SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
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PUBLIC STORAGE, INC.
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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)
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PUBLIC STORAGE, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 8, 2003
The Annual Meeting of Shareholders of Public Storage, Inc., a
California corporation (the "Company"), will be held at the Hilton Glendale, 100
West Glenoaks Boulevard, Glendale, California, on May 8, 2003, at 1:00 p.m. Los
Angeles time, for the following purposes:
1. To consider and vote upon a proposal to elect ten
directors of the Company;
2. To consider and vote upon a proposal to ratify the
selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ended
December 31, 2003; and
3. To consider and act upon such other matters as may
properly come before the meeting or any adjournment
of the meeting.
Only shareholders of record of the Company's Common Stock and
Depositary Shares ("Depositary Shares") Each Representing 1/1,000 of a Share of
Equity Stock, Series A ("Equity Stock") at the close of business on March 14,
2003 will be entitled to receive notice of, and to vote at, the annual meeting
or any adjournment or postponement of the meeting. Each Depositary Share
represents 1/1,000 of a share of Equity Stock, which has been deposited with
EquiServe Trust Company, N. A., as Depositary (the "Depositary").
Please mark your vote on the enclosed proxy/instruction card,
then date, sign and promptly mail the proxy/instruction card in the stamped
return envelope included with these materials.
Holders of record of Common Stock and Depositary Shares are
cordially invited to attend the meeting in person. If a holder of Common Stock
and/or Depositary Shares does attend and has already signed and returned the
proxy/instruction card, the holder may nevertheless change his or her vote at
the meeting, in which case the holder's proxy/instruction card will be
disregarded. Therefore, whether or not you presently intend to attend the
meeting in person, you are urged to mark your vote on the proxy/instruction
card, date, sign and return it.
By Order of the Board of Directors
David Goldberg, Secretary
Glendale, California
April 8, 2003
PUBLIC STORAGE, INC.
701 Western Avenue
Glendale, California 91201-2349
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 8, 2003
GENERAL
This proxy statement (first mailed to shareholders on or about
April 14, 2003) is furnished in connection with the solicitation by the Board of
Directors of Public Storage, Inc. (the "Company") of proxies for use at the
Company's Annual Meeting of Shareholders to be held at the Hilton Glendale, 100
West Glenoaks Boulevard, Glendale, California at 1:00 p.m. Los Angeles time on
May 8, 2003 or at any adjournment or postponement of the meeting. The purposes
of the meeting are: (1) to consider and vote upon a proposal to elect ten
directors of the Company; (2) to consider and vote upon a proposal to ratify the
appointment of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending December 31, 2003; and (3) to consider such other business as
may properly be brought before the meeting or any adjournment or postponement of
the meeting.
QUORUM AND VOTING
Record Date and Quorum
Only holders of record of the Company's Common Stock and
Depositary Shares ("Depositary Shares") Each Representing 1/1,000 of a Share of
Equity Stock, Series A ("Equity Stock") at the close of business on the record
date of March 14, 2003 will be entitled to vote at the meeting, or at any
adjournment of the meeting. Each Depositary Share represents 1/1,000 of one
share of Equity Stock. The Equity Stock has been deposited with EquiServe Trust
Company, N. A., as Depositary (the "Depositary"). On the record date, the
Company had 124,681,522 shares of Common Stock issued and outstanding and
8,776,102 Depositary Shares, representing 8,776.102 shares of Equity Stock,
issued and outstanding.
The presence at the meeting in person or by proxy of the
holders of a majority of the voting power represented by the outstanding shares
of Common Stock and Equity Stock, counted together as a single class, is
necessary to constitute a quorum for the transaction of business. Abstentions
and "broker non-votes" are counted for purposes of determining whether a quorum
exists, but will not affect the outcome of any vote.
Voting of Proxy/Instruction Card
If a proxy/instruction card in the accompanying form is
properly executed and is received before the voting, the persons designated as
proxies will vote the shares of Common Stock represented thereby, if any, in the
manner specified, and the Depositary will vote the Equity Stock underlying the
Depositary Shares represented thereby, if any, in the manner specified. If no
specification is made, the persons designated as proxies will vote the shares of
Common Stock represented by the proxy/instruction card, if any, and the
Depositary will vote the Equity Stock underlying the Depositary Shares
represented by the proxy/instruction card, if any, FOR the election as directors
of the nominees named below and FOR the approval of proposal (2). If any nominee
becomes unavailable to serve, the persons designated as proxies and the
Depositary will vote for the person, if any, designated by the Board of
Directors to replace that nominee. A proxy/instruction card is revocable by
delivering a subsequently signed and dated proxy/instruction card or other
written notice to the Company or the Depositary at any time before the voting. A
proxy/instruction card may also be revoked if the person executing the
proxy/instruction card is present at the meeting and chooses to vote in person.
A proxy/instruction card will confer discretionary authority to cumulate votes
selectively among the nominees as to which authority to vote has not been
withheld.
If you participate in the PS 401(k)/Profit Sharing Plan (the
"401(k) Plan"), your proxy/instruction card will also serve as a voting
instruction for the trustee of the 401(k) Plan (the "Trustee") with respect to
the amount of shares of Common Stock and/or Depositary Shares credited to your
account as of the record date. If you provide voting instructions via your
proxy/instruction card with respect to shares in the 401(k) Plan, the Trustee
will vote those shares of Common Stock in the manner specified and/or the
Trustee will instruct the Depositary to vote the Equity Stock underlying those
Depositary Shares in the manner specified. If you execute and return the
proxy/instruction card without a specific voting instruction with respect to
shares in the 401(k) Plan, the Trustee will vote those shares of Common Stock,
and will instruct the Depositary to vote the Equity Stock underlying those
Depositary Shares, FOR the election as directors of the nominees named below and
FOR the approval of proposal (2). If a properly executed proxy/instruction card
with respect to shares in the 401(k) Plan is not received by the Trustee, the
Trustee will vote those shares of Common Stock at its discretion and/or the
Trustee at its discretion will instruct the Depositary with respect to the
voting of the Equity Stock underlying those Depositary Shares.
Holders of Common Stock and holders of Equity Stock vote
together as one class. With respect to the election of directors, (i) each
holder of Common Stock on the Record Date is entitled to cast as many votes as
there are directors to be elected multiplied by the number of shares registered
in his name on the record date and (ii) each holder of Equity Stock is entitled
to cast as many votes as there are directors to be elected multiplied by 100
times the number of shares of Equity Stock registered in its name (equivalent to
1/10 the number of Depositary Shares registered in the holder's name). The
holder may cumulate its votes for directors by casting all of its votes for one
candidate or by distributing its votes among as many candidates as it chooses.
The ten candidates who receive the most votes will be elected directors of the
Company. In voting upon proposal (2) and any other proposal that might properly
come before the meeting, each outstanding share of Common Stock entitles the
holder to one vote and each outstanding share of Equity Stock entitles the
holder to 100 votes (equivalent to 1/10 of a vote per Depositary Share). The
number of votes required to approve proposal (2) is set forth in the description
of the proposal in this proxy statement.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Ten directors, constituting the entire Board of Directors, are
to be elected at the Annual Meeting of Shareholders, to hold office until the
next annual meeting and until their successors are elected and qualified. When
the accompanying proxy/instruction card is properly executed and returned before
the voting, the persons designated as proxies and the Trustee will vote the
shares of Common Stock represented thereby, if any, and the Depositary will vote
the Equity Stock underlying the Depositary Shares represented thereby, if any,
in the manner indicated on the proxy/instruction card. If any nominee below
becomes unavailable for any reason or if any vacancy on the Company's Board of
Directors occurs before the election, the shares of Common Stock and/or the
shares of Equity Stock underlying Depositary Shares represented by a
proxy/instruction card voted for that nominee, will be voted for the person, if
any, designated by the Board of Directors to replace the nominee or to fill the
vacancy on the Board. However, the Board of Directors has no reason to believe
that any nominee will be unavailable or that any vacancy on the Board of
Directors will occur. The following persons are nominees for director:
Name Age Director Since
B. Wayne Hughes 69 1980
Ronald L. Havner, Jr. 45 2002
Harvey Lenkin 66 1991
Marvin M. Lotz 60 1999
Robert J. Abernethy 63 1980
Dann V. Angeloff 67 1980
William C. Baker 69 1991
Uri P. Harkham 54 1993
B. Wayne Hughes, Jr. 43 1998
Daniel C. Staton 50 1999
2
B. Wayne Hughes has been a director of the Company since its
organization in 1980 and was President and Co-Chief Executive Officer from 1980
until November 1991 when he became Chairman of the Board and sole Chief
Executive Officer. Mr. Hughes retired as Chief Executive Officer in November
2002 and remains Chairman of the Board. He was Chairman of the Board and Chief
Executive Officer from 1990 until March 1998 of Public Storage Properties XI,
Inc., which was renamed PS Business Parks, Inc. ("PSB"), an affiliated REIT.
From 1989-90 until the respective dates of merger, he was Chairman of the Board
and Chief Executive Officer of 18 affiliated REITs that were merged into the
Company between September 1994 and May 1998 (collectively, the "Merged Public
Storage REITs"). Mr. Hughes has been active in the real estate investment field
for over 30 years. He is the father of B. Wayne Hughes, Jr.
Ronald L. Havner, Jr. was elected Vice-Chairman, Chief
Executive Officer and a director of the Company in November 2002. Mr. Havner has
been Chairman and Chief Executive Officer of PSB from March 1998 to the present
and President of PSB from March 1998 to September 2002. From December 1996 until
March 1998, he was Chairman, President and Chief Executive Officer of American
Office Park Properties, Inc., a predecessor of PSB. He was Senior Vice President
and Chief Financial Officer of the Company and Vice President of PSB and certain
other REITs affiliated with the Company from November 1991 until December 1996.
Mr. Havner became an officer of the Company in 1986, prior to which he was in
the audit practice of Arthur Andersen & Company. He is a member of the National
Association of Real Estate Investment Trusts, Inc. (NAREIT) and the Urban Land
Institute (ULI) and a director of PSB, Business Machine Security, Inc. and The
Mobile Storage Group.
Harvey Lenkin became President and a director of the Company
in November 1991. Mr. Lenkin has been employed by the Company or its predecessor
for 25 years. He has been a director of PSB since March 1998 and was President
of PSB from 1990 until March 1998. Mr. Lenkin was President of the Merged Public
Storage REITs from 1989-90 until the respective dates of merger and was also a
director of one of those REITs, Storage Properties, Inc. ("SPI"), from 1989
until June 1996. He is a member of the Executive Committee of the Board of
Governors of the National Association of Real Estate Investment Trusts, Inc.
(NAREIT).
Marvin M. Lotz became a director of the Company in May 1999.
Mr. Lotz has been a Senior Vice President of the Company since November 1995. He
served as president of the property management division from 1988 until July
2002 with overall responsibility for the Company's mini-warehouse operations. In
July 2002, Mr. Lotz became president of the real estate division with overall
responsibility for the Company's acquisition and development activity.
Robert J. Abernethy, Chairman of the Audit Committee and a
member of the Compensation Committee, has been President of American Standard
Development Company and of Self-Storage Management Company, which develop and
operate mini-warehouses, since 1976 and 1977, respectively. Mr. Abernethy was
controller of a division of Hughes Aircraft from 1972 to 1974. He has been a
director of the Company since its organization. He is a member of the board of
trustees of Johns Hopkins University, a director of Marathon National Bank, a
member of the California State Board of Education and California State Arts
Council and a former California Transportation Commissioner. Mr. Abernethy is a
former member of the board of directors of the Los Angeles County Metropolitan
Transportation Authority and the Metropolitan Water District of Southern
California, a former Planning Commissioner and Telecommunications Commissioner
and the former Vice-Chairman of the Economic Development Commission of the City
of Los Angeles. He received an M.B.A. from the Harvard University Graduate
School of Business.
Dann V. Angeloff, Chairman of the Nominating/Corporate
Governance Committee and member of the Compensation Committee, has been
President of the Angeloff Company, a corporate financial advisory firm, since
1976. Mr. Angeloff is the general partner of a limited partnership that in 1974
purchased a mini-warehouse operated by the Company and which secures a note
owned by the Company. Mr. Angeloff has been a director of the Company since its
organization. He is a director of Balboa Capital Corporation, Nicholas/Applegate
Fund, ReadyPac Produce, Inc., Retirement Capital Group, Royce Medical Company
and Soft Brands, Inc. He was a director of SPI from 1989 until June 1996.
3
William C. Baker, a member of the Audit Committee and the
Nominating/Corporate Governance Committee, became a director of the Company in
November 1991. Since 1970, Mr. Baker has been a partner in Baker & Simpson, a
private investment entity. From August 1998 through April 2000, he was President
and Treasurer of Meditrust Operating Company, a real estate investment trust.
From April 1996 to December 1998, Mr. Baker was Chief Executive Officer of Santa
Anita Companies, which then operated the Santa Anita Racetrack. From April 1993
through May 1995, he was President of Red Robin International, Inc., an operator
and franchisor of casual dining restaurants in the United States and Canada.
From January 1992 through December 1995, Mr. Baker was Chairman and Chief
Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red
Robin International, Inc. From 1991 to 1999, he was Chairman of the Board of
Coast Newport Properties, a real estate brokerage company. From 1976 to 1988,
Mr. Baker was a principal shareholder and Chairman and Chief Executive Officer
of Del Taco, Inc., an operator and franchisor of fast food restaurants in
California. He is a director of Callaway Golf Company, La Quinta, Inc. and
California Pizza Kitchen.
Uri P. Harkham, a member of the Compensation Committee, became
a director of the Company in March 1993. Mr. Harkham has been the President and
Chief Executive Officer of the Jonathan Martin Fashion Group, which specializes
in designing, manufacturing and marketing women's clothing, since its
organization in 1976. Since 1978, Mr. Harkham has been the Chairman of the Board
of Harkham Properties, a real estate firm specializing in buying and managing
fashion warehouses in Los Angeles.
B. Wayne Hughes, Jr. became a director of the Company in
January 1998. He was employed by the Company from 1989 to 2002 serving as Vice
President - Acquisitions of the Company from 1992 to 2002. Mr. Hughes, Jr. is
the president of a firm that manufactures and distributes sweets. He is the son
of B. Wayne Hughes.
Daniel C. Staton, chairman of the Compensation Committee and a
member of the Audit Committee, became a director of the Company in March 1999 in
connection with the merger of Storage Trust Realty, a real estate investment
trust, with the Company. Mr. Staton was Chairman of the Board of Trustees of
Storage Trust Realty from February 1998 until March 1999 and a Trustee of
Storage Trust Realty from November 1994 until March 1999. He is President of
Walnut Capital Partners, an investment and venture capital company. Mr. Staton
was the Chief Operating Officer and Executive Vice President of Duke Realty
Investments, Inc. from 1993 to 1997 and a director of Duke Realty Investments,
Inc. from 1993 until August 1999. From 1981 to 1993, Mr. Staton was a principal
owner of Duke Associates, the predecessor of Duke Realty Investments, Inc. Prior
to joining Duke Associates in 1981, he was a partner and general manager of his
own moving company, Gateway Van & Storage, Inc. in St. Louis, Missouri. From
1986 to 1988, Mr. Staton served as president of the Greater Cincinnati Chapter
of the National Association of Industrial and Office Parks.
