SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.)
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☐ | Soliciting Material Pursuant to §240.14a-12 |
PS BUSINESS PARKS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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☐ | Fee paid previously with preliminary materials. |
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701 Western Avenue
Glendale, California 91201
[ ], 2021March 25, 2022
Dear fellow shareholders:stockholders:
This past year we faced unprecedented challenges fromOn behalf of the global COVID-19 pandemic. Throughout this crisis, we have remained focused on protecting the health and safetyBoard of our employees while serving the needsDirectors of our customers and communities. Amidst these challenges, we have delivered strong operating results for our shareholders and are steadfast in our commitment to long-term value creation.
We arePS Business Parks, Inc., I am pleased to invite you to attend our 20212022 Annual Meeting of ShareholdersStockholders on Tuesday,Friday, April 20, 2021. Due to the COVID-19 pandemic, the Annual Meeting will be held29, 2022 at 8:00 a.m., Central Time, at The Rosewood Mansion on Turtle Creek in a virtual format only to provide a safe experience for our shareholders and employees. To attend, vote, and submit questions during the Annual Meeting, please visit www.virtualshareholdermeeting.com/PSB2021 and enter the control number included in your Notice of Internet Availability of Proxy Materials, voting instruction form, or proxy card. Online access to the webcast will open approximately fifteen (15) minutes prior to the start of the Annual Meeting. Attendance at the Annual Meeting is subject to capacity limits set by the virtual meeting platform provider.Dallas, Texas.
This letter includes the official notice of meeting, proxy statement, and form of proxy. The proxy statement describes in detail the matters listed in the notice of meeting.
Your vote is important. Whether or not you plan to attend the annual meeting, we hope you vote as soon as possible. You may vote your shares over the Internet, by telephone, or, if you elect to receive printed proxy materials, by mail by following the instructions on the proxy card or the voting instruction card. Of course, even if you vote your shares ahead of time, you may still attend the meeting.
Thank you for your continued support of PS Business Parks, Inc., especially during these uncertain and challenging times. We look forward to seeing you at our 2021 Annual Meeting.annual meeting.
Sincerely,
John
Stephen W. PetersenWilson
Interim President and Chief Executive Officer
and Chief Operating Officer
NOTICE OF THE 20212022 ANNUAL MEETING OF SHAREHOLDERSSTOCKHOLDERS
[ ], 2021March 25, 2022
To our shareholders:stockholders:
We invite you to attend the 20212022 Annual Meeting of ShareholdersStockholders of PS Business Parks, Inc.
Date | ||
Time | ||
Place | 2821 Turtle Creek Boulevard Dallas, Texas 75219 | |
Matters to be Voted On | ● Election of
● Advisory vote to approve executive compensation
● Approval of the
● Ratification of Ernst & Young LLP as our independent registered public accounting firm for
● Any other matters that may properly be brought before the meeting | |
Record Date | Close of business on February | |
Proxy Materials | The notice of meeting, proxy statement, and Annual Report on Form 10-K are available free of charge at the Investor Relations section of our website, psbusinessparks.com |
If you hold your shares in street name and do not provide voting instructions, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote. See “How Proxies will be Voted” on page 8580 of this Proxy Statement.proxy statement.
We sentwill send a proxy statement to shareholdersstockholders of record at the close of business on February 26, 2021,25, 2022, together with an accompanying form of proxy card and Annual Report to Stockholders, on or about [ ], 2021.March 28, 2022. Whether or not you expect to attend, we urge you to sign, date, and promptly return the enclosed proxy card in the enclosed postage prepaid envelope or vote via telephone or the Internet in accordance with the instructions on the enclosed proxy card. If you attend the meeting, you may vote your shares in person, which will revoke any prior vote.
Due to the COVID-19 pandemic, