<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
/X/ Definitive Proxy Statement Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
Storage Trust Realty
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
STORAGE TRUST REALTY
2407 Rangeline Street
Columbia, Missouri 65202
- ------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
and
PROXY STATEMENT
- ------------------------------------------------------------------------------
February 27, 1997
Dear Shareholder:
I would like to invite you to attend our 1997 annual meeting of
shareholders, which will be held on Wednesday, May 7, 1997, beginning at eight
o'clock a.m., St. Louis time, at the Renaissance St. Louis Hotel-Airport, St.
Louis, Missouri.
The formal notice of the annual meeting and the proxy statement can be
found on the following pages. A copy of our 1996 annual report is enclosed for
your review. A proxy card and a postage-paid return envelope are also included.
To be sure that your shares will be voted at the meeting, please complete
and sign the enclosed proxy card and return it in the enclosed envelope as
promptly as possible. You are encouraged to specify your choices on the matters
indicated. However, it is not necessary to specify your choice on a matter if
you wish to vote in accordance with the recommendation of the Board of Trustees;
in such event, merely executing and returning the proxy card will be sufficient.
I hope that you will be able to attend the annual meeting. If you do, you
may vote your shares in person even though you have returned a proxy.
GORDON BURNAM
Chairman
<PAGE> 3
[PAGE LEFT INTENTIONALLY BLANK]
<PAGE> 4
STORAGE TRUST REALTY
2407 Rangeline Street
Columbia, Missouri 65202
- ------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 7, 1997
- ------------------------------------------------------------------------------
The annual meeting of shareholders of Storage Trust Realty will be held at
the Renaissance St. Louis Hotel-Airport, St. Louis, Missouri, on Wednesday, May
7, 1997, at eight o'clock a.m., St. Louis time, for the following purposes:
1. To elect three Trustees to serve until the third subsequent annual
meeting of shareholders and until their successors are elected and
qualify;
2. To approve an amendment and restatement of the Storage Trust
Realty 1994 Share Incentive Plan;
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997;
and
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Trustees has fixed the close of business on February 21, 1997
as the record date for determining the shareholders entitled to receive notice
of and to vote at the annual meeting.
By Order of the Board of Trustees
MICHAEL G. BURNAM
Chief Executive Officer
Columbia, Missouri
February 27, 1997
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON.
SHAREHOLDERS WHO DO NOT INTEND TO BE PRESENT AT THE MEETING IN PERSON ARE
REQUESTED TO SIGN AND DATE THE ENCLOSED PROXY AND TO RETURN IT IN THE
ACCOMPANYING ENVELOPE IN ORDER THAT THE NECESSARY QUORUM MAY BE ASSURED. ANY
PROXY MAY BE REVOKED IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT
AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE MEETING.
<PAGE> 5
[PAGE LEFT INTENTIONALLY BLANK]
<PAGE> 6
STORAGE TRUST REALTY
2407 Rangeline Street
Columbia, Missouri 65202
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PROXY STATEMENT
- ------------------------------------------------------------------------------
Annual Meeting of Shareholders
To Be Held May 7, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Trustees (the "Board") of Storage Trust
Realty, a Maryland real estate investment trust (the "Company"), for use at
the annual meeting of the Company's shareholders to be held on Wednesday, May 7,
1997, at the Renaissance St. Louis Hotel-Airport, St. Louis, Missouri, at eight
o'clock a.m., St. Louis time, and any adjournments or postponements thereof (the
"Annual Meeting"), for the purposes set forth in the accompanying Notice of
Annual Meeting.
The Company expects to first send this Proxy Statement and the enclosed
form of proxy to shareholders on or about February 27, 1997.
ANNUAL REPORT
The Annual Report of the Company for the year ended December 31, 1996,
including financial statements audited by Ernst & Young LLP, independent
auditors, and their report thereon dated January 22, 1997, is being mailed
together with this Proxy Statement to each of the Company's shareholders of
record at the close of business on February 21, 1997 (the "Record Date"). If
you would like to obtain a copy of the Company's Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission, for the year ended
December 31, 1996 (the "Form 10-K"), you may do so by requesting a copy of the
Form 10-K in writing from Storage Trust Realty, Attention: Michael T. Nealon,
Controller-External Reports, 2407 Rangeline Street, Columbia, Missouri 65202.
VOTING OF PROXIES
Only shareholders of record of the Company's common shares of beneficial
interest, $.01 par value per share (the "Common Shares"), at the close of
business on the Record Date are entitled to notice of and to vote at the Annual
Meeting. Each Common Share is entitled to one vote on all matters voted upon by
shareholders and is entitled to vote for as many persons as there are
Trustees to be elected. There were 12,884,352 Common Shares outstanding on
the Record Date.
<PAGE> 7
Each valid proxy returned to the Company will be voted at the Annual
Meeting as indicated on the proxy or, if no indication is made with respect to a
proposal, in favor of such proposal in accordance with the recommendations of
the Board set forth in this Proxy Statement. The Company does not know of any
matters to be presented at the Annual Meeting other than the proposals referred
to on the proxies and described in this Proxy Statement. However, if any other
matters are properly presented at the Annual Meeting, the persons named on the
enclosed form of proxy intend to vote the shares represented by them in
accordance with their best judgment pursuant to the discretionary authority
granted them in the proxies.
Any person submitting a proxy may revoke it at any time before it is
exercised by so notifying the Company in writing. In addition, persons
submitting proxies may elect to vote their shares in person at the Annual
Meeting, although mere attendance at the Annual Meeting will not serve to revoke
a proxy.
PROPOSAL 1
ELECTION OF TRUSTEES
Three Trustees are to be elected at the Annual Meeting, which constitutes
all of the Class III Trustees. Such Trustees will serve for a three-year term
until the Company's third annual meeting of shareholders subsequent to the
Annual Meeting of shareholders and until their respective successors are elected
and qualify, or until their earlier resignation, death, termination or removal.
Trustees will be elected by a plurality of the votes cast at the Annual
Meeting. There is no cumulative voting for Trustees. For purposes of the
election of Trustees, abstentions will not be counted as votes cast and will
have no effect on the result of the vote, although they will count toward the
presence of a quorum.
Each valid proxy returned to the Company will be voted at the Annual
Meeting for the three nominees listed below, unless the proxy specifies
otherwise. All of the nominees listed below are members of the present Board.
Mr. Gordon Burnam has been a Trustee since inception; Mr. Randall K. Rowe has
held such position since November 16, 1994, the date of completion of the
initial public offering of the Common Shares; and Mr. Fredrick W. Petri has
held such position since May 2, 1995. Biographical information for each of the
nominees is set forth under the caption "Management."
Nominees
Gordon Burnam
Randall K. Rowe
Fredrick W. Petri
If any nominee should unexpectedly become unavailable for service, proxies
will be voted for another person selected by the Board, unless the proxy
specifies otherwise.
2
<PAGE> 8
MANAGEMENT
Trustees and Executive Officers
The following table sets forth certain information with respect to the
Trustees and executive officers of the Company. The Company currently has a
seven member Board of Trustees which includes four members of the Board of
Trustees who are not affiliated with any member of Gordon Burnam's family or
officers or employees of the Company (each an "Independent Trustee"). Each of
the individuals named below as an officer of the Company accepted that position
upon formation of the Company.
<TABLE>
<CAPTION>
Name Age Position
- --- --- --------
<S> <C> <C>
Gordon Burnam 66 Chairman of the Board of Trustees (term will expire in 1997)
Michael G. Burnam 43 Chief Executive Officer and Trustee (term will expire in 1999)
P. Crismon Burnam 33 Chief Operating Officer and Trustee (term will expire in 1998)
Stephen M. Dulle 49 Chief Financial Officer
Timothy B. Burnam 39 Vice President--Construction and Development
Blake Eagle<F*> 63 Trustee (term will expire in 1998)
Daniel C. Staton<F*> 44 Trustee (term will expire in 1999)
Randall K. Rowe<F*> 42 Trustee (term will expire in 1997)
Fredrick W. Petri<F*> 50 Trustee (term will expire in 1997)
<FN>
____________________________
<F*> Each of these individuals is an Independent Trustee.
</TABLE>
The following is a biographical summary of the experience of the Trustees
and executive officers of the Company.
Gordon Burnam has been the Chairman of the Board of Trustees of the
Company since its formation. He is the founder and Chairman of the Board of
Directors of Burnam Holding Companies Co. ("BHC"), a corporation owned by Gordon
Burnam and members of his immediate family. Since 1974, Gordon Burnam has been
involved in the development of over 30 self-storage facilities, of which 14
facilities were for BHC. Gordon Burnam now oversees its Board of Directors.
From 1982 to 1984, Gordon Burnam was the Chairman of the Board of Directors of
the Southwestern Insurance Group. Mr. Gordon Burnam is currently a director
of Union Planters Bank of Columbia, was a Central Region Board Member of the
Self Storage Association and was president of the National Home Builders
Association Columbia Chapter.
Michael G. Burnam has been the Chief Executive Officer and a Trustee of
the Company since its formation. Michael Burnam previously served as the
President of BHC. He began his career in real estate development, and then
moved into self-storage management in 1977. Mike oversaw operations for BHC
from 1983 through 1994. In 1995, Michael Burnam served as President of the Self
Storage Association, a leading industry association. Mike received his B.S.
degree in Agricultural Economics from the University of Missouri in 1975.
Michael Burnam is Gordon Burnam's son.
P. Crismon Burnam has been Chief Operating Officer and a Trustee of the
Company since its formation. Cris Burnam joined BHC in 1987, most recently
serving as its Vice President in charge of Finance and Acquisitions. Cris
Burnam previously served as Vice President--Central Region Board of Directors of
the Self Storage Association. Cris received his B.S. degree in Agricultural
Economics from the University of Missouri in 1985. Cris Burnam is Gordon
Burnam's son.
Stephen M. Dulle has been Chief Financial Officer of the Company since
August 1994. Prior thereto, Mr. Dulle was the chief financial officer of each
of Colonial Storage Centers I, Ltd., Colonial Storage Centers II, Ltd. and
Colonial Storage Centers III, Ltd., respectively. Mr. Dulle was also the
Secretary and Treasurer of Colonial Storage Management 85, Inc. and Colonial
Storage Management 86, Inc. Prior to joining Colonial in 1980, Mr. Dulle was a
Senior Manager with the public accounting firm of KPMG Peat Marwick. Mr. Dulle
received his B.S. degree in Business Administration from the University of
Missouri in 1971 and his Masters of Business Administration degree in Accounting
and Finance from Indiana University in 1973.
3
<PAGE> 9
Timothy B. Burnam has been Vice President--Construction and Development of
the Company since its formation. Tim had previously served as President of
Burnam Construction, Inc., a wholly owned subsidiary of BHC, since 1987. Mr.
Tim Burnam is directly responsible for the design, planning and purchasing
for all of the Company's construction and development projects. Since 1987,
Burnam Construction, Inc. has built over 500,000 square feet of self-storage
facilities and 175 apartment units. He attended the University of Missouri
and has over 15 years' experience in the construction and self-storage
businesses. Timothy Burnam is Gordon Burnam's son.
Blake Eagle has been a Trustee of the Company since November 1994. Mr.
Eagle has been, since December 1993, Chairman of the MIT Center for Real Estate,
an academic center which engages in a wide variety of research and special
programs for the real estate industry and operates a master's degree program in
real estate development. From 1985 to 1993, Mr. Eagle was President, Real
Estate Consulting, for the Frank Russell Company, a pension fund consulting
firm. Mr. Eagle is a member of the Urban Land Institute, the National Society
of Real Estate Finance and the American Society of Real Estate Counselors. Mr.
Eagle serves as an advisor to the board of the National Council of Real Estate
Investment Fiduciaries, which he helped establish, and formerly served as a
director of the Institute for Real Estate Research. From 1983 to 1984, Mr.
Eagle served as a member of the board of advisors of the Federal National
Mortgage Association (Fannie Mae). Mr. Eagle received his B.A. degree in
Business Administration from the University of Washington in 1956.
Randall K. Rowe has been a Trustee of the Company since November 1994.
Mr. Rowe is Managing Director and Chief Executive Officer of Transwestern
Investment Company, LLC. From January 1995 until March 1996, he was Managing
Director and Chief Executive Officer of Equity Venture Partners, Inc., a
merchant banking company. From December 1989 until March 1995, he was co-
chairman, chief executive officer of Manufactured Home Communities, Inc. ("MHC")
and its predecessor entities. From December 1989 until January 1995, Mr. Rowe
served as Chairman, Chief Executive Officer of Equity Office Properties, Inc.
and President, Chief Executive Officer of Equity Assets Management, Inc. Mr.
Rowe holds an M.B.A. degree from Harvard University Graduate School of Business,
and a J.D. degree from the University of Michigan Law School. Mr. Rowe is a
member of the Urban Land Institute and Chairman of the Policy Committee of the
National Realty Committee.
Daniel C. Staton has been a Trustee of the Company since November 1994.
Mr. Staton has been the Chief Operating Officer, Executive Vice President and
Director of Duke Realty Investments, Inc. since 1993. From 1981 to 1993, Mr.
Staton was a principal owner of Duke Associates, the predecessor of Duke Realty
Investments, Inc. Mr. Staton works on real estate project development in
Indianapolis, Detroit and Nashville and directly oversees the Cincinnati,
Columbus, Cleveland and St. Louis markets. Prior to joining Duke Associates in
1981, Mr. Staton was a partner and general manager of his own moving company,
Gateway Van & Storage, Inc. in St. Louis, Missouri. Mr. Staton is a member of
the Greater Cincinnati Chamber of Commerce and the International Council of
Shopping Centers and, from 1986 to 1988, he served as president of the Greater
Cincinnati Chapter of the National Association of Industrial and Office Parks.
Mr. Staton received a B.S. degree in Finance from California Western University
in 1982, a B.S. degree in General Business from Ohio University in 1991 and
is currently working on his Ph.D. in Entrepreneurship at the Union Institute.
Fredrick W. Petri has been a Trustee of the Company since May 1995. Mr.
Petri has been President of Petrone, Petri & Company, a real estate investment
firm since 1993. Prior thereto, Mr. Petri was an Executive Vice President of
Wells Fargo Bank, where for over 18 years he held various positions involving
real estate. Mr. Petri is a director of Simon DeBartolo Group. Additionally, is
he a trustee of the Urban Land Institute and a director of the Real Estate
Center of the University of Wisconsin Business School. He formerly served as a
member of the board of governors and a Vice President of the National
Association of Real Estate Investment Trusts and as a board member and director
of the National Association of Industrial and Office Parks. Mr. Petri received
his B.A. degree in Business and his M.B.A. in Finance from the University of
Wisconsin in 1969 and 1970, respectively.
4
<PAGE> 10
Board Committees and Meetings
Eight meetings of the full Board were held in 1996. Each Trustee who
held such position in 1996 attended at least 75% in the aggregate of all
meetings of the Board and any committee on which such Trustee served.
The Company has standing Audit, Executive Compensation and Executive
Committees of the Board. The Company does not have a standing nominating
committee.
Audit Committee
The Board has established an Audit Committee that consists of two
Trustees. Each member of the Audit Committee is required to be independent of
management of the Company and free from any relationship that, in the opinion of
the Board of Trustees of the Company, would interfere with the exercise of
independent judgment. Messrs. Eagle and Petri constitute the Audit Committee.
The Audit Committee makes recommendations concerning the engagement of the
independent auditors, reviews with the independent auditors the plans and
results of the audit engagement, approves professional services provided by the
independent auditors, reviews the independence of the independent auditors,
considers the range of audit and non-audit fees and reviews the adequacy of the
Company's internal accounting controls and financial reporting. The Audit
Committee met two times in 1996.
Executive Compensation Committee
The Board has established an Executive Compensation Committee. Messrs.
Rowe and Staton constitute the Executive Compensation Committee, which must
consist entirely of "non-employee directors" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
a majority of the members of which must be Independent Trustees. The Executive
Compensation Committee determines the compensation of the Company's executive
officers, administers the Company's option plan and reviews and acts upon any
changes to the Company's bonus incentive compensation plan and the Company's
retirement savings plan. See "Executive Compensation" below. The Executive
Compensation Committee met two times in 1996.
Executive Committee
The Board has established an Executive Committee. Messrs. Gordon Burnam,
Eagle and Staton constitute the Executive Committee, which has the authority,
within certain parameters set by the Board, to acquire, dispose of and finance
assets on behalf of the Company. The Executive Committee cannot, however, take
any action that requires a majority vote of the Independent Trustees or which
requires unanimous approval of all Trustees. The Executive Committee met four
times in 1996.
5
<PAGE> 11
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding the
compensation of Mr. Michael G. Burnam and the Company's other most highly
compensated executive officers during 1996, 1995 and 1994. The table includes
compensation from all sources for services rendered to the Company and its
subsidiaries during 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- -------------------------- ---------------------
Other Securities All
Annual Restricted Underlying Other
Compensa- Share Options/ LTIP Compensa-
Salary Bonus tion Awards SARs Payouts tion
Name and Principal Position Year ($) ($) ($) ($) (number) ($) ($)
- --------------------------- ---- -------- ----- --------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael G. Burnam 1996 $123,200 $ 80,080 -- -- -- -- --
Chief Executive 1995 $110,000 $27,500 -- -- 1,085 -- --
Officer and Trustee 1994 $ 13,750<F1> -- -- -- 61,915 -- --
P. Crismon Burnam 1996 $117,600 $76,440 -- -- -- -- --
Chief Operating 1995 $105,000 $26,250 -- -- 1,085 -- --
Officer and Trustee 1994 $ 13,125<F1> -- -- -- 61,915 -- --
Stephen M. Dulle 1996 $112,000 $72,800 -- -- -- -- --
Chief Financial Officer 1995 $100,000 $25,000 -- -- 18,440 -- --
1994 $ 12,500<F1> -- -- -- 44,560 -- --
Timothy B. Burnam 1996 $109,725 $20,000 -- -- -- -- --
Vice President - 1995 $ 95,000 $ 9,500 -- -- -- -- --
Construction & Development 1994 $ 11,875<F1> -- -- -- 49,500 -- --
<FN>
- --------------------
<F1> Represents actual salary for services performed for the Company and its
subsidiaries from November 16, 1994 to December 31, 1994. Annualized
salaries for 1994 for Messrs. Michael G. Burnam, P. Crismon Burnam,
Stephen M. Dulle and Timothy B. Burnam were $110,000, $105,000, $100,000
and $95,000, respectively.
</TABLE>
6
<PAGE> 12
Option Grants
No options were granted by the Company in 1996 to the executive officers
named in the above table. On May 8, 1996, options for 24,500 units of
partnership interest in Storage Trust Properties, L.P. (Units) were granted to
15 employees at an exercise price equal to then current market price of $21.50.
On August 6, 1996, options for 2,000 Units were granted to an employee at an
exercise price equal to the then current market price of $20.25. During 1996,
four individuals terminated employment with the Company, and, accordingly,
options on 12,600 Units were canceled. Additionally, during 1996, one employee
exercised options on 600 Units, which were converted into 600 Common Shares.
Aggregated Option Exercises in 1996 and Year-End Option Values
The following table sets forth certain information concerning exercises of
options during 1996 by each of the executive officers named in the above table
and the year-end value of unexercised options owned by such executive officers.
<TABLE>
<CAPTION>
Number of Securities
Securities Underlying Unexercised Value of Unexercised in-the-
Acquired on Options at Year-End <F2> Money Options at Year-End
Exercise <F1> Realized ------------------------------ ---------------------------------
Name (number) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael G. Burnam -- -- 24,983 38,017 $ 236,742 $ 358,775
P. Crismon Burnam -- -- 24,983 38,017 $ 236,742 $ 358,775
Stephen M. Dulle -- -- 21,512 41,488 $ 194,222 $ 353,568
Timothy B. Burnam -- -- 19,800 29,700 $ 188,100 $ 282,150
<FN>
- -------------------
<F1> Options are exercisable one-fifth each on the first, second, third, fourth
and fifth anniversaries of the date of grant, respectively.
<F2> Represents aggregate options to purchase Common Shares or Units.
</TABLE>
7
<PAGE> 13
Option Plan
See Proposal 2 - Approval of Amendment and Restatement of Option Plan
for a description of the Storage Trust Realty 1994 Share Option Plan, as
currently in effect (the AOption Plan"). Options were granted to various
employees in 1996. See "Option Grants" above. Also, the Company's Independent
Trustees received options in 1996 as described under "Compensation of Trustees"
below.
Incentive Compensation
The Company's bonus incentive compensation plan for the three senior
executive officers has been revised for 1997. This plan awards a bonus to
executive officers covered under the plan based on the achievement of specified
targets and goals for the Company and the individual officer. The plan provides
for bonuses of 0% to 100% of base compensation based on the achievement of
targeted annual increases in shareholder return and per share Funds from
Operations and other subjective factors as determined by the Executive
Compensation Committee. If the amendment to the Option Plan is approved by
shareholders, it is anticipated that for 1997 and future years one-half of an
officer's bonus in excess of the target amount of 40% of base compensation
will be paid in Common Shares or Units subject to transferability restrictions.
For additional details, see "Executive Compensation Committee Report on
Executive Compensation."
Retirement Savings Plan
In 1995, the Company adopted a retirement savings plan (the Plan) for
its full-time employees. The Plan is a qualified plan pursuant to Sections
401(a) and 401(k) of the Internal Revenue Code. Participants in the Plan may
elect to contribute a portion of their compensation to the Plan and the Company
is obligated to make a matching contribution for the employee equal to 50% of
the participant's contribution to the Plan, up to 2% of the participant's
compensation. The Company's contribution to the Plan was approximately $14,000
in 1996.
The Company made employer contributions of $3,014, $2,877, $2,250 and
$1,995 during 1996 for Messrs. Michael Burnam, Crismon Burnam, Stephen Dulle and
Timothy Burnam, respectively.
Compensation of Trustees
Since the initial public offering through 1996, the Company paid its
Independent Trustees an annual fee of $12,000 in cash, plus $1,000 in cash for
each meeting attended (in person or by telephone). Trustees who are also
officers or employees of the Company are not paid any Trustees' fees. In
addition, the Company reimburses all Trustees for expenses incurred in attending
meetings.
Assuming approval of the amendment to the Option Plan being proposed to
the shareholders, in 1997 the Company will pay its Independent Trustees an
annual fee in Common Shares with a market value of $12,000 at the time of
issuance, plus $1,000 in cash for each regular meeting attended (in person or by
telephone) and $500 in cash for each committee meeting attended (in person or by
telephone).
Pursuant to the Option Plan (described above), each Trustee who is not an
officer or employee of the Company was or will be granted, effective as of the
later of the Trustee's initial election or appointment or the completion of the
Company's initial public offering, a ten-year option to acquire 3,000 Common
Shares at the initial public offering price of $17.50 or fair market value on
the date of grant, as applicable. Additionally, each Trustee who is not an
officer or employee of the Company has been and will be, as of the close of each
annual shareholders' meeting after such Trustees initial election or
appointment, granted a ten-year option to acquire an additional 3,000 Common
Shares at the fair market value of the Common Shares on the date of grant. The
initial options for 3,000 Common Shares are not exercisable until after the
first anniversary of the date of grant; the Trustees' options awarded
periodically thereafter vest immediately. The exercise price is payable in
cash. See "Proposal 2 -- Approval of Amendment and Restatement of Option Plan"
for information regarding dividend equivalent rights which will be awarded with
such options in the future.
8
<PAGE> 14
Non-competition Agreements and Termination of Employment
Messrs. Michael and Crismon Burnam have each entered into a non-
competition agreement with the Company which requires each of them to devote
their full business time to the Company. The non-competition agreements entered
into by Messrs. Michael and Crismon Burnam (a) prohibit each of them from,
directly or indirectly, owning, acquiring, operating or developing any self-
storage properties other than on behalf of the Company during the period each of
them is an officer or Trustee of the Company and for a period of two years
thereafter, unless their termination is not voluntary, and (b) prohibit each of
them from actively engaging in property management, development or leasing of
other real estate properties, during the period each of them is an officer or
Trustee of the Company and for a period of one year after his termination as an
officer or Trustee of the Company, unless such termination is not voluntary.
Mr. Gordon Burnam has entered into a non-competition agreement with the Company
which requires him to devote at least one-half of his business time to the
Company and prohibits him from, directly or indirectly, owning, acquiring,
operating or developing any self-storage properties other than on behalf of the
Company during the period he is an officer or Trustee of the Company and for a
period of two years thereafter, unless his termination is not voluntary.
Additionally, Mr. Stephen Dulle has agreed to devote his full business time to
the Company.
Compensation Committee Interlocks and Insider Participation
There are no Executive Compensation Committee interlocks or insider
participation on the Executive Compensation Committee. Mr. Michael Burnam,
however, serves as an "ex officio" (non-voting) advisor to the Executive
Compensation Committee. The sole purpose of Mr. Michael Burnam's position as an
"ex officio" advisor to the Executive Compensation Committee is to furnish
whatever information may be necessary in order for the Executive Compensation
Committee to function. Mr. Burnam has not been and will not be present at the
time of deliberations or at the time of any vote by the Executive Compensation
Committee concerning compensation of the Company's executive officers, including
his own.
Executive Compensation Committee Report on Executive Compensation
Payment of cash compensation to the executive officers of the Company
began in November 1994. The base salary paid to the Company's executive
officers during 1994 and 1995, and initial option grants to the Company's
executive officers were determined prior to that time by Messrs. Gordon, Michael
and Crismon Burnam, the then-current Trustees and officers of the Company. In
making these determinations, the management of the Company considered job
responsibilities, the salaries paid and options granted to executive officers of
other REITs similar to the Company, as well as the salaries paid to and past
performance of such persons in their prior capacities at BHC or elsewhere.
For 1996, the Company's Executive Compensation Committee built on the
traditional compensation policies of BHC, adapted to the Company's competitive
environment of similar publicly-traded REITs. The Company established a bonus
incentive compensation plan for its executive officers, which provided for cash
bonuses of 0% to 75% of base compensation based on the achievement of targeted
annual increases in per share Funds from Operations and other goals as
determined by the Executive Compensation Committee. In 1996 the Company paid
cash bonuses of 65% of base compensation to the three senior executive officers,
including the Chief Executive Officer, based on the achievement of these goals.
See "Incentive Compensation" above. Also, the Company has adopted the Option
Plan, which authorizes the Executive Compensation Committee to grant options for
Units (exchangeable for Common Shares on a one-for-one basis) to the Company's
executive officers and other employees at exercise prices determined by the
Executive Compensation Committee. See "Option Plan" above. Through these plans
and other means, the Executive Compensation Committee intends to maintain strong
links between executive officer compensation and corporate and individual
performance.
9
<PAGE> 15
Executive Compensation Committee Report on Executive Compensation (continued)
For 1997 and future years, the Company's Executive Compensation Committee
commissioned FPL Associates, compensation consultants, to conduct a compensation
study of the Company. Based upon this study, the Board is submitting an
amendment and restatement of the Option Plan, pursuant to which the Option Plan
will become the 1994 Share Incentive Plan, for the approval of the shareholders.
See "Proposal 2-Approval of Amendment and Restatement of Option Plan." This
study contained detailed compensation and performance data on self-storage REITs
and other REITs. The Company believes that its compensation levels compare
favorably to its peer groups described in the study and targets competitive
compensation levels for its executive officers.
The Company's salary structure is designed to attract and retain highly
qualified executives. This is accomplished by providing competitive base
salaries and meaningful incentives, including short-term and long-term
incentives, intended to reward performance. These incentives are designed to
deliver competitive levels of compensation consistent with the performance of
the Company.
Benchmarks for determining bonus levels include achievement of financial
goals (80%), which consist of targeted Funds from Operations (weighted 75%) and
increases in shareholder value (weighted 25%), and qualitative assessments of
the executive's performance (20%). The target amount of bonus for each of the
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer is
40% of salary. If the amendment to the Option Plan is approved by shareholders,
it is anticipated that one-half of an officer's bonus in excess of 40% will be
paid in Common Shares or Units, subject to transferability restrictions.
The long-term incentives for the Chief Executive Officer, the Chief
Operating Officer and the Chief Financial Officer are in the form of
nonqualified option grants. If the amendment to the Option Plan is approved, it
is anticipated that such options will be granted with dividend equivalent rights
entitling the holder to credits towards the exercise price of the options equal
to certain percentages of dividends paid on Common Shares based on the
achievement of various targeted shareholder returns. The Executive Compensation
Committee recognizes that the interests of the shareholders are best served by
giving key employees the opportunity to participate in the appreciation of the
Company's Common Shares through the granting of options. The Executive
Compensation Committee believes that over an extended period of time, share
performance will reflect executive performance and that such arrangements
further reinforce management goals and incentives to achieve shareholders'
objectives.
The Executive Compensation Committee does not believe that the Company's
compensation policies will be affected by the $1 million compensation deduction
limit.
Executive Compensation Committee
Randall K. Rowe
Daniel C. Staton
10
<PAGE> 16
Performance Graph
The following line graph compares the change in the Company's cumulative
shareholder return on its Common Shares to the cumulative total return of the
Standard & Poor's 500 Stock Index ("S&P 500 Index") and the NAREIT Equity REIT
Total Return Index ("NAREIT Index") from November 8, 1994, the effective date
of the Company's initial public offering of Common Shares, to December 31,
1996. The graph assumes the investment of $100 in the Company and each of the
indices on November 8, 1994 and the reinvestment of all dividends. The NAREIT
Index for November 1994 was prorated to adjust for the partial month. The
return shown on the graph is not necessarily indicative of future performance.
[graph]
<TABLE>
<CAPTION>
11/08/94 12/31/94 12/31/95 12/31/96
----------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------
Storage Trust Realty $100.00 $102.14 $138.71 $177.78
- -------------------------------------------------------------------------------
NAREIT Index $100.00 $103.52 $122.47 $163.04
- -------------------------------------------------------------------------------
S&P 500 Index $100.00 $ 98.63 $135.69 $166.80
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Management Company
Storage Realty Management Co. (the "Management Company"), 95% of the
voting common shares of which are owned by BHC, manages facilities which are
owned by unrelated third-parties. The Management Company also conducts various
other businesses, such as the sale of locks, the rental of trucks and the
processing of customer property insurance at various facilities, which, if
conducted by the Company or Storage Trust Properties, L.P. (the "Operating
Partnership"), could jeopardize the Company's qualification as a REIT.
Other Transactions
Pursuant to a Corporate Services Agreement among the Management Company,
the Operating Partnership and the Company, the Operating Partnership and the
Management Company provide various managerial, administrative, accounting, and
other services related to the operations and administration of the Management
Company, the Operating Partnership and the Company. The Corporate Services
Agreement provides for the parties to reimburse the Operating Partnership and
the Management Company quarterly for costs incurred with respect to this
agreement. The Corporate Services Agreement was amended as of January 1, 1996
to take into account the truck rental business conducted by the Management
Company. The Corporate Services Agreement had an initial term through December
31, 1995. The Corporate Services Agreement has been renewed for additional one-
year terms and will continue to be renewed for consecutive one-year terms,
provided that the Company, the Operating Partnership and the Management Company
mutually consent to each such renewal at least 60 days before the expiration of
the then-current term. The Corporate Services Agreement may be terminated
earlier in the event that the Operating Partnership no longer owns more than 50%
of the preferred stock of the Management Company, in the event of a material
default by the Management Company, the Operating Partnership or the Company
(which is not cured within certain specified time periods), or in the event of
the voluntary or involuntary bankruptcy of the Management Company. During 1996,
reimbursements incurred pursuant to the Corporate Services Agreement were as
follows: by the Company to the Operating Partnership, $77,928; and by the
Management Company to the Operating Partnership, $195,578.
12
<PAGE> 18
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the Common
Shares as of February 18, 1997 (except where so noted) for (1) each person who
is known to the Company to have been the beneficial owner of more than five
percent of the Common Shares outstanding on February 18, 1997, (2) each Trustee
and executive officer of the Company and (3) the Company's Trustees and
executive officers as a group. There are no other persons who are known by the
Company to be the beneficial owner of more than five percent of the Common
Shares, which are the only voting securities of the Company. Units are
exchangeable into Common Shares, and the number of Common Shares beneficially
owned by a person for the purposes of this presentation includes the number of
Common Shares into which Units beneficially owned by the person are
exchangeable. The number of Common Shares beneficially owned by a person also
includes the number of Common Shares or Units for which a person holds an
option, exercisable within sixty days of February 18, 1997, to acquire. The
percent of Common Shares beneficially owned by a person assumes that all Units
held by the person are exchanged for Common Shares and that none of the Units
held by other persons are so exchanged and that options exercisable within sixty
days of February 18, 1997 to acquire Common Shares or Units held by the person
are exercised and no options to acquire Common Shares or Units held by other
persons are exercised. Unless otherwise indicated in the footnotes, all of such
interests are owned directly, and the indicated person or entity has sole voting
and dispositive power.
