's individual account under the Company's Employee Retirement Savings
Plan and Trust.
(5) Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 1,963 shares held for Mr.
Grant's individual account under the Company's Employee Retirement Savings
Plan and Trust.
(6) Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 1,805 shares held for Mr.
Beck's individual account under the Company's Employee Retirement Savings
Plan and Trust.
(7) Includes 400 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days.
5
<PAGE> 9
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following report has been provided by the Compensation Committee (the
"Committee") of the Board of Directors. The Committee is composed of three
nonemployee directors.
The Company commenced operations on March 1, 1994 upon the closing of the
Consolidation, and on March 28, 1994 its Class A Common Stock began public
trading on the Nasdaq National Market. On March 24, 1995, the Management Company
merged with the Company, and the Company became self-administered and
self-managed. On May 5, 1995 the Class A Common Stock began trading on the New
York Stock Exchange.
Although the executive officers named in the Summary Compensation Table are
executive officers of the Company, their cash compensation (base salary and
bonus) for 1994 was paid entirely by the Management Company. Accordingly, the
Committee made no recommendations with respect to cash compensation paid to the
Company's executive officers by the Management Company for 1994. In addition,
the base salaries of the executive officers for 1995 were set by the Management
Company and were not adjusted by the Committee in connection with the Merger. In
conformity with the past practice of the Management Company, the Committee
expects to award discretionary year-end cash bonuses to executive officers
(other than the Chief Executive Officer) for 1995 performance based on
recommendations from the Company's Chief Executive Officer and to consider
separately a discretionary year-end bonus for the Chief Executive Officer.
The Company provides long-term incentive compensation to its executive
officers through the grant of stock options. The Compensation Committee is
responsible for administering the Company's stock option program. The Committee
generally reviews with the Chief Executive Officer the recommended individual
awards, based on the recipient's position, performance, responsibilities and
contributions. The Committee in 1994 also considered the number of Management
Company options granted in prior years. As discussed under "Proposal to Approve
the 1995 Incentive Plan," the Board of Directors has adopted the 1995 Incentive
Plan, subject to stockholder approval at the 1995 Annual Meeting. If the 1995
Incentive Plan is approved by the stockholders, the Committee will be authorized
to award additional forms of long-term incentive compensation, including stock
appreciation rights, stock awards (including restricted stock), performance
awards, other stock-based awards and dividend equivalent rights.
Under a 1993 amendment to the Internal Revenue Code and proposed new
federal tax regulations, publicly traded companies are prohibited from receiving
a tax deduction for compensation in excess of $1 million paid to the chief
executive officer or any of its four other most highly compensated executive
officers for any fiscal year. The prohibition does not apply to certain
performance-based compensation. The Company's stock option plans have been
structured in such a way that the Committee expects option grants under the plan
to be treated as performance-based compensation that may be excluded from the
deductibility limit. At this time, the Company's executive officer compensation
which is subject to the deductibility limit does not exceed $1 million and, in
the Committee's view, is not likely to be affected by the new nondeductibility
rules in the near future.
COMPENSATION COMMITTEE
Donald W. Lusk, Chairman
Dan Kourkoumelis
Wendell J. Smith
6
<PAGE> 10
STOCK PRICE PERFORMANCE
Set forth below are line graphs comparing the cumulative total return on
the Class A Common Stock during the period beginning on March 28, 1994 and
ending on December 31, 1994, the last day of the Company's 1994 fiscal year,
with the cumulative total return on the Standard & Poor's 500 Index and the
Equity REIT Index prepared by the National Association of Real Estate Investment
Trusts. The comparison assumes $100 was invested on March 28, 1994 and assumes
reinvestment of dividends. The stock price performance shown on the graphs are
not necessarily indicative of future price performance.
The first line graph assumes that the shares of Class A Common Stock were
bought at the Net Asset Value per share of $18.90 contemplated in the
Consolidation. The "Net Asset Value" was the value of the assets, determined by
independent appraisal, less the liabilities (including transaction costs and
liabilities) of the 17 limited partnerships participating in the Consolidation.
Because this was the economic basis for the Consolidation, the Company believes
that this represents the most appropriate starting point for a line graph
comparison.
The second line graph assumes that the shares of Class A Common Stock were
bought at the initial trading price on March 28, 1994, the first day that the
Class A Common Stock was publicly traded. On that day, the stock initially
traded at $23.25 per share.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
SHURGARD STORAGE CENTERS, INC.,
STANDARD & POOR'S 500 STOCK INDEX AND NAREIT EQUITY REIT INDEX
(BASED ON NET ASSET VALUE)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NAREIT
(FISCAL YEAR COVERED) SHURGARD S&P 500 EQUITY
<S> <C> <C> <C>
28-MAR-94 100 100 100
31-DEC-94 115.20 105.30 99.80
</TABLE>
COMPARISON OF CUMULATIVE TOTAL
RETURN AMONG SHURGARD STORAGE CENTERS, INC.,
STANDARD & POOR'S 500 STOCK INDEX AND NAREIT EQUITY REIT INDEX
(BASED ON INITIAL TRADING PRICE)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NAREIT
(FISCAL YEAR COVERED) SHURGARD S&P 500 EQUITY
<S> <C> <C> <C>
28-MAR-94 100 100 100
31-DEC-94 93.60 105.30 99.80
</TABLE>
7
<PAGE> 11
COMPENSATION OF EXECUTIVES
The following table sets forth the compensation for services rendered
during the fiscal years ended December 31, 1994 and 1993, for Charles K. Barbo,
who was appointed Chairman of the Board, President and Chief Executive Officer
of the Company in connection with the Merger, and for the four other most highly
compensated executive officers of the Company following the Merger. Although
certain of the individuals named below served as directors or officers of the
Company prior to the Merger, they did not receive any cash compensation for such
services from the Company but instead were compensated by the Management
Company. Accordingly, all dollar amounts shown were paid by the Management
Company and, except as indicated otherwise, all options shown were options to
purchase shares of common stock of the Management Company (the "Management
Company Common Stock").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES ALL OTHER
----------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(2)
- ---------------------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles K. Barbo 1994 $ 155,000 $30,000 -- $ 200
Chairman, President and Chief 1993 $ 150,000 $25,000 -- $2,316
Executive Officer
Michael Rowe 1994 $ 103,000 $24,000 2,000(3) $7,043
Executive Vice President and 1993 $ 100,000 $30,340 10,000(4) $8,999
Director of Storage Operations
David K. Grant 1994 $ 103,000 $24,000 2,000(3) $5,888
Executive Vice President and 1993 $ 100,000 $15,000 10,000(4) $7,844
Director of Real Estate Investment
Harrell L. Beck 1994 $ 80,000 $24,000 2,000(3) $1,217
Director, Senior Vice President, 1993 $ 75,000 $15,000 10,000(4) $1,217
Chief Financial Officer and Treasurer
Kristin H. Stred 1994 $ 80,000 $24,000 2,000(3) $1,087
Senior Vice President, General 1993 $ 75,000 $15,000 7,500(4) $1,057
Counsel and Secretary
</TABLE>
- ---------------
(1) Includes bonus awards earned pursuant to the terms of discretionary bonus,
incentive compensation and profit-sharing arrangements.
(2) For the year ended December 31, 1994, with respect to each person, includes
employer-matching contributions made by the Management Company under its
Employee Retirement Savings Plan of $200 per person, with respect to each of
Messrs. Rowe and Grant, includes $5,688 relating to interests in Management
Company cash distributions from investments in certain partnerships, and,
with respect to Messrs. Rowe and Beck and Ms. Stred, includes payments of
$1,155, $1,017 and $887, respectively, paid annually towards insurance
premiums on an executive disability plan.
(3) Represents options to purchase shares of Class A Common Stock granted by the
Company.
(4) Represents Management Company options, all of which were exercised prior to
the Merger.
OPTION GRANTS
The following table sets forth certain information regarding options to
purchase shares of Class A Common Stock granted to the Company's executive
officers during the fiscal year ended December 31, 1994. Such individuals were
not granted any options to purchase shares of Management Company Common Stock
during the fiscal year ended December 31, 1994.
8
<PAGE> 12
OPTION GRANTS IN FISCAL 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SHARES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE) DATE 5%($) 10%($)
---- ------------- -------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo...... -- -- -- -- -- --
Michael Rowe.......... 2,000 25% $18.90 3/17/04 $ 23,772 $ 60,243
David K. Grant........ 2,000 25% $18.90 3/17/04 $ 23,772 $ 60,243
Harrell L. Beck....... 2,000 25% $18.90 3/17/04 $ 23,772 $ 60,243
Kristin H. Stred...... 2,000 25% $18.90 3/17/04 $ 23,772 $ 60,243
All Stockholders...... N/A N/A N/A N/A $94,154,817 $208,057,522
</TABLE>
- ---------------
(1) Options were granted at the fair market value on the date of grant, which
was the value per share of the partnership assets, less liabilities,
included in the Consolidation. Each option vests in annual installments of
20%, commencing on the first anniversary of the date of grant. In the event
of certain business combinations, the vesting of outstanding options will be
accelerated. See "Executive Compensation -- Employment Agreements;
Change-in-Control Arrangements."
(2) The Company did not have any employees during the fiscal year ended December
31, 1994. As shown in this table, option grants were made to officers of the
Company.
(3) The actual value, if any, the named executive officer or any other
individual may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. The gain for "All
Stockholders" is calculated by using $20.25, the average of the high and low
sale prices per share of Class A Common Stock as reported by the Nasdaq
National Market on December 30, 1994, and 16,829,283 shares, the number of
shares of Class A Common Stock outstanding as of the Company's fiscal
year-end. There can be no assurance that the actual value per share realized
by the named executive officer or by all stockholders will approximate the
potential realizable values set forth in the table.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information as of December 31, 1994
regarding options to purchase shares of Management Company Common Stock held by
the Company's executive officers. No such options were exercised during the
fiscal year ended December 31, 1994.
AGGREGATED FISCAL 1994 YEAR-END VALUES
FOR MANAGEMENT COMPANY OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles K. Barbo................................. -- -- -- --
Michael Rowe..................................... 5,333 18,667 $27,450 $80,268
David K. Grant................................... 2,666 17,334 $13,455 $73,205
Harrell L. Beck.................................. 5,333 17,667 $27,450 $76,079
Kristin H. Stred................................. -- 7,500 -- $31,050
</TABLE>
- ---------------
(1) All Management Company options (whether exercisable or unexercisable as of
December 31, 1994) were exercised prior to the Merger. Shares acquired on
exercise were converted into the Merger consideration.
9
<PAGE> 13
(2) The value was calculated by multiplying the number of shares of Management
Company Common Stock issuable upon exercise of the options by the number of
shares of Class A Common Stock each share of Management Company Common Stock
was converted into in the Merger, then multiplying the result by the closing
price of the Class A Common Stock on December 31, 1994, and deducting the
aggregate exercise price of the options from the result.
The following table sets forth certain information as of December 31, 1994
regarding options to purchase shares of Class A Common Stock held by the
Company's executive officers. No such options were exercised during the fiscal
year ended December 31, 1994.
AGGREGATED FISCAL 1994 YEAR-END VALUES
FOR COMPANY OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT
FISCAL YEAR-END(#)
---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles K. Barbo................................. -- -- -- --
Michael Rowe(2).................................. -- 2,000 -- $3,700
David K. Grant(2)................................ -- 2,000 -- $3,700
Harrell L. Beck(2)............................... -- 2,000 -- $3,700
Kristin H. Stred(2).............................. -- 2,000 -- $3,700
</TABLE>
- ---------------
(1) This amount is the aggregate number of outstanding options multiplied by the
difference between the fair market value of Class A Common Stock as of
December 31, 1994 and the exercise price of such options.
(2) On March 17, 1995, 400 of the 2,000 shares granted became exercisable.
EMPLOYMENT AGREEMENTS; CHANGE-IN-CONTROL ARRANGEMENTS
1993 Stock Option Plan. The 1993 Stock Option Plan (the "1993 Plan")
provides that, upon the occurrence of certain transactions, including certain
mergers and other business combinations involving the Company, outstanding
options will become fully exercisable. Such options, if not exercised, will then
terminate upon consummation of such transaction. In the alternative, at the
discretion of the Company and the corporation(s) participating in such
transactions, such options may be assumed by the acquiring or surviving
corporation.
1995 Incentive Plan. In the event of certain mergers or consolidations
involving the Company, a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets or a liquidation or dissolution of the
Company, outstanding options, stock appreciation rights and restricted stock
under the 1995 Incentive Plan will become fully exercisable, subject to certain
exceptions. In addition, the Committee may take such further action as it deems
necessary or advisable, and fair to participants, with respect to outstanding
awards under the 1995 Incentive Plan. See "Proposal to Approve the 1995
Incentive Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 1, 1994, as a part of the Consolidation approved by limited
partners, the Company made a $1,981,000 interest-free loan to Mr. Barbo to
enable him to make certain capital contributions that were required in
connection with the Consolidation. Mr. Barbo's shares of Class B Common Stock
have been pledged as collateral for the loan. Upon repayment of the loan, a
percentage of the Class B Common Stock equal to the percentage of the loan
principal being repaid will be released from the pledge and Mr. Barbo will then
have the option to convert his Class B Common Stock, on a share-for-share basis,
into Class A Common Stock.
10
<PAGE> 14
On March 24, 1995, the Management Company was merged into the Company
following a favorable vote of the stockholders of the Company on March 21, 1995.
In the Merger, the Company issued 1,266,837 new shares of Class A Common Stock
to the Management Company shareholders and an additional 282,572 shares that
replaced shares previously owned by the Management Company. The average of the
closing prices of the Class A Common Stock on the Nasdaq National Market for the
30 trading days before the date of the Merger was $22.80, resulting in an
aggregate Merger consideration of $28,884,000 (1,266,837 new shares times $22.80
per share). The Company's independent directors negotiated the transaction on
behalf of the Company and, based in part on a fairness opinion rendered by Alex.
Brown & Sons Incorporated, unanimously approved the Merger and recommended that
the Company's stockholders vote for it.
Messrs. Beck, Grant and Rowe and Ms. Stred, the Company's executive
officers at the time of the Merger, were also executive officers of the
Management Company and held 1.2%, 3.2%, 4.3% and .4%, respectively, of its
outstanding stock before the Merger. In addition, Charles K. Barbo, who was an
executive officer of the Management Company and held 37.1% of its outstanding
stock before the Merger, was appointed as Chairman of the Board and an executive
officer of the Company on the closing of the Merger.
In the Merger, Messrs. Barbo, Beck, Grant and Rowe and Ms. Stred received
574,867 shares, 18,139 shares, 48,963 shares, 67,166 shares and 5,833 shares,
respectively, in exchange for shares of Management Company Common Stock. Of such
shares, (i) 24,833 shares were attributable to shares acquired immediately
before the Merger at an average cost of $9.99 per share on exercise of
Management Company stock options granted to such executive officers (except Mr.
Barbo), of which 20,389 shares were attributable to options the vesting of which
was accelerated in connection with the Merger, and (ii) 20,666 shares were
attributable to stock bonuses awarded to such executive officers (except Mr.
Barbo) by the Management Company immediately before the Merger. Such bonuses
were part of the general grants and awards to Management Company employees. In
addition, pursuant to the Merger Agreement, Management Company shareholders
(including the Company's executive officers) will be entitled to receive
additional shares of Class A Common Stock, pro rata in proportion to their
ownership interests in the Management Company, based on (i) the extent to which,
during the five years following the Merger, the Company realizes value as a
result of certain transactions relating to interests in or assets of six limited
partnerships acquired by the Company in the Merger and (ii) the value, at the
end of five years or in the event of a change of control, of any remaining
interests in such partnerships as determined by independent appraisal. The
Company also agreed that it will provide for limitation of director liability
and indemnification of the Management Company's directors, officers, employees
and agents at least to the extent that such persons are entitled thereto under
the Management Company's Articles of Incorporation and Bylaws.
Before the Merger, InterMation, Inc. ("InterMation"), a wholly owned
subsidiary of the Management Company operating a records storage business, was
distributed to the Management Company shareholders (including the Company's
executive officers) in proportion to their ownership interests in the Management
Company, because its revenue constitutes nonqualifying income for a real estate
investment trust ("REIT") for federal income tax purposes. Messrs. Barbo and
Rowe are directors of InterMation. The Company owned one facility engaged in the
records storage business, which was managed by InterMation. In March 1995, the
Company reached an agreement with InterMation to sell this records storage
business to InterMation for approximately $575,000 and lease the facility to
InterMation at a monthly rental of approximately $23,000. The lease term is for
three years, with two five-year options, although either party may terminate the
lease on 18 months' notice. The purchase price is evidenced by a $70,000 note
bearing interest at 10% per annum, providing for monthly principal and interest
payments and full payment upon expiration of the lease.
11
<PAGE> 15
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO
PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS
The Board of Directors has approved, and recommends that the stockholders
adopt, an amendment to the Company's Certificate of Incorporation that would
divide the Board of Directors into three classes with staggered terms. The
proposal would amend Article 6 of the Certificate of Incorporation in its
entirety to read as follows:
The Board of Directors shall be composed of not fewer than three nor
more than nine Directors, the specific number to be set by resolution of
the Board of Directors; provided that the Board of Directors may be less
than three until vacancies are filled. No decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
Director. The Board of Directors shall be divided into three classes, with
the classes to be as equal in number as may be possible, with any Director
or Directors in excess of the number divisible by three being assigned to
Class 3 and Class 2, as the case may be. At the 1995 annual meeting of
stockholders, the following classes shall be elected for the terms set
forth below:
<TABLE>
<CAPTION>
CLASS TERM
----- --------
<S> <C>
Class 1............................ 1 year
Class 2............................ 2 years
Class 3............................ 3 years
</TABLE>
At each annual meeting of stockholders following the 1995 annual
meeting, the number of Directors equal to the number of Directors in the
class whose term expires at the time of such meeting shall be elected to
serve until the third ensuing annual meeting of stockholders. Unless a
Director dies, resigns or is removed, he or she will hold office for the
term elected or until his or her successor is elected and qualified,
whichever is later. Directors may be removed only for cause. Directors need
not be stockholders of this corporation or residents of the State of
Delaware. Written ballots are not required in the election of Directors.
Notwithstanding anything to the contrary in Article 11, any amendment
or modification of this Article 6 shall require the affirmative vote of the
holders of two-thirds of the outstanding shares entitled to vote at an
election of Directors; provided, however, that the number of Directors may
be increased above nine by the affirmative vote of two-thirds of the
Continuing Directors then in office. "Continuing Directors" means the
Directors who are members of the Board of Directors immediately following
the 1995 annual meeting of stockholders and each new Director nominated or
elected by a majority of the Continuing Directors.
The Board of Directors recommends that the Certificate of Incorporation be
amended to divide the Board of Directors into three classes, as nearly equal in
size as possible. Except during the initial phase-in period, the term of office
of the directors of each class will expire at the third annual meeting after
their election. Under Delaware law, a director appointed by the Board of
Directors to fill a vacancy shall hold office until the next election of
directors of the class for which such director was appointed. This proposal is
intended to provide continuity and stability to the Company's management by
increasing the effort necessary for a substantial stockholder to gain control of
the Board of Directors. Although the Company has not yet experienced problems
with respect to continuity, the Company has been a public company only since
March 1994 and its Common Stock is very widely held. Adoption of this proposal
will make it more difficult to change the composition of the Board of Directors.
In its present form the Certificate of Incorporation requires that the entire
Board of Directors stand for election each year, so that it would take only one
year for the Board of Directors to be replaced. Following adoption of the
proposal, at least two annual meetings, or a special meeting called for the
purpose of removing the directors, will be required to effect a change in the
majority of the Board of Directors.
Under Delaware law, the directors of a nonclassified board may be removed
by the stockholders with or without cause. If the proposal for a classified
board is adopted, the directors may be removed by the
12
<PAGE> 16
stockholders only for cause. The provision for a classified board may be amended
or repealed only by the affirmative vote of the holders of two-thirds of the
outstanding shares entitled to vote in the election of directors, although the
affirmative vote of the holders of a majority of outstanding Common Stock is
sufficient to adopt the proposal.
While the Board of Directors believes that the proposed amendment to the
Certificate of Incorporation should be adopted for the reasons set forth above,
the Board of Directors is aware that the proposed amendment may have potential
antitakeover effects. Dividing the Board of Directors into three classes with
staggered terms will make it more difficult for stockholders to change a
majority of current directors. This provision is effective without regard to
whether a change in control has occurred or is occurring, and therefore may also
have the effect of preventing stockholders from replacing directors for reasons
unrelated to the control of the Company. The Company is not aware, however, of
any effort to accumulate its securities or to gain control of it at this time.
The Company's Certificate of Incorporation also contains other provisions
that may limit or prevent a change in control of the Company. Article 4 of the
Certificate of Incorporation provides that the authorized capital of the Company
consists of 120,000,000 shares of Class A Common Stock, 500,000 shares of Class
B Common Stock, 160,000,000 shares of Excess Stock and 40,000,000 shares of
preferred stock. The Board of Directors may issue, from time to time, one or
more classes or series of preferred stock with such designations and
preferences, relative voting and other rights as it deems appropriate without
the approval of the Company's stockholders. The Board of Directors, by issuing
such common or preferred stock in one or more classes or series, could adversely
affect the voting power of the outstanding shares of Common Stock and discourage
any attempt to gain control of the Company.