Directors and Committee Meetings
During 2002, the Board of Directors held five meetings (and
acted four times by unanimous written consent), the Audit Committee held three
meetings and the Executive Equity Awards Committee acted once by unanimous
written consent. During 2002, each of the directors, except for Thomas J.
Barrack, Jr. and B. Wayne Hughes, Jr., attended at least 75% of the meetings
held by the Board of Directors or, if a member of a committee of the Board of
Directors, held by both the Board of Directors and all committees of the Board
of Directors on which he served. Mr. Barrack is not standing for reelection to
the Board of Directors.
Robert J. Abernethy (chairman), William C. Baker and Daniel C.
Staton comprise the Audit Committee. The primary functions of the Audit
Committee include to retain and meet with the Company's outside auditors, to
approve all audit engagement fees and terms, to conduct a pre-audit review of
the audit engagement, to conduct a post-audit review of the results of the
audit, to oversee the Company's accounting and financial reporting policies, to
monitor the adequacy of internal financial controls of the Company, to review
the independence of the outside auditors and to approve all audit services and
non-audit services to be provided to the Company by its outside auditors. The
Audit committee operates under a written charter adopted by the Board of
Directors, a copy of which is attached as Exhibit A. This charter was modified
by the Board of Directors in November 2002 to take into account the
Sarbanes-Oxley Act of 2002, the rules proposed and adopted by the Securities and
Exchange Commission and the rules proposed by the New York Stock Exchange.
4
In March 2003, the Board of Directors appointed a Compensation
Committee that consists of Daniel C. Staton (chairman), Robert J. Abernethy,
Dann V. Angeloff and Uri P. Harkham and a Nominating/Corporate Governance
Committee that consists of Dann V. Angeloff (chairman) and William C. Baker. The
primary functions of the Compensation Committee are to determine the salary and
bonus compensation for the Company's executive officers and to administer the
Company's stock option and incentive plans. The primary functions of the
Nominating/Corporate Governance Committee are to select the director nominees
for each annual shareholder meeting and to develop a set of corporate governance
principles applicable to the Company. The Nominating/Corporate Governance
Committee also considers shareholder suggestions for nominees for director
(other than self-nominations). Suggestions should be submitted to the Secretary
of the Company, 701 Western Avenue, Glendale, California 91201. Suggestions
received by the Secretary's office before December 31, will be considered by the
Committee at a regular meeting in the following year, before the proxy materials
are mailed to shareholders.
Until March 2003, executive officers received grants of awards
under the stock option and incentive plans with the approval of the Executive
Equity Awards Committee. After March 2003, the Compensation Committee assumed
the functions of the Executive Equity Awards Committee.
The Board of Directors determined that each of the members of
the Audit Committee, the Compensation Committee and the Nominating/Corporate
Governance Committee qualifies as independent under the proposed rules of the
New York Stock Exchange. In arriving at this conclusion the Board considered
Dann V. Angeloff's relationships with the Company. Mr. Angeloff is the President
of the Angeloff Company, a corporate financial advisory firm that has rendered
financial advisory and securities brokerage services for the Company. The
Angeloff Company is no longer rendering services for the Company. Mr. Angeloff
continues as the general partner of a limited partnership that owns a
mini-warehouse operated by the Company and which secures a note owned by the
Company. Based on the size of Mr. Angeloff's interest in the partnership (20%),
the amount of property management fees paid by the limited partnership to the
Company (less than $50,000 per year) and the circumstances of the Company's
acquisition of the note (purchase from a third party), the Board determined that
Mr. Angeloff's relationships with the Company are not material.
The Board of Directors determined that the chairman of the
Audit Committee, Robert J. Abernethy, qualifies as an audit committee financial
expert within the meaning of the rules of the Securities and Exchange
Commission.
The Company's non-management directors intend to meet without
the presence of management. These meetings will be held on a regular basis.
In March 2003, the Board of Directors adopted a code of ethics
for its senior financial officers. The code covers those persons serving as the
Company's principal executive officer, principal financial officer and principal
accounting officer, currently Ronald L. Havner, Jr. and John Reyes.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of the dates
indicated with respect to persons known to the Company to be the beneficial
owners of more than 5% of the outstanding shares of the Common Stock ("Common
Shares") or the Depositary Shares:
5
Depositary Shares Each
Representing 1/1,000 of a
Share of Equity Stock,
Shares of Common Stock Series A
Beneficially Owned Beneficially Owned
------------------------- -------------------------
Number Percent Number Percent
Name and Address of Shares of Class of Shares of Class
---------------- --------- -------- --------- --------
B. Wayne Hughes (1) 20,649,257 16.6% 54,690 .6%
B. Wayne Hughes, Jr. (1) 4,383,637 3.5% 35,236 .4%
Tamara Hughes Gustavson (1) 21,230,595 17.0% 1,197,761 13.6%
B. Wayne Hughes, Jr. and
Tamara Hughes Gustavson (1) 11,348 -- 43 --
--------- -------- --------- --------
Total 46,274,837 37.1% 1,287,691 14.7%
701 Western Avenue
Glendale, California 91201
Cohen Steers Capital Management, Inc. (3) (3) 826,200 9.4%
757 Third Avenue
New York, New York 10017 (2)
----------------
(1) This information is as of March 14, 2003 (except that the information in
the 401(K) Plan is as of December 31, 2002). B. Wayne Hughes, B. Wayne
Hughes, Jr. and Tamara Hughes Gustavson have filed joint Schedule 13Ds
reporting their collective ownership of Common Shares and Depositary
Shares and may constitute a "group" within the meaning of section 13(d)
(3) of the Securities Exchange Act of 1934, although each of these
persons disclaims beneficial ownership of the shares owned by the
others. Does not include a total of 915,314 shares owned by Public
Storage Properties IV, Ltd. and Public Storage Properties V, Ltd. The
Company and Mr. Hughes are general partners of these limited
partnerships. The Company has voting and investment power with respect
to the shares owned by these limited partnerships.
(2) This information is as of December 31, 2002 (except that the percent
shown is based on the Depositary Shares outstanding at March 14, 2003)
and is based on a Schedule 13G filed by Cohen & Steers Capital
Management, Inc. ("CSCM"), an investment adviser registered under the
Investment Advisers Act of 1940. CSCM reports in this Schedule 13G that
it has sole voting power of 822,400 Depositary Shares and sole
dispositive power of 826,200 Depositary Shares.
(3) Less than 5%.