<TABLE>
<CAPTION>
Common Percent
Shares of All
Beneficially Common
Name and Address of Beneficial Owner <F1> Owned <F2> Shares <F2>
- ------------------------------------------------ ------------ -----------
<S> <C> <C>
Public Employees Retirement System of Ohio <F3> 986,700 7.66
Gordon Burnam <F4><F5><F6><F7>. . . . . . . 480,317 3.64
Michael G. Burnam <F5><F6><F7>. . . . . . . 386,336 2.94
P. Crismon Burnam <F5><F6><F7>. . . . . . . 387,288 2.94
Timothy B. Burnam <F5><F6><F7>. . . . . . . 378,863 2.88
Stephen M. Dulle <F7>. . . . . . . . . . . 31,638 .25
Kimberly Flower <F5><F6><F7>. . . . . . . . 379,223 2.88
Burnam Holding Companies Co. <F5>. . . . . 184,154 1.41
Burnam Storage Associates L.L.C. <F6>. . . 174,269 1.35
Blake Eagle <F7>. . . . . . . . . . . . . . 11,000 .09
Daniel C. Staton <F7>. . . . . . . . . . . 9,000 .07
Randall K. Rowe <F7>. . . . . . . . . . . . 15,000 .12
Fredrick W. Petri <F7>. . . . . . . . . . . 12,100 .09
All Trustees and executive officers as a
group (9 persons) . . . . . . . . . . . . . 657,073 4.93
See notes on following page.
13
<PAGE> 19
<FN>
Notes to Security Ownership table:
<F1> Unless otherwise noted, the address for each of the persons or entities is
2407 Rangeline Street, Columbia, Missouri 65202.
<F2> Units are exchangeable into Common Shares, and the number of Common Shares
beneficially owned by a person for the purposes of this presentation
includes the number of Common Shares into which Units beneficially owned
by the person are exchangeable. The number of Common Shares beneficially
owned by a person also includes the number of Common Shares or Units for
which a person holds an option, exercisable within sixty days of February
18, 1997, to acquire. The percent of Common Shares beneficially owned by
a person assumes that all Units held by the person are exchanged for
Common Shares and that none of the Units held by other persons are so
exchanged and that options exercisable within sixty days of February 18,
1997 to acquire Common Shares or Units held by the person are exercised
and no options to acquire Common Shares or Units held by other persons are
exercised.
<F3> Information with respect to beneficial ownership by Public Employees
Retirement System of Ohio is included herein in reliance on a Schedule 13G
dated January 31, 1997 filed by Public Employees Retirement System of Ohio
with the Securities and Exchange Commission. The Schedule 13G indicates
that Public Employees Retirement System of Ohio may be deemed, as of
December 31, 1996, to have sole voting power for 986,700 Common Shares,
sole power to direct the disposition of 986,700 Common Shares and shared
power to vote or direct the disposition of no Common Shares. The address
of Public Employees Retirement System of Ohio is 277 East Town Street,
Columbus, Ohio 43215.
<F4> Gordon Burnam (and his wife Bonnie Burnam) beneficially owns 67,859 Common
Shares and 34,235 Units directly.
<F5> Burnam Holding Companies Co. beneficially owns 1,333 Common Shares and
182,821 Units. Burnam Holding Companies Co. is owned approximately one-
fifth by each of: Gordon and Bonnie Burnam; Michael G. Burnam; P. Crismon
Burnam; Timothy B. Burnam; and Kimberly Flower. Each such owner of Burnam
Holding Companies Co. may be deemed to beneficially own the Common Shares
and Units owned by Burnam Holding Companies Co. Each such owner of Burnam
Holding Companies Co. disclaims beneficial ownership of the Common Shares
and Units owned by Burnam Holding Companies Co.
<F6> Burnam Storage Associates, L.L.C. beneficially owns 112,500 Common Shares
and 61,769 Units. Burnam Storage Associates, L.L.C. is owned
approximately one-fifth by each of: Gordon and Bonnie Burnam; Michael G.
Burnam; P. Crismon Burnam; Timothy B. Burnam; and Kimberly Flower. Each
such owner of Burnam Storage Associates, L.L.C. may be deemed to
beneficially own the Common Shares and Units owned by Burnam Storage
Associates, L.L.C. Each such owner of Burnam Storage Associates, L.L.C.
disclaims beneficial ownership of the Common Shares and Units owned by
Burnam Storage Associates, L.L.C.
<F7> Common Shares owned by such persons include the following numbers of
Common Shares for which such persons held options which are exercisable
within 60 days of February 18, 1997: Gordon Burnam, 19,800; Michael G.
Burnam, 24,983; P. Crismon Burnam, 24,983; Timothy B. Burnam, 19,800;
Stephen M. Dulle, 21,512; Kimberly Flower, 19,800; Blake Eagle, 9,000;
Daniel C. Staton, 9,000; Randall K. Rowe, 9,000; Fredrick W. Petri, 9,000.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Trustees, certain
of the Company's officers, and beneficial owners of more than 10 percent of the
Company's outstanding Common Shares, to file reports of ownership and changes in
ownership of the Company's Common Shares with the Securities and Exchange
Commission and to send copies of such reports to the Company. Based solely upon
a review of such reports and amendments thereto furnished to the Company and
upon written representations of certain of such persons that they were not
required to file certain of such reports, the Company believes that no such
person failed to file any such report on a timely basis during 1996.
14
<PAGE> 20
PROPOSAL 2
APPROVAL OF AMENDMENT AND RESTATEMENT OF OPTION PLAN
Description of Option Plan as Currently in Effect
The Company has adopted the Option Plan to provide incentives to attract
and retain Trustees, officers and key employees and service providers. The
description of the Option Plan set forth below is qualified in its entirety by
reference to the text of the Option Plan, a copy of which has been filed with
the Securities and Exchange Commission.
The Option Plan provides for the grants of options to purchase a specified
number of Common Shares or Units ("Options"). Under the Option Plan, the total
number of Common Shares available for grant and available to be issued upon
exchange of Units issued under the Option Plan is currently 730,000. An
increase in the numbers of such Common Shares from 530,000 to the current
730,000 was approved at the 1996 Annual Meeting of Shareholders. Upon certain
extraordinary events, the Executive Compensation Committee may make such
adjustments in the aggregate number and kind of Common Shares or Units reserved
for issuance, the number and kind of Common Shares or Units covered by
outstanding awards and the exercise prices specified therein as they determine
to be appropriate.
Participants in the Option Plan, who may be Trustees, officers or
employees of, or service providers to, the Company, its subsidiaries or
designated affiliates, are selected by the Executive Compensation Committee.
Four Trustees (excluding those who are officers of the Company), 6 officers,
approximately 340 full-time employees and an indeterminate number of service
providers are currently eligible to participate in the Option Plan. The
Executive Compensation Committee also determines the terms of Options granted
under the Option Plan including, among other things, the individuals who shall
receive Options, whether Incentive Share Options ("ISOs") or nonqualified
Otions for Common Shares or Units shall be granted, the number of Common Shares
or Units subject to each Option and the vesting schedule and expiration date
applicable to each such Option. Trustees of the Company are also eligible to
participate, but in the case of Trustees who are not also officers or employees
of the Company, only pursuant to automatic grants under a specified formula set
forth in the Option Plan. See "Executive Compensation Compensation of
Trustees."
With certain limited exceptions, the Board may amend the Option Plan and
any Option outstanding thereunder without the approval of the shareholders,
provided that no amendment may alter or impair the rights of a participant with
respect to an Option previously granted without the consent of such participant
(except for any amendment made to cause the Option Plan to qualify for an
exemption provided by Rule 16b-3 under the Exchange Act).
The Option Plan authorizes the Executive Compensation Committee to grant
Options at an exercise price determined by the Executive Compensation
Committee. Such price cannot be less than 100% of the fair market value of
the Common Shares or Units on the date on which the Option in respect thereof
s granted. Subject to the limitations described below regarding REIT
qualification and taxes, with respect to any individual, the aggregate fair
market value (determined at the time the Option is granted) of Common Shares
with respect to which ISOs may be granted under the Option Plan, which Options
are exercisable for the first time during any calendar year, may not exceed
$100,000, and there is no limit on the number of nonqualified Options that
may be granted to any one individual. No Option may be granted or exercised
if the grant or exercise of such Option could cause the Company to fail to
qualify as a REIT for federal income tax purposes or to incur additional
taxes under Section 857 of the Internal Revenue Code of 1986, as amended (the
"Code"). The exercise price is payable in cash. The vesting provisions of
the Options are determined by the Executive Compensation Committee.
Notwithstanding the foregoing references to the Executive Compensation
Committee, the authority to grant and administer Options awarded to persons who
perform services for the Management Company and who are not subject to Section
16(a) of the Exchange Act with respect to the Company is vested in the board of
directors of the Management Company or a committee of two or more directors of
the Management Company. All Options granted to such persons will be Unit
Options.
15
<PAGE> 21
The right of any participant to exercise an Option may not be transferred
in any way other than by will or the laws of descent and distribution.
Proposed Amendment to Option Plan
On February 4, 1997, the Board approved, subject to the approval of the
shareholders, an amendment to the Option Plan, which, among other things,
restated and changed the name of the Option Plan to the 1994 Share Incentive
Plan. The following is a description of the proposed amendment to the Option
Plan as currently in effect and as described above. The description of the
proposed amendment set forth below is qualified in its entirety by reference to
the text of the 1994 Share Incentive Plan, as amended and restated (the Amended
Plan), a copy of which is attached to this Proxy Statement as Appendix A and
incorporated by reference herein.
The Board and the Executive Compensation Committee believe that the Option
Plan has been important in permitting the Company and its subsidiaries to
attract and retain Trustees and key officers and employees and believe that the
Amended Plan is in the best interests of the Company, its employees and its
shareholders. Therefore, the Board recommends that shareholders vote for the
approval of the Amended Plan. Each valid proxy returned to the Company will be
voted for the adoption of the Amended Plan unless the proxy specifies otherwise.
The affirmative vote of the holders of a majority of the Common Shares for which
votes are cast at the annual meeting is required to adopt this proposal. For
purposes of the vote on this proposal, abstentions and broker non-votes will not
be counted as votes cast and will have no effect on the result of the vote.
Both abstentions and broker non-votes will count toward the presence of a
quorum.
Mr. Michael Burnam and the other most highly compensated executive
officers of the Company have received Options for Common Shares under the Option
Plan as currently in effect as follows: Messrs. Michael Burnam, P. Crismon
Burnam and Stephen M. Dulle, 63,000 each; and Mr. Timothy B. Burnam, 49,500.