The Certificate of Incorporation provides that the Company may prevent the
transfer and/or call for redemption of shares of the Company (whether Common
Stock or preferred stock) if more than 50% of the outstanding shares would be
owned, directly or indirectly, by five or fewer individuals or if one person
would own, directly or indirectly, more than 9.8% of the total outstanding
shares (or such higher percentage as may be determined by the Board of Directors
(the "Ownership Limit")). In addition, the Company may prevent such transfers
and/or calls for redemption of such shares if the Board of Directors determines
in good faith that the shares have or may become concentrated to an extent that
may prevent the Company from qualifying as a REIT. The provisions authorizing
the Company to prevent the transfer of shares is affected by a proposed
amendment to the Certificate of Incorporation required by the New York Stock
Exchange. See "Proposal to Amend the Company's Certificate of Incorporation to
Incorporate New York Stock Exchange Requirement." If, despite the restrictions
noted above, any person acquires shares in excess of the Ownership Limit
(applying certain constructive ownership provisions), the shares most recently
acquired by such person in excess of the Ownership Limit will be automatically
exchanged for an equal number of shares of Excess Stock. Holders of Excess Stock
are not entitled to vote or to receive dividends or distributions and Excess
Stock is not counted for quorum purposes. For a period of 120 days following the
Company's first knowledge that the Excess Stock has been created, the Company
has the right to acquire, acquire and sell, or cause the owner to sell, the
Excess Stock. The price for the Excess Stock will be the lesser of the market
price of the Class A Common Stock as of the date the Company or its designee
acquired the Excess Stock or the price paid by the owner or, if no purchase
price was paid, the market value of Class A Common Stock on the date of
acquisition. Upon such transfer or sale, the Excess Stock will automatically
convert to Class A Common Stock.
In March 1994, the Company adopted a stockholder rights plan (the "Rights
Plan"), declaring a dividend of one preferred share purchase right (the
"Rights") for each outstanding share of Common Stock. Upon the earlier of the
close of business of the tenth business day after the date the Company learns
that a person or group (an "Acquiring Person") has acquired or obtained the
right to acquire beneficial ownership of 10% or more of the outstanding Common
Stock or the date designated by the Board of Directors following commencement
of, or first public disclosure of an intent to commence, a tender or exchange
offer for outstanding shares of Common Stock that could result in the offeror
becoming the beneficial owner of 10% or more of the outstanding shares of Common
Stock, each Right will become exercisable (other than by an Acquiring Person)
for one one-hundredth of a share of preferred stock of the Company or may, at
the election of the Board of Directors, be exchanged for shares of preferred
stock or Common Stock. In the event the
13
<PAGE> 17
Company is acquired, each Right will represent the right to acquire shares of
the acquiring or surviving corporation or other entity.
Unless the certificate of incorporation provides otherwise, Delaware law
permits stockholders to take action in lieu of a meeting if written consents are
obtained from holders of shares sufficient to take such action at a meeting. The
Company's Certificate of Incorporation provides that action by the stockholders
in lieu of a meeting must be by unanimous written consent.
The provisions in the Company's Certificate of Incorporation, the Rights
Plan and the proposed amendment may tend to deter any unfriendly tender offers
or other efforts to gain control of the Company and thereby deprive stockholders
of opportunities to sell shares at higher-than-market prices. These provisions
will also, however, tend to assure continuity of management and policies and
encourage those seeking control of the Company to negotiate with management to
reach terms acceptable to the Board of Directors. The Company is not currently
aware of any effort to accumulate its securities or to gain control of the
Company, nor is the proposed amendment to the Certificate of Incorporation
recommended to block any such effort.
As discussed above, the Company intends to implement the classified Board
of Directors provision immediately following the effective filing of such
amendment to the Company's Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO PROVIDE FOR A CLASSIFIED
BOARD OF DIRECTORS.
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCORPORATE A NEW YORK
STOCK EXCHANGE REQUIREMENT.
The Board of Directors has approved, and recommends that the stockholders
adopt, an amendment to the Company's Certificate of Incorporation to incorporate
a New York Stock Exchange requirement. On May 5, 1995, the Class A Common Stock
was listed on the New York Stock Exchange. As a part of the listing process, the
Company agreed to recommend for approval by the stockholders an amendment to its
Certificate of Incorporation addressing settlement of transactions. The proposed
amendment, new Article 17, reads as follows:
Nothing in this Certificate of Incorporation shall preclude the
settlement of any transaction entered into through the facilities of the
New York Stock Exchange.
The purpose of the requirement is to protect the integrity of transactions
effected through the New York Stock Exchange and confirm that none of the
special provisions of the Certificate of Incorporation impairs or delays such
transactions. This provision will prevent the Company from blocking or stopping
transactions on the New York Stock Exchange, even where the Certificate of
Incorporation would otherwise authorize it to do so because the purchase of
shares in such transaction would endanger the Company's REIT qualification. To
protect such qualification, the Company will be required to rely on alternative
provisions of the Certificate of Incorporation that authorize the Company to
redeem certain shares or require that certain shares be converted into Excess
Stock. See "Proposal to Amend the Company's Certificate of Incorporation to
Provide for a Classified Board of Directors." The Company believes that the
proposed amendment will not adversely affect the Company or the objectives
contemplated by the Certificate of Incorporation. The Board of Directors,
therefore, has proposed the amendment and recommends its adoption.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO AMEND
THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCORPORATE A NEW YORK STOCK
EXCHANGE REQUIREMENT.
PROPOSAL TO AMEND SECTION 16 OF THE COMPANY'S BY-LAWS
The Board of Directors has approved amendments to the Company's By-Laws,
subject to stockholder approval of the amendment to Section 16 of the By-Laws as
discussed below. Section 16 currently provides that certain sections of the
By-Laws may be amended only with stockholder approval. A copy of the Amended
14
<PAGE> 18
and Restated By-Laws, as approved by the Board of Directors, is attached to this
Proxy Statement as Exhibit A.
The Company's By-Laws were originally adopted in anticipation of the
Consolidation and at a time when the Company's business and properties were
managed by the Management Company. The By-Laws also reflect the history of the
Management Company (and its affiliates) as general partner of the limited
partnerships that combined to create the Company in the Consolidation and the
general restrictions placed on the activities of general partners in such
circumstances. Many of these restrictions in turn reflect concerns over the
absence of independent review of general partner activity and the lack of
opportunities for limited partners to dispose of their investments if they
become dissatisfied with the general partner's performance. In addition, a
number of existing By-Law provisions were designed to accommodate regulations of
the State of California in order that the Company, as an externally-advised,
non-stock exchange listed company, could complete the Consolidation.
As a consequence of these factors, the By-Laws contain and require
stockholder approval to amend a number of provisions designed to govern
potential conflicts of interest between the Company and the Management Company
and that place detailed structural limits on the activities and business affairs
of the Company. By virtue of the Merger, the Management Company was merged with
the Company and the Company has become self-managed and self-administered.
Consequently, the Board of Directors believes that the underlying reasons for
such By-Law provisions, and for stockholder approval to amend them are no longer
persuasive. In addition, the Board of Directors believes that in light of the
Company's current structure, well-established principles of Delaware corporate
law regarding the Board of Directors' responsibility to manage and supervise the
business of the Company and regarding procedural and substantive fairness with
respect to transactions involving conflicts of interest obviate the need for
such By-Law restrictions and limitations and for stockholder approval to amend
them. The Board of Directors also notes that the Class A Common Stock has been
trading on the Nasdaq National Market for more than one year and is now listed
on the New York Stock Exchange. These trading markets have afforded former
limited partners a measure of liquidity that they did not enjoy before the
Consolidation. Moreover, now that the Company's Class A Common Stock is listed
on the New York Stock Exchange, many of the provisions designed to satisfy
regulations of the State of California are no longer required. The objective of
the amendments approved by the Board of Directors is to place the Company in
substantially the same position as other publicly held companies regarding
corporate governance.
Although the Merger has been completed, it is likely that there will
continue to be transactions in which certain executive officers have financial
interests. For example, Management Company shareholders are entitled to receive
additional shares of Class A Common Stock based on (i) the extent to which,
during the five-year period ending March 24, 2000, the Company realizes value as
a result of certain transactions relating to interests in or assets of six
limited partnerships acquired by the Company in the Merger and (ii) the value,
at March 24, 2000 or in the event of a change in control, of any remaining
interests in such partnerships as determined by independent appraisal. The
Company's executive officers are all former shareholders of the Management
Company and Mr. Barbo, in some cases, is directly or indirectly the general
partner of such partnerships. Proposals to acquire assets from one or more of
such partnerships would raise issues relating to conflicts of interest. See
"Executive Compensation -- Certain Relationships and Related Transactions."
Under the amendments approved by the Board of Directors, such potential
conflicts of interest and transactions will be governed by the various
continuing provisions of the By-Laws and by the principles of corporate
governance under Delaware corporate law referred to above.
Section 16 of the By-Laws currently provide that a number of provisions may
be amended only with the approval of a majority of the outstanding shares of
each class of stock entitled to vote (currently the Common Stock). The sections
covered by this provision include Sections 3.2 and 3.4 (as they relate to the
Independent Directors calling meetings of stockholders), Section 3.7.3 (relating
to a written statement required to be furnished to stockholders in connection
with distributions), Sections 4.2 and 4.15 (as they relate to the independent
directors being a majority of the Board of Directors), Section 7.5 (relating to
transfers of shares jeopardizing the status of the Company as a REIT), Section
8.2 (relating to the timing and content of the annual report to stockholders),
Section 12.1.2 (relating to the Company's treatment as a REIT), Sec-
15
<PAGE> 19
tions 12.5, 12.6, 12.7 and 12.8 (relating to investment policy and restrictions)
and the definitions in Section 1, to the extent that such definitions are to be
used in any of the sections referred to above.
Adoption of the amendment to Section 16 of the By-Laws will permit the
Board of Directors to amend any of the sections of the By-Laws described above
in the future without action by the stockholders, although the stockholders
would retain the right to amend or alter the By-Laws at any time. Except as set
forth below, the Board of Directors does not have any present plans or
intentions to amend the provisions of the By-Laws discussed above. Specifically,
the Board of Directors does not have any present intention to change matters
relating to Independent Directors, continuation of the Company as a REIT or
providing the stockholders with an explanatory statement in connection with
distributions.
While management and the Board of Directors believe that the policies set
forth in Article 12 of the By-Laws in large part remain the policies of the
Company and reflect the current views of the Board of Directors, they
nevertheless believe that it is desirable to give the Board additional amendment
flexibility in order to eliminate the possibility that such provisions might
restrict the ability of the Board to authorize activities that it determines to
be in the interests of the Company. The Company currently has the visibility,
and its stockholders have the market liquidity, afforded by a New York Stock
Exchange-listed company. The Company regularly sets forth in its reports to
investors its investment policies and goals, and information concerning its
capital raising (including borrowing) and other significant activities, and is
subject to the rules of the SEC relating to release of public information
concerning significant events, including any changes in its investment policies.
Accordingly, significant changes in investment policies or restrictions
contained in Article 12 would be promptly disclosed in a news release or other
filing available to investors, and any stockholders concerned about such a
change would have the ability promptly to sell his shares through the facilities
of the Stock Exchange.
In addition to the amendments to Section 16 of the By-Laws, the Board of
Directors has approved the following amendments to the By-Laws which will become
effective upon stockholder approval of the amendment to Section 16 described
above:
Purchases of Property From an Interested Party. Section 12.6(b) of the
By-Laws presently includes provisions that, with respect to purchases of
property from an Interested Party (as defined in the By-Laws) (i) require that
the purchase price of such property be no greater than the cost of such asset to
the selling party unless the Directors have determined that there is substantial
justification for such excess and such excess is not unreasonable in amount and
(ii) prohibit the Company from acquiring such property if the purchase price to
be paid is in excess of its fair market value as determined by an independent
appraiser. The proposed amendments delete both provisions because the Board of
Directors believes that they are unnecessary in light of other requirements of
Section 12.6(b) that require the Independent Directors to find that the terms of
the transaction are fair and reasonable in any event. The Board of Directors
also believes that the specific limitations are unduly restrictive in view of
cyclical fluctuations in real estate values and the need for the Company to
respond effectively to property acquisition opportunities. The appropriate
purchase price for real property may depend on a variety of factors, including
strategic considerations (such as location in relation to other Company
properties), timing of the purchase in relation to cycles in real estate values
and the presence of competitive buyers bidding for the property. In some
circumstances, where comparable transactions for self-storage properties are
few, real estate appraisals may not be cost effective. Moreover, it is unclear
that the provision is limited to real estate properties and "appraisals" may not
be available or appropriate for other types of properties. Under many
circumstances, therefore, appraised value may not be the appropriate measure of
value to the Company, but the requirement would nevertheless preclude the
Company realistically from acquiring the property. The Board of Directors
believes that it should be able to use other generally accepted methods of
valuation in such transactions, such as evaluating market data directly or
relying on such other forms of independent evaluations as fairness opinions.
Section 12.6(b) presently contains general restrictions designed to protect
the interests of the Company and its stockholders in cases where property is
acquired from Interested Parties. Specifically, no such transaction may occur
unless, after disclosure to the Board of Directors of the Interested Party's
interest in the proposed transaction, a majority of directors not otherwise
interested in such transaction (including a majority
16
<PAGE> 20
of the Independent Directors) has determined that the property is being offered
to the Company on fair and reasonable terms. In addition, under Section 12.6(e),
in approving any transaction with an Interested Party, the Board of Directors
must make a determination that the transaction is fair, competitive and
commercially reasonable and on terms and conditions not less favorable to the
Company than those available from unaffiliated third parties. Such transactions
will also be subject to the requirements of Delaware corporate law described
above.
Appraisal Requirement for Mortgage Loans. Section 12.5(c)(i) presently
requires that the Company obtain an appraisal of the underlying property
securing any mortgage loan made by the Company, provided that such appraisal is
not necessary in the purchase of mortgage loans from a third party if the
Company's management has made certain findings. This section has been amended to
provide that obtaining appraisals in connection with mortgage loans will be
governed by the same standards that govern the direct acquisition of properties
as set forth in Section 12.2, which permits the Board of Directors to decide
whether to rely on market data otherwise available to it or to require an
appraisal.
Requirements Relating to Stock Option Plans. Section 12.5(i) presently
contains a number of detailed restrictions affecting stock option plans,
including a restriction to the effect that options may not be granted to
nonemployees or granted at prices below fair market value. The Board of
Directors believes that the specific terms of stock option plans should be
established independent of detailed requirements contained in the By-Laws
because employee compensation and incentive needs change over time and the
Company should be able to respond quickly to such needs. Many of the By-Law
requirements relate to tax requirements for incentive stock options. This
creates the potential problem that if the Internal Revenue Service (the "IRS")
changes its regulations, the Company would have to amend the By-Laws to match
the new IRS regulations. Because these regulations must be complied with even in
the absence of a By-Law provision, including these specific requirements in the
By-Laws is not necessary. In addition, in most instances the Internal Revenue
Code of 1986, as amended, (the "Code"), and the federal securities laws provide
strong incentives for the Company to submit stock option plans for approval by
the stockholders. For example, both the 1995 Incentive Plan and the amendments
to the Director Plan are submitted to a vote of the stockholders at the 1995
Annual Meeting. The amended By-Laws, therefore, delete all specific requirements
for stock option plans except the requirement that outstanding options may not
exceed more than 10% of the Company's outstanding stock.
Annual Report to Stockholders. Section 8.2 of the By-Laws currently
requires that the Company send an annual report to its stockholders within 120
days of its fiscal year-end. It also requires that the annual report include a
variety of specific information, including the ratio of the costs of raising
capital during the period to the capital raised, a disclosure of transactions
involving the Company and its directors and their affiliates and comments from
the Independent Directors on the fairness of such transactions. The Board of
Directors believes that these specific requirements largely duplicate the
requirements of the proxy rules and other requirements under the federal
securities laws and therefore can be deleted without affecting information
available to stockholders.
As indicated above, the Board of Directors does not currently contemplate
any other changes to the By-Laws that presently require approval of the
stockholders. If the proposed amendment to Section 16 of the By-Laws is adopted
by the stockholders, however, such changes could be made in the future if, in
the judgment of the Board of Directors, conditions warrant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSAL TO AMEND SECTION 16 OF THE COMPANY'S BY-LAWS.
PROPOSAL TO APPROVE THE 1995 INCENTIVE PLAN
In July 1993, the Company adopted the 1993 Plan, which was amended and
restated in March 1995, pursuant to which it has reserved up to 5,000,000 shares
of Class A Common Stock for issuance upon exercise of options granted
thereunder. On June 2, 1995, there were outstanding options to purchase 186,500
shares, of which options to purchase 98,000 shares were held by five executive
officers and options to purchase 88,500 shares were held by 33 employees. On
June 2, 1995, there were approximately 600 full-time employees of the
17
<PAGE> 21
Company The closing price of a share of Class A Common Stock on that date, as
reported in The Wall Street Journal for the NYSE -- Composite Transactions, was
$23 5/8.
The 1995 Incentive Plan was adopted by the Company's Board of Directors on
May 9, 1995, subject to approval by the Company's stockholders at the 1995
Annual Meeting. The 1995 Incentive Plan is the successor to the existing 1993
Plan. Upon approval by the stockholders, the 1995 Incentive Plan will supersede
the 1993 Plan and no further grants will be made under the 1993 Plan. A copy of
the 1995 Incentive Plan is attached to this Proxy Statement as Appendix B. The
following description of the 1995 Incentive Plan is a summary and does not
purport to be fully descriptive. Reference is made to Appendix B for more
detailed information.
INTRODUCTION
The purpose of the 1995 Incentive Plan is to enhance the long-term
profitability and stockholder value of the Company by offering incentives and
rewards to those employees, consultants and agents of the Company and its
subsidiaries who are key to the Company's growth and success, and to encourage
them to remain in the service of the Company and its subsidiaries and to acquire
and maintain stock ownership in the Company.
The following are certain of the most significant differences between the
1995 Incentive Plan and the 1993 Plan:
(a) In addition to options as authorized under the 1993 Plan, the 1995
Incentive Plan provides for stock appreciation rights, stock awards
(including restricted stock), performance awards, other stock-based awards
and dividend equivalent rights.
(b) The 1995 Incentive Plan requires mandatory acceleration in the
event of certain mergers and consolidations or a sale of substantially all
the assets or a liquidation of the Company, except where such awards are
assumed or replaced in the transaction.
(c) The 1995 Incentive Plan permits the plan administrator to
authorize loans, loan guarantees or installment payments to assist award
recipients in acquiring shares pursuant to awards and contains certain
limitations imposed by recent tax legislation.
(d) The 1995 Incentive Plan allows for grants to consultants and
agents, as well as officers and key employees of the Company.
AWARDS
The 1995 Incentive Plan provides for grants of stock options, stock
appreciation rights, stock awards (including restricted stock), performance
awards, other stock-based awards and dividend equivalent rights. Awards may be
made singly, in combination or in tandem so that the settlement or payment of
one automatically reduces or cancels the other. Awards may also be made in
combination or in tandem with, as alternatives to, or as the payment form for,
grants or rights under any other employee or compensation plan of the Company or
in substitution for, or by the assumption of, awards issued under plans of an
acquired entity.
Stock Subject to the 1995 Incentive Plan. For each calendar year from and
including 1995 through July 26, 2000, the number of shares of Class A Common
Stock that shall become authorized for issuance under the 1995 Incentive Plan
(the "authorized shares") shall be 2% of the Company's outstanding Class A
Common Stock (determined as the number of shares used by the Company to
calculate fully diluted earnings per share as reported in the annual report for
the preceding year). In addition, shares authorized for issuance in any previous
year but not actually issued will be added to the number of shares that become
authorized for issuance in any current year. No further awards will be made
under the 1993 Plan. No more than an aggregate of 1,840,000 shares may be issued
pursuant to the exercise of incentive stock options awarded under the 1995
Incentive Plan. In addition, no more than 610,000 shares may be issued as stock
awards (including restricted stock) or other stock-based awards under the 1995
Incentive Plan. Shares issued pursuant to the 1995 Incentive Plan will be drawn
from authorized and unissued shares or shares now held or subsequently acquired
by the Company as treasury shares.
18
<PAGE> 22
Subject to adjustment from time to time as provided in the 1995 Incentive
Plan, not more than 200,000 shares of Class A Common Stock may be subject to
awards under the 1995 Incentive Plan to any participant in any one fiscal year,
to the extent required for compliance with certain provisions of Section 162(m)
of the Code, which precludes the Company from taking a tax deduction for
compensation payments to executives in excess of $1 million, unless such
payments qualify for the "performance-based" exemption from the $1 million
limitation.
Any shares of Class A Common Stock that have been made subject to an award
that cease to be subject to the award (other than by reason of exercise or
payment of the award to the extent it is exercised for or settled in shares),
including, without limitation, in connection with the expiration, surrender,
cancellation or termination of an award, will be available for issuance in
connection with future grants of awards under the 1995 Incentive Plan.
Eligibility to Receive Awards. Awards may be granted under the 1995
Incentive Plan to those officers and key employees (including directors who are
also employees) of the Company and its subsidiaries as the plan administrator
from time to time selects. Awards may also be made to consultants and agents who
provide services to the Company and its subsidiaries.
Terms and Conditions of Stock Option Grants. Options granted under the 1995
Incentive Plan may be "incentive stock options" (as defined in Section 422 of
the Code) or "nonqualified stock options." The option price for each option
granted under the 1995 Incentive Plan will be determined by the plan
administrator, but will be not less than 100% of the Class A Common Stock's fair
market value on the date of grant with respect to incentive stock options and
not less than 85% of fair market value with respect to nonqualified stock
options. For purposes of the 1995 Incentive Plan, "fair market value" means the
closing price for the Class A Common Stock as reported in The Wall Street
Journal for the NYSE -- Composite Transactions for a single trading day.
The exercise price for shares purchased under options must be paid in cash,
except that the plan administrator may authorize payment in cash and/or
already-owned Class A Common Stock, a promissory note, delivery of a properly
executed exercise notice, together with irrevocable instructions to a broker, or
such other consideration as the plan administrator may specify. The Company may
require the optionee to pay applicable withholding taxes upon exercise of the
option as a condition to receiving the stock certificates. The withholding tax
may be paid in cash or by the withholding or delivery of Common Stock.
The option term will be fixed by the plan administrator. Each option will
be exercisable pursuant to a vesting schedule determined by the plan
administrator. If not so established, options generally will vest 20% per year
beginning one year after the date of grant. The plan administrator will also
determine the circumstances under which an option will be exercisable in the
event the optionee ceases to provide services to the Company or one of its
subsidiaries. If not so established, options generally will be exercisable for
three years after termination of services as a result of retirement, early
retirement at the Company's request, disability or death and for three months
after all other terminations. An option will not be exercisable if the
optionee's services are terminated for cause, as defined in the 1995 Incentive
Plan.
Stock Appreciation Rights. A stock appreciation right gives its holder the
right to receive an appreciation distribution from the Company equal to the
difference between the value of the Class A Common Stock subject to the right at
the time of exercise and the exercise price of the right. For stock appreciation
rights granted in tandem with options, the exercise price will be the same as
the option exercise price. For other stock appreciation rights, the exercise
price will be as determined by the plan administrator, but will not be less than
85% of the fair market value of the Class A Common Stock on the date the right
was granted. The appreciation distribution will be paid in shares of Class A
Common Stock or cash or any combination of shares and cash, as the plan
administrator may determine. Unless otherwise provided by the plan
administrator, the provisions of the 1995 Incentive Plan regarding
exercisability of options after the termination of a holder's services shall
apply equally, to the extent applicable, to stock appreciation rights.
Stock Awards. The plan administrator is authorized to make awards of Class
A Common Stock to participants on such terms and conditions and subject to such
restrictions, if any (whether based on
19
<PAGE> 23
performance standards, periods of service or otherwise), as the plan
administrator may determine. Restrictions may include repurchase or forfeiture
rights in favor of the Company.
Performance Awards. Performance awards may be denominated in cash, shares
of Common Stock or any combination thereof. The plan administrator is authorized
to determine the nature, length and starting date of the performance period for
each performance award and the performance objectives to be used in valuing
performance awards and determining the extent to which such performance awards
have been earned. Performance objectives and other terms may vary from
participant to participant and between groups of participants. Performance
objectives may include, but shall not be limited to, profits, profit growth,
profit-related return ratios, cash flow, total stockholder return, funds from
operations, customer service, employee satisfaction or performance against
budget, whether applicable to the Company or any relevant subsidiary or business
unit, comparisons with competitor companies or groups and with stock market
indices, or any combination thereof, as the plan administrator may deem
appropriate. The plan administrator will determine for each performance award
the range of dollar values or number of shares of Class A Common Stock, or a
combination thereof, to be received by the holder at the end of the performance
period if and to the extent that the relevant measures of performance for the
performance awards are met. The earned portion of a performance award may be
paid currently or on a deferred basis with such interest or earnings equivalent
as may be determined by the plan administrator.
The plan administrator may adjust the performance goals and measurements
applicable to performance awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the plan administrator
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances. The plan
administrator also may adjust the performance goals and measurements applicable
to performance awards and thereby reduce the amount to be received by any holder
pursuant to such awards if and to the extent that the plan administrator deems
it appropriate.
The plan administrator will determine the circumstances under which a
performance award will be payable if a holder ceases to provide services to the
Company. If not so established, a pro rata payment will be made at the end of
the performance period if the termination of services is a result of retirement,
early retirement at the Company's request, disability or death. A termination of
services for any other reasons will result in forfeiture of the performance
award unless otherwise determined by the plan administrator.
Other Stock-Based Awards. The plan administrator may grant other
stock-based awards under the 1995 Incentive Plan pursuant to which shares of
Class A Common Stock are or may in the future be acquired, or awards denominated
in stock units, including awards valued using measures other than market value.
Such other stock-based awards may be granted alone or in addition to or in
tandem with any award of any type granted under the 1995 Incentive Plan and must
be consistent with the 1995 Incentive Plan's purpose.
Dividend Equivalent Rights. The plan administrator may grant dividend
equivalent rights that entitle the holder to be credited with an amount equal to
the cash or stock dividends or other distributions that would have been paid on
a specified number of shares of Class A Common Stock covered by such award had
such covered shares been issued and outstanding on a dividend record date. The
plan administrator may establish such rules and procedures governing the
crediting of dividend equivalent rights, including the timing, form of payment
and payment contingencies, as it deems are appropriate or necessary.
Loans, Loan Guarantees and Installment Payments. To assist a holder
(including a holder who is an officer or director of the Company) in acquiring
shares of Class A Common Stock pursuant to an award granted under the 1995
Incentive Plan, the plan administrator may authorize (a) the extension of a loan
to the holder by the Company, (b) the payment by the holder of the purchase
price, if any, of the Class A Common Stock in installments, or (c) the guarantee
by the Company of a loan obtained by the grantee from a third party. The terms
of any loans, installment payments or guarantees, including the interest rate
and terms of repayment, will be subject to the plan administrator's discretion,
and may be granted with or without security.
Transferability. No option, stock appreciation right, performance award,
other stock-based award or dividend equivalent right will be assignable or
otherwise transferable by the holder other than by will or the
20
<PAGE> 24
laws of descent and distribution and, during the holder's lifetime, may be
exercised only by the holder, except, in the plan administrator's sole
discretion, to the extent permitted by Rule 16b-3 under the Exchange Act or
Section 422 of the Code.
Adjustment of Shares. In the event of any changes in the outstanding stock
of the Company by reason of stock dividends, stock splits, spinoffs,
combinations or exchanges of shares, recapitalizations, mergers, consolidations,
distributions to stockholders other than a normal cash dividend, or other
changes in the Company's corporate or capital structure, the plan administrator,
in its sole discretion, shall make any equitable adjustments as it deems
appropriate in (a) the maximum number of and class of securities subject to the
1995 Incentive Plan, (b) the maximum number and class of securities that may be
made subject to awards to any participant, and (c) the number and class of
securities that are subject to any outstanding award and the per share price of
such securities, without any change in the aggregate price to be paid therefor.
Corporate Transaction. In the event of certain mergers or consolidations or
a sale of substantially all the assets or a liquidation of the Company, each
option, stock appreciation right or stock award that is at the time outstanding
will automatically accelerate so that each such award shall, immediately prior
to such corporate transaction, become 100% vested, except that such award will
not so accelerate if and to the extent: (a) such award is, in connection with
the corporate transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable award for the purchase of
shares of the capital stock of the successor corporation or its parent
corporation or (b) such award is to be replaced with a cash incentive program of
the successor corporation that preserves the spread existing at the time of the
corporate transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such award. Any such awards that are assumed
or replaced in the corporate transaction and do not otherwise accelerate at that
time shall be accelerated in the event the holder's employment or services
should subsequently terminate within two years following such corporate
transaction, unless such employment or services are terminated by the Company
for cause or by the holder voluntarily without good reason.
Further Adjustment of Awards. The plan administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the plan administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to holders, with respect to
awards. Such authorized action may include, but is not limited to, establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, awards so as to provide for earlier, later, extended or additional time for
exercise, payment or settlement or lifting restrictions, differing methods for
calculating payments or settlements, alternate forms and amounts of payments and
settlements and other modifications, and the plan administrator may take such
actions with respect to all holders, to certain categories of holders or only to
individual holders. The plan administrator may take such actions before or after
granting awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
Administration. The 1995 Incentive Plan will be administered by the
Committee, except to the extent the Board of Directors appoints another
committee or committees consisting of one or more members of the Board of
Directors. The Board of Directors may delegate the responsibility for
administering the 1995 Incentive Plan with respect to designated classes of
eligible participants to different committees, subject to such limitations as
the Board of Directors deems appropriate. Committee members will serve for such
term as the Board of Directors may determine, subject to removal by the Board of
Directors at any time. The composition of any committee responsible for
administering the 1995 Incentive Plan with respect to officers and directors of
the Company who are subject to Section 16 of the Exchange Act with respect to
securities of the Company will comply with the requirements of Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, or any successor provision.
Amendment and Termination. The 1995 Incentive Plan may be terminated,
modified or amended by the stockholders of the Company. The Board of Directors
may also terminate the 1995 Incentive Plan, or modify or amend it, subject to
stockholder approval in certain instances, as set forth in the 1995 Incentive
Plan. No awards may be granted under the 1995 Plan after June 26, 2000.
21
<PAGE> 25
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to the Company and to any person
granted an award under the 1995 Incentive Plan under the existing applicable
provisions of the Code and the regulations thereunder are substantially as
follows. Under present law and regulations, no income will be recognized by a
participant upon the grant of stock options, stock appreciation rights, other
stock- based awards or performance awards.
Upon the exercise of a nonqualified stock option, the optionee will
recognize taxable ordinary income in an amount equal to the excess of the fair
market value of the shares acquired over the option price. Upon a later sale of
those shares, the optionee will have short-term or long-term capital gain or
loss, as the case may be, in an amount equal to the difference between the
amount realized on such sale and the tax basis of the shares sold. If payment of
the option price is made entirely in cash, the tax basis of the shares will be
equal to their fair market value on the exercise date (but not less than the
option price), and the shares' holding period will begin on the day after the
exercise date.
If the optionee uses already-owned shares to exercise an option in whole or
in part, the transaction will not be considered to be a taxable disposition of
the already-owned shares. The optionee's tax basis and holding period of the
already-owned shares will be carried over to the equivalent number of shares
received upon exercise. The tax basis of the additional shares received upon
exercise will be the fair market value of the shares on the exercise date (but
not less than the amount of cash, if any, used in payment), and the holding
period for such additional shares will begin on the day after the exercise date.
The same rules apply to an incentive stock option that is exercised more
than three months after the optionee's termination of employment (or more than
12 months thereafter in the case of permanent and total disability, as defined
in the Code).
Upon the exercise of an incentive stock option during employment or within
three months after the optionee's termination of employment (12 months in the
case of permanent and total disability, as defined in the Code), for regular tax
purposes the optionee will recognize no income at the time of exercise (although
the optionee will have income for alternative minimum income tax purposes at
that time as if the option were a nonqualified stock option) and no deduction
will be allowed to the Company for federal income tax purposes in connection
with the grant or exercise of the option. If the acquired shares are sold or
exchanged after the later of (a) one year from the date of exercise of the
option and (b) two years from the date of grant of the option, the difference
between the amount realized by the optionee on that sale or exchange and the
option price will be taxed to the optionee as a long-term capital gain or loss.
If the shares are disposed of before such holding period requirements are
satisfied, then the optionee will recognize taxable ordinary income in the year
of disposition in an amount equal to the excess, on the date of exercise of the
option, of the fair market value of the shares received over the option price
paid (or generally, if less, the excess of the amount realized on the sale of
the shares over the option price), and the optionee will have capital gain or
loss, long-term or short-term, as the case may be, in an amount equal to the
difference between (i) the amount realized by the optionee upon that disposition
of the shares and (ii) the option price paid by the optionee increased by the
amount of ordinary income, if any, so recognized by the optionee.
Upon payment to a participant in settlement of a stock option or pursuant
to the exercise of stock appreciation rights or pursuant to another stock-based
award or a performance award, the participant will recognize taxable ordinary
income in an amount equal to the cash and the fair market value of the Class A
Common Stock received.
Special rules apply to a director or officer subject to liability under
Section 16(b) of the Exchange Act.
In all the foregoing cases the Company will be entitled to a deduction at
the same time and in the same amount as the participant recognizes ordinary
income, subject to the following limitations. Under Section 162(m) of the Code,
certain compensation payments in excess of $1 million are subject to a
limitation on deductibility for the Company. The limitation on deductibility
applies with respect to that portion of a compensation payment for a taxable
year in excess of $1 million to either the Company's Chief Executive Officer or
any one of the other four most highly compensated executive officers. Certain
performance-based compensation is not subject to the limitation on
deductibility. Options and stock appreciation rights can
22
<PAGE> 26
qualify for this performance-based exception, but only if they are granted at
fair market value, the total number of shares that can be granted to an
executive for any period is stated, and stockholder and Board of Directors'
approval is obtained. Restricted stock grants and performance awards under the
1995 Incentive Plan will not satisfy the performance-based criteria. The option
and stock appreciation right portions of the 1995 Incentive Plan have been
drafted to allow compliance with those performance-based criteria.
NEW PLAN BENEFITS
Since awards under the 1995 Incentive Plan will be discretionary, awards
thereunder for the current fiscal year are not presently determinable. For
purposes of comparison, the following table contains information about awards
made and benefits received from January 1, 1995 through June 2, 1995 under the
1993 Plan to the named executive officers and the groups indicated. No stock
options have been exercised to date. Approximately 39 persons have received
awards in 1995 under the 1993 Plan; it is not anticipated that the total number
of persons receiving awards in 1995 under the 1995 Incentive Plan would be
substantially greater. No nonemployee nominee for election as a director
received awards under the 1993 Plan in 1995.
BENEFITS UNDER 1993 PLAN IN 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
CLASS A COMMON STOCK AVERAGE EXERCISE PRICE
NAME UNDERLYING OPTIONS OF OPTIONS GRANTED
- ---- -------------------- ----------------------
<S> <C> <C>
Charles K. Barbo...................................... 30,000 $ 23.00
Harrell L. Beck....................................... 15,000 $ 20.75
Michael Rowe.......................................... 15,000 $ 20.75
David K. Grant........................................ 15,000 $ 20.75
Kristin H. Stred...................................... 15,000 $ 20.75
All executive officers as a group..................... 90,000 $ 21.50
All other employees (including all officers who are
not executive officers) as a group.................. 88,500 $ 23.00
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
1995 INCENTIVE PLAN.
PROPOSAL TO AMEND THE STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
In July 1993, the Company adopted the Director Plan and reserved 20,000
shares of Class A Common Stock for issuance on exercise of options thereunder.
The Director Plan provides for the automatic grant of options to purchase 400
shares at the time a person becomes a director and annually on the day following
the Company's annual meeting of stockholders.
The purposes of the Director Plan are to attract and retain the services of
experienced and knowledgeable nonemployee directors of the Company and to
provide an incentive for such directors to increase their proprietary interest
in the Company's long-term success and progress. The Company believes that the
existing automatic grant structure is inadequate to achieve these objectives and
is proposing that automatic grants be increased to 3,000 shares and that the
number of shares reserved for the Director Plan be increased to 200,000 shares,
subject to adjustment in the event of stock dividends, stock splits,
recapitalizations, combinations or exchanges of shares, split-ups, split-offs,
spinoffs or other similar changes in capitalization. In addition, the term of
options granted under the Director Plan has been increased from five years to 10
years.
A copy of the Director Plan as proposed to be amended is attached to this
Proxy Statement as Appendix C. Elected or appointed members of the Board of
Directors who are not otherwise employees of the Company or any parent or
subsidiary corporation (each, an "Eligible Director") may participate in the
Director Plan.
Administration. The administrator of the Director Plan (the "Director Plan
Administrator") is the Company's Board of Directors. Subject to the terms of the
Director Plan, the Director Plan Administrator has
23
<PAGE> 27
the power to construe the provisions of the Director Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Director Plan as it may deem desirable.
Term and Vesting. Options vest at the next annual meeting of stockholders
following grant. Options expire on the earlier of 10 years from the date of
grant or one year after an Eligible Director's termination of service as a
director.
Option Exercise Price. The option exercise price for an option granted
under the Director Plan is the fair market value of the shares at the time the
option is granted. For purposes of the Director Plan, "fair market value" is the
closing price on the New York Stock Exchange on the day prior to the date of
grant or, in the case of the initial grants under the Director Plan, the average
price on the Nasdaq National Market for the 30 business days immediately after
the start of trading of the Class A Common Stock.
Amendment and Termination. The Board of Directors may amend, terminate or
suspend the Director Plan at any time, provided that no such amendment shall be
made without the approval of the Company's stockholders, if such approval is
required to comply with Rule 16b-3 under the Exchange Act.
Term. The Director Plan shall continue in effect until it is terminated by
action of the Board of Directors or the Company's stockholders, but such
termination shall not affect the then-outstanding terms of any options.
Tax Consequences. The federal income tax consequences to the Company and
the Eligible Directors of the grant and exercise of options granted under the
Director Plan are the same as those applicable to employees receiving
nonqualified stock options under the 1995 Incentive Plan. See "Proposal to
Approve the 1995 Incentive Plan -- Federal Income Tax Consequences."
Plan Benefits. Each of the three Eligible Directors who may continue in
office after the 1995 Annual Meeting (Messrs. Lusk, Smith and Kourkoumelis) has
received an initial grant of nonqualified stock options to purchase 400 shares
and 3,000 shares of Class A Common Stock on March 9, 1994 and May 9, 1995,
respectively. The exercise prices are $23.07 per share and $23.88 per share,
respectively, the fair market values per share on those dates.
Each Eligible Director who is elected at the 1995 Annual Meeting or at an
annual meeting of stockholders thereafter shall automatically receive an option
grant to purchase 3,000 shares of Class A Common Stock on the day after such
annual meeting. Each Eligible Director who is appointed or elected other than at
an annual meeting of stockholders shall, on the day of such appointment or
election, automatically receive an option grant to purchase 3,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSAL TO AMEND THE DIRECTOR PLAN.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, which audited the Company's accounts for the last
fiscal year, has been selected to continue as the Company's independent auditor
for the current fiscal year. Representatives of Deloitte & Touche LLP are
expected to attend the 1995 Annual Meeting and have an opportunity to make a
statement and/or respond to appropriate questions from stockholders.
SOLICITATION OF PROXIES
The proxy card accompanying this Proxy Statement is solicited by the Board
of Directors. Proxies may be solicited by officers, directors and regular
supervisory and executive employees of the Company, none of whom will receive
any additional compensation for their services. D.F. King & Co., Inc. may
solicit proxies at an approximate cost of $75,000, plus reasonable expenses.
Such solicitations may be made personally, or by mail, facsimile, telephone,
telegraph or messenger. The Company will reimburse persons holding shares of
Common Stock in their names or in the names of nominees, but not owning such
shares beneficially, such as brokerage
24
<PAGE> 28
houses, banks and other fiduciaries, for the expense of forwarding solicitation
materials to their principals. All the costs of soliciting proxies will be paid
by the Company.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought before
the 1995 Annual Meeting. If, however, other matters not now known or determined
come before the 1995 Annual Meeting, the persons named in the enclosed proxy or
their substitutes will vote such proxy in accordance with their judgment in such
matters.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy card for the Company's 1996 Annual Meeting of Stockholders
must be received by the Secretary of the Company by February 1, 1995.
ANNUAL REPORT
A copy of the Company's 1994 Annual Report has been mailed to each
stockholder of record. Additional copies of such annual report may be obtained
without charge by writing or calling Investor Relations at (800) 955-2235.
By Order of the Board of Directors
[SIG]
Kristin H. Stred
Secretary
Seattle, Washington
June 8, 1995
25
<PAGE> 29
APPENDIX A
AMENDED AND RESTATED
BY-LAWS
OF
SHURGARD STORAGE CENTERS, INC.
SECTION 1. DEFINITIONS
Whenever used in these By-Laws, unless the context otherwise requires, the
terms defined in this Section 1 shall have the following respective meanings:
"Adjusted Net Worth" means the amount obtained by subtracting the
Corporation's total liabilities from its total assets as adjusted. The
Corporation shall reduce its total assets by such reasonable reserves as the
Board shall determine but shall not take into account depreciation or
amortization. Except as otherwise stated herein, the Corporation's total assets
and total liabilities shall be as shown on the Corporation's books, which shall
be prepared in accordance with generally accepted accounting principles.
"Affiliate" of a Person means (a) any other Person directly or indirectly
controlling, controlled by or under common control with such Person, (b) any
other Person owning or controlling ten percent (10%) or more of the outstanding
voting securities of such Person, (c) any officer, Director or partner of such
Person, and (d) if such Person is an officer, Director or partner, any company
for which such Person acts as an officer, Director or partner.