Security Ownership of Management
The following table sets forth information as of February 28,
2003 concerning the beneficial ownership of the Common Shares and the Depositary
Shares of each director of the Company, both of the persons serving as the
Company's Chief Executive Officer during 2002, the four most highly compensated
persons who were executive officers of the Company on December 31, 2002 and all
directors and executive officers as a group:
6
Shares of Common Stock: Depositary Shares Each Representing
Beneficially Owned(1) 1/1,000 of a Share of Equity Stock,
Shares Subject to Options(2) Series A Beneficially Owned
------------------------------------------ -------------------------------------
Name Number of Shares Percent Number of Shares Percent
------------------------- ------------------ -------- ----------------- --------
B. Wayne Hughes 20,649,257 16.6% 54,690 .6%
Ronald L. Havner, Jr. 8,180 * -- *
15,000(2) *
------ --
23,180 *
Harvey Lenkin 98,788(3) * 3,384(3) *
288,666(2) .2%
------- ---
387,454 .3%
Marvin M. Lotz 78,223 * 5,005 *
203,666(2) .2%
------- ---
281,889 .2%
Robert J. Abernethy 66,568 * 2,108 *
17,499(2) *
------ --
84,067 *
Dann V. Angeloff 58,500(4) * -- --
12,499(2) *
------ --
70,999 *
William C. Baker 20,000 * 455 *
17,499(2) *
------ --
37,499 *
Thomas J. Barrack, Jr. -- -- -- --
17,500(2) *
------ --
17,500 *
Uri P. Harkham 51,285 * 3,402 *
9,999(2) *
----- --
61,284 *
B. Wayne Hughes, Jr. 4,394,985(5) 3.5% 35,236(5) .4%
Daniel C. Staton 1,458 * 47 *
27,739(2) *
------ --
29,197 *
John Reyes 24,304 * 1,642 *
281,666(2) .2%
------- ---
305,970 .2%
W. David Ristig -- * *
126,666(2) .1%
--------- ---
126,666 .1%
All Directors and Executive Officers 25,490,999(1)(3)(4)(5)(6) 109,142(1)(3)(5)(6)
as a Group 20.4% 1.2%
(17 persons) 1,629,565(2) 1.3%
--------- ----
27,120,564 21.7%
---------------
7
* Less than 0.1%
(1) Represents Common Shares or Depositary Shares, as applicable,
beneficially owned as of February 28, 2002. Except as otherwise
indicated and subject to applicable community property and similar
statutes, the persons listed as beneficial owners of the shares have
sole voting and investment power with respect to such shares. Includes
shares credited to the accounts of the executive officers of the Company
that are held in the 401(k) Plan as of December 31, 2002.
(2) Represents options exercisable within 60 days of February 28, 2003
to purchase Common Shares.
(3) Includes 3,126 Common Shares held of record or beneficially by Mr.
Lenkin's spouse or a son as to which each has investment power.
Includes 360 Depositary Shares held of record or beneficially by Mr.
Lenkin's spouse or a son as to which each has investment power.
(4) Includes 2,000 Common Shares held by Mr. Angeloff's spouse as to
which she has investment power.
(5) Includes 44,159 Common Shares, held of record or beneficially by Mr.
Hughes, Jr.'s spouse or her children as to which she has investment
power and 11,348 Common Shares held jointly by Mr. Hughes, Jr. and Ms.
Hughes Gustavson.
Includes 1,371 Depositary Shares held of record or beneficially by Mr.
Hughes, Jr.'s spouse or her children as to which she has investment
power and 43 Depositary Shares held jointly by Mr. Hughes, Jr. and Ms.
Hughes Gustavson.
(6) Includes shares held of record or beneficially by members of the
immediate family of executive officers of the Company and shares
credited to the accounts of the executive officers of the Company that
are held in the 401(k) Plan.
The Company has outstanding a class of preferred stock,
consisting of various series of non-voting senior preferred stock. As of
February 28, 2003, B. Wayne Hughes, Jr. owned 400 shares of preferred stock, as
to which he shared investment power, Robert J. Abernethy owned 225 shares of
preferred stock and the directors and executive officers of the Company as a
group owned a total of 625 shares of preferred stock, representing less than
0.1% of the outstanding shares. The shares of preferred stock owned by Mr.
Hughes, Jr. and Mr. Abernethy were redeemed by the Company on March 31, 2003.
8
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own more than
10% of any registered class of the Company's equity securities to file with the
Securities and Exchange Commission ("SEC") initial reports (on Form 3) of
ownership of the Company's equity securities and to file subsequent reports (on
Form 4 or Form 5) when there are changes in such ownership. The due dates of
such reports are established by statute and the rules of the SEC. Based on a
review of the reports submitted to the Company, the Company believes that, with
respect to the fiscal year ended December 31, 2002, Uri P. Harkham, a director
of the Company, failed timely to report on Form 4 one transaction.
COMPENSATION
Compensation of Executive Officers
The following table sets forth certain information concerning
the annual and long-term compensation paid to both of the persons serving as the
Company's Chief Executive Officer during 2002, and the four most highly
compensated persons who were executive officers of the Company on December 31,
2002 (the "Named Executive Officers") for 2002, 2001 and 2000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------------------- ---------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation (1) Options (#) Compensation (2)
------------------------- ----- ----------- ------------ ------------------ ----------------- ------------------
B. Wayne Hughes 2002 $60,000(3) -- $23,900 -- $1,800
Chairman of the Board 2001 60,000(3) -- 19,300 -- 1,800
and Former Chief 2000 60,000(3) -- 27,400 -- 1,800
Executive Officer
Ronald L. Havner, Jr. (4) 2002 57,500(6) $100,000 (8) 250,000 4,725
Vice-Chairman of the
Board and Chief
Executive Officer
Harvey Lenkin (5) 2002 265,000 159,500 (8) -- 6,000
President 2001 265,000 150,500 (8) -- 5,100
2000 257,100(7) 150,500 (8) 160,000 4,800
Marvin M. Lotz 2002 285,000 200,500 (8) -- 6,000
Senior Vice President 2001 285,500 199,500 (8) -- 5,100
2000 279,400(9) 200,500 (8) 160,000 4,800
John Reyes 2002 200,000 175,500 -- 6,000
Senior Vice President 2001 200,000 155,500 (8) -- 5,100
and Chief Financial 2000 188,500 150,500 (8) 160,000 4,800
Officer
W. David Ristig 2002 212,000 120,500 (8) -- 6,000
Senior Vice President 2001 212,000 120,500 (8) -- 5,100
2000 143,800 178,500 (8) 100,000 4,800
----------------
(1) Other Annual Compensation consists solely of use of a company car or a
car allowance.
9
(2) All Other Compensation consists solely of employer contributions to
the 401(k) Plan.
(3) See "Employment Agreement" below.
(4) Mr. Havner succeeded Mr. Hughes as Chief Executive Officer in November
2002. Mr. Hughes continues as Chairman of the Board. Compensation to Mr.
Havner in this table does not include compensation paid to Mr. Havner by
PSB as Chief Executive Officer of PSB.
(5) Does not include directors' fees of PSB.
(6) See note (4) above.
(7) Includes $246,700 of salary and $10,400 of directors' fees and
meeting fees.
(8) Value did not exceed 10% of the annual salary and bonus of the
individual for the years indicated.
(9) Includes $269,000 of salary and $10,400 of directors' fees and
meeting fees.
The following table sets forth certain information relating to
options to purchase shares of Common Stock granted to the Named Executive
Officers during 2002.
Option Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------------------
Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Options of Share Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees in Price Expiration -----------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10%
--------------------------------------------------------------------------------------------------------------------
Ronald L. Havner, Jr. 250,000 31.57% $30.10 11/7/12 $4,735,000 $11,995,000
All options granted in 2002 become exercisable in three equal
installments beginning on the first anniversary of the date of grant and have a
term of ten years.
The following table sets forth certain information concerning
exercised and unexercised options held by the Named Executive Officers at
December 31, 2002.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Value of Unexercised
Shares Securities Underlying In-the-Money
Acquired on Value Unexercised Options Options at
Name Exercise(#) Realized($) at December 31, 2002 December 31, 2002 (1)
-------------------------- ----------- ----------- ----------------------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
B. Wayne Hughes -- -- -- -- -- --
Ronald L. Havner, Jr. -- -- 15,000 250,000 $111,525 $552,500
Harvey Lenkin -- -- 288,666 53,334 2,703,689 493,206
Marvin M. Lotz 40,000 $452,221 203,666 53,334 1,629,214 493,206
John Reyes 1,667 36,257 281,666 53,334 2,474,144 493,206
W. David Ristig -- -- 126,666 33,334 970,719 308,256
10
--------------
(1) Based on closing price of $32.31 per share of Common Stock on December
31, 2002, as reported by the New York Stock Exchange. On April 4, 2003,
the closing price per share of Common Stock as reported by the New York
Stock Exchange was $31.92.
Compensation of Directors
Each of the Company's directors, other than B. Wayne Hughes,
Ronald L. Havner, Jr., Harvey Lenkin and Marvin M. Lotz, receives director's
fees of $19,000 per year plus $450 for each meeting attended. In addition, each
of the members of the Audit Committee (other than the chairman, who receives
$1,300 per meeting) receives $1,000 for each meeting of the Audit Committee
attended. The compensation of the members of the Compensation Committee and
Nominating/Corporate Governance Committee has not been determined. The policy of
the Company is to reimburse directors for reasonable expenses. Under the 2001
Stock Option and Incentive Plan, each director who is not an officer or employee
of the Company ("Outside Director") is, upon the date of his or her initial
election to serve as an Outside Director, automatically granted non-qualified
options to purchase 15,000 shares of Common Stock. In addition, after each
annual meeting of shareholders, each Outside Director then duly elected and
serving is automatically granted, as of the date of such annual meeting,
non-qualified options to purchase 2,500 shares of Common Stock, so long as such
person has attended, in person or by telephone, at least 75% of the meetings
held by the Board of Directors during the immediately preceding calendar year.
Employment Agreement
B. Wayne Hughes, the Chairman of the Board and former Chief
Executive Officer of the Company, entered into an employment agreement with the
Company in November 1995 in connection with the merger of Public Storage
Management, Inc. into the Company. This agreement was for a term of five years
(which ended in November 2000) and provided for annual compensation of $60,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In March 2003, the Board of Directors appointed a Compensation
Committee consisting of Daniel C. Staton (chairman), Robert J. Abernethy, Dann
V. Angeloff and Uri P. Harkham. None of these directors is or has ever been an
employee of the Company. No executive officer of the Company serves on the
compensation committee or board of directors of any other entity which has an
executive officer who also serves on the Compensation Committee or Board of
Directors of the Company.
Messrs. Hughes, Havner, Lenkin, Lotz and Hughes, Jr., who were
officers of the Company, are members of the Board of Directors.
Certain Relationships and Related Transactions
Development Joint Venture with Affiliate. In November 1999,
the Company, through two wholly owned entities, PS Pennsylvania Trust and PS
Texas Holdings, Ltd. (collectively, "PSA"), formed a joint venture (the
"Development JV") that developed and owns approximately $109 million of
mini-warehouses and $100 million of shares of the Company's Equity Stock, Series
AAA. The partners of the Development JV are PSA and a limited liability company
(the "Investor LLC"). The members of the Investor LLC are a state pension plan
(the "Investor") and B. Wayne Hughes. The Development JV was capitalized with
approximately $202 million; PSA contributed approximately $104 million and has a
51% ownership interest and the Investor LLC contributed approximately $98
million and has a 49% ownership interest. The term of the Development JV is 15
years. The Investor LLC has the right at the end of the sixth year to cause an
early termination of the Development JV. Operating cash flow (as defined) from
the Development JV is distributed as follows: (1) during the first through sixth
years of the Development JV, (a) 100% to the Investor LLC until the Investor LLC
has received cumulative distributions equal to a 10% compounded return on its
investment and (b) then, 100% to be reinvested by the Development JV; and (2)
during the seventh through the 15th years of the Development JV, (a) 100% to the
Investor LLC until the Investor LLC has received cumulative distributions equal
to a 10% compounded return on its investment as determined through the first six
years, (b) then, 100% to PSA until PSA has received cumulative distributions
equal to a 10% compounded return on its investment as determined through the
11
first six years and (c) then, 49% to the Investor LLC and 51% to PSA. During
2002, distributions from the Development JV to the Investor totaled $9.2
million. Of the total capitalization of the Investor LLC of approximately $98
million, Mr. Hughes contributed approximately $64.1 million and the balance was
contributed by the Investor. Operating cash flow (as defined) from the Investor
LLC is distributed as follows: (1) 100% to Mr. Hughes until he has received
cumulative distributions equal to a 7.9972% compounded annual return on his
unreturned investment and (2) then, 99% to the Investor and 1% to Mr. Hughes
(his 1% interest is estimated to be less than $50,000 per year). If the Investor
does not elect to cause an early termination, Mr. Hughes' 1% interest can
increase to up to 10%. During 2002, distributions from the Investor LLC to the
Investor and to Mr. Hughes were $4.3 million and $4.8 million respectively. Mr.
Hughes invested in the Investor LLC at the request of the Investor, and the
transaction was approved by the Company's disinterested directors based on
advice from a financial advisor. Mr. Hughes also has an indirect interest in the
Development JV through his family's ownership of approximately 37.1% of the
Common Stock of the Company.
REPORT OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
B. Wayne Hughes served as Chief Executive Officer of the
Company until November 7, 2002 when he was succeeded by Ronald L. Havner, Jr.
Subject to certain considerations applicable to Mr. Hughes as discussed below,
the Company pays its executive officers compensation deemed appropriate in view
of the nature of the Company's business, the performance of individual executive
officers, and the Company's objective of providing incentives to its executive
officers to achieve a level of individual and Company performance that will
maximize the value of shareholders' investment in the Company. To those ends,
the Company's compensation program consists of payment of a base salary and,
potentially, bonus compensation, and making incentive awards of options to
purchase Common Stock under the 2001 Stock Option and Incentive Plan (the "2001
Plan").
Cash Compensation. Base salary levels are based generally
(other than in the case of Mr. Hughes) on market compensation rates and each
individual's role in the Company. The Company determines market compensation
rates by reviewing public disclosures of compensation paid to executive officers
by other REITs of comparable size and market capitalization. Some of the REITs
whose executive compensation the Company considered in establishing the
compensation it pays to executive officers are included in the NAREIT Equity
Index referred to below under the caption "Stock Price Performance Graph."
Generally, the Company seeks to compensate its executives at levels consistent
with the middle of the range of amounts paid by REITs deemed comparable by the
Company. Individual salaries may vary based on the experience and contribution
to overall corporate performance by a particular executive officer.
For 2002, the base compensation of Mr. Hughes, who served as
Chief Executive Officer of the Company until November 2002, was established with
reference to his employment agreement (which expired in November 2000) at
$60,000. The compensation paid to Mr. Hughes is less than that paid to the chief
executive officers of other publicly traded REITs and reflected the judgment of
the Board of Directors and Mr. Hughes that his performance was rewarded
primarily through his significant equity stake in the Company.
Mr. Havner became Chief Executive Officer of the Company in
November 2002. He continues to serve as Chief Executive Officer of PSB. Mr.
Havner's compensation was determined to be appropriate based on a review of
total compensation paid to the chief executive officers of other REITs deemed
comparable by the Company, the services being rendered by him for the Company
and the compensation paid to him by PSB. The allocation of Mr. Havner's 2002
bonus between PSB and the Company was approved by the Audit Committee.
The Company bases its payment of annual bonuses on corporate,
business unit and individual performance. In establishing individual bonuses,
the Company takes into account the Company's overall profitability, the
Company's internal revenue growth, the Company's revenue growth due to
acquisitions, and the executive officer's contribution to the Company's growth
and profitability.
12
Equity-Based Compensation. The Company believes that its
executive officers should have an incentive to improve the Company's performance
by having an ongoing stake in the success of the Company's business. The Company
seeks to create this incentive by granting to appropriate executive officers
stock options that have an exercise price of not less than 100% of the fair
market value of the underlying stock on the date of grant, so that the executive
officer may not profit from the option unless the price of the Common Stock
increases. Options granted by the Company also are designed to help the Company
retain executive officers in that options are not exercisable at the time of
grant, and achieve their maximum value only if the executive remains in the
Company's employ for a period of years. In connection with his election as Chief
Executive Officer in November 2002, Mr. Havner was awarded 250,000 stock options
under the 2001 Plan. During 2002, the Company did not grant any options to any
of the other named executive officers.
The 2001 Plan also authorizes the Company to compensate its
executive officers and other employees with grants of restricted stock.
Restricted stock would increase in value as the value of the Common Stock
increased, and would vest over time provided that the executive officer remained
in the employ of the Company. Accordingly, awards of restricted stock would
serve the Company's objectives of retaining its executive officers and other
employees and motivating them to advance the interests of the Company and its
shareholders. The Company did not grant any shares of restricted stock during
2002.
BOARD OF DIRECTORS AUDIT COMMITTEE
B. Wayne Hughes Robert J. Abernethy (Chairman)
Ronald L. Havner, Jr. William C. Baker
Harvey Lenkin Daniel C. Staton
Marvin M. Lotz
B. Wayne Hughes, Jr.
Robert J. Abernethy
Dann V. Angeloff
William C. Baker
Thomas J. Barrack, Jr.
Uri P. Harkham
Daniel C. Staton
13
STOCK PRICE PERFORMANCE GRAPH
The graph set forth below compares the yearly change in the
Company's cumulative total shareholder return on its Common Stock for the
five-year period ended December 31, 2002 to the cumulative total return of the
Standard and Poor's 500 Stock Index ("S&P 500 Index") and the National
Association of Real Estate Investment Trusts Equity Index ("NAREIT Equity
Index") for the same period (total shareholder return equals price appreciation
plus dividends). The stock price performance graph assumes that the value of the
investment in the Company's Common Stock and each index was $100 on December 31,
1997 and that all dividends were reinvested. The stock price performance shown
in the graph is not necessarily indicative of future price performance.
Comparison of Cumulative Total Return
Public Storage, Inc., S&P 500 Index and NAREIT Equity Index
December 31, 1997 - December 31, 2002
[PERFORMANCE GRAPH APPEARS HERE]
MEASUREMENT PERIOD PUBLIC NAREIT
(FISCAL YEAR COVERED) STORAGE, INC. S&P 500 EQUITY
------------------------- -------------- --------- --------
Measurement Pt. 12/31/97 $100.00 $100.00 $100.00
FYE 12/31/98 95.05 128.58 82.50
FYE 12/31/99 82.52 155.63 78.69
FYE 12/31/00 96.60 141.46 99.43
FYE 12/31/01 139.89 124.65 113.29
FYE 12/31/02 142.55 97.10 117.61
14
Audit Committee Report
The Board of Directors believes that each of the three
directors comprising the Audit Committee of the Board of Directors of the
Company qualifies as independent under the rules of the New York Stock Exchange.
The Audit Committee operates under a written charter adopted by the Board of
Directors in May 2000 and amended and restated in November 2002 (Exhibit A). The
members of the Audit Committee are Robert J. Abernethy (Chairman), William C.
Baker and Daniel C. Staton. Under authority granted by the Board of Directors,
the Audit Committee appoints the Company's independent auditors and approves the
audit and non-audit services furnished by the Company's independent auditors.
Management is responsible for the Company's internal controls
and the financial reporting process. The independent auditors are responsible
for performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and for
issuing a report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes.
In this context, the Audit Committee has met with management
and the independent auditors and has reviewed and discussed with them the
audited consolidated financial statements. Management represented to the Audit
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles. The Audit Committee
discussed with the independent auditors matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Company's independent auditors also provided to the Audit
Committee the written disclosures and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Audit Committee discussed with the independent auditors that firm's
independence. In addition, the Audit Committee has considered whether the
independent auditors' provision of non-audit services to the Company is
compatible with the auditors' independence.
Based on the foregoing and the Audit Committee's discussions
with management and the independent auditors, the representation of management
and the report of the independent auditors, the Audit Committee recommended to
the Board of Directors, and the Board has approved, that the audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002 filed with the Securities and
Exchange Commission.
15
PROPOSAL NO. 2
RATIFICATION OF AUDITORS
The Audit Committee of the Board of Directors, under authority
granted by the Board of Directors, has appointed Ernst & Young LLP, independent
auditors, to audit the accounts of the Company for the fiscal year ending
December 31, 2003.
The Company's bylaws do not require that shareholders ratify
the appointment of Ernst & Young LLP as the Company's independent auditors. The
Company is asking its shareholders to ratify this appointment because it
believes such a proposal is a matter of good corporate practice. If the
shareholders do not ratify the appointment of Ernst & Young LLP, the Audit
Committee will reconsider whether or not to retain Ernst & Young LLP as the
Company's independent auditors, but may determine to do so. Even if the
appointment of Ernst & Young LLP is ratified by the shareholders, the Audit
Committee may change the appointment at any time during the year if it
determines that a change would be in the best interest of the Company and its
shareholders.
It is anticipated that representatives of Ernst & Young LLP,
which has acted as the independent auditors for the Company since the Company's
organization in 1980, will be in attendance at the Annual Meeting of
Shareholders and will have the opportunity to make a statement if they desire to
do so and to respond to any appropriate inquiries of the shareholders or their
representatives.
Fees Billed to the Company by Ernst & Young LLP for 2001 and 2002:
Audit Fees:
Audit fees billed (or expected to be billed) to the Company by
Ernst & Young LLP for the audit of the Company's annual financial statements,
review of the quarterly financial statements included in the Company's quarterly
reports on Form 10-Q and services in connection with the Company's registration
statements and securities offerings totaled $299,400 for 2001 and $360,400 for
2002.
Tax Fees:
Tax fees billed (or expected to be billed) to the Company by
Ernst & Young LLP for tax services totaled $694,600 in 2001 and $590,200 in
2002.
Audit Related Fees and Other Fees:
During 2001 and 2002 Ernst & Young LLP did not bill the
Company for audit related services or any other services, except audit services
and tax services.
The Audit Committee of the Company approves all services
performed by Ernst & Young LLP. At this time the Audit Committee has not
delegated approval authority to any member or members of the Audit Committee.
Required Vote
Ratification of the appointment of Ernst & Young LLP requires
approval by a majority of the votes cast on the proposal provided that the total
votes cast represent a majority of the voting power represented by all shares
entitled to vote on the matter. For these purposes, an abstention or broker
non-vote will not be treated as a vote cast.
The Board of Directors recommends you vote FOR this proposal.
16
ANNUAL REPORT
The Company has filed, for its fiscal year ended December 31,
2002, an Annual Report on Form 10-K with the Securities and Exchange Commission,
together with applicable financial statements and schedules thereto. The Company
will furnish, without charge, upon written request of any shareholder as of
March 14, 2003, who represents in such request that he or she was the record or
beneficial owner of the Company's shares on that date, a copy of the Annual
Report together with the financial statements and any schedules thereto. Upon
written request and payment of a copying charge of 15 cents per page, the
Company will also furnish to any shareholder a copy of the exhibits to the
Annual Report. Requests should be addressed to: David Goldberg, Secretary,
Public Storage, Inc., 701 Western Avenue, Glendale, California 91201-2349.
EXPENSES OF SOLICITATION
The Company will pay the cost of soliciting proxy/instruction
cards. In addition to solicitation by mail, certain directors, officers and
regular employees of the Company and its affiliates may solicit the return of
proxy/instruction cards by telephone, telegram, personal interview or otherwise.
The Company may also reimburse brokerage firms and other persons representing
the beneficial owners of the Company's stock for their reasonable expenses in
forwarding proxy solicitation materials to such beneficial owners. Shareholder
Communications Corporation, New York, New York may be retained to assist the
Company in the solicitation of proxy/instruction cards, for which Shareholder
Communications Corporation would receive normal and customary fees and expenses
from the Company estimated at $25,000.
DEADLINES FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR
CONSIDERATION AT 2004 ANNUAL MEETING
Any proposal that a holder of Common Stock or Depositary
Shares wishes to submit for inclusion in the Company's Proxy Statement for the
2004 Annual Meeting of Shareholders ("2004 Proxy Statement") pursuant to
Securities and Exchange Commission Rule 14a-8 must be received by the Company no
later than December 16, 2003. In addition, notice of any proposal that a holder
of Common Stock or Depositary Shares wishes to propose for consideration at the
2004 Annual Meeting of Shareholders, but does not seek to include in the
Company's 2004 Proxy Statement pursuant to Rule 14a-8, must be delivered to the
Company no later than March 1, 2004 if the proposing holder of Common Stock or
Depositary Shares wishes for the Company to describe the nature of the proposal
in its 2004 Proxy Statement as a condition to exercising its discretionary
authority to vote proxies on the proposal. Any shareholder proposals or notices
submitted to the Company in connection with the 2004 Annual Meeting of
Shareholders should be addressed to: David Goldberg, Secretary, Public Storage,
Inc., 701 Western Avenue, Glendale, California 91201-2349.
OTHER MATTERS
The management of the Company does not intend to bring any
other matter before the meeting and knows of no other matters that are likely to
come before the meeting. If any other matters properly come before the meeting,
the persons designated as proxies in the accompanying proxy/instruction card and
the Trustee will vote the shares of Common Stock represented thereby, if any,
and the Depositary will vote the Equity Stock underlying the Depositary Shares
represented thereby, if any, in accordance with their best judgment on such
matters.
You are urged to vote the accompanying proxy/instruction card
and sign, date and return it in the enclosed stamped envelope at your earliest
convenience, whether or not you currently plan to attend the meeting in person.
By Order of the Board of Directors
DAVID GOLDBERG, Secretary
Glendale, California
April 8, 2003
17
Exhibit A
PUBLIC STORAGE, INC.
CHARTER OF AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Adopted by the Board of Directors on November 7, 2002
1. The Audit Committee of the Board of Directors (the "Board") shall consist of
at least three members who shall meet the requirements Section 10A(m) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the rules and
regulations of the Securities and Exchange Commission (the "Commission") and the
requirements of the New York Stock Exchange (the "NYSE"). At least one member
shall be a "financial expert" as defined in the rules and regulations of the
Commission and any similar requirements of the NYSE. Audit Committee members
shall not simultaneously serve on the audit committees of more than two other
public companies, unless the Audit Committee has determined that such
simultaneous service would not impair the ability of that member to effectively
serve on the Company's Audit Committee.
2. The purpose of the Audit Committee is to oversee the accounting and financial
reporting processes of the Company and audits of its financial statements,
including assisting Board oversight of:
* the integrity of the Company's financial statements,
* the Company's compliance with legal and regulatory requirements,
* the outside auditor's qualifications and independence, and
* the performance of the Company's internal audit function and
outside auditor.
The Audit Committee shall also prepare the report that the Commission's
rules require be included in the Company's annual proxy statement.
3. To carry out its purpose, the Audit Committee shall have the following duties
and responsibilities:
Relationship With Outside Auditor
---------------------------------
* to retain the outside auditor, approve all audit engagement fees
and terms, oversee the work of any accounting firm employed by
the Company (including resolution of any disagreements between
management and the outside auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or
related work, evaluate the performance of the outside auditor
and, if so determined by the Audit Committee, terminate the
outside auditor, it being acknowledged that the outside auditor
is ultimately accountable to the Board and the Audit Committee,
as representatives of the shareholders;
* to ensure that, as soon as practicable after the adoption of
registration guidelines or rules by the Public Company Accounting
Oversight Board and at all times thereafter, the Company's
outside auditor is a "registered public accounting firm" as
defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002;
* to obtain and review, at least annually, a report by the outside
auditor describing: the firm's internal quality-control
procedures; any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one of
more independent audits carried out by the firm, and any steps
taken to deal with any such issues; and (to assess its
independence) all relationships between the outside auditor and
the Company;
A-1
* to evaluate, at least annually, the outside auditor's
qualifications, performance and independence, including a review
and evaluation of the lead partner of the outside auditor, and
consider whether, in order to assure continuing auditor
independence, there should be regular rotation of the outside
auditor;
* to set hiring policies for employees or former employees of the
outside auditor;
* to approve, in advance of their performance, all audit services
(which may entail providing comfort letters in connection with
securities underwritings) and non-audit services (including tax
services) to be provided to the Company by its outside auditor,
provided that the Audit Committee shall not approve any of the
following non-audit services proscribed by Section 10A(g) of the
Exchange Act in the absence of an applicable exemption:
(a) bookkeeping or other services related to the accounting
records or financial statements of the Company;
(b) financial information systems design and implementation;
(c) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
(d) actuarial services;
(e) internal audit outsourcing services;
(f) management functions or human resources;
(g) broker or dealer, investment adviser, or investment
banking services;
(h) legal services and expert services unrelated to the audit;
and
(i) any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible;
Financial Statements and Disclosure Matters
-------------------------------------------
* to meet with management and the outside auditor to discuss the
annual financial statements and the report of the outside auditor
thereon (including discussion of the matters described in SAS 61
with the outside auditor), and any significant problems or
difficulties encountered in the course of the audit work,
including: restrictions on the scope of activities; access to
requested information; the adequacy of internal financial
controls; the adequacy of the disclosure of off-balance sheet
transactions, arrangements, obligations and relationships in
reports filed with the Commission; the appropriateness of the
presentation of any pro forma financial information included in
any report filed with the Commission or in any public disclosure
or release, and disclosures made in management's discussion and
analysis;
* to meet and discuss with management and the outside auditor the
Company's Form 10-Q (including discussion of the matters
described in SAS 61 with the outside auditor) and disclosures
made in management's discussion and analysis prior to filing and
preferably prior to the public announcement of quarterly
financial results;
* to discuss generally earnings press releases (paying particular
attention to any use of "pro forma," or "adjusted" non-GAAP,
information, as well as financial information and earnings
guidance provided to analysts and rating agencies;
A-2
* to instruct the outside auditor to report to the Audit Committee
on all critical accounting policies of the Company, all
alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative
disclosures and treatments and the treatment preferred by the
outside auditor, and other material written communications
between the outside auditor and management, such as any
management letter or schedule of unadjusted differences;
* following such review and discussions, if so determined by the
Audit Committee, to recommend to the Board that the annual
financial statements be included in the Company's Form 10-K;
* to review and discuss major issues regarding accounting
principles and financial statement presentations, including any
significant changes in the Company's selection or application of
accounting principles, and major issues as to the adequacy of the
Company's internal controls and any special audit steps adopted
in light of material control deficiencies, analyses prepared by
management and/or the outside auditor setting forth significant
financial reporting issues and judgments made in connection with
the preparation of the financial statements, including analyses
of the effects of alternative GAAP methods on the financial
statements, and the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the
financial statements;
* to review any disclosures made to the Audit Committee by the
Company's CEO and CFO as required in their certifications
included in Form 10-Q and Form 10-K about any significant
deficiencies in the design or operation of internal controls or
material weaknesses therein and any fraud that involves
management or other employees who have a significant role in its
internal controls;
General Oversight
-----------------
* to review and discuss guidelines and policies with respect to
risk assessment and management, including the Company's major
financial risk exposures and the steps management has taken to
monitor and control such exposures;
* to meet periodically with management, the internal auditor and
the outside auditor in separate executive sessions;
* to review and discuss with the outside auditor the
responsibilities, budget and staffing of the Company's internal
audit function;
* to conduct or authorize such inquiries into matters within the
Audit Committee's scope of its duties as the Audit Committee
deems appropriate;
* to establish a procedure for receipt, retention and treatment of
any complaints received by the Company regarding its accounting,
internal accounting controls or auditing matters and for the
confidential and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters;
* to perform such other functions as assigned by law, the Company's
bylaws or the Board; and
* to make reports of its activities to the Board on a regular
basis, including reporting its conclusions with respect to the
independence of the outside auditor, and reviewing with the Board
any issues that arise with respect to the quality or integrity of
the financial statements, the Company's compliance with legal or
regulatory requirements, the performance of the outside auditor
or the performance of the internal audit function, and make such
recommendations with respect to such matters as the Audit
Committee may deem necessary or appropriate.
A-3
4. The members of the Audit Committee shall be appointed by the Board on
recommendation of the Nominating & Governance Committee. Audit Committee members
may be replaced by the Board. A chair shall be appointed by the Board or by the
Audit Committee.
5. The Audit Committee shall meet as often as deemed necessary to fulfill its
responsibilities. The Audit Committee shall act by majority vote of its members.
Minutes of meetings of the Audit Committee shall be kept and copies provided to
the Board.
6. The Audit Committee shall meet regularly with the financial officers of the
Company, the outside auditor, the internal auditor and such other officers of
the Company as it deems appropriate.
7. The Audit Committee shall have the resources and authority appropriate to
carry out its duties, including the authority to engage independent counsel and
other advisors and to cause the officers of the Company to provide such funding
as it determines is appropriate for payment of compensation to the outside
auditor, independent counsel and any other advisors employed by the Audit
Committee.
8. The Audit Committee may delegate to a designated member or members the
authority to approve, as required by Section 10A(i) of the Exchange Act, any
audit and non-audit services to be provided to the Company by its outside
auditor, so long as any such approvals are disclosed to the Audit Committee at
its next scheduled meeting.
9. The Audit Committee shall, at least annually, evaluate its performance,
review and reassess this Charter, and recommend any changes to the Board.
A-4
PROXY/INSTRUCTION CARD
PUBLIC STORAGE, INC.
701 Western Avenue
Glendale, California 91201-2349
This Proxy/Instruction Card is Solicited on Behalf of the Board of Directors
The undersigned, a record holder of Common Stock of Public
Storage, Inc. and/or a record holder of Depositary Shares ("Depositary Shares")
Each Representing 1/1,000 of a Share of Equity Stock, Series A ("Equity Stock")
of Public Storage, Inc. and/or a participant in the PS 401(k)/Profit Sharing
Plan (the "401(k) Plan"), hereby (i) appoints Ronald L. Havner, Jr. and Harvey
Lenkin, or either of them, with power of substitution, as Proxies, to appear and
vote, as designated below, all the shares of Common Stock held of record by the
undersigned on March 14, 2003, at the Annual Meeting of Shareholders to be held
on May 8, 2003 (the "Annual Meeting"), and any adjournments thereof, and/or (ii)
authorizes and directs EquiServe Trust Company, N. A. (the "Depositary"),
through its nominee(s), to vote or execute proxies to vote, as instructed below,
all Equity Stock underlying the Depositary Shares held of record by the
undersigned on March 14, 2003, at the Annual Meeting and any adjournments
thereof, and/or (iii) authorizes and directs the trustee of the 401(k) Plan (the
"Trustee") to vote or execute proxies to vote, as instructed below, all the
shares of Common Stock credited to the undersigned's account under the 401(k)
Plan on March 14, 2003, at the Annual Meeting and any adjournments thereof,
and/or (iv) authorizes and directs the Trustee to instruct (in person or by
proxy) the Depositary to vote or execute proxies to vote, as instructed below,
all Equity Stock underlying the Depositary Shares credited to the undersigned's
account under the 401(k) Plan on March 14, 2003, at the Annual Meeting and any
adjournments thereof. In their discretion, the Proxies and/or the Depositary
and/or the Trustee are authorized to vote upon such other business as may
properly come before the meeting.
THE PROXIES, THE DEPOSITARY AND/OR THE TRUSTEE WILL VOTE ALL
SHARES OF COMMON STOCK AND EQUITY STOCK TO WHICH THIS PROXY/INSTRUCTION CARD
RELATES, IN THE MANNER DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN
WITH RESPECT TO COMMON STOCK AND/OR DEPOSITARY SHARES HELD OF RECORD BY THE
UNDERSIGNED, THE PROXIES WILL VOTE SUCH COMMON STOCK, AND/OR THE DEPOSITARY WILL
VOTE THE EQUITY STOCK UNDERLYING SUCH DEPOSITARY SHARES, FOR THE ELECTION OF ALL
NOMINEES LISTED ON THE REVERSE AND IN FAVOR OF ITEM 2. IF NO DIRECTION IS GIVEN
WITH RESPECT TO COMMON STOCK AND/OR DEPOSITARY SHARES CREDITED TO THE
UNDERSIGNED'S ACCOUNT UNDER THE 401(k) PLAN, THE TRUSTEE WILL VOTE SUCH COMMON
STOCK, AND/OR THE TRUSTEE WILL INSTRUCT THE DEPOSITARY TO VOTE THE EQUITY STOCK
UNDERLYING SUCH DEPOSITARY SHARES, FOR THE ELECTION OF ALL NOMINEES LISTED ON
THE REVERSE AND IN FAVOR OF ITEM 2. THIS PROXY CONFERS DISCRETIONARY AUTHORITY
TO CUMULATE VOTES FOR ANY AND ALL OF THE NOMINEES FOR ELECTION FOR WHICH
AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
X Please mark votes as in this example.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY/INSTRUCTION CARD IN THE ENCLOSED
ENVELOPE TO EQUISERVE, SHAREHOLDER SERVICES DIVISION, P.O. BOX 8069,
EDISON, NJ 08818.
1. Election of Directors
Nominees: B. Wayne Hughes, Ronald L. Havner, Jr., Harvey Lenkin, Marvin
M. Lotz, Robert J. Abernethy, Dann V. Angeloff, William C. Baker, Uri P.
Harkham, B. Wayne Hughes, Jr. and Daniel C. Staton.
FOR WITHHELD
ALL FROM ALL
___ NOMINEES ___ NOMINEES
--- ------------------------------------
For all nominees except as noted above
2. Ratification of appointment of Ernst & Young LLP, independent auditors,
to audit the accounts of Public Storage, Inc. for the fiscal year ending
December 31, 2003.
___ FOR ___ AGAINST ___ ABSTAIN
3. Other matters: In their discretion, the Proxies and/or the Depositary
and/or the Trustee are authorized to vote upon such other business as
may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND
NOTE AT LEFT _____
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement dated April 8, 2003.
Please sign exactly as your name appears. Joint owners should each sign.
Trustees and others acting in a representative capacity should indicate the
capacity in which they sign.
Signature: Date: Signature: Date:
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