Gordon Burnam, the Chairman of the Board and the father of Messrs. Michael, P.
Crismon and Timothy B. Burnam, and Kimberly Flower, the Secretary and the sister
of Messrs. Michael, P. Crismon and Timothy B. Burnam, have received options for
49,500 Common Shares each under the Option Plan. The Company's Trustees who are
not also officers or employees of the Company have each received and will
receive Options for Common Shares under the Option Plan as described under
"Executive Compensation-Compensation of Directors" above. The Company's
executive officers as a group have received Options for an aggregate of 288,000
Common Shares or Units under the Option Plan, the Company's Trustees who are not
executive officers have received Options for an aggregate of 36,000 Common
Shares under the Option Plan and the employees of the Company and its
subsidiaries (including the Management Company) as a group (excluding executive
officers of the Company) have received Options for an aggregate of 128,210
Common Shares or Units under the Option Plan.
16
<PAGE> 22
The following table sets forth information with respect to new awards
under the Amended Plan which have been made but which are conditional on
approval of the Amended Plan by the shareholders. Additional awards under the
Amended Plan may be made in the future.
<TABLE>
<CAPTION>
Dollar Number
Name and Position Value ($) of Units
- --------------------------------------- --------- --------
<S> <C> <C>
Michael G. Burnam n.a. 210,000 <F1>
Chief Executive Officer and Trustee
P. Crismon Burnam n.a. 200,000 <F1>
Chief Operating Officer and Trustee
Stephen M. Dulle n.a. 190,000 <F1>
Chief Financial Officer
Timothy B. Burnam <F3> <F3>
Vice President - Construction and Development
Executive Officers as a Group n.a. 600,000 <F1>
Non-Executive Trustees as a Group <F2> <F2>
Non-Executive Officer Employees as a Group <F3> <F3>
<FN>
- --------------------------------
<F1> Grants of this number of nonqualified Options for Units at the fair market
value on the date of grant. Such options vest one-fifth each on the
first, second, third, fourth and fifth anniversaries of the date of grant.
Such Options expire on the tenth anniversary thereof or earlier if the
officer's service with the Company ceases. These options have DERs (as
defined below) attached to them as described below. Additionally, these
Executive Officers may in the future receive a portion of their bonus in
the form of Common Shares or Units issued under the Amended Plan. See
"Executive Compensation -- Executive Compensation Committee Report on
Executive Compensation. Based on the closing sale price of the Common
Shares of $26.75 on the New York Stock Exchange on February 21, 1997, the
market value of the underlying 600,000 Common Shares and Units was
$16,050,000.
<F2> As described below, the Trustees who are not officers or employees of the
Company will (a) receive their annual fee of $12,000 in Common Shares
issued quarterly and (ii) have DERs attached to the formula Options
granted them.
<F3> It is anticipated that awards will be made to key employees of the Company
in the near future; however, the amount of such awards has not been
determined.
</TABLE>
In total, the Company and its subsidiaries (including the Management
Company) have previously granted Options to purchase an aggregate of 452,210
Common Shares and Units under the Option Plan as currently in effect, of which
30,210 have been canceled due to employee terminations and 600 have been
exercised, leaving 308,000 Common Shares available for grant and available to be
issued upon exchange of Units issued under the Option Plan as currently in
effect. The Amended Plan would increase the total number of Common Shares and
Units available thereunder to 1,375,407 (i.e., 10% of the aggregate number of
outstanding Common Shares and Units as of February 4, 1997, the date on which
the Board approved the Amended Plan). With the additional Options awarded
conditional on shareholder approval of the Amended Plan (as set forth in the
table above), Options for 1,021,400 Common Shares and Units remain outstanding,
which would leave a total of 353,407 Options for Common Shares and Units
available under the Amended Plan.
17
<PAGE> 23
Under the Amended Plan, the number of Common Shares and Units available
will increase on each January 1 to an amount equal to 10% of the aggregate
number of outstanding Common Shares and Units on such date; provided, however,
that no adjustment will be made if the aggregate number of outstanding Common
Shares and Units on any such date has decreased from the number previously used
to establish the number of Common Shares and Units available under the Amended
Plan.
The closing sale price of the Common Shares on the New York Stock Exchange
on February 18, 1997 was $26.125. Based on that price, the market value of the
421,400 Common Shares and Units underlying outstanding Options (not including
those Options awarded conditional on shareholder approval of the Amended Plan)
was $11,009,075, and the market value of the 308,000 Common Shares and Units
currently available under the Option Plan was $8,046,500. Based on that price,
the market value of the 1,021,400 Common Shares and Units underlying outstanding
Options (including those Options awarded conditional on shareholder approval of
the Amended Plan) was $26,684,075, and the market value of the 353,407 Common
Shares and Units which would be available under the Amended Plan was $9,232,758.
In addition to increasing the number of Common Shares and Units available,
the Amended Plan also contains certain other amendments to the Option Plan as
currently in effect. The following sections describe the material aspects of
such amendments. As with the Option Plan as currently in effect,
notwithstanding the references to the Executive Compensation Committee, the
authority to grant and administer awards under the Amended Plan to persons who
perform services for the Management Company and who are not subject to Section
16(a) of the Exchange Act with respect to the Company is vested in the board of
directors of the Management Company or a committee of two or more directors of
the Management Company.
Incentive Share Options and Nonqualified Options
The Amended Plan eliminates the ability to award ISOs. All Options issued
pursuant to the Amended Plan will be nonqualified Options. For a discussion of
the federal income tax consequences of Options, see Federal Income Tax
Consequences of Options below.
Common Share and Unit Awards
The Amended Plan provides for the award of Common Shares or the right to
receive Common Shares (AShare Awards") and Units or the right to receive Units
(Unit Awards) to participants. The earning, vesting and distribution of Share
Awards and Unit Awards may be subject to one or more conditions established by
the Executive Compensation Committee. Such conditions may relate to events
(such as performance or continued employment) occurring before or after the date
the Share Awards or Unit Awards are granted, or the date the Common Shares or
Units are earned by, vested in or delivered to the participant. Share Awards
and Unit Awards may provide for delivery of the Common Shares or Units at the
time of grant or may provide for a deferred delivery date, including delivery
upon the satisfaction of certain conditions. The Executive Compensation
Committee, in its sole discretion, may provide with respect to a Unit Award that
Units shall be converted to Common Shares immediately upon delivery of the
Units.
Dividend and Distribution Equivalent Rights
Dividend Equivalent Rights and Distribution Equivalent Rights (each,
DERs) may be awarded in conjunction with Options for Common Shares and Share
Awards and Options for Units and Unit Awards, as applicable. DERs entitle the
participant, with respect to each dividend or distribution payment date related
to a record date upon which Options for Common Shares, Options for Units, Share
Awards or Unit Awards are outstanding, to a payment or credit in an amount equal
to all or a percentage of the dividends or distributions payable with respect to
a Common Share or Unit, as applicable. DERs will be subject to such conditions,
limitations and restrictions as the Executive Compensation Committee shall
determine.
18
<PAGE> 24
Pursuant to the Amended Plan, unless determined otherwise by the
Executive Compensation Committee, each Common Share or Unit underlying an
Option granted under the Amended Plan on and after February 4, 1997 shall be
awarded with a DER. Additionally, each Option granted an Independent Trustee on
or after February 4, 1997 pursuant to the formula set forth in the Amended
Plan shall be awarded with a DER. See Executive Compensation-Compensation of
Trustees for information regarding such Options. Such DER entitles the
participant to a credit of a certain percentage of the dividends or
distributions payable during a calendar year on payment dates with respect to
record dates on which the Option was outstanding. The applicable percentages,
which are set forth in the Amended Plan attached to this Proxy Statement as
Appendix A, are based upon the annual total shareholder return for such
calendar year as determined by the Executive Compensation Committee. Unless
provided otherwise by the Executive Compensation Committee, DER credits
accumulated in this manner may only be used to pay a portion or all of the
exercise price with respect to an Option. DER credits may not be used with
respect to the exercise of any Option for which the fair market value of the
underlying Common Shares or Units on the exercise date is less than the
exercise price without taking into account the DER credit.
Payment of Annual Fee of Independent Trustees in Common Shares
Commencing with the calendar quarter ending June 30, 1997, as of the last
day of each calendar quarter, Independent Trustees shall be paid their annual
fee for such quarter in arrears with a number of Common Shares equal to $3,000
(or the quarterly portion of the annual fee specified by the Board from time to
time) divided by the fair market value of a Common Share as of the last day of
the calendar quarter. Independent Trustees who served only a portion of the
quarter will receive a pro rata number of Common Shares. Any fractional Common
Shares will be rounded up to the nearest whole Common Share.
19
<PAGE> 25
Federal Income Tax Consequences of Nonqualified Options
The tax discussion below does not purport to be a complete analysis of the
potential tax consequences relevant to the recipients of Options or to the
Company, or to describe tax consequences based on particular circumstances. It
is based on federal income tax law and interpretational authorities as of the
date of this Proxy Statement, which are subject to change at any time.
Tax Consequences to the Participant
Under the Amended Plan, the Executive Compensation Committee may grant
nonqualified Options to the Company's officers and key employees. Nonqualified
Options consist of Options to acquire Units and Options to acquire Common Shares
that are not intended to qualify as ISOs, which may not be awarded under the
Plan. Under the Code provisions applicable to an Amended Plan
participant, the participant's receipt of an Option should not result in
recognition of income or loss for federal income tax purposes. At the time of
exercise, however, the difference between the fair market value of the Common
Shares or Units that are subject of the Option and the exercise price, if any,
will generally constitute ordinary income to the participant.
A participant will generally recognize taxable gain or loss on the
subsequent sale of Common Shares acquired pursuant to the exercise of an Option,
which will be treated as a long or short term capital transaction depending on
the participant's holding period. With respect to Units acquired pursuant to
the exercise of an Option granted under the Amended Plan, the participant will
generally recognize taxable gain or loss upon the exchange of the Units for
Common Shares, which will be treated as a long or short term capital transaction
depending on the participant's holding period. The amount of such gain or loss
will be measured by the difference between the fair market value of the shares
at the conversion date and the participant's tax basis in such Units at the
conversion date. The participant will also recognize taxable gain or loss on
the subsequent sale of the Common Shares, which will be treated as a long or
short term capital transaction depending on the participant's holding period,
and will be measured by the difference between the amount realized upon the sale
of the Shares and the fair market value of the Shares at the time the Units were
converted into Shares, plus any amounts previously received from the Company as
a return of capital.
Tax Consequences to the Company
Generally, the Company (or, as applicable, the subsidiary or affiliate
that is the employer of a participant at the time an Option is awarded under the
Amended Plan) is entitled to a tax deduction in the year and to the extent that
the participant recognizes ordinary income as a result of the exercise of an
Option.
20
<PAGE> 26
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board, upon the recommendation of the Audit Committee, has appointed
the firm of Ernst & Young LLP as the Company's independent auditors for 1997. A
proposal to ratify this appointment will be presented at the Annual Meeting.
The affirmative vote of a majority of the votes cast at the Annual Meeting will
be necessary to adopt this proposal. For purposes of the vote on this matter,
abstentions will not be counted as votes cast and will have no effect on the
result of the vote, although they will be counted toward the presence of a
quorum.
Each valid proxy returned to the Company will be voted for the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for 1997 unless the proxy specifies otherwise. The Board
recommends that shareholders vote for the ratification of such appointment. The
Board also retains the right to appoint substitute independent auditors at any
time during 1997 for any reason whatsoever upon the recommendation of the Audit
Committee.
The Company expects that representatives of Ernst & Young LLP will be
present at the Annual Meeting and will be available to respond to appropriate
questions. Such representatives will have the opportunity to make a statement
at the Annual Meeting if they desire to do so.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1998 annual
meeting of shareholders must be received by the Company at its principal
executive offices on or before October 30, 1997 for inclusion in the Company's
proxy statement and form of proxy relating to that meeting.
PROXY SOLICITATION EXPENSE
The cost of soliciting proxies will be borne by the Company. The
Company will also request persons, firms and corporations holding shares
beneficially owned by others to send proxy material to, and obtain proxies
from, the beneficial owners of such shares and will, upon request, pay the
holders' reasonable expenses for doing so.
21
<PAGE> 27
APPENDIX A
STORAGE TRUST REALTY
1994 SHARE INCENTIVE PLAN
(formerly known as the 1994 Share Option Plan)
----------------------------------------------
(As Amended and Restated, Effective February 4, 1997)
ARTICLE 1.
BACKGROUND AND PURPOSE OF THE PLAN
1.1. Background. Storage Trust Realty, a Maryland real estate investment
----------
trust (the "REIT"), is the general partner of Storage Trust Properties, L.P.
(the "Partnership"), a Delaware limited partnership. The Partnership owns all
of the preferred stock of Storage Realty Management Co., a Delaware corporation
(the "Management Company"). The REIT, the Partnership and the Management
Company are each referred to individually as an "Affiliated Company," and
collectively as the "Affiliated Companies."
1.2. Purpose and Effective Date. The Storage Trust Realty 1994 Share
--------------------------
Option Plan was adopted in November 1994 to enable each of the Affiliated
Companies to attract, retain and motivate individuals to perform services as
directors, officers, employees and/or otherwise by providing for or increasing
the opportunity for such individuals to share in the growth and success of the
Affiliated Companies through proprietary interests in the REIT and/or the
Partnership. Effective as of February 4, 1997 (the "Effective Date"), the Plan
has been renamed the "Storage Trust Realty 1994 Share Incentive Plan," and
amended and restated as set forth herein, subject to the approval of the REIT's
shareholders.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
2.1. Definitions. In addition to the terms defined elsewhere in the
-----------
Plan, capitalized terms shall have the following meanings:
(a) "Award" means the award of Options, Shares, Units or DERs.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committees" means the REIT Committee and the Management
Company Committee (individually, each referred to as a "Committee").
(d) "Conversion Right" means the right described in Section
4.2(e)(1) of the Agreement of Limited Partnership of Storage Trust Properties,
L.P., as amended, providing for the exchange of Units for Shares.
(e) "DER" means a Dividend Equivalent Right awarded with respect
to a Share Option or a Distribution Equivalent Right awarded with respect to a
Unit Option, as described in Article 7.
(f) "Employer" means the Affiliated Company for whom an individual
provides or is expected to provide services as an employee or otherwise, and
for which services the individual is granted an Award under the Plan.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
from time to time amended.
22
<PAGE> 28
(h) "Management Company Committee" means the Board of Directors of
the Management Company, or a committee appointed by the Board of Directors for
the purpose of granting Unit Options and Unit Awards under the Plan (including
related DERs), and exercising certain administrative responsibilities with
respect thereto, composed of two or more members of the Board of Directors of
the Management Company.
(i) "Non-employee Trustee" means a member of the Board of Trustees
of the Independent REIT who is not an employee of the REIT and who also is an
"Independent Trustee" as defined in the REIT's Declaration of Trust.
(j) "Options" means Share Options and/or Unit Options. All Options
under the Plan shall be nonqualified options that are not intended to satisfy
section 422 of the Code.
(k) "Participant" means an individual who has been granted an Award
under the Plan.
(l) "Plan" means the Storage Trust Realty 1994 Share Incentive
Plan, as set forth herein and as from time to time amended.
(m) "REIT Committee" means a committee appointed by the Board of
Trustees of the REIT for the purpose of granting Awards under the Plan and
administering the Plan, composed of two or more Trustees, at least a majority
of whom are "Independent Trustees" as defined in the REIT's Declaration of
Trust, and each of whom is a "non-employee director" within the meaning
of Rule 16b-3.
(n) "Rule 16b-3" means Rule 16b-3 promulgated under Section 16 of
the Exchange Act.
(o) "Share Award" means the award of a Share or the right to
receive a Share (a "phantom share"), subject to the; restrictions, if any,
established by the REIT Committee.
(p) "Share Option" means a right granted under the Plan to purchase
Shares.
(q) "Shares" means common shares of beneficial interest, $0.01 par
value per share, of the REIT.
(r) "Trustee" means a member of the Board of Trustees of the REIT.
(s) "Unit Award" means the award of a Unit or the right to receive
a Unit (a "phantom unit"), subject to the restrictions, if any, established by
the applicable Committee.
(t) "Unit Option" means a right granted under the Plan to purchase
Units. Units purchased under a right granted under the Plan will represent
limited partnership interests in the Partnership.
(u) "Units" means units of limited partnership interest in the
Partnership.
2.2. Construction. Whenever the context so admits, the singular or
------------
plural number, and the masculine, feminine or neuter gender shall each be
deemed to include the other.
23
<PAGE> 29
ARTICLE 3.
ADMINISTRATION
3.1. Authority of Committees as to Discretionary Grants of Awards.
------------------------------------------------------------
(a) The REIT Committee shall have sole and exclusive authority to
grant Awards to persons who, at the time of grant, perform services for the
REIT and/or the Partnership, or who are officers, trustees, directors or other
persons subject to Section 16(a) of the Exchange Act with respect to the REIT;
provided, however, that in order to meet the performance-based compensation
exception of Section 162(m)(4) of the Code (as amended by the Omnibus Budget
Reconciliation Act of 1993), the REIT Committee may delegate its discretionary
authority under this Section 3.1(a) or any other provision of the Plan to a
subcommittee which consists solely of two or more "outside directors" within
the meaning of Section 162(m)(4)(C) of the Code.
(b) The Management Company Committee shall have sole and exclusive
authority to grant Unit Options and Unit Awards to persons who, at the time of
grant, perform services for the Management Company and are not officers,
trustees, directors or other persons subject to Section 16(a) of the Exchange
Act with respect to the REIT.
3.2. Authority of REIT Committee. Subject to the provisions of the
---------------------------
Plan, the REIT Committee shall have the following authority, powers, rights
and duties in addition to those vested in it elsewhere in the Plan:
(a) to maintain records regarding the granting and exercise
of Awards made under the Plan and such other matters necessary for the orderly
operation of the Plan;
(b) to interpret and construe the provisions of the Plan;
(c) to grant Awards under the Plan to the class of persons
described in Section 3.1(a), in such forms and amounts and subject to such
restrictions, limitations and conditions as it deems appropriate, including,
without limitation, awards which are made in combination with or in tandem
with other awards (whether or not contemporaneously granted) or as
compensation or in lieu of current or deferred compensation (provided,
however, that the Awards granted to any individual with respect to
the services performed for a particular Affiliated Company, together with all
other compensation amounts provided in connection with such individual's
performance of services for such Affiliated Company, shall not, in
total, exceed a reasonable amount of compensation as determined by the Board
of Trustees (with respect to the REIT) or the board of directors or similar
governing authority of any other Affiliated Company);
(d) to determine the aggregate number of Shares or Units subject
to any Award granted under the Plan during any specified time period subject
to the limitations of Section 4.1 hereof;
(e) to modify the terms of, cancel and reissue, or repurchase
outstanding Awards granted by it;
(f) to prescribe the form of agreements, certificates or other
instruments evidencing Awards granted under the Plan;
(g) to correct any defect or omission and reconcile any
inconsistency in the Plan or in any grant of Awards made by it; and
(h) to make all other determinations and take all other actions
as it deems necessary or desirable for the overall implementation and
administration of the Plan.
3.3. Authority of Management Company Committee. Subject to the
-----------------------------------------
provisions of the Plan, in exercising its authority to grant Unit Options and
Unit Awards to the classes of persons described in Section 3.1(b), the
Management Company
24
<PAGE> 30
Committee shall grant Unit Options and Unit Awards in such amounts and subject
to such restrictions, limitations and conditions as such Committee deems
appropriate, including, without limitation, awards which are made in
combination with or in tandem with other awards (whether or not
contemporaneously granted) or as compensation or in lieu of current or
deferred compensation (provided, however, that the Unit Options Unit Awards
granted to any individual with respect to the services performed for the
Management Company together with all other compensation amounts provided in
connection with such individual's performance of services for the Management
Company, shall not, in total, exceed a reasonable amount of compensation as
determined by the board of directors of the Management Company). Prior to
each granting of Unit Options or Unit Awards hereunder, the Management Company
Committee shall advise the REIT Committee of the number of Units as to which
it intends to grant Awards, and immediately after the grant of such Awards
such Committee shall notify the REIT Committee of such grants and the
principal terms thereof. For purposes of administering those Awards
granted by the Management Company Committee in accordance with the terms of
the Plan, such Committee shall have the following authority, powers, rights
and duties in addition to those vested in it elsewhere in the Plan:
(a) to modify the terms of, cancel and reissue, or repurchase
any outstanding Unit Options or Unit Awards granted by it;
(b) to correct any defect or omission and reconcile any
inconsistency in any Unit Options or Unit Awards granted by it.
3.4. General Provisions. Neither of the Committees shall have any
------------------
authority, discretion or power to select the Non-employee Trustees who will
receive Options or Share Awards under the Plan or to determine the timing,
amount or exercise price of Shares underlying any Option granted under
Section 6.2 of this Plan to such Non-employee trustees. All actions of the
Committees shall be taken by majority vote of its members or by unanimous
written consent. The determination of each Committee on matters within its
authority shall be final, conclusive and binding on the Affiliated Companies
and all other persons. No member of any Committee shall be liable for any
action or determination made with respect to the Plan.
ARTICLE 4.