"Ancillary Services" means any business activity rendered in connection
with, or incidental to, the Corporation's primary activity of leasing its
properties, generating revenues for the Corporation that would be treated by the
IRS as Nonqualifying Income, including, but not limited to, the sale of goods
and services to its tenants or others.
"Asset Coverage" means the ratio (expressed as a percentage) which the
value of the Corporation's total assets, less all liabilities and indebtedness,
except indebtedness for unsecured borrowings, bears to the aggregate amount of
all unsecured borrowings of the Corporation.
"Board" means the Board of Directors of the Corporation, as constituted
from time to time.
"By-Laws" means the By-Laws of the Corporation, as in effect from time to
time.
"Chairman of the Board" shall have the meaning assigned to such term in
Sections 5.1 and 5.6 hereof.
"Code" means the Internal Revenue Code of 1986, as it may be amended from
time to time.
"Common Stock" means the Class A Common Stock of the Corporation, par value
$.001 per share, the Class B Common Stock of the Corporation, par value $.001
per share, and the Excess Stock of the Corporation, par value $.001 per share.
"Consolidation" means the acquisition by the Corporation of substantially
all of the assets of each of the Partnerships, which was effective on March 1,
1994.
"Corporation" means Shurgard Storage Centers, Inc., a Delaware corporation.
"Directors" means the directors of the Board.
"Indebtedness" of the Corporation means, as of the date the amount thereof
is to be determined, any and all amounts due on financial obligations of the
Corporation evidencing its obligations to repay funds borrowed to finance the
business and affairs of the Corporation, including, but not limited to, the
outstanding principal balance, accrued but unpaid interest, late fees and
penalties, or other obligations, due under any of the Corporation's debt
securities, commercial paper, notes, debentures, bonds, promissory notes,
revolving lines of credit, and credit and loan agreements. Indebtedness is
limited to amounts borrowed by the Corporation and does not include other
liabilities, such as accounts payable, lease obligations, liabilities and claims
incurred in the conduct of the Corporation's business, or the liabilities of
other companies or entities in which the
A-1
<PAGE> 30
Corporation may have invested. In addition, "Indebtedness" includes any amounts
borrowed by any wholly owned subsidiaries of the Corporation.
"Indebtedness Restriction" means the restriction placed upon the
Corporation's authority to borrow funds set forth in Section 12.7 hereof.
"Independent Directors" means Directors who do not perform services for the
Corporation, except as Directors.
"Interested Party" of the Corporation means a Director, an officer, any
Person owning or controlling ten percent (10%) or more of any class of
outstanding voting securities of the Corporation, or any Affiliate of any of the
aforementioned Persons, and, to the extent that any such Person proposes to
enter into a transaction with the Corporation, such transaction is subject to
the restrictions set forth in Section 12.6 hereof.
"IRS" means the Internal Revenue Service.
"Mortgage Loans" means notes, debentures, bonds and other evidences of
indebtedness or obligations that are secured or collateralized by interests in
real property.
"Nonqualifying Income" means income not described in Section 856(c)(2) of
the Code, or any successor provision.
"Other Shurgard Programs" means the real estate programs (other than the
Partnerships), whether organized as joint ventures, general partnerships,
limited partnerships or otherwise, which were organized by Shurgard or any of
the general partners of the Partnerships, and whose assets were managed by
Shurgard as of the date the Corporation was organized.
"Own," "Owner" or "Ownership" means a Person considered to "own" Shares if
such Person is treated as an owner of such Shares for purposes of the REIT
Provisions of the Code, including ownership provisions of Code Sections 542 and
544 (all as in effect from time to time).
"Partnerships" means Shurgard Mini-Storage Limited Partnership I, a
Washington limited partnership; Shurgard Income Properties II, a Washington
limited partnership; Shurgard Income Properties III, A Real Estate Limited
Partnership, a Washington limited partnership; Shurgard Income Properties IV, A
Real Estate Limited Partnership, a Washington limited partnership; Shurgard
Income Properties V, A Real Estate Limited Partnership, a Washington limited
partnership; Shurgard Income Properties VI, A Real Estate Limited Partnership, a
Washington limited partnership; Shurgard Income Properties VII, A Real Estate
Limited Partnership, a Washington limited partnership; Shurgard Income
Properties VIII, A Real Estate Limited Partnership, a Washington limited
partnership; Shurgard Income Properties IX, A Real Estate Limited Partnership, a
Washington limited partnership; Shurgard Income Properties X, A Real Estate
Limited Partnership, a Washington limited partnership; Shurgard Income
Properties XI, A Real Estate Limited Partnership, a Washington limited
partnership; Shurgard Income Properties XII, A Real Estate Limited Partnership,
a Washington limited partnership; Shurgard Income Properties -- Fund 14 Limited
Partnership, a Delaware limited partnership; Shurgard Growth Capital -- Fund 15
Limited Partnership, a Delaware limited partnership; Shurgard Income
Properties -- Fund 16 Limited Partnership, a Delaware limited partnership;
Shurgard Growth Capital -- Fund 17 Limited Partnership, a Delaware limited
partnership; and Shurgard Income Properties -- Fund 18 Limited Partnership, a
Delaware limited partnership. References to a "Partnership" shall be understood
to refer to any of the Partnerships.
"Person" means an individual, a corporation, limited partnership, general
partnership, joint stock company or an association, a joint venture, trust,
bank, trust company, land trust, business trust or an estate, or any other
entity and governmental agency and any political subdivision thereof.
"Preferred Stock" means the shares of any series or any class of any series
of Preferred Stock authorized and created by the Board in accordance with the
terms and provisions of the Certificate of Incorporation of the Corporation and
the Delaware General Corporation Law.
"President" shall have the meaning assigned to such term in Sections 5.1
and 5.7 hereof.
A-2
<PAGE> 31
"REIT" means a real estate investment trust as defined in Sections 856 to
860 of the Code.
"REIT Provisions of the Code" means Part II, Subchapter M of Chapter 1 of
the Code, as now enacted or hereafter amended, or successor statutes, relating
to REITs.
"Secretary" shall have the meaning assigned to such term in Sections 5.1
and 5.9 hereof.
"Securities" means any instruments commonly known as "securities,"
including stock, shares, voting trust certificates, bonds, debentures, notes or
other evidences of indebtedness, secured or unsecured, convertible, subordinated
or otherwise, or any certificates of interest, shares or participations, or
warrants, options or rights to subscribe to, purchase or acquire any of the
foregoing.
"Shares" means the Corporation's shares of stock, whether Common Stock or
Preferred Stock.
"Shurgard" means Shurgard Incorporated, a Washington corporation.
"Stockholder" means a holder of the Shares of the Corporation's stock,
whether Common Stock or Preferred Stock.
"Subsidiary" of a Person means an Affiliate controlled by such Person
directly or indirectly, through one or more intermediaries.
"Total Assets" of the Corporation means, as of the date the amount thereof
is to be determined, the greater of (a) the Corporation's total assets computed
in accordance with generally accepted accounting principles, consistently
applied (and which would be reflected on the Corporation's balance sheet if such
balance sheet were prepared as of such date), plus all accumulated depreciation
as of such date, and (b) the fair market value of the Corporation's assets
determined in accordance with guidelines established by the Board, consistently
applied. Notwithstanding the foregoing, the Board may change the guidelines
established for computing the fair market value of its assets, pursuant to
clause (b) of the preceding sentence, if such change is made in good faith and
not for the purpose of circumventing the restrictions contained in the
Indebtedness Restriction, and if applied retroactively would not have prohibited
the Corporation from borrowing any funds at the time such funds were actually
borrowed by the Corporation.
"Treasurer" shall have the meaning assigned to such term in Sections 5.1
and 5.10 hereof.
"Unimproved Real Property" means the property of a REIT which has the
following three (3) characteristics: (a) an equity interest in property which
was not acquired for the purpose of producing rental or other operating income,
(b) no development or construction is in progress on such land, and (c) no
development or construction on such land is planned in good faith to commence
within one (1) year of the property's acquisition by the Corporation or within
one (1) year of the Corporation's receipt of all necessary permits, licenses and
approvals to proceed with development or construction, provided that the
Corporation in good faith, following the acquisition of the land, proceeds to
apply for and pursue the issuance of all permits, licenses and approvals as may
be necessary, prudent or advisable for the development and or construction
planned for the land.
"Vice President" shall have the meaning assigned to such term in Sections
5.1 and 5.8 hereof.
SECTION 2. OFFICES
The principal office of the Corporation shall be located at its principal
place of business or such other place as the Board may designate. The
Corporation may have such other offices, either within or without the State of
Delaware, as the Board may designate or as the business of the Corporation may
require from time to time.
A-3
<PAGE> 32
SECTION 3. STOCKHOLDERS
3.1 Annual Meeting
The annual meeting of the Stockholders shall be held the second Tuesday in
May in each year commencing in 1995 at the principal office of the Corporation
or such other place designated by the Board for the purpose of electing
Directors and transacting such other business as may properly come before the
meeting. If the day fixed for the annual meeting is a legal holiday at the place
of the meeting, the meeting shall be held on the next succeeding business day.
At any time prior to the commencement of the annual meeting, the Board may
postpone the annual meeting for a period of up to one hundred twenty (120) days
from the date fixed for such meeting in accordance with this Section 3.1. If the
annual meeting is not held on the date designated therefor, the Board shall
cause the meeting to be held as soon thereafter as may be convenient.
3.2 Special Meetings
The Chairman of the Board, the President, the Board, a majority of the
Independent Directors or the holders of not less than ten percent (10%) of all
the outstanding Shares entitled to vote at the meeting may call special meetings
of the Stockholders for any purpose.
3.3 Place of Meeting
All meetings shall be held at the principal office of the Corporation or at
such other place within or without the State of Delaware designated by the
Board, by any Persons entitled to call a meeting hereunder or in a waiver of
notice signed by all the Stockholders entitled to notice of the meeting.
3.4 Notice of Meeting
The Chairman of the Board, the President, the Secretary, the Board, the
Independent Directors or Stockholders calling an annual or special meeting of
Stockholders as provided for herein shall cause to be delivered to each
Stockholder entitled to notice of or to vote at the meeting, either personally
or by mail, not less than ten (10) nor more than sixty (60) days before the
meeting, written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. At any time within ten (10) days after receipt of a written request of
the holders of not less than the number of outstanding Shares specified in
Section 3.2 hereof and entitled to vote at the meeting, it shall be the duty of
the Secretary to give notice of a special meeting of Stockholders to be held on
such date and at such place and hour as the Secretary may fix, not less than ten
(10) nor more than sixty (60) days after receipt of said request, and if the
Secretary shall neglect or refuse to issue such notice, the Person making the
request may do so and may fix the date for such meeting. If such notice is
mailed, it shall be deemed delivered when deposited in the official government
mail properly addressed to the Stockholder at the Stockholder's address as it
appears on the stock transfer books of the Corporation with postage prepaid. If
the notice is telegraphed, it shall be deemed delivered when the content of the
telegram is delivered to the telegraph company.
3.5 Business for Stockholders' Meetings
3.5.1 Business at Annual Meetings
In addition to the election of Directors, other proper business may be
transacted at an annual meeting of Stockholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a Stockholder pursuant to written notice thereof,
in accordance with Section 3.5.3 hereof, and received by the Secretary not fewer
than sixty (60) nor more than ninety (90) days prior to the date specified in
Section 3.1 hereof for such annual meeting (or if less than sixty (60) days'
notice or prior public disclosure of the date of the annual meeting is given or
made to the Stockholders, not later than the tenth day following the day on
which the notice of the date of the annual meeting was mailed or such public
disclosure was made). Any Stockholder notice shall set forth (i) the name and
address of the Stockholder
A-4
<PAGE> 33
proposing such business; (ii) a representation that the Stockholder is entitled
to vote at such meeting and a statement of the number of Shares of the
Corporation which are beneficially owned by the Stockholder; (iii) a
representation that the Stockholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the Stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, the language of the proposal (if appropriate) and any
material interest of the Stockholder in such business. No business shall be
conducted at any annual meeting of Stockholders except in accordance with this
Section 3.5.1. If the facts warrant, the Board, or the chairman of an annual
meeting of Stockholders, may determine and declare that (a) a proposal does not
constitute proper business to be transacted at the meeting or (b) business was
not properly brought before the meeting in accordance with the provisions of
this Section 3.5.1, and, if, in either case, it is so determined, any such
business not properly brought before the meeting shall not be transacted. The
procedures set forth in this Section 3.5.1 for business to be properly brought
before an annual meeting by a Stockholder are in addition to, and not in lieu
of, the requirements set forth in Rule 14a-8 under Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor provision.
3.5.2 Business at Special Meetings
At any special meeting of the Stockholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the Person or Persons calling such meeting, in accordance with Section 3.4
hereof, shall come before such meeting.
3.5.3 Notice to Corporation
Any written notice required to be delivered by a Stockholder to the
Corporation pursuant to Section 3.4, Section 3.5.1 or Section 3.5.2 hereof must
be given, either by personal delivery or by registered or certified mail,
postage prepaid, to the Secretary at the Corporation's executive offices.
3.6 Waiver of Notice
3.6.1 In Writing
Whenever any notice is required to be given to any Stockholder under the
provisions of these By-Laws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the Person or
Persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
3.6.2 By Attendance
The attendance of a Stockholder at a meeting shall constitute a waiver of
notice of such meeting, except when a Stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
3.7 Fixing of Record Date for Determining Stockholders
3.7.1 Meetings
For the purpose of determining Stockholders entitled to notice of and to
vote at any meeting of Stockholders or any adjournment thereof, the Board may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than sixty (60) (or the maximum number permitted by applicable
law) nor less than ten (10) days before the date of such meeting. If no record
date is fixed by the Board, the record date for determining Stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of Stockholders
of record entitled to notice of and to vote at the meeting of Stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
A-5
<PAGE> 34
3.7.2 Consent to Corporate Action Without a Meeting
For the purpose of determining Stockholders entitled to consent to
corporate action in writing without a meeting, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which date shall not be more than
ten (10) (or the maximum number permitted by applicable law) days after the date
upon which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
Stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by Chapter 1 of the
Delaware General Corporation Law, as now or hereafter amended, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of Stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
and prior action by the Board is required by Chapter 1 of the Delaware General
Corporation Law, as now or hereafter amended, the record date for determining
Stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board adopts
the resolution taking such prior action.
3.7.3 Dividends, Distributions and Other Rights
The Board may, out of funds legally available therefor, at any regular or
special meeting, declare dividends upon the Shares as and when it deems
expedient. Before declaring any dividends there may be set apart out of any
funds of the Corporation available for dividends, such sums as the Board, from
time to time in its discretion, deems proper for working capital or as a reserve
fund to make contingencies or for equalizing dividends or for such other
purposes as the Board shall deem conducive to the interests of the Corporation.
For the purpose of determining Stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or Stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty (60) (or the maximum number permitted by applicable law) days
prior to such action. If no record date is fixed, the record date for
determining Stockholders for any such purpose shall be at the close of business
on the day on which the Board adopts the resolution relating thereto. Any
distribution of income or capital assets of the Corporation to Stockholders will
be accompanied by a written statement disclosing the source of the funds
distributed. If, at the time of distribution, this information is not available,
a written explanation of the relevant circumstances will accompany the
distribution and a written statement disclosing the source of funds distributed
will be sent to the Stockholders not later than sixty (60) days after the close
of the fiscal year in which the distribution was made.
3.8 Voting List
At least ten (10) days before each meeting of Stockholders, a complete list
of the Stockholders entitled to vote at such meeting, or any adjournment
thereof, shall be made, arranged in alphabetical order, with the address of and
number of Shares held by each Stockholder. This list shall be open to
examination by any Stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. This list shall also be produced and kept
at such meeting for inspection by any Stockholder who is present.
3.9 Quorum
A majority of the outstanding Shares entitled to vote, present in Person or
represented by proxy at the meeting, shall constitute a quorum at a meeting of
the Stockholders; provided, that where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy at the meeting, shall constitute a quorum
entitled to take action with respect to that vote
A-6
<PAGE> 35
on that matter. If less than a majority of the outstanding Shares entitled to
vote are represented at a meeting, a majority of the Shares so represented may
adjourn the meeting from time to time without further notice. If a quorum is
present or represented at a reconvened meeting following such an adjournment,
any business may be transacted that might have been transacted at the meeting as
originally called. The Stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Stockholders to leave less than a quorum.
3.10 Manner of Acting
In all matters other than the election of Directors, if a quorum is
present, the affirmative vote of the majority of the outstanding Shares present
in Person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the Stockholders, unless the vote of a
greater number is required by these By-Laws, the Certificate of Incorporation or
the Delaware General Corporation Law. Where a separate vote by a class or
classes is required, if a quorum of such class or classes is present, the
affirmative vote of the majority of outstanding shares of such class or classes
present in Person or represented by proxy at the meeting shall be the act of
such class or classes. Directors shall be elected by a plurality of the votes of
the Shares present in Person or represented by proxy at the meeting and entitled
to vote on the election of Directors.
3.11 Proxies
3.11.1 Appointment
Each Stockholder entitled to vote at a meeting of Stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another Person or Persons to act for such Stockholder by proxy. Such
authorization may be accomplished by (a) the Stockholder or such Stockholder's
authorized officer, Director, employee or agent executing a writing or causing
his or her signature to be affixed to such writing by any reasonable means,
including facsimile signature, or (b) transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission
to the intended holder of the proxy or to a proxy solicitation firm, proxy
support service or similar agent duly authorized by the intended proxy holder to
receive such transmission; provided, that any such telegram, cablegram or other
electronic transmission must either set forth or be accompanied by information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
by which a Stockholder has authorized another Person to act as proxy for such
Stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
3.11.2 Delivery to Corporation; Duration
A proxy shall be filed with the Secretary before or at the time of the
meeting or the delivery to the Corporation of the consent to corporate action in
writing. A proxy shall become invalid three (3) years after the date of its
execution unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
3.12 Voting of Shares
Each outstanding Share entitled to vote with respect to the subject matter
of an issue submitted to a meeting of Stockholders shall be entitled to one (1)
vote upon each such issue unless otherwise set forth in the Certificate of
Incorporation or other document defining the rights and preferences of any such
Shares.
A-7
<PAGE> 36
3.13 Voting for Directors
Each Stockholder entitled to vote at an election of Directors may vote, in
Person or by proxy, the number of Shares owned by such Stockholder for as many
Persons as there are Directors to be elected and for whose election such
Stockholder has a right to vote.
3.14 Action by Stockholders Without a Meeting
Any action which could be taken at any annual or special meeting of
Stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be (a) signed by all of the Stockholders entitled to vote with respect to
the subject matter thereof (as determined in accordance with Section 3.7.2
hereof) and (b) delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the records of proceedings of
Stockholders meetings. Delivery made to the Corporation's registered office
shall be by hand or by certified mail or registered mail, return receipt
requested. Every written consent shall bear the date of signature of each
Stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless written consents signed by
all of the Stockholders entitled to vote with respect to the subject matter
thereof are delivered to the Corporation, in the manner required by this Section
3.14, within sixty (60) (or the maximum number permitted by applicable law) days
of the earliest dated consent delivered to the Corporation in the manner
required by this Section 3.14. The validity of any consent executed by a proxy
for a Stockholder pursuant to a telegram, cablegram or other means of electronic
transmission transmitted to such proxy holder by or upon the authorization of
the Stockholder shall be determined by or at the direction of the Secretary. A
written record of the information upon which the Person making such
determination relied shall be made and kept in the records of the proceedings of
the Stockholders. Any such consent shall be inserted in the minute book as if it
were the minutes of a meeting of the Stockholders.
3.15 Inspectors of Election
3.15.1 Appointment
In advance of any meeting of Stockholders, the Board shall appoint one or
more Persons to act as inspectors of election at such meeting and to make a
written report thereof. The Board may designate one (1) or more Persons to serve
as alternate inspectors to serve in place of any inspector who is unable or
fails to act. If no inspector or alternate is able to act at a meeting of
Stockholders, the chairman of such meeting shall appoint one or more Persons to
act as inspector of elections at such meeting.
3.15.2 Duties
The inspectors shall:
(a) ascertain the number of Shares of the Corporation outstanding and
the voting power of each such Share;
(b) determine the Shares represented at the meeting and the validity
of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by them; and
(e) certify their determination of the number of Shares represented at
the meeting and their count of the votes and ballots.
The validity of any proxy or ballot shall be determined by the inspectors
of election in accordance with the applicable provisions of the Delaware General
Corporation Law as then in effect. In determining the validity of any proxy
transmitted by telegram, cablegram or other electronic transmission, the
inspectors shall record in writing the information upon which they relied in
making such determination. Each inspector of
A-8
<PAGE> 37
elections shall, before entering upon the discharge of his or her duties, take
and sign an oath to faithfully execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors of
election may appoint or retain other Persons to assist them in the performance
of their duties.
SECTION 4. BOARD OF DIRECTORS
4.1 General Powers
The business and affairs of the Corporation shall be managed by the Board.
4.2 Number and Tenure
The Board shall be composed of not less than three (3) nor more than nine
(9) Directors, the specific number to be set by resolution of the Board or the
Stockholders. The number of Directors may be changed from time to time by
amendment to these By-Laws, subject to the Certificate of Incorporation, but no
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director. At any time the Board consists of more than one (1)
Director, at least a majority of Directors shall at all times be Independent
Directors; provided, however, that in the event of the death, resignation or
removal of an Independent Director, such requirement shall not be applicable for
a period of sixty (60) days. The Board of Directors shall be divided into three
classes, with the classes to be as equal in number as may be possible, with any
Director or Directors in excess of the number divisible by three being assigned
to Class 3 and Class 2, as the case may be. At the 1995 annual meeting of
stockholders, the following classes shall be elected for the terms set forth
below:
<TABLE>
<CAPTION>
CLASS TERM
----- --------
<S> <C>
Class 1............................. 1 year
Class 2............................. 2 years
Class 3............................. 3 years
</TABLE>
At each annual meeting of stockholders following the 1995 annual meeting, the
number of Directors equal to the number of Directors in the class whose term
expires at the time of such meeting shall be elected to serve until the third
ensuing annual meeting of stockholders. Unless a Director dies, resigns or is
removed, he or she shall hold office for the term elected or until his or her
successor is elected and qualified, whichever is later. Directors need not be
Stockholders of the Corporation or residents of the State of Delaware.
4.3 Nomination and Election
4.3.1 Nomination
Only Persons who are nominated in accordance with the following procedures
shall be eligible for election as Directors. Nominations for the election of
Directors may be made (a) by or at the direction of the Board or (b) by any
Stockholder of record entitled to vote for the election of Directors at such
meeting; provided, however, that a Stockholder may nominate Persons for election
as Directors only if written notice (in accordance with Section 3.5.3 hereof) of
such Stockholder's intention to make such nominations is received by the
Secretary (i) with respect to an election to be held at an annual meeting of the
Stockholders, not fewer than sixty (60) nor more than ninety (90) days prior to
the date specified in Section 3.1 hereof for such annual meeting (or if less
than sixty (60) days' notice or prior public disclosure of the date of the
annual meeting is given or made to the Stockholders, not later than the tenth
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made) and (ii) with respect to an election
to be held at a special meeting of the Stockholders for the election of
Directors, not later than the close of business on the seventh business day
following the date on which notice of such meeting is first given to
Stockholders. Any such Stockholder's notice shall set forth (a) the name and
address of the Stockholder who intends to make a nomination; (b) a
representation that the Stockholder is entitled to vote at such meeting and a
statement of the number of Shares of the Corporation which are beneficially
owned by the Stockholder; (c) a representation that the Stockholder intends to
appear in person or by proxy at the meeting
A-9
<PAGE> 38
to nominate the Person or Persons specified in the notice; (d) as to each Person
the Stockholder proposes to nominate for election or re-election as a Director,
the name and address of such Person and such other information regarding such
nominee as would be required in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had such nominee been nominated
by the Board, and a description of any arrangements or understandings, between
the Stockholder and such nominee and any other Persons (including their names),
pursuant to which the nomination is to be made; and (e) the consent of each such
nominee to serve as a Director if elected. If the facts warrant, the Board, or
the chairman of a Stockholders' meeting at which Directors are to be elected,
shall determine and declare that a nomination was not made in accordance with
the foregoing procedure, and, if it is so determined, the defective nomination
shall be disregarded. The right of Stockholders to make nominations pursuant to
the foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. The procedures set forth in this Section 4.3 for nomination
for the election of Directors by Stockholders are in addition to, and not in
limitation of, any procedures now in effect or hereafter adopted by or at the
direction of the Board or any committee thereof.
4.3.2 Election
At each election of Directors, the Persons receiving the greatest number of
votes shall be the Directors.
4.4 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of Stockholders. By resolution, the
Board or any committee designated by the Board may specify the time and place
either within or without the State of Delaware for holding regular meetings
thereof without other notice than such resolution.
4.5 Special Meetings
Special meetings of the Board or any committee appointed by the Board may
be called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any two (2) Directors and,
in the case of any special meeting of any committee appointed by the Board, by
the chairman thereof. The Person or Persons authorized to call special meetings
may fix any place either within or without the State of Delaware as the place
for holding any special Board or committee meeting called by them.
4.6 Meetings by Telephone
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means so that all Persons
participating in the meeting can hear each other. Participation by such means
shall constitute presence in Person at a meeting.
4.7 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally by
telephone or in Person. Neither the business to be transacted at nor the purpose
of any special meeting need be specified in the notice of such meeting.
4.7.1 Personal Delivery
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two (2) days before the meeting.
A-10
<PAGE> 39
4.7.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail properly addressed to a Director at
his or her address shown on the records of the Corporation with postage prepaid
at least five (5) days before the meeting.
4.7.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be deemed effective
when dispatched to a Director at his or her address shown on the records of the
Corporation at least three (3) days before the meeting.
4.7.4 Facsimile Notice
If notice is delivered by wire or wireless equipment that transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two (2) days before the meeting to a Director at his or her telephone
number or other number appearing on the records of the Corporation.
4.7.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be deemed effective
if the content thereof is delivered to the telegraph company at least two (2)
days before the meeting for delivery to a Director at his or her address shown
on the records of the Corporation.
4.7.6 Oral Notice
If notice is delivered orally, by telephone or in Person, the notice shall
be deemed effective if personally given to the Director at least two (2) days
before the meeting.
4.8 Waiver of Notice
4.8.1 In Writing
Whenever any notice is required to be given to any Director under the
provisions of these By-Laws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the Person or
Persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the Board or any committee appointed by the Board need be specified in the
waiver of notice of such meeting.
4.8.2 By Attendance
The attendance of a Director at a Board or committee meeting shall
constitute a waiver of notice of such meeting, except when a Director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
4.9 Quorum
A majority of the total number of Directors fixed by or in the manner
provided in these By-Laws or, if vacancies exist on the Board, a majority of the
total number of Directors then serving on the Board, provided, however, that
such number may be not less than one-third (1/3) of the total number of
Directors fixed by or in the manner provided in these By-Laws, shall constitute
a quorum for the transaction of business at any Board meeting. If less than a
majority are present at a meeting, a majority of the Directors present may
adjourn the meeting from time to time without further notice.
A-11
<PAGE> 40
4.10 Manner of Acting
The act of the majority of the Directors present at a Board or committee
meeting at which there is a quorum shall be the act of the Board or committee,
unless the vote of a greater number is required by these By-Laws, the
Certificate of Incorporation or the Delaware General Corporation Law.
4.11 Presumption of Assent
A Director present at a Board or committee meeting at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent is entered in the minutes of the meeting, or unless
such Director files a written dissent to such action with the Person acting as
the secretary of the meeting before the adjournment thereof, or forwards such
dissent by registered mail to the Secretary immediately after the adjournment of
the meeting. A Director who voted in favor of such action may not dissent.
4.12 Action by Board or Committees Without a Meeting
Any action which could be taken at a meeting of the Board or of any
committee appointed by the Board may be taken without a meeting if a written
consent setting forth the action so taken is signed by each of the Directors or
by each committee member. Any such written consent shall be inserted in the
minute book as if it were the minutes of a Board or a committee meeting.
4.13 Resignation
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board, or to the
registered office of the Corporation. Any such resignation shall take effect at
the time specified therein, or if the time is not specified, upon delivery
thereof, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
4.14 Removal
At a meeting of Stockholders called expressly for that purpose, one or more
members of the Board (including the entire Board) may be removed, but only with
cause, by a vote of the holders of a majority of the Shares then entitled to
vote on the election of Directors.
4.15 Vacancies
Any vacancy occurring on the Board may be filled by the affirmative vote of
a majority of the remaining Directors though less than a quorum of the Board;
provided, however, that a vacancy created by the death, resignation or removal
of an Independent Director, in the absence of a vote of the Stockholders, may be
filled only by the vote of a majority of the remaining Independent Directors. A
Director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office. Any Directorship to be filled by reason of an
increase in the number of Directors may be filled by the Board for a term of
office continuing only until the next election of the class for which such
Director shall have been chosen, and until his or her successor shall be elected
and qualify.
4.16 Executive and Other Committees
4.16.1 Creation and Authority of Committees
The Board may, by resolution passed by a majority of the number of
Directors fixed by or in the manner provided in these By-Laws, appoint standing
or temporary committees, including an "Executive Committee," each committee to
consist of one or more Directors, and invest such committees with such powers as
it may see fit, subject to such conditions as may be prescribed by the Board and
by applicable law; but no such committee shall have the power or authority of
the Board in reference to (a) amending the Certificate of Incorporation, (b)
adopting a plan of merger or consolidation, (c) recommending to the Stockholders
the sale, lease or exchange or other disposition of all or substantially all the
property and assets of the Corporation
A-12
<PAGE> 41
other than in the usual and regular course of business, (d) recommending to the
Stockholders a voluntary dissolution or a revocation thereof, (e) amending these
By-Laws, (f) declaring a dividend, or (g) authorizing the issuance of stock. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a committee member, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member.
4.16.2 Audit Committee
In addition to any committees appointed pursuant to this Section 4.16,
there shall be an "Audit Committee," appointed annually by the Board, consisting
of at least two (2) Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the Corporation, to review
compliance with all corporate policies that have been approved by the Board and
to discharge such other responsibilities as may from time to time be assigned to
it by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
4.16.3 Compensation Committee
The Board may, in its discretion, designate a "Compensation Committee"
consisting of not less than two (2) Directors or such higher number as the Board
may from time to time determine. The duties of the Compensation Committee shall
consist of the following: (a) to establish and review periodically, but not less
than annually, the compensation of the officers of the Corporation and to make
recommendations concerning such compensation to the Board; (b) to consider
incentive compensation plans for the employees of the Corporation; (c) to carry
out the duties assigned to the Compensation Committee under any stock option
plan or other plan approved by the Corporation; (d) to consult with the
President concerning any compensation matters deemed appropriate by the
President or the Compensation Committee; and (e) to perform such other duties as
shall be assigned to the Compensation Committee by the Board.
4.16.4 Nominating and Organization Committee
The Board may, in its discretion, designate a "Nominating and Organization
Committee" consisting of not less than two (2) Directors or such higher number
as the Board may from time to time determine. The duties of the Nominating and
Organization Committee shall consist of the following: (a) to report and make
recommendations to the Board on the size and composition of the Board and
nominees for Directors; (b) to evaluate the performance of the officers of the
Corporation and, together with management, select and recommend to the Board
appropriate individuals for election, appointment and promotion as officers of
the Corporation and ensure the continuity of capable management; (c) to report
and make recommendations to the Board on the organization of the Corporation;
and (d) to perform such other duties as shall be assigned to the Nominating and
Organization Committee by the Board.
4.16.5 Minutes of Meetings
All committees so appointed shall keep regular minutes of their meetings
and shall cause them to be recorded in books kept for that purpose.
4.16.6 Quorum and Manner of Acting
A majority of the number of Directors composing any committee of the Board,
as established and fixed by resolution of the Board, shall constitute a quorum
for the transaction of business at any meeting of such committee, but, if less
than a majority are present at a meeting, a majority of such Directors present
may adjourn the meeting from time to time without further notice. The act of a
majority of the members of a committee present at a meeting at which a quorum is
present shall be the act of such committee.
A-13
<PAGE> 42
4.16.7 Resignation
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary, the
Board or the chairman of such committee. Any such resignation shall take effect
at the time specified therein or, if the time is not specified, upon delivery
thereof, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
4.16.8 Removal
The Board may remove from office any member of any committee elected or
appointed by it or by an Executive Committee, but only by the affirmative vote
of not less than a majority of the number of Directors fixed by or in the manner
provided in these By-Laws.
4.17 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 5. OFFICERS
5.1 Number
The officers of the Corporation shall be a President, a Secretary and a
Treasurer, each of whom shall be elected by the Board. One or more Vice
Presidents and such other officers and assistant officers, including a Chairman
of the Board, may be elected or appointed by the Board, such officers and
assistant officers to hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as may be provided by
resolution of the Board. Any officer may be assigned by the Board any additional
title that the Board deems appropriate. The Board may delegate to any officer or
agent the power to appoint any such subordinate officers or agents and to
prescribe their respective terms of office, authority and duties. Any two (2) or
more offices may be held by the same Person.
5.2 Election and Term of Office
The officers of the Corporation shall be elected annually by the Board at
the Board meeting held after the annual meeting of the Stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as a Board meeting conveniently may be held. Unless an officer
dies, resigns or is removed from office, he or she shall hold office until the
next annual meeting of the Board or until his or her successor is elected.
5.3 Resignation
Any officer may resign at any time by delivering written notice to the
Chairman of the Board, the President, a Vice President, the Secretary or the
Board. Any such resignation shall take effect at the time specified therein or,
if the time is not specified, upon delivery thereof, and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
5.4 Removal
Any officer or agent elected or appointed by the Board may be removed by
the Board whenever in its judgment the best interests of the Corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the Person so removed.
A-14
<PAGE> 43
5.5 Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board for the unexpired portion of the term, or for a new term established
by the Board.
5.6 Chairman of the Board and Vice-Chairman of the Board
If elected, the Chairman of the Board shall perform such duties as shall be
assigned to him or her by the Board from time to time and shall preside over
meetings of the Board and Stockholders unless another officer is appointed or
designated by the Board as Chairman of such meeting. If elected, the
Vice-Chairman of the Board shall perform such duties as shall be assigned to him
or her by the Board from time to time and shall preside over meetings of the
Board and Stockholders in the absence of the Chairman of the Board unless
another officer is appointed or designated by the Board as Chairman of such
meeting.
5.7 President
The President shall be the chief executive officer of the Corporation
unless some other officer is so designated by the Board, shall preside over
meetings of the Board and Stockholders in the absence of a Chairman of the Board
and, subject to the Board's control, shall supervise and control all the assets,
business and affairs of the Corporation. The President may sign certificates for
Shares, deeds, mortgages, bonds, contracts or other instruments, except when the
signing and execution thereof have been expressly delegated by the Board or by
these By-Laws to some other officer or agent of the Corporation or are required
by law to be otherwise signed or executed by some other officer or in some other
manner. In general, the President shall perform all duties incident to the
office of President and such other duties as are prescribed by the Board from
time to time.
5.8 Vice President
In the event of the death of the President or his or her inability to act,
the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President or,
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Any Vice President may sign with the Secretary
or any Assistant Secretary certificates for Shares. Vice Presidents shall have,
to the extent authorized by the President or the Board, the same powers as the
President to sign deeds, mortgages, bonds, contracts or other instruments. Vice
Presidents shall perform such other duties as from time to time may be assigned
to them by the President or by the Board. A Vice President may be designated as
an Executive Vice President, a Senior Vice President or a Vice President of a
specific function or responsibility or may be otherwise designated at the
discretion of the Board to differentiate various Vice Presidential positions.
5.9 Secretary
The Secretary shall be responsible for the preparation of minutes of
meetings of the Board and Stockholders, maintenance of the Corporation's records
and stock registers, and authentication of the Corporation's records and shall
in general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President or by
the Board. In the absence of the Secretary, an Assistant Secretary may perform
the duties of the Secretary.
5.10 Treasurer
If required by the Board, the Treasurer shall give a bond for the faithful
discharge of his or her duties in such amount and with such surety or sureties
as the Board shall determine. The Treasurer shall have charge and custody of and
be responsible for all funds and Securities of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in banks,
trust companies or other depositories selected in accordance with the
A-15
<PAGE> 44
provisions of these By-Laws; sign certificates for Shares; and in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the President or by the
Board. In the absence of the Treasurer, an Assistant Treasurer may perform the
duties of the Treasurer.
5.11 Salaries
The salaries of the officers shall be fixed from time to time by the Board
or by any Person or Persons to whom the Board has delegated such authority. No
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a Director.
SECTION 6. CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 Contracts
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation. Such authority may be general or confined to
specific instances.
6.2 Loans to the Corporation
No loans shall be contracted on behalf of the Corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
6.3 Checks, Drafts, etc.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, or agent or agents, of the Corporation and in such
manner as is from time to time determined by resolution of the Board.
6.4 Deposits
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board may select.
SECTION 7. CERTIFICATES FOR SHARES AND THEIR TRANSFER
7.1 Issuance of Shares
No Shares shall be issued unless authorized by the Board, which
authorization shall include the maximum number of Shares to be issued and the
consideration to be received for each share.
7.2 Certificates For Shares
Certificates representing Shares shall be signed by the Chairman of the
Board or Vice Chairman of the Board or the President or the Vice President and
by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, any of whose signatures may be a facsimile. The Board may in its
discretion appoint responsible banks, trust companies or other qualified
entities from time to time to act as transfer agents and registrars of the stock
of the Corporation; and, when such appointments shall have been made, no stock
certificate shall be valid until countersigned by one of such transfer agents
and registered by one of such registrars. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such Person was such officer, transfer agent or registrar at
the date of issue. All certificates shall include on their face written notice
of any
A-16
<PAGE> 45
restrictions which may be imposed on the transferability of such Shares and
shall be consecutively numbered or otherwise identified.
7.3 Stock Records
The stock transfer books shall be kept at the registered office or
principal place of business of the Corporation or at the office of the
Corporation's transfer agent or registrar. The name and address of each Person
to whom certificates for Shares are issued, together with the class and number
of Shares represented by each such certificate and the date of issue thereof,
shall be entered on the stock transfer books of the Corporation. The Person in
whose name Shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
7.4 Restriction on Transfer
Except to the extent that the Corporation has obtained an opinion of
counsel acceptable to the Corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
Shares shall bear a legend on the face of the certificate, or on the reverse of
the certificate if a reference to the legend is contained on the face, which
reads substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or any applicable state law,
and no interest therein may be sold, distributed, assigned, offered,
pledged or otherwise transferred unless (a) there is an effective
registration statement under such Act and applicable state securities laws
covering any such transaction involving said securities or (b) this
corporation receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for this corporation) stating
that such transaction is exempt from registration or (c) this corporation
otherwise satisfies itself that such transaction is exempt from
registration. Neither the offering of the securities nor any offering
materials have been reviewed by any administrator under the Securities Act
of 1933, as amended, or any applicable state law."
7.5 Transfers of Shares
Subject to Section 7.7 hereof, Shares shall be transferable on the records
of the Corporation upon presentment to the Corporation or a transfer agent of a
certificate or certificates representing the Shares requested to be transferred,
with proper endorsement on the certificate or on a separate accompanying
document, together with such evidence of the payment of transfer taxes and
compliance with other provisions of law as the Corporation or its transfer agent
may require. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former
certificates for a like number of Shares shall have been surrendered and
cancelled.
Whenever it is deemed by the Board to be reasonably necessary to protect
the tax status of the Corporation, the Board may require a statement or
affidavit from each Stockholder or proposed transferee of Shares setting forth
the number of Shares already owned by such Person and any related Person
specified in the form prescribed by the Board for that purpose. If, in the
opinion of the Board, which shall be conclusive, any proposed transfer would
jeopardize the status of the Corporation as a REIT under the REIT Provisions of
the Code, as now enacted or as hereafter amended, the Directors may refuse to
permit such transfer. Any attempted transfer for which the Directors have
refused this permission shall be void and of no effect to transfer any legal or
beneficial interest in the Shares. All contracts for the sale or other transfer
of Shares shall be subject to this provision.
7.6 Stockholders' Disclosures
The Stockholders, upon demand, shall disclose to the Corporation in writing
such information with respect to direct and indirect ownership of the Shares as
the Board deems necessary to comply with the provisions of the Code and the
regulations thereunder or to comply with the requirements of any other taxing
authority, including the provisions relating to qualification of the Corporation
as a REIT.
A-17
<PAGE> 46
7.7 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
Corporation as the Board may prescribe.
SECTION 8. BOOKS AND RECORDS
8.1 Maintenance of Books and Records
The Corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its Stockholders
and Board, and such other records as may be necessary or advisable.
8.2 Annual Report to Stockholders
The Board shall cause an annual report to be sent to the Stockholders not
later than one hundred twenty (120) days after the close of the fiscal year
adopted by the Corporation. This report shall be sent at least thirty (30) days
before the annual meeting of Stockholders to be held during the next fiscal year
and in the manner specified in Section 3.4 hereof for giving notice to
Stockholders. The annual report shall contain financial statements prepared in
accordance with generally accepted accounting principles which are audited and
reported on by independent certified public accountants.
SECTION 9. ACCOUNTING YEAR
The accounting year of the Corporation shall be the calendar year, provided
that if a different accounting year is at any time selected for purposes of
federal income taxes, the accounting year shall be the year so selected.
SECTION 10. SEAL
The seal of the Corporation, if any, shall consist of the name of the
Corporation, the state of its incorporation and the year of its incorporation.
SECTION 11. INDEMNIFICATION
11.1 Right to Indemnification
Each Person who was or is made a party or is threatened to be made a party
to or is otherwise involved (including, without limitation, as a witness) in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a Director or an officer of the Corporation or
that, being or having been such a Director or an officer or an employee of the
Corporation, he or she is or was serving at the request of an executive officer
of the Corporation as a Director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as such a Director, officer, employee or agent or in any other
capacity while serving as such a Director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the full extent permitted by
the Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
permitted prior thereto), or by other applicable law as then in effect, against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by such indemnitee in connection therewith, and
such indemnification shall continue as to an indemnitee who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administra-
A-18
<PAGE> 47
tors; provided, however, that except as provided in Section 11.2 hereof with
respect to proceedings seeking to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section 11.1 shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a Director or an officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced upon ultimate determination of
nonentitlement to indemnification for such expenses under this Section 11.1 or
otherwise.
11.2 Right of Indemnitee to Bring Suit
If a claim under Section 11.1 hereof is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty (20) days, the indemnitee may
at any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expense of prosecuting or defending such suit. Neither the failure of the
Corporation (including its Board, independent legal counsel or its Stockholders)
to have made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances nor an actual
determination by the Corporation (including its Board, independent legal counsel
or its Stockholders) that the indemnitee is not entitled to indemnification
shall be a defense to the suit or create a presumption that the indemnitee is
not so entitled.
11.3 Nonexclusivity of Rights
The rights to indemnification and to the advancement of expenses conferred
in this Section 11 shall not be exclusive of any other right which any Person
may have or hereafter acquire under any statute, agreement, vote of Stockholders
or Independent Directors, provisions of the Certificate of Incorporation or
By-Laws or otherwise. Notwithstanding any amendment to or repeal of this Section
11, or of any of the procedures established by the Board of Directors pursuant
to Section 11.7, any indemnitee shall be entitled to indemnification in
accordance with the provisions hereof and thereof with respect to any acts or
omissions of such indemnitee occurring prior to such amendment or repeal.
11.4 Insurance, Contracts and Funding
The Corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such Person against such expense, liability or loss under the
Delaware General Corporation Law. The Corporation, without further Stockholder
approval, may enter into contracts with any Director, officer, employee or agent
in furtherance of the provisions of this Section 11 and may create a trust fund,
grant a security interest or use other means (including, without limitation, a
letter of credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Section 11.
11.5 Indemnification of Employees and Agents of the Corporation
The Corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees or agents or groups of
employees or agents of the Corporation with the same scope and effect as the
provisions of this Section 11 with respect to the indemnification and
advancement of expenses of
A-19
<PAGE> 48
Directors and officers of the Corporation; provided, however, that an
undertaking shall be made by an employee or agent only if required by the Board.
11.6 Persons Serving Other Entities
Any Person who is or was a Director, an officer or employee of the
Corporation who is or was serving (a) as a director or an officer of another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Corporation or (b) in an executive or management
capacity in a partnership, joint venture, trust or other enterprise of which the
Corporation or a wholly owned Subsidiary of the Corporation is a general partner
or has a majority Ownership shall be deemed to be so serving at the request of
an executive officer of the Corporation and entitled to indemnification and
advancement of expenses under Section 11.1 hereof.
11.7 Procedures for the Submission of Claims
The Board may establish reasonable procedures for the submission of claims
for indemnification pursuant to this Section 11, determination of the
entitlement of any Person thereto and review of any such determination. Such
procedures shall be set forth in an appendix to these By-Laws and shall be
deemed for all purposes to be a part hereof.
SECTION 12. INVESTMENT POLICY AND RESTRICTIONS
12.1 General Statement of Policy
12.1.1 Types of Investments
The Corporation intends to invest, directly or indirectly, in: (a)
self-service storage facilities; (b) office and business parks; (c) such other
commercial real estate investments as may be approved by the Board from time to
time; and (d) Mortgage Loans secured by real estate of a type in which the
Corporation is authorized to invest. Subject to the restrictions of this Section
12, the Corporation's investments may be acquired in such manner, through such
means and upon such terms and conditions as may be determined by the Board, and
such investments may include, but are not limited to, direct acquisitions by the
Corporation of real estate interests as well as investments in corporations,
business trusts, general partnerships, limited partnerships, joint ventures or
other legal entities that acquire real estate investments. All investments made
by the Corporation, except those pursuant to Section 12.3 hereof, must be
approved by a majority of the Directors or made in accordance with guidelines
approved by the Board and in effect at the time the investments are made by the
Corporation's management.
12.1.2 Tax Treatment as a REIT
As soon the Corporation commences doing business, the Corporation shall use
its best efforts to be eligible for tax treatment as a REIT under the Code,
shall make such elections and filings, and take such other actions as may be
necessary, to be treated as a REIT under the Code and shall thereafter conduct
its business to continue to qualify as a REIT under the REIT Provisions of the
Code.
12.1.3 Liability Protection
Although the general purpose of the Corporation is to qualify as a REIT
under the REIT Provisions of the Code, no Director, officer, employee, agent or
independent contractor of the Corporation shall be liable for any act or
omission resulting in the loss of tax benefits under the Code.
12.1.4 Review of Investment Policies
The Independent Directors shall review the investment policies of the
Corporation at least annually to determine that the policies being followed by
the Corporation are in the best interests of its Stockholders. Each such
determination and the basis therefore shall be set forth in the minutes of the
Directors.
A-20
<PAGE> 49
12.2 Appraisal Requirement
The consideration paid for real property acquired by the Corporation shall
ordinarily be based on the fair market value of the property as determined by a
majority of the Directors. In determining the fair market value of property
acquired by the Corporation, the Directors shall be entitled to rely upon
appraisals prepared by qualified independent real estate appraisers selected by
the Corporation or such other market data and information available to the
Directors which, in their judgment, afford a reasonable basis for making an
informed determination as to the fair market value of the property being
acquired.
12.3 Specific Investments
Pending investment or reinvestment of the Corporation's assets in the type
of investments described in Section 12.1 hereof, the Corporation may invest its
assets in investments such as: (a) U. S. government securities, (b) bankers'
acceptances, (c) certificates of deposit, (d) bank repurchase agreements
covering securities of the U. S. government or governmental agencies, (e)
commercial paper rated A-1 or better by Moody's Investors Service, Inc. or any
other nationally recognized rating agency, (f) interest-bearing time deposits in
banks and thrift institutions, (g) money market funds, (h) mortgage-backed
securities issued or guaranteed by the U. S. government or its agencies, (i)
debt securities or equity securities collateralized by debt securities rated A-1
or better by Moody's Investors Service, Inc., or any other nationally recognized
rating agency, (j) other short- or medium-term liquid investments or hybrid
debt/equity securities approved by the Board, and (k) any combination of the
foregoing investments.
12.4 Reserves
The Corporation may retain, as a permanent reserve, such funds as the Board
deems reasonable, in cash and in the types of investments described in Section
12.3 hereof.
12.5 Investment Restrictions
The Corporation shall not:
(a) invest more than ten percent (10%) of its Total Assets in
Unimproved Real Property or Mortgage Loans on Unimproved Real Property;
(b) invest in foreign currency, bullion, commodities or commodity
future contracts;
(c) invest in or make a Mortgage Loan, except on the following
conditions:
(i) in determining the fair market value of the underlying property
securing the Mortgage Loan, the Directors shall be entitled to rely upon
appraisals prepared by qualified independent real estate appraisers
selected by the Corporation or such other market data and information
available to the Directors which, in their judgment, afford a reasonable
basis for making an informed determination as to the fair market value
of such underlying property;
(ii) the Corporation has obtained a mortgagee's or owner's title
insurance policy or other commitment as to the priority of the mortgage
or the condition of the title of the underlying property;
(iii) the Mortgage Loan is secured by real estate of a type in
which the Corporation is authorized to invest;
(iv) the aggregate amount of the Mortgage Loan and all senior
indebtedness as secured by the underlying property does not exceed
ninety percent (90%) of the appraised value of the property as
determined by an independent appraiser or as determined by the Board
pursuant to this Section 12.5(c), unless the Board determines that an
increased amount is justified by additional credit or collateral, such
as personal guarantees or the pledge of additional assets, and the
aggregate value of Mortgage Loans junior to other secured indebtedness
does not exceed ten percent (10%) of the Corporation's Total Assets;
A-21
<PAGE> 50
(v) the Mortgage Loan is not subordinate to any mortgage or equity
interest of a Director or any Affiliates thereof or any other Affiliate
of the Corporation; and
(vi) the investment in the Mortgage Loan would not cause the
Corporation to have invested, immediately after the making of such
investment, more than twenty-five percent (25%) of its Total Assets in
Mortgage Loans;
(d) invest in contracts for the sale of real estate;
(e) engage in underwriting or the agency distribution of securities
issued by others;
(f) issue "redeemable securities" (as defined in Section 2(a)(32) of
the Investment Company Act of 1940, as amended), "face amount certificates
of the installment type" (as defined in Section 2(a)(15) thereof) or
"periodic payment plan certificates" (as defined in Section 2(a)(27)
thereof);
(g) invest in the equity securities of any nongovernmental issuer for
a period in excess of eighteen (18) months, except for investments in the
Other Shurgard Programs, equity investments in any Person organized for the
primary purpose of investing in self-service storage facilities and office
parks or for rendering Ancillary Services with respect to the ownership,
operation and holding of such real estate assets made pursuant to Section
12.6(f) or 12.8 hereof, equity interests in any general partnership, joint
venture, association, trust, limited partnership or other legal entity
permitted under Section 12.9 hereof, equity interests in entities that
would be considered qualified REIT subsidiaries of the Corporation under
Section 856(i) of the Code and investments in REITs the portfolios of which
consist of assets the Board of Directors considers appropriate for the
Corporation, were it to hold such assets directly;
(h) issue debt securities of the Corporation unless the issuance of
such debt is not restricted by Section 12.6 hereof and the historical debt
service coverage (in the most recently completed fiscal year), as adjusted
for known changes, would, in the opinion of the Board, be sufficient to
service the principal and interest payments from the higher level of
corporate debt;
(i) issue options, warrants or similar evidences of a right to
purchase the Corporation's Securities unless (i) issued to all its
Stockholders ratably, (ii) as a part of a financing arrangement, or (iii)
as a part of a stock option or similar plan to compensate the Corporation's
Directors, officers, employees, consultants, advisors and/or other similar
persons that has been approved by the Board; provided, however, that the
number of Shares of Common Stock subject to outstanding options under such
plan shall not exceed ten percent (10%) of the then outstanding Shares of
Common Stock;
(j) engage in short sales, or borrow, on an unsecured basis, if such
borrowing will result in an Asset Coverage of less than three hundred
percent (300%);
(k) engage in trading activities in Securities, as compared with
investment activities;
(l) invest in any commercial real estate other than self-service
storage facilities or office and business parks, unless the Board makes
each of the following determinations as to the proposed investment:
(i) the acquisition and holding of the investment would not
jeopardize or in the future be likely to jeopardize the qualification of
the Corporation as a REIT under the Code;
(ii) the Corporation's management has the experience and expertise
necessary for effective management of the investment or has contracted
or will contract, on behalf of the Corporation, with a third party
manager having such experience and expertise; and
(iii) the investment constitutes a prudent and reasonable
investment by the Corporation and is being made for the purpose of (A)
maximizing the value of property acquired by the Corporation, a portion
of which is being used as or was acquired for the purpose of a
self-service storage facility or an office and business park, or (B)
diversifying the Corporation's portfolio to protect the value of its
assets and to hedge against the risk of having the Corporation's assets
concentrated in self-service storage facilities and office and business
parks; and
A-22
<PAGE> 51
(m) acquire securities in any company holding investments or engaging
in activities prohibited by paragraphs (a) through (e), (i) and (k) of this
Section 12.5.
12.6 Restrictions Upon Dealings Between the Corporation and Interested Parties
(a) General Restriction. Except as provided in this Section 12.6, the
Corporation shall not engage in a transaction with any Interested Party. Any
transaction between the Corporation and any Interested Party made in compliance
with the requirements of this Section 12.6 shall be valid notwithstanding such
relationship and such Interested Party shall not be under any disability from or
have any liability as a result of entering into any such transaction with the
Corporation.
(b) Sales to the Corporation. The Corporation shall not purchase property
from any Interested Party, unless, after disclosure to the Board of the interest
of the Interested Party in the proposed transaction, a majority of Directors not
otherwise interested in such transaction (including a majority of the
Independent Directors) has determined that the property is being offered to the
Corporation upon terms fair and reasonable to the Corporation.
(c) Sales by the Corporation. The Corporation shall not sell property to a
Director or any Affiliate thereof.
(d) Loans to or From the Corporation. The Corporation shall not make loans
to, or borrow funds from, any Interested Party unless, after disclosure to the
Board of the interest of the Interested Party in the proposed transaction, a
majority of Directors not otherwise interested in such transaction (including a
majority of the Independent Directors) approves the transaction as being fair,
competitive and commercially reasonable and no less favorable to the Corporation
than loans between unaffiliated lenders and borrowers under the same
circumstances.
(e) Other Services and Transactions. Except to the extent otherwise
expressly authorized by the terms of Section 12.6 or this Section 12.6(e), the
Corporation shall not enter into any transaction with any Interested Party,
unless the terms and conditions of such transaction have been disclosed to the
Board and approved by a majority of the Directors not otherwise interested in
the matter (including a majority of Independent Directors). The disclosure
required by this Section 12.6(e) shall be in writing and shall fully describe
all the material terms and conditions of the proposed transaction, and such
Directors in approving the transaction have determined the transaction to be
fair, competitive and commercially reasonable and on terms and conditions not
less favorable to the Corporation than those available from unaffiliated third
parties. The determinations required by this Section 12.6(e) shall be set forth
in writing, together with such explanation as the Directors deem necessary or
advisable, and shall be filed with the Corporation's books and records. In
construing this Section 12.6(e), the term "transaction" shall be understood to
refer to any dealings between the Corporation and an Interested Party, wherein
the Corporation transfers, or is obligated to transfer, to the Interested Party
valuable consideration, whether in the form of cash, securities, tangible
assets, intangible assets or otherwise, in exchange for property, services,
waiver of claims or other valuable consideration, however designated.
(f) Ancillary Services. The Corporation may permit one or more third
parties, including a property manager, a Director and/or an Affiliate thereof,
to offer Ancillary Services to its customers or others or use the Corporation's
properties as a site for offering such Ancillary Services, provided that the
conditions in Section 12.8 hereof are satisfied.
12.7 Corporation's Right to Borrow Funds
Subject to the restrictions contained in this Section 12.7, the Corporation
may, at any time, at the discretion of the Board, borrow funds, on a secured or
unsecured basis, from institutional lenders, banks and other lenders selected by
the Board and, in connection therewith, execute, issue and deliver promissory
notes, commercial paper, notes, debentures, bonds and other debt obligations
(which may be convertible into Shares or other equity interests or be issued
together with warrants to acquire Shares or other equity interests).
A-23
<PAGE> 52
Notwithstanding the foregoing, except as otherwise provided in the following
sentence, the Corporation shall not borrow any funds if, after giving effect to
such borrowing, the Corporation's Indebtedness would exceed fifty percent (50%)
of its Total Assets. The ceiling upon the Corporation's Indebtedness imposed by
the preceding sentence shall not prohibit the Corporation from incurring
Indebtedness as necessary to refinance Indebtedness previously obtained by the
Corporation, which was permissible at the time such Indebtedness was obtained,
and to make distributions to Stockholders in order to preserve the eligibility
of the Corporation as a REIT under the provisions of the Code. The restriction
upon the Corporation's ability to borrow funds is to be applied at the time the
borrowing is obtained by the Corporation. Any borrowing by the Corporation
permitted at the time such borrowing is made does not become unauthorized, or
constitute a violation of these By-Laws, even if, after the borrowing is in
place, the Corporation's Indebtedness exceeds the ceiling upon Indebtedness
referenced above (namely, the fifty percent (50%) ceiling), whether or not such
excess is due, in part, to any accrued but unpaid interest, late fees or
penalties, finance charges or other amounts due with respect to the
Corporation's new borrowing or previous borrowings. In addition, the Corporation
shall not borrow any funds if, after giving effect to such borrowing, the
Corporation's Indebtedness would exceed three hundred percent (300%) of its
Adjusted Net Worth. The Board shall review the status of the Corporation's
Indebtedness at least quarterly.
12.8 Pursuit of Ancillary Services
(a) The Corporation may provide any Ancillary Services to its tenants or
others as long as the Board believes in good faith that the Corporation's
pursuit of such Ancillary Services would not jeopardize the Corporation's
qualification as a REIT under the Code.
(b) In the event that the Corporation's pursuit of one or more of the
Ancillary Services might jeopardize the qualification of the Corporation as a
REIT under the Code, the Corporation may, in lieu of offering such Ancillary
Services directly:
(i) restructure the manner in which such Ancillary Services are
offered to the Corporation's tenants or others, alter the pricing of the
Ancillary Services or take such other action as the Corporation deems
necessary;
(ii) invest in one or more other entities which directly provide the
Ancillary Services to the Corporation's tenants or others; or
(iii) permit others, including Interested Parties, to offer the
Ancillary Services to the Corporation's tenants or others in compliance
with the terms of Section 12.8(c) hereof;
provided, however, that, in each such instance, the Board has received an
opinion from tax counsel or a ruling from the IRS that such action, subject to
the qualifications and restrictions imposed by the Board, and such other
assumptions as the Board may reasonably establish, would not disqualify the
Corporation from taxation as a REIT under the Code.
(c) The Corporation may permit one or more third parties to offer Ancillary
Services to its customers or others, or to use the Corporation's properties as a
site for offering such Ancillary Services, if the Board has, in good faith, made
the following determinations:
(i) the Corporation does not wish, or consider it advisable, to offer
the Ancillary Services directly to its tenants and others or has determined
that rendering such Ancillary Services would jeopardize the qualification
of the Corporation as a REIT under the Code;
(ii) permitting others to render such Ancillary Services would likely
increase the rental revenues or other income derived from the ownership of
the Corporation's properties, enhance the competitiveness of the
Corporation or otherwise provide economic benefits, directly or indirectly,
to the Corporation;
(iii) the party or parties rendering the Ancillary Services are
competent to do so, have experience in rendering such Ancillary Services
and have entered into a written contract with the Corporation with respect
to the provision of the Ancillary Services, having terms and conditions
deemed fair and equitable to the Board; and
A-24
<PAGE> 53
(iv) if the Person to render the Ancillary Services is an Interested
Party, the transaction has been disclosed to and approved by the Directors
as provided in Section 12.6(e) hereof.
12.9 Corporation's Right to Participate in Joint Investments
The Corporation may participate in, and contribute funds to or invest in,
any general partnership, joint venture, association, trust, limited partnership
or other legal entity (a "Joint Enterprise") as long as:
(a) such investment in the Joint Enterprise would not (i) jeopardize
the qualification of the Corporation as a REIT under the Code or (ii)
result in the Corporation's becoming an investment company within the
meaning of the Investment Company Act of 1940, as amended (unless the
Corporation is exempt from all the provisions of such Act);
(b) the principal purpose of the Joint Enterprise is either to own,
manage, hold, occupy or otherwise deal with self-service storage facilities
and/or office and business parks, and/or with Mortgage Loans collateralized
by such assets, or to render Ancillary Services to Persons who own, manage
or hold self-service storage facilities, office and business parks and/or
Mortgage Loans collateralized by such assets; and
(c) if one or more of the other parties to the Joint Enterprise are
Interested Parties, such transaction has been disclosed to and approved by
the Directors (including a majority of the Independent Directors) as
provided in Section 12.6(e) hereof.
12.10 Investment in Corporation's Shares
The Corporation may, at any time, at the discretion of the Board, invest in
any class or series of the Common Stock or Preferred Stock, or in any promissory
notes, commercial paper, notes, debentures, bonds or other debt obligations, for
the purpose of supporting the value of any such securities and for any other
valid corporate purposes; provided, however, that until March 1, 1997, any
action to support the value of the Common Stock must be approved by a majority
vote of the Independent Directors.
SECTION 13. INDEPENDENT ACTIVITIES
13.1 Shares Held by Directors and Officers
Any Director or officer may acquire, own, hold and dispose of Shares, for
his or her individual account, and may exercise all rights of a Stockholder to
the same extent and in the same manner as if he or she were not a Director or an
officer.
13.2 Business Interests and Investments of Directors
Subject to the limitations contained in this Section 13.2, any Director who
is not an officer may have personal business interests and may engage in
personal business activities, which interests and activities may include the
acquisition, syndication, holding, management, operation or disposition, for his
or her own account or for the account of others, of interests in real property
or Persons engaged in the real estate business, even if those interests and
activities directly compete with the actual business being conducted by the
Corporation, and is not required to present to the Corporation any business
opportunity which comes to him or her even though such opportunity is within the
Corporation's investment policies.
13.3 Other Business Relationships of Directors
Subject to the provisions of Section 12 hereof, any Director or officer may
be interested as trustee, officer, director, stockholder, partner, member,
advisor or employee, or otherwise have a direct or indirect interest in any
Person who may be engaged to render advice or services to the Corporation, and
may receive compensation from such Person as well as compensation as Director,
officer or otherwise hereunder, and no such activity shall be deemed to conflict
with his or her duties and powers as Director or officer.