SHARES AND UNITS SUBJECT TO AWARD
4.1. Number of Shares and Units Subject to Award. Subject to
-------------------------------------------
the adjustment provisions of Section 4.4, the aggregate number of
(a) Shares which may be subject to Share Options and Share
Awards, and
(b) Units which may be subject to Unit Options and Unit Awards,
shall equal 10% of the aggregate number of outstanding Shares and Units on the
Effective Date, plus such additional amount as may be determined as of each
subsequent January 1 (the "adjustment date"), so that the number of Shares and
Units reserved under the Plan shall equal 10% of the aggregate number of
outstanding Shares and Units on the adjustment date; provided, however, in the
event that the number of outstanding Shares as of any adjustment date are less
than the number of outstanding Shares on the Effective Date or any prior
adjustment date, no adjustment shall be made to the number of Shares and Units
reserved for issuance on such adjustment date. For purposes of calculating the
number of outstanding Shares and Units, securities of the REIT or Partnership
that are not Shares or Units but are convertible presently or in the future into
Shares or Units shall be deemed to be outstanding Shares or Units, as
applicable, equal to the number of Shares or Units into which such securities
are convertible. If, and to the extent, that Awards granted under the Plan
terminate, expire or are cancelled for any reason without the issuance of Shares
of Units, the Shares or Units reserved for issuance pursuant to the terminated,
expired or cancelled Award (and any Shares reserved in connection with the
Conversion Rights of the Units) shall again be available for the granting of
Awards; provided that the granting and terms of such new Awards shall in all
respects comply with the provisions of the Plan. Restricted Shares or Units
awarded under the Plan and later forfeited pursuant to the Plan shall again
become
25
<PAGE> 31
available for Awards under the Plan. No Awards of fractional Shares or
fractional Units shall be granted or issued under the Plan.
4.2. Character of Shares. Shares delivered upon the exercise
-------------------
of a Share Option or grant or vesting of a Share Award or in connection with
Conversion Rights exercised as to Units received upon the exercise of a Unit
Option or grant or vesting of a Unit Award may be acquired from authorized but
unissued Shares or issued Shares held in the REIT's treasury, or both. Units
delivered upon the exercise of a Unit Option or the grant or vesting of a Unit
Award may be acquired from the Partnership without regard to whether the
Partnership has previously set aside such Units for issuance under the Plan.
4.3. Reservation of Shares. There shall be reserved by the
---------------------
REIT at all times for sale under the Plan and for exchange pursuant to a
Conversion Right for a Unit received upon the exercise of a Unit Option an
aggregate number of Shares equal to the maximum number of Shares and Units which
may be subject to the granting of Awards under Section 4.1.
4.4. Adjustment. In the event that the REIT Committee shall
----------
determine that any extraordinary dividend or other distribution (whether in the
form of cash, Shares, Units, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares, Units or other securities, the issuance of warrants or other rights to
purchase Shares, Units or other securities, or other similar corporate, trust or
partnership transaction or event affects the Shares or Units with respect to
which Awards have been or may be issued under the Plan, such that an adjustment
is determined by the REIT Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the REIT Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
and Units that thereafter may be made the subject of Awards, (ii) the number and
type of Shares and Units subject to outstanding Awards, and (iii) the grant or
exercise price with respect to any Award, or, if deemed appropriate, make
provision for a cash payment to the holder of any outstanding Award; provided,
in each case, that the number of Shares or Units subject to any Award shall
always be a whole number. Adjustments to Options granted pursuant to Section
6.2 shall be governed by Section 6.2.
4.5. Limitation on Grant of Awards. Notwithstanding any
-----------------------------
provision of the Plan to the contrary, in no event shall an Award be granted
under the Plan if the granting of such Award may, in the determination of the
REIT Committee, cause the REIT to lose its status as a real estate investment
trust under section 856 of the Code (including sections 856(a)(6) and 856(h)
thereof) and applicable regulations thereunder.
ARTICLE 5.
INDIVIDUALS ELIGIBLE FOR AWARDS
5.1. Employees and Service Providers. Subject to Sections
-------------------------------
6.2 and 8.2 of the Plan, the individuals eligible to receive Awards under the
Plan shall consist of such key employees or service providers of the Affiliated
Companies (including any such individuals who are also Trustees, but expressly
excluding any such individuals who are non-employee Trustees) as each
Committee, acting in accordance with its respective powers under Section 3.1,
shall select from time to time. In exercising its discretionary authority to
grant Awards to any individual, each Committee shall make its determination
based upon the contribution that such individual performing services on behalf
of a particular Affiliated Company has made or is expected to make to the
growth and success of such respective Affiliated Company. With respect to
services performed for the REIT, employees and service providers of the REIT
are eligible only for Share Options or Share Awards (including related DERs).
With respect to services performed for the Partnership or the Management
Company, employees and service providers of the Partnership or the Management
Company are eligible only for Unit Options or Unit Awards (including related
DERs).
5.2. Non-employee Trustees. Each Non-employee Trustee shall
---------------------
be granted Share Options in accordance with the formula award provisions of
Section 6.2 and Share Awards in accordance with Section 8.2.
26
<PAGE> 32
ARTICLE 6.
TERMS AND CONDITIONS OF OPTIONS
6.1. Discretionary Grants of Options to Employees and Service
--------------------------------------------------------
Providers. Subject to the provisions and limitations of the Plan, each
- ---------
Committee shall determine the number of Shares or Units, as applicable, that may
be purchased under each Option granted by it, the exercise price for the Shares
or Units underlying each Option and the schedule for exercisability of each
Option. Unless determined otherwise by the applicable Committee, each Option
granted under the Plan on or after the Effective Date shall be granted with a
DER as described in Section 7.2, subject to such additional conditions and
limitations as the Committee may determine. Subject to the adjustment
provisions of Section 4.4, the maximum number of Shares and Units subject to
Options that may be granted under the Plan to any one individual in any calendar
year shall not exceed 500,000 Shares or 500,000 Units, or any combination of the
foregoing.
6.2. Formula Awards of Options to Non-employee Trustees. At
--------------------------------------------------
the time of his initial election or appointment as a Trustee, each Non-employee
Trustee shall automatically receive an Option for 3,000 Shares, which Option
shall become exercisable one year after the date of grant, provided the Non-
employee Trustee remains in continuous service as a Non-employee Trustee until
such one-year anniversary of the date of grant. Thereafter, at the closing of
each annual meeting of the REIT's shareholders, each Non-employee Trustee who
has been reelected or who is continuing as a Trustee as of the adjournment of
the annual meeting shall automatically receive an Option for an additional 3,000
Shares, which Option shall be immediately exercisable. To the extent Options
granted under sections of the Plan other than this Section 6.2 are adjusted
pursuant to Section 4.4, Options under this Section 6.2 shall automatically
be adjusted in the same manner. All Options granted under this Section 6.2
shall provide for an exercise price per Share equal to the Fair Market Value
of a Share as of the date of grant (or par value, if greater). Each Option
granted under this Section 6.2 shall be awarded with a DER, as described
in Section 7.2.
6.3. Option Agreements. The terms of each Option shall be set
-----------------
forth in a written agreement (the "Option Agreement"), signed by the Participant
and the Employer, in such form and containing such terms and conditions as are
required under the Plan or that the Committee granting such Option (the REIT
Committee, in the case of Options awarded under Section 6.2) may in its
discretion consider appropriate and which are not inconsistent with the
provisions of the Plan. In the event that any provision of an Option Agreement
shall conflict with any provisions of the Plan as in effect on the date of grant
of such Option, the provisions of the Plan as in effect on the date of grant of
the Option shall control.
6.4. Exercise Price. The exercise price for each Share
--------------
purchasable under any Option granted to a Non-employee Trustee is set forth in
Section 6.2. The exercise price for each Share purchasable under any other
Share Option granted under the Plan shall not be less than 100% of the Fair
Market Value of a Share on the date of grant of the Share Option (or par value,
if greater). The exercise price for each Unit purchasable under any Unit Option
granted under the Plan shall not be less than 100% of the Fair Market Value of a
Unit on the date of grant of the Unit Option. An Option granted under Section
6.1 of the Plan shall be considered granted on the date the applicable Committee
acts to grant the Option or such later date as it shall specify.
6.5. Fair Market Value. The "Fair Market Value" of a Share
-----------------
or Unit shall be determined as follows:
(a) If the Shares are listed or admitted to trading on a
securities exchange registered under the Exchange Act, the Fair Market Value of
a Share is the average of the high and low price of the Shares for the day
immediately preceding the date as of which Fair Market Value is being determined
(or if there was no reported sale on such date, on the last preceding date on
which any reported sale occurred) reported on the principal securities exchange
on which the Shares are listed or admitted to trading. If the Shares are not
listed or admitted to trading on any such exchange but are listed as a national
market security on the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ"), traded in the over-the counter market or
listed or traded on any similar system then in use, the Fair Market Value of a
Share shall be the average of the high and low sales price for the day
immediately preceding the date as of which the Fair Market Value is being
determined (or if there
27
<PAGE> 33
was no reported sale on such date, on the last preceding date on which any
reported sale occurred) reported on such system. If the Shares are not listed
or admitted to trading on any such exchange, are not listed as a national
market security on NASDAQ and are not traded in the over-the-counter market or
listed or traded on any similar system then in use, but are quoted on NASDAQ or
any similar system then in use, the Fair Market Value of a Share shall be the
average of the closing high bid and low asked quotations on such system for the
Shares on the date in question. In all other cases, Fair Market Value for
purposes of the Plan shall be determined by the REIT Committee in its sole
discretion using appropriate criteria.
(b) As of any date the Fair Market Value of a Unit shall equal
the Fair Market Value of a Share on such date.
6.6. Option Period. All rights to purchase Shares or Units
-------------
pursuant to any Option granted under the Plan shall cease as of the Option's
Expiration Date.
(a) The "Expiration Date" with respect to any Option granted
pursuant to Section 6.1, or any portion thereof, means the date established by
the granting Committee at the time of the grant (subject to any earlier
termination by such Committee), but in no event later than the date which is ten
years after the date on which the Option is granted. Except as provided
otherwise by the granting Committee, if the employment of a Participant who is
an employee of any of the Affiliated Companies terminates for any reason, his
Options shall terminate and may not be exercised after the earliest to occur of
(i) twelve months after termination of the Participant's employment by reason of
his death or becoming disabled (within the meaning of Section 22(e)(3) of the
Code), (ii) three months after his termination for any other reason or (iii) the
Option's Expiration Date.
(b) The "Expiration Date" with respect to any Option granted
to Non-employee Trustees pursuant to Section 6.2, or any portion thereof, means
the date which is ten years after the date on which the Option is granted. If
the Participant ceases to be a Trustee for any reason, his Options shall
terminate and may not be exercised after the earliest to occur of (i) twelve
months after his trusteeship is terminated for any reason other than death,
(ii) twelve months after his death or (iii) the option's Expiration Date.
6.7. Exercise of Options.
-------------------
(a) Options granted under the Plan shall be exercised by the
Participant (or by his executors, administrators, guardian or legal
representative) as to all or any portion of the Shares or Units then
exercisable under such Option, by giving the written notice described in
paragraph (i) below to the Committee administering such Option (the REIT
Committee, in the case of Options awarded under Section 6.2) or its designee
on or before the date such portion of the Option becomes unexercisable
under the Plan or the terms of the applicable Option Agreement, and by making
payment as provided in paragraph (ii) below within 3 business days after
delivery of the notice:
(i) A written notice of exercise, in a form complying with
any rules the applicable Committee may issue, that is signed by the
Participant and that specifies the number of Shares or Units to be
purchased; and
(ii) Payment to the Employer of the full purchase price for
the Shares or Units being purchased made in cash, by wire transfer
or by bank check.