A-25
<PAGE> 54
SECTION 14. AMENDMENTS
These By-Laws may be amended or repealed and new By-Laws may be adopted by
the Board; provided, however, that all By-Laws made by the Board may be amended
or repealed by the Stockholders.
SECTION 15. MISCELLANEOUS
15.1 Provisions in Conflict with Law or Regulations
The provisions of these By-Laws are separable, and if the Board shall
determine, with the advice of counsel, that any one or more of such provisions
(the "Conflicting Provisions") are in conflict with the REIT Provisions of the
Code, the Delaware General Corporation Law or other applicable federal or
Delaware laws and regulations, the Conflicting Provisions shall be deemed never
to have constituted a part of these By-Laws; provided, however, that such
determination of the Directors shall not affect or impair any of the remaining
provisions of these By-Laws or render invalid or improper any action taken or
omitted (including, but not limited to, the election of Directors) prior to such
determination. Such determination shall become effective when a certificate,
signed by a majority of the Directors setting forth any such determination and
reciting that it was duly adopted by the Directors, shall be filed with the
books and records of the Corporation. The Directors shall not be liable for
failure to make any determination under this Section 17. Nothing in this Section
17 shall in any way limit or affect the rights of the Directors or the
Stockholders to amend these By-Laws.
15.2 Reliance Upon Legal Advice
The Directors, including the Independent Directors, may retain one or more
legal counsel to assist them in making any determinations required by them, or
which they are permitted to make, pursuant to the terms of these By-Laws. Such
Directors shall not be liable for any loss caused by or resulting from any
action taken or omitted in reliance upon any legal opinion rendered by such
counsel, so long as the selection of the legal counsel and reliance on the
advice was in good faith.
In making any such determinations, the Directors shall, however, not be
obligated to follow the advice of any legal counsel engaged to advise them.
15.3 Construction
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the Delaware General Corporation Law shall
govern the construction of these By-Laws.
The foregoing By-Laws were adopted by the Board on May 9, 1995 and by the
Stockholders on July 26, 1995.
--------------------------------------
Secretary
A-26
<PAGE> 55
APPENDIX B
SHURGARD STORAGE CENTERS, INC.
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the Shurgard Storage Centers, Inc. 1995 Long-Term Incentive
Compensation Plan (the "Plan") is to enhance the long-term profitability and
stockholder value of Shurgard Storage Centers, Inc., a Delaware corporation (the
"Company"), by offering incentives and rewards to those employees, consultants
and agents of the Company and its Subsidiaries (as defined in Section 2 below)
who are key to the Company's growth and success, and to encourage them to remain
in the service of the Company and its Subsidiaries and to acquire and maintain
stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Award
"Award" means an award or grant made to a Participant pursuant to the Plan,
including, without limitation, awards or grants of Options, Stock Appreciation
Rights, Stock Awards, Performance Awards, Other Stock-Based Awards, Dividend
Equivalent Rights or any combination of the foregoing.
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, whose determination shall be conclusive and binding.
2.4 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 Common Stock
"Common Stock" means the Class A Common Stock, par value $.001 per share,
of the Company.
2.6 Corporate Transaction
"Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any merger or
consolidation of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Common Stock are
converted into cash, securities or other property, other than a merger of
the Company in which the holders of the Common Stock immediately prior to
the merger have substantially the same proportionate ownership of common
stock of the surviving corporation immediately after the merger;
(b) Approval by the holders of the Common Stock of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company's assets other than
a transfer of the Company's assets to a majority-owned subsidiary (as the
term "subsidiary" is defined in Section 8.3 of the Plan) of the Company; or
B-1
<PAGE> 56
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
2.7 Disability
"Disability" means "disability" as that term is defined for purposes of the
Company's Long-Term Disability Plan or other similar successor plan applicable
to salaried employees.
2.8 Dividend Equivalent Right
"Dividend Equivalent Right" means a right, granted to a Participant under
Section 13 of the Plan, to receive cash, shares of Common Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Common Stock.
2.9 Early Retirement
"Early Retirement" means retirement as that term is defined by the Plan
Administrator from time to time for purposes of the Plan.
2.10 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 Fair Market Value
"Fair Market Value" means the closing price of the Common Stock as reported
in The Wall Street Journal for the New York Stock Exchange -- Composite
Transactions (or similar successor consolidated transactions reports) for a
single trading day. If no sales of Common Stock were made on the New York Stock
Exchange on the transaction date, Fair Market Value shall mean the closing price
of a share of Common Stock as reported for the next preceding day on which sales
of Common Stock were made on the New York Stock Exchange.
2.12 Good Reason
"Good Reason" means the occurrence of any of the following events or
conditions:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Holder's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Holder of any duties or responsibilities
that, in the Holder's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Holder
from or failure to reappoint or reelect the Holder to any of such
positions, except in connection with the termination of the Holder's
employment for Cause, for Disability or as a result of his or her death, or
by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary, unless such
reduction is part of a reduction in salary applicable to substantially all
or certain classes of Company employees;
(c) the Company's requiring the Holder (without the Holder's consent)
to be based at any place outside a 35-mile radius of his or her place of
employment prior to a Corporate Transaction, except for reasonably required
travel on the Company's business that is not materially greater than such
travel requirements prior to the Corporate Transaction;
(d) the Company's failure to (i) continue in effect any material
compensation or benefit plan (or the substantial equivalent thereof) in
which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit
plan, program and practice as in effect immediately prior to the Corporate
Transaction (or as in effect following the Corporate Transaction, if
greater), unless such reduction in
B-2
<PAGE> 57
benefits as set forth in (i) and (ii) above is part of a reduction in
benefits applicable to substantially all or certain classes of Company
employees;
(e) any material breach by the Company of any provision of the Plan;
or
(f) any purported termination of the Holder's employment or service
for Cause by the Company that does not comply with the terms of the Plan.
2.13 Grant Date
"Grant Date" means the date designated in a resolution of the Plan
Administrator as the date an Award is granted. If the Plan Administrator does
not designate a Grant Date in the resolution, the Grant Date shall be the date
the Plan Administrator adopted the resolution.
2.14 Holder
"Holder" means the Participant to whom an Award is granted, or the personal
representative of a Holder who has died.
2.15 Incentive Stock Option
"Incentive Stock Option" means an option to purchase Common Stock granted
under Section 7 of the Plan with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.16 Nonqualified Stock Option
"Nonqualified Stock Option" means an option to purchase Common Stock
granted under Section 7 of the Plan other than an Incentive Stock Option.
2.17 Option
"Option" means the right to purchase Common Stock granted under Section 7
of the Plan.
2.18 Other Stock-Based Award
"Other Stock-Based Award" means an Award granted under Section 12 of the
Plan.
2.19 Participant
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, consultant or agent of the Company or a
Subsidiary who has been designated by the Plan Administrator as eligible to
participate in the Plan.
2.20 Performance Award
"Performance Award" means an Award granted under Section 11 of the Plan the
payout of which is subject to achievement through a performance period of
performance goals prescribed by the Plan Administrator.
2.21 Plan Administrator
"Plan Administrator" means any committee of the Board designated to
administer the Plan under Section 3.1 of the Plan.
2.22 Restricted Stock
"Restricted Stock" means shares of Common Stock granted under Section 10 of
the Plan the rights of ownership of which are subject to restrictions prescribed
by the Plan Administrator.
B-3
<PAGE> 58
2.23 Retirement
"Retirement" means retirement as of the individual's normal retirement date
under the Shurgard Employees Retirement Savings Plan or other similar successor
plan applicable to salaried employees.
2.24 Stock Appreciation Right
"Stock Appreciation Right" means an Award granted under Section 9 of the
Plan.
2.25 Stock Award
"Stock Award" means an Award granted under Section 10 of the Plan.
2.26 Subsidiary
"Subsidiary," except as expressly provided otherwise, means any entity that
is directly or indirectly controlled by the Company or in which the Company has
a significant ownership interest, as determined by the Plan Administrator, and
any entity that may become a direct or indirect parent of the Company.
2.27 Window Period
"Window Period" means a period of 10 days on which there is trading in the
Common Stock on the New York Stock Exchange, beginning with the third trading
day after disclosure by the Company to the public of its earnings for the fiscal
period just ended and ending with the twelfth such day.
2.28 Window Period Fair Market Value
"Window Period Fair Market Value" means the highest Fair Market Value
during a Window Period.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Compensation Committee of the Board,
except to the extent the Board appoints another committee or committees (which
term includes subcommittees) consisting of one or more members of the Board to
administer the Plan. The Board may delegate the responsibility for administering
the Plan with respect to designated classes of eligible Participants to
different committees, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time. The composition of any
committee responsible for administering the Plan with respect to officers and
directors of the Company who are subject to Section 16 of the Exchange Act with
respect to securities of the Company shall comply with the requirements of Rule
16b-3 under Section 16(b) of the Exchange Act as then in effect. Currently, Rule
16b-3 requires that the selection of officers and directors who are subject to
Section 16 of the Exchange Act for participation and decisions concerning the
number or maximum number of shares granted or allocated or made subject to
options or stock appreciation awards, must be made by a committee which consists
of not less than three disinterested directors of the Company.
3.2 Administration and Interpretation By the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations,
B-4
<PAGE> 59
and all actions taken and determinations made by the Plan Administrator pursuant
to the Plan, shall be conclusive and binding on all parties involved or
affected. The Plan Administrator may delegate administrative duties to such of
the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
For each calendar year from and including 1995, a number of shares of
Common Stock equal to an amount of up to two percent of the adjusted average
common shares outstanding of the Company used to calculate fully diluted
earnings per share as reported in the annual report to stockholders for the
preceding year shall become available for issuance under the Plan. In addition,
any shares of Common Stock available for issuance under the Plan in previous
years but not actually issued shall be added to the aggregate number of shares
of Common Stock available for issuance in that calendar year under the Plan. No
further awards shall be made under the Company's 1993 Stock Option Plan after
the effective date of the Plan. Shares issued under the Plan shall be drawn from
authorized and unissued shares or shares now held or subsequently acquired by
the Company as treasury shares.
4.2 Limitations
(a) Subject to adjustment as provided in Section 16.1 of the Plan, (i) not
more than an aggregate of 1,840,000 shares of Common Stock shall be issued
pursuant to the exercise of Incentive Stock Options awarded under the Plan and
(ii) not more than an aggregate of 610,000 shares of Common Stock shall be
available for issuance pursuant to grants of Stock Awards or Other Stock-Based
Awards under the Plan.
(b) Subject to adjustment from time to time as provided in Section 16.1 of
the Plan, not more than 200,000 shares of Common Stock may be made subject to
Options or Stock Appreciation Rights under the Plan to any individual
Participant in any one fiscal year of the Company, such limitation to be applied
in a manner consistent with the requirements of, and only to the extent required
for compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code.
4.3 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares), including,
without limitation, in connection with the expiration, surrender, cancellation
or termination of an Award, shall again be available for issuance in connection
with future grants of Awards under the Plan. Shares that are subject to tandem
Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers and key employees
(including directors who are also employees) of the Company and its Subsidiaries
as the Plan Administrator from time to time selects. Awards may also be made to
consultants and agents who provide services to the Company and its Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards may
include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards, Performance Awards, Other
Stock-Based Awards and Dividend Equivalent Rights. Awards may be granted singly,
in combination or in tandem so that the settlement or payment of one
automatically reduces or cancels the other. Awards may also
B-5
<PAGE> 60
be made in combination or in tandem with, as alternatives to, or as the payment
form for, grants or rights under any other employee or compensation plan of the
Company.
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other entities ("Acquired Entities") (or
the parent of the Acquired Entity) and the new Award is substituted, or the old
award is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the "Acquisition Transaction"). In
the event that a written agreement pursuant to which the Acquisition Transaction
is completed is approved by the Board and said agreement sets forth the terms
and conditions of the substitution for or assumption of outstanding awards of
the Acquired Entity, said terms and conditions shall be deemed to be the action
of the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such Awards shall be deemed to be Participants and
Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options.
7.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option will become exercisable according to the
following schedule, which may be waived or modified by the Plan Administrator at
any time:
<TABLE>
<CAPTION>
PERIOD OF HOLDER'S
CONTINUOUS EMPLOYMENT OR SERVICE
WITH THE COMPANY OR ITS PERCENT OF TOTAL
SUBSIDIARIES FROM THE OPTION OPTION THAT
GRANT DATE IS EXERCISABLE
------------------------------------- ----------------
<S> <C>
after one year................................................ 20%
after two years............................................... 40%
after three years............................................. 60%
after four years.............................................. 80%
after five years.............................................. 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan
B-6
<PAGE> 61
Administrator, setting forth the number of shares with respect to which the
Option is being exercised and accompanied by payment in full as described in
Section 7.5 of the Plan. In no case may an Option be exercised as to less than
100 shares at any one time (or the lesser number of remaining shares covered by
the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash, except that the Plan Administrator may, either at the time
the Option is granted or at any time before it is exercised and subject to such
limitations as the Plan Administrator may determine, authorize payment in cash
and/or one or more of the following alternative forms: (i) Common Stock already
owned by the Holder for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price; (ii) a promissory note authorized pursuant to
Section 14 of the Plan; (iii) delivery of a properly executed exercise notice,
together with irrevocable instructions, to (a) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (b) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or
(iv) such other consideration as the Plan Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time. In case of termination of the
Holder's employment or services other than by reason of death or Cause, the
Option shall be exercisable, to the extent of the number of shares purchasable
by the Holder at the date of such termination, only: (i) within three years if
the termination of the Holder's employment or services are coincident with
Retirement, Early Retirement at the Company's request or Disability or (ii)
within three months after the date the Holder ceases to be an employee,
consultant or agent of the Company or a Subsidiary if termination of the
Holder's employment or services is for any reason other than Retirement, Early
Retirement at the Company's request or Disability, but in no event later than
the remaining term of the Option. Any Option exercisable at the time of the
Holder's death may be exercised, to the extent of the number of shares
purchasable by the Holder at the date of the Holder's death, by the personal
representative of the Holder's estate entitled thereto at any time or from time
to time within three years after the date of death, but in no event later than
the remaining term of the Option. In case of termination of the Holder's
employment or services for Cause, the Option shall automatically terminate upon
first notification to the Holder of such termination, unless the Plan
Administrator determines otherwise. If a Holder's employment or services with
the Company are suspended pending an investigation of whether the Holder shall
be terminated for Cause, all the Holder's rights under any Option likewise shall
be suspended during the period of investigation. A transfer of employment or
services between or among the Company and its Subsidiaries shall not be
considered a termination of employment or services. Unless the Plan
Administrator determines otherwise, a leave of absence approved in accordance
with Company procedures shall not be considered a termination of employment or
services, except that with respect to Incentive Stock Options such leave of
absence shall be subject to any requirements of Section 422 of the Code.
B-7
<PAGE> 62
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.
8.2 10% Stockholders
If a Participant owns 10% or more of the total voting power of all classes
of the Company's stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option term shall not exceed five years.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3 of the Plan, "parent corporation" and
"subsidiary corporation" shall have the meanings attributed to those terms for
purposes of Section 422 of the Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 Exercisability
An Option designated as an Incentive Stock Option must be exercised within
three months after termination of employment for reasons other than death or
Disability to qualify for Incentive Stock Option tax treatment. In the case of
termination of employment or services due to Disability, the Option must be
exercised within one year after such termination to qualify for Incentive Stock
Option tax treatment.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights
The Plan Administrator may grant a Stock Appreciation Right separately or
in tandem with a related Option.
9.2 Tandem Stock Appreciation Rights
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an appreciation distribution (in shares of Common
Stock or cash or any combination of shares and cash, as the Plan Administrator
shall determine at any time) in an amount equal to the excess of the Fair Market
Value on the date the Stock Appreciation Right is exercised over the exercise
price per share of the right, which shall be the same as the exercise price of
the related Option, except that if the right is exercised during a Window
Period, the amount will be equal to the excess of the Window Period Fair Market
Value for the Window Period during which the Stock Appreciation Right is
exercised over the exercise price per share of the right. A tandem Stock
B-8
<PAGE> 63
Appreciation Right will have the same other terms and provisions as the related
Option. Upon and to the extent a tandem Stock Appreciation Right is exercised,
the related Option will terminate.
9.3 Stand-Alone Stock Appreciation Rights
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right,
except that if the right is exercised during a Window Period, the amount will be
equal to the excess of the Window Period Fair Market Value for the Window Period
during which the right is exercised over the exercise price per share of the
right. A stand-alone Stock Appreciation Right will have such terms as the Plan
Administrator may determine, except that the exercise price per share of the
right must be at least equal to 85% of the Fair Market Value on the Grant Date
and the term of the right, if not otherwise established by the Plan
Administrator, shall be 10 years from the Grant Date.
9.4 Exercise of Stock Appreciation Rights
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 of the
Plan relating to the termination of a Holder's employment or services shall
apply equally, to the extent applicable, to the Holder of a Stock Appreciation
Right. Stock Appreciation Rights held by Participants who are subject to Section
16 of the Exchange Act may be exercised solely in accordance with the
requirements for compliance with Rule 16b-3 under the Exchange Act.
SECTION 10. STOCK AWARDS
10.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (whether based on performance standards, periods of service or otherwise),
as the Plan Administrator shall determine, which terms, conditions and
restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of Restricted Stock
shall occur by reason of termination of the Holder's services.
10.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall deliver, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, a stock certificate for the
appropriate number of shares of Common Stock.
10.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
B-9
<PAGE> 64
SECTION 11. PERFORMANCE AWARDS
11.1 Plan Administrator Authority
Performance Awards may be denominated in cash, shares of Common Stock or
any combination thereof. The Plan Administrator is authorized to grant
Performance Awards and shall determine the nature, length and starting date of
the performance period for each Performance Award and the performance objectives
to be used in valuing Performance Awards and determining the extent to which
such Performance Awards have been earned. Performance objectives and other terms
may vary from Participant to Participant and between groups of Participants.
Performance objectives may include, but shall not be limited to, profits, profit
growth, profit-related return ratios, cash flow, total return to stockholders,
funds from operations, customer service, employee satisfaction or performance
against budget, whether applicable to the Company or any relevant Subsidiary or
business unit, comparisons with competitor companies or groups and with stock
market indices, or any combination thereof, as the Plan Administrator may deem
appropriate. Performance periods may overlap and Participants may participate
simultaneously with respect to Performance Awards that are subject to different
performance periods and different performance factors and criteria. The Plan
Administrator shall determine for each Performance Award the range of dollar
values or number of shares of Common Stock (which may, but need not, be shares
of Restricted Stock pursuant to Section 10 of the Plan), or a combination
thereof, to be received by the Participant at the end of the performance period
if and to the extent that the relevant measures of performance for such
Performance Awards are met. The earned portion of a Performance Award may be
paid currently or on a deferred basis with such interest or earnings equivalent
as may be determined by the Plan Administrator. Payment shall be made in the
form of cash, whole shares of Common Stock (which may, but need not, be shares
of Restricted Stock pursuant to Section 10 of the Plan), Options or any
combination thereof, either in a single payment or in annual installments, all
as the Plan Administrator shall determine.
11.2 Adjustment of Awards
The Plan Administrator may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Plan Administrator
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances. The Plan
Administrator also may adjust the performance goals and measurements applicable
to Performance Awards and thereby reduce the amount to be received by any
Participant pursuant to such Awards if and to the extent that the Plan
Administrator deems it appropriate.
11.3 Payout Upon Termination
The Plan Administrator shall establish and set forth in each instrument
that evidences a Performance Award whether the Award will be payable, and the
terms and conditions of such payment, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time. If not so established
in the instrument evidencing the Performance Award, the Award will be payable
according to the following terms and conditions, which may be waived or modified
by the Plan Administrator at any time. If during a performance period a
Participant's employment or services with the Company terminate by reason of the
Participant's Retirement, Early Retirement at the Company's request, Disability
or death, such Participant shall be entitled to a payment with respect to each
outstanding Performance Award at the end of the applicable performance period
(i) based, to the extent relevant under the terms of the Award, on the
Participant's performance for the portion of such performance period ending on
the date of termination and (ii) prorated for the portion of the performance
period during which the Participant was employed by the Company, all as
determined by the Plan Administrator. The Plan Administrator may provide for an
earlier payment in settlement of such Performance Award discounted at a
reasonable interest rate and otherwise in such amount and under such terms and
conditions as the Plan Administrator deems appropriate. Except as otherwise
provided in Section 16 of the Plan or in the instrument evidencing the
Performance Award, if during a performance period a Participant's
B-10
<PAGE> 65
employment or services with the Company terminate other than by reason of the
Participant's Retirement, Early Retirement at the Company's request, Disability
or death, then such Participant shall not be entitled to any payment with
respect to the Performance Awards relating to such performance period, unless
the Plan Administrator shall otherwise determine. The provisions of Section 7.6
of the Plan regarding leaves of absence and termination for Cause shall apply to
Performance Awards.
SECTION 12. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10 of the Plan) are or may in the future be acquired,
or Awards denominated in stock units, including ones valued using measures other
than market value. Such Other Stock-Based Awards may be granted alone or in
addition to or in tandem with any Award of any type granted under the Plan and
must be consistent with the Plan's purpose.
SECTION 13. DIVIDEND EQUIVALENT RIGHTS
The Plan Administrator is authorized to make Awards of Dividend Equivalent
Rights. The Plan Administrator shall establish such rules and procedures
governing the crediting of Dividend Equivalent Rights, including the timing,
form of payment and payment contingencies of such Dividend Equivalent Rights, as
it deems are appropriate or necessary.
SECTION 14. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator may authorize, either at the Grant Date or at
any time before the acquisition of Common Stock pursuant to the Award, (i) the
extension of a loan to the Holder by the Company, (ii) the payment by the Holder
of the purchase price, if any, of the Common Stock in installments, or (iii) the
guarantee by the Company of a loan obtained by the grantee from a third party.
The terms of any loans, installment payments or guarantees, including the
interest rate and terms of repayment, will be subject to the Plan
Administrator's discretion. Loans, installment payments and guarantees may be
granted with or without security. The maximum credit available is the purchase
price, if any, of the Common Stock acquired plus the maximum federal and state
income and employment tax liability that may be incurred in connection with the
acquisition.
SECTION 15. ASSIGNABILITY
No Option, Stock Appreciation Right, Performance Award, Other Stock-Based
Award or Dividend Equivalent Right granted under the Plan may be assigned or
transferred by the Holder other than by will or by the laws of descent and
distribution, and during the Holder's lifetime, such Awards may be exercised
only by the Holder. Notwithstanding the foregoing, and to the extent permitted
by Rule 16b-3 under the Exchange Act and Section 422 of the Code, the Plan
Administrator, in its sole discretion, may permit such assignment, transfer and
exercisability and may permit a Holder of such Awards to designate a beneficiary
who may exercise the Award or receive compensation under the Award after the
Holder's death.
SECTION 16. ADJUSTMENTS
16.1 Adjustment of Shares
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to stockholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (i)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (ii) new, different or additional
securities
B-11
<PAGE> 66
of the Company or of any other corporation being received by the holders of
shares of Common Stock of the Company, then the Plan Administrator, in its sole
discretion, shall make such equitable adjustments as it shall deem appropriate
in the circumstances in (a) the maximum number of and class of securities
subject to the Plan as set forth in Section 4.1 of the Plan, (b) the maximum
number and class of securities that may be made subject to Awards to any
individual Participant as set forth in Section 4.2 of the Plan, and (c) the
number and class of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
16.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the Award, in
the event of any Corporate Transaction, each Option, Stock Appreciation Right or
Stock Award that is at the time outstanding shall automatically accelerate so
that each such Award shall, immediately prior to the specified effective date
for the Corporate Transaction, become 100% vested, except that such acceleration
will not occur if in the opinion of the Company's accountants it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment. Such Award shall not so
accelerate, however, if and to the extent: (i) such Award is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable award for the purchase of
shares of the capital stock of the successor corporation or its parent
corporation, (ii) such Award is to be replaced with a cash incentive program of
the successor corporation that preserves the spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such Award, or (iii) the acceleration of
such Award is subject to other limitations imposed by the instrument evidencing
the Award. The determination of Award comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be conclusive and
binding. All such Awards shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the successor corporation or its parent corporation. Any
such Awards that are assumed or replaced in the Corporate Transaction pursuant
to clauses (i) or (ii) above and do not otherwise accelerate at that time shall
be accelerated in the event the Holder's employment or services should
subsequently terminate within two years following such Corporate Transaction,
unless such employment or services are terminated by the Company for Cause or by
the Holder voluntarily without Good Reason. Notwithstanding the foregoing, no
Incentive Stock Option shall become exercisable pursuant to this Section 16.2
without the Holder's consent, if the result would be to cause such Option not to
be treated as an Incentive Stock Option (whether by reason of the annual
limitation described in Section 8.1 of the Plan or otherwise).
16.3 Further Adjustment of Awards
Without limiting the preceding Section 16.2 of the Plan, and subject to the
limitations set forth in Section 11 of the Plan, the Plan Administrator shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the Company,
as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Participants,
with respect to Awards. Such authorized action may include (but shall not be
limited to) establishing, amending or waiving the type, terms, conditions or
duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, payment or settlement or lifting
restrictions, differing methods for calculating payments or settlements,
alternate forms and amounts of payments and settlements and other modifications,
and the Plan Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Plan Administrator may take such actions before or after
granting Awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
B-12
<PAGE> 67
16.4 Limitations
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 17. WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise, payment or settlement of any Award. In such instances, the Plan
Administrator may, in its discretion and subject to the Plan and applicable law,
permit the Holder to satisfy withholding obligations, in whole or in part, by
paying cash, by electing to have the Company withhold shares of Common Stock or
by transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation.
SECTION 18. AMENDMENT AND TERMINATION OF PLAN
18.1 Amendment of Plan
The Plan may be amended by the stockholders of the Company. The Board may
also amend the Plan in such respects as it shall deem advisable; however, to the
extent required for compliance with Rule 16b-3 under the Exchange Act, Section
422 of the Code or any applicable law or regulation, stockholder approval will
be required for any amendment that will (i) increase the total number of shares
as to which Options may be granted or which may be used in payment of Stock
Appreciation Rights, Performance Awards, Other Stock-Based Awards or Dividend
Equivalent Rights under the Plan or that may be issued as Restricted Stock, (ii)
materially modify the class of persons eligible to receive Awards, (iii)
materially increase the benefits accruing to Participants under the Plan, or
(iv) otherwise require stockholder approval under any applicable law or
regulation.
18.2 Termination of Plan
The Company's stockholders or the Board may suspend or terminate the Plan
at any time. Unless the Plan shall theretofore have been terminated by the
Company's stockholders or the Board, the Plan shall terminate on, and no Awards
shall be made after July 26, 2000, except that such termination shall have no
effect on Awards made prior thereto.
18.3 Consent of Holder
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, alter or impair any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 19. GENERAL
19.1 Continued Employment or Services; Rights in Awards
Neither the Plan, participation in the Plan as a Participant nor any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
19.2 Registration; Certificates for Shares
The Company shall be under no obligation to any Participant to register for
offering or resale under the Securities Act of 1933, as amended, or register or
qualify under state securities laws, any shares of Common Stock, security or
interest in a security paid or issued under, or created by, the Plan. The
Company may issue
B-13
<PAGE> 68
certificates for shares with such legends and subject to such restrictions on
transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
19.3 No Rights as a Stockholder
No Option, Stock Appreciation Right, Performance Award or Other Stock-Based
Award shall entitle the Holder to any dividend (except to the extent provided in
an Award of Dividend Equivalent Rights), voting or other right of a stockholder
unless and until the date of issuance under the Plan of the shares that are the
subject of such Awards, free of all applicable restrictions.
19.4 Compliance With Laws and Regulations
It is the Company's intention that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with such
Rule, the provision shall be deemed null and void, and in all events the Plan
shall be construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in the Plan to the contrary, the Board, in its sole
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Participants. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
19.5 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
19.6 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 20. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's stockholders.
Adopted by the Board on , 1995 and approved by the Company's
stockholders on , 1995.
B-14
<PAGE> 69
APPENDIX C
SHURGARD STORAGE CENTERS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
SECTION 1. PURPOSES
The purposes of the Shurgard Storage Centers, Inc. Stock Option Plan for
Nonemployee Directors (the "Plan") are to attract and retain the services of
experienced and knowledgeable nonemployee directors of Shurgard Storage Centers,
Inc. (the "Corporation") and to provide an incentive for such directors to
increase their proprietary interests in the Corporation's long-term success and
progress.
SECTION 2. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 6 hereof, the total number
of shares of the Corporation's Class A Common Stock, $0.001 par value per share
(the "Common Stock"), for which options may be granted under the Plan is 200,000
(the "Shares"). The Shares shall be shares presently authorized but unissued or
subsequently acquired by the Corporation and shall include shares representing
the unexercised portion of any option granted under the Plan that expires or
terminates without being exercised in full.
SECTION 3. ADMINISTRATION OF THE PLAN
The administrator of the Plan (the "Plan Administrator") shall be the Board
of Directors of the Corporation (the "Board"). Subject to the terms of the Plan,
the Plan Administrator shall have the power to construe the provisions of the
Plan, to determine all questions arising thereunder and to adopt and amend such
rules and regulations for the administration of the Plan as it may deem
desirable. No member of the Plan Administrator shall participate in any vote by
the Plan Administrator on any matter materially affecting the rights of any such
member under the Plan.
SECTION 4. PARTICIPATION IN THE PLAN
4.1 Eligibility
Each member of the Board elected or appointed who is not otherwise an
employee of the Corporation or any parent or subsidiary corporation (an
"Eligible Director") shall be eligible to participate in the Plan.
4.2 Original Grants
Each person who becomes an Eligible Director prior to the first Annual
Meeting of Stockholders held after the consolidating transaction among up to 17
limited partnerships sponsored by Shurgard Incorporated as described in the
Registration Statement on Form S-4 (No. 33-57794) filed with the Securities
Exchange Commission on February 2, 1993, as amended (the "Consolidation"), shall
automatically receive the grant of an option (an "Original Option") to purchase
400 Shares upon their election or appointment to the Board, such option to vest
and become exercisable upon the optionee's continued service as a director until
the first anniversary of the date of grant.
Each person who is an Eligible Director on May 9, 1995 shall automatically
receive a grant of an option to purchase 3,000 Shares, such option to vest and
become exercisable upon the optionee's continued service until the 1995 Annual
Meeting (as hereinafter defined).
4.3 Annual Grants
In addition, each Eligible Director shall automatically receive the grant
of an option (an "Annual Option") to purchase 3,000 Shares immediately following
each Annual Meeting of Stockholders commencing with the first Annual Meeting of
Stockholders held after the Consolidation, such option to vest and become
C-1
<PAGE> 70
exercisable upon the optionee's continued service as a director until the next
Annual Meeting of Stockholders after the date of grant.
SECTION 5. OPTION TERMS
Each option granted to an Eligible Director under the Plan and the issuance
of Shares thereunder shall be subject to the following terms:
5.1 Option Agreement
Each option granted under the Plan shall be evidenced by an option
agreement (an "Agreement") duly executed on behalf of the Corporation. Each
Agreement shall comply with and be subject to the terms and conditions of the
Plan. Any Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Plan Administrator.
5.2 Option Exercise Price
The option exercise price for each Annual Option granted under the Plan
shall be the fair market value of the Shares covered by the option at the time
the option is granted. For purposes of the Plan, "fair market value" as of a
given date shall be: (i) the closing price of a share of the Common Stock on the
principal exchange on which the Common Stock is then trading, if any, on the day
previous to such date or, if no Common Stock was traded on such date, on the
next preceding date on which Common Stock was so traded; or (ii) if the Common
Stock is not traded on an exchange, the average of the high and low sales prices
at which the Common Stock was sold on the day previous to such date as reported
by the NASDAQ National Market on such date or, if no Common Stock was traded on
such date, on the next preceding date on which Common Stock was so traded. The
option exercise price for each Original Option granted under the Plan shall be
the average fair market value of the Shares covered by the option during the 30
business days immediately after the date the Common Stock is first publicly
traded.
5.3 Holding Period
If a person subject to Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), sells shares of Common Stock obtained upon the
exercise of any option granted under the Plan within six months after the date
the option was granted, the option grant will no longer be deemed a nonexempt,
matchable purchase under Section 16 as of the date of the option grant.
5.4 Time and Manner of Exercise of Option
Each option may be exercised in whole or in part at any time and from time
to time; provided, however, that no fewer than 50 Shares (or the remaining
Shares then purchasable under the option, if less than 50 Shares) may be
purchased upon any exercise of option rights hereunder and that only whole
Shares will be issued pursuant to the exercise of any option.
Any option may be exercised by giving written notice, signed by the person
exercising the option, to the Corporation stating the number of Shares with
respect to which the option is being exercised, accompanied by payment in full
for such Shares, which payment may be in whole or in part (i) in cash or by
check, (ii) in shares of Common Stock already owned for at least six months by
the person exercising the option, valued at fair market value at the time of
such exercise, or (iii) by delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker, to properly deliver to the
Corporation the amount of sale or loan proceeds to pay the exercise price, all
in accordance with the regulations of the Federal Reserve Board.
C-2
<PAGE> 71
5.5 Term of Options
Each option shall expire ten years from the date of the granting thereof,
but shall be subject to earlier termination as follows:
(a) In the event that an optionee ceases to be a director of the
Corporation for any reason other than the death of the optionee, the vested
portion of the options granted to such optionee may be exercised by him or
her only within one year after the date such optionee ceases to be a
director of the Corporation.
(b) In the event of the death of an optionee, whether during the
optionee's service as a director or during the one-year period referred to
in Section 5.5(a), the vested portion of the options granted to such
optionee shall be exercisable, and such options shall expire unless
exercised within one year after the date of the optionee's death, by the
legal representatives or the estate of such optionee, by any person or
persons whom the optionee shall have designated in writing on forms
prescribed by and filed with the Corporation or, if no such designation has
been made, by the person or persons to whom the optionee's rights have
passed by will or the laws of descent and distribution.
5.6 Transferability
During an optionee's lifetime, an option may be exercised only by the
optionee. Options granted under the Plan and the rights and privileges conferred
thereby shall not be subject to execution, attachment or similar process and may
not be transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable laws of
descent and distribution except that, to the extent permitted by applicable law
and Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, the Plan
Administrator may permit a recipient of an option to designate in writing during
the optionee's lifetime a beneficiary to receive and exercise options in the
event of the optionee's death (as provided in Section 5.5(b)). Any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any option under
the Plan or of any right or privilege conferred thereby, contrary to the
provisions of the Plan, or the sale or levy or any attachment or similar process
upon the rights and privileges conferred hereby, shall be null and void.
5.7 Participant's or Successor's Rights as Stockholder
Neither the recipient of an option under the Plan nor the optionee's
successor(s) in interest shall have any rights as a stockholder of the
Corporation with respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such Shares.
5.8 Limitation as to Directorship
Neither the Plan, nor the granting of an option, nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an optionee has a right to continue as a
director for any period of time or at any particular rate of compensation.
5.9 Regulatory Approval and Compliance
The Corporation shall not be required to issue any certificate or
certificates for Shares upon the exercise of an option granted under the Plan,
or record as a holder of record of Shares the name of the individual exercising
an option under the Plan, without obtaining to the complete satisfaction of the
Plan Administrator the approval of all regulatory bodies deemed necessary by the
Plan Administrator, and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local law
deemed applicable by the Plan Administrator.
SECTION 6. CAPITAL ADJUSTMENTS
The aggregate number and class of Shares with respect to which options may
be granted under the Plan, as provided in Section 2, the number and class of
Shares covered by each automatic grant and each outstanding option and the
exercise price per share thereof (but not the total price), shall all be
proportion-
C-3
<PAGE> 72
ately adjusted for any stock dividends, stock splits, recapitalizations,
combinations or exchanges of shares, split-ups, spinoffs or other similar
changes in capitalization. Upon the effective date of a dissolution or
liquidation of the Corporation, or of a reorganization, merger or consolidation
of the Corporation with one or more corporations that results in more than 80%
of the outstanding voting shares of the Corporation being owned by one or more
affiliated corporations or other affiliated entities, or of a transfer of all or
substantially all of the assets or more than 80% of the then outstanding shares
of the Corporation to another corporation or other entity, this Plan and all
options granted hereunder shall terminate. In the event of such dissolution,
liquidation, reorganization, merger, consolidation, transfer of assets or
transfer of stock, each optionee shall be entitled, for a period of 20 days
prior to the effective date of such transaction, to purchase the full number of
Shares under his or her option that he or she otherwise would have been entitled
to purchase during the remaining term of such option.
Adjustment under this Section 6 shall be made by the Plan Administrator,
whose determination shall be final. In the event of any adjustment in the number
of Shares covered by any option, any fractional Shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full Shares resulting from such option.
SECTION 7. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Corporation; none of such expenses shall be charged to any
optionee.
SECTION 8. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective on upon approval of the Corporation's
shareholders. The Plan shall continue in effect until it is terminated by action
of the Board or the Corporation's shareholders, but such termination shall not
affect the then-outstanding terms of any options.
SECTION 9. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that if required to qualify the Plan
under Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, no
amendment may be made more than once every six months that would change the
amount, price, timing or vesting of the options, other than to comport with
changes in the Internal Revenue Code of 1986, as amended, or the rules and
regulations promulgated thereunder; and provided, further, that to the extent
required for compliance with applicable law or regulation, the Board may not
amend the Plan without the approval of the Corporation's stockholders, including
any amendment that would: (a) materially increase the number of shares that may
be issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan to add a class of participants who are
subject to Section 16 of the Exchange Act; or (c) otherwise materially increase
the benefits accruing under the Plan to participants who are subject to Section
16 of the Exchange Act.
SECTION 10. COMPLIANCE WITH RULE 16B-3
It is the intention of the Corporation that the Plan comply in all respects
with Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and that
Plan participants remain disinterested persons ("disinterested persons") for
purposes of administering other employee benefit plans of the Corporation and
having such other plans be exempt from Section 16(b) of the Exchange Act.
Therefore, if any Plan provision is later found not to be in compliance with
Rule 16b-3 or if any Plan provision would disqualify Plan participants from
remaining disinterested persons, that provision shall be deemed null and void,
and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3.
Adopted by the Corporation's Board of Directors on July 24, 1993 and
approved by the Corporation's shareholders on July 24, 1993. Amended by the
Corporation's Board of Directors on May 9, 1995 and amendment approved by the
Corporation's shareholders on July 26, 1995.
C-4
<PAGE> 73
SHURGARD STORAGE CENTERS, INC.
PROXY FOR THE 1995 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JULY 26, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles K. Barbo and Harrell L. Beck, and
each of them, as Proxies with full power of substitution and hereby authorizes
them to represent and to vote as designated below all the shares of Class A
Common Stock and Class B Common Stock, par value $.001 per share (collectively,
the "Common Stock") of Shurgard Storage Centers, Inc. held of record by the
undersigned on June 2, 1995, at the 1995 Annual Meeting of Stockholders to be
held on July 26, 1995 or any adjournment or postponement thereof as follows:
1. ELECTION OF DIRECTORS.
A. Election of the following two nominees to serve as directors for
three-year terms or until their respective successors are elected and
qualified:
Charles K. Barbo Donald W. Lusk
<TABLE>
<S> <C> <C>
/ / FOR all nominees / / WITHHOLD AUTHORITY / / WITHHOLD AUTHORITY for the following only:
to vote for all (write the name(s) of the nominee(s) in this space)
nominees
</TABLE>
B. Election of the following two nominees to serve as directors for two-year
terms or until their respective successors are elected and qualified:
Wendell J. Smith Harrell L. Beck
<TABLE>
<S> <C> <C>
/ / FOR all nominees / / WITHHOLD AUTHORITY / / WITHHOLD AUTHORITY for the following only:
to vote for all (write the name(s) of the nominee(s) in this space)
nominees
</TABLE>
C. Election of the nominee to serve as director for a one-year term or until
his respective successor is elected and qualified:
Dan Kourkoumelis
<TABLE>
<S> <C>
/ / FOR the nominee / / WITHHOLD AUTHORITY
to vote for the
nominee
</TABLE>
2. AMENDMENT TO CERTIFICATE OF INCORPORATION. Approve an amendment to the
Company's Certificate of Incorporation to provide for a classified Board of
Directors.
/ / FOR / / AGAINST / / ABSTAIN
3. AMENDMENT TO CERTIFICATE OF INCORPORATION. Approve an amendment to the
Company's Certificate of Incorporation to incorporate a New York Stock
Exchange requirement.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on Reverse Side)
4. AMENDMENT TO BY-LAWS. Approve an amendment to Section 16 of the Company's
By-Laws.
/ / FOR / / AGAINST / / ABSTAIN
5. STOCK OPTION PLAN. Approve the Shurgard Storage Centers, Inc. 1995 Long-Term
Incentive Compensation Plan.
/ / FOR / / AGAINST / / ABSTAIN
6. STOCK OPTION PLAN. Approve an amendment to the Shurgard Storage Centers, Inc.
Stock Option Plan for Nonemployee Directors to increase the number of shares
issuable under the plan.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly be brought before the meeting or any adjournment or
postponement thereof. This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned. IF NO DIRECTION IS MADE, THE PROXY
WILL BE VOTED "FOR" ALL NOMINEES IN ITEM 1 AND "FOR" IN ITEMS 2, 3, 4, 5 AND 6
ON BOTH SIDES OF THIS CARD.
The undersigned acknowledges receipt from the Company prior to the execution
of this Proxy of a Notice of Annual Meeting of Stockholders and a Proxy
Statement dated June 8, 1995.
Please sign below exactly
as your name appears on
your stock certificate.
When shares are held
jointly, each person must
sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give
full title as such. An
authorized person should
sign on behalf of
corporations,
partnerships and
associates and give his
or her title.
Dated: , 1995
-------------------------
Signature
-------------------------
Signature if held jointly
YOUR VOTE IS IMPORTANT, PROMPT RETURN OF THIS PROXY CARD WILL
HELP SAVE THE EXPENSE OF ADDITIONAL SOLICITATION EFFORTS.