In no event may any Option be exercised for a fraction of a Share or Unit.
(b) With respect to the exercise of any Share Option, the
REIT Committee shall provide the REIT a copy of the notice described in Section
6.7(a)(i) as soon as practicable after it is received. The REIT shall cause
delivery of the Shares purchased pursuant to the portion of the Share Option
that is exercised as soon as practicable after payment is received therefor
(including applicable withholding), and, within a reasonable time thereafter,
such transfer shall be evidenced on the books of the REIT.
(c) With respect to the exercise of any Unit Option subject
to an Option Agreement executed by the Partnership
28
<PAGE> 34
as Employer, the REIT Committee shall provide the Partnership a copy of the
notice described in Section 6.7(a)(i) as soon as practicable after it is
received. The Partnership shall deliver the Units purchased pursuant to the
portion of the Unit Option that is exercised as soon as practicable after
payment is received therefor (including applicable withholding) by the
Partnership from the Participant.
(d) With respect to the exercise of any Unit Option subject
to an Option Agreement executed by the Management Company as Employer, the
Committee receiving the notice described in Section 6.7(a)(i) shall provide the
Employer a copy of such notice as soon as practicable after it is received.
The Employer shall deliver to the Partnership, no later than 5 business days
after the date of exercise of the Unit Option, payment in cash equal to the Fair
Market Value, on the date of exercise of the Unit Option, of the Units subject
to the portion of the Option that is exercised. Upon receipt of such cash
payment, the Partnership shall deliver to the Employer the Units for which
payment is made, and the Employer shall deliver the Units to the Participant as
soon as practicable after the Participant has made payment therefor (including
applicable withholding) to the Employer.
6.8. No Rights of Owner Until Exercise and Issuance. No
----------------------------------------------
person exercising an Option shall have any of the rights of a shareholder of the
REIT or a partner in the Partnership until the Shares or Units, as applicable,
shall have been issued following the exercise of the Option. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date of issuance.
6.9. Non-Transferability of Option. No option shall be
-----------------------------
assignable or transferable by the Participant, other than by will or the laws of
of descent and distribution. An Option may be exercised during the life of the
Participant only by the Participant or his guardian or legal representative.
ARTICLE 7.
DIVIDEND AND DISTRIBUTION EQUIVALENT RIGHTS
7.1. Dividend and Distribution Equivalent Rights. A Dividend
-------------------------------------------
Equivalent Right with respect to a Share underlying a Share Option or Share
Award shall entitle the Participant, with respect to each dividend payment date
(with respect to Shares) related to a record date upon which such Share Option
or Share Award was outstanding, to a payment or credit in an amount equal to all
or a percentage of the dividends payable with respect to a Share, as determined
by the Committee. A Distribution Equivalent Right with respect to a Unit
underlying a Unit Option or Unit Award shall entitle the Participant, with
respect to each distribution payment date (with respect to Units) related to a
record date upon which such a Unit Option or Unit Award was outstanding, to a
payment or credit in an amount equal to all or a percentage of the distribution
payable with respect to a Unit, as determined by the Committee. The award of
DERs under this Section 7.1 shall be subject to such conditions, limitations and
restrictions as the applicable Committee shall determine.
29
<PAGE> 35
7.2. Automatic Grant of DERs. Unless determined otherwise by
-----------------------
the applicable Committee, each Share or Unit underlying an Option granted under
the Plan on and after the Effective Date shall be awarded with a DER, subject
to the following terms and conditions:
(a) The DER shall entitle the holder to a credit equal to a
percentage of the dividend or distribution paid to shareholders or unitholders,
as applicable, with respect to any calendar year determined in accordance with
the following schedule:
<TABLE>
<CAPTION>
Percentage of
Dividends or
Annual Total Shareholder Distributions
Return for the REIT: Credited:
<S> <C>
Less than 10% 0%
At least 10%, but less than 12% 25%
At least 12%, but less than 15% 50%
At least 15%, but less than 18% 75%
18% or more 100%
</TABLE>
(b) The Annual Total Shareholder Return of the REIT with
respect to any calendar year shall be determined by the REIT Committee as soon
as practicable after the end of the calendar year, and each Share and Unit
underlying an Option that is outstanding on the date such Annual Total
Shareholder Return is determined, and was outstanding on the record date with
respect to the applicable dividend or distribution payment during such calendar
year, will receive a DER credit equal to the dividends or distributions, as
applicable, payable on such dividend or distribution payment date during such
calendar year multiplied by the applicable percentage.
(c) The DER credits accumulated under this Section 7.2 with
respect to any Share or Unit may only be used to pay a portion or all of the
exercise price of the applicable Share or Unit Option and do not entitle the
Participant to cash or any other form of payment.
(d) In no event may a DER credit be used to pay any portion
of the exercise price of an Option if the Fair Market Value of a Share or Unit
on the date of exercise of the Option is less than the exercise price of the
Option determined without regard to the DER credit.
ARTICLE 8.
SHARE AWARDS AND UNIT AWARDS
8.1. Description of Awards. Subject to the terms of this
---------------------
Section 8.1, a Share Award or Unit Award under the Plan is a grant of Shares or
Units to a Participant, the earning, vesting or distribution of which is subject
to one or more conditions established by the applicable Committee. Such
onditions may relate to events (such as performance or continued employment)
occurring before or after the date the Share Award or Unit Award is granted, or
the date the Shares or Units are earned by, vested in or delivered to the
Participant. If the vesting of Share Awards or Units Awards are subject to
conditions occurring after the date of grant, the period beginning on the date
of grant of such Award and ending on the vesting or forfeiture of such Award (as
applicable) is referred to as the "Restricted Period". Share Awards and Unit
Awards may provide for delivery of the Shares or Units, as applicable, at the
time of grant or may provide for a deferred delivery date, including delivery at
the end of the Restricted Period. The Committee, in its sole discretion, may
provide with respect to a Unit Award that Conversion Rights be immediately
exercised upon delivery of the Units.
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8.2. Share Awards to Non-employee Trustees. Subject to the
-------------------------------------
terms and conditions of the Plan, commencing with the calendar quarter ending
June 30, 1997, as of the last day of each calendar quarter, a "Share Retainer"
shall be paid to each Non-employee Trustee who was a Non-employee Trustee during
such calendar quarter, which Share Retainer shall be payable in that number of
Shares equal to $3,000 (or the quarterly retainer payable with respect to such
calendar quarter, as specified by the Board from time to time) divided by the
Fair Market Value of a Share as of the last day of the calendar quarter, pro
rated in the case of an individual who did not serve as a Non-employee Trustee
during the entire calendar quarter. Any fractional Share shall be rounded up to
the nearest whole Share.
ARTICLE 9.
GENERAL PROVISIONS
9.1. Amendment and Termination of the Plan. The Board
-------------------------------------
of Trustees of the REIT may, at any time and in any manner, amend, suspend or
terminate the Plan or any award outstanding under the Plan; provided, however,
that no such amendment or discontinuance shall, without the approval of the
shareholders of the REIT:
(a) increase the number of Shares or Units that may be the
subject of Awards under the Plan (except for automatic adjustments pursuant to
Section 4.1 and other adjustments pursuant to Section 4.4);
(b) increase the maximum permissible term of any Option
specified by Section 6.6; or
(c) be made to the extent shareholder approval is required by
law, agreement or the rules of any exchange or automated quotation system upon
which the Shares are listed or quoted.
Notwithstanding the foregoing, no amendment shall alter or impair the rights of
Participants with respect to awards previously made under the Plan without the
consent of the Participant (except for any amendment made to cause the Plan to
qualify for an exemption provided by Rule 16b-3).
9.2. No Employment and Trustee Rights. The Plan does not
--------------------------------
constitute a contract of employment or continued service, and participation in
the Plan shall not confer upon any employee or other individual the right to be
retained in the employ or service of any of the Affiliated Companies or the
right to continue as a Trustee or director any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued under the
terms of the Plan or the terms of any grant made under the Plan.
9.3. Tax Withholding. The Employer of a Participant shall
---------------
notify the Participant of any income tax withholding requirements arising as a
result of the exercise of an Option or grant of an Award. The Employer shall
have the right to require the Participant to pay such withholding taxes. If the
Participant shall fail to make such tax payments as are required, the Employer
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to such Participant or to take such
other action as may be necessary to satisfy such withholding obligations,
including, but not limited to, withholding of Shares or Units sufficient to
satisfy the Employer's tax withholding obligations.
9.4. Nature of Payments. All Awards made pursuant to the Plan
------------------
are in consideration of services performed for one or more of the Affiliated
Companies. Any income or gain realized pursuant to an Award under the Plan
constitutes a special incentive payment to the Participant and shall not be
taken into account, to the extent permissible under applicable law, as
compensation for purposes of any of the employee benefit plans of any of the
Affiliated Companies except as may be determined by the Board of Trustees or
board of directors or similar governing authority, as applicable, of the
employee benefit plan's sponsoring employer.
9.5. Severability. If any provision of the Plan shall be held
------------
unlawful or otherwise invalid or unenforceable in whole or in part, such
unlawfulness, invalidity or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which remain in full force and
effect. If the making of any payment or the provision of any other benefit
required under the
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Plan shall be held unlawful or otherwise invalid or unenforceable, such
unlawfulness, invalidity or unenforceability shall not prevent any other
payment or benefit from being made or provided under the Plan, and if the
making of any payment in full or the provision of any other benefit required
under the Plan in full would be unlawful or otherwise invalid or
unenforceable, then such unlawfulness, invalidity or unenforceability shall
not prevent such payment or benefit from being made or provided in part, to the
extent that it would not be unlawful, invalid or unenforceable, and the maximum
payment or benefit that would not be unlawful, invalid or unenforceable shall
be made or provided under the Plan.
9.6. Governing Law. The Plan and all determinations made and
-------------
actions taken thereunder, to the extent not otherwise governed by the Code or
the laws of the United States, shall be governed by the internal laws of the
State of Maryland and construed accordingly.
9.7. Headings. Section headings are for convenience of
--------
reference only, and are not intended to narrow, limit or affect the meaning or
interpretation of the Plan as set forth herein.
9.8. Limitation of Liability of Shareholders and Officers of the
-----------------------------------------------------------
REIT. ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE REIT WHICH MAY ARISE AT
- ----
ANY TIME UNDER THIS PLAN OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED
BY IT PURSUANT TO ANY OTHER INSTRUMENT, TRANSACTION OR UNDERTAKING
CONTEMPLATED HEREBY SHALL BE SATISFIED, IF AT ALL, OUT OF THE REIT'S ASSETS
BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE
PROPERTY OF ANY OF ITS SHAREHOLDERS, TRUSTEES, OFFICERS, EMPLOYEES OR AGENTS,
REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF
CONTRACT, TORT OR OTHERWISE.
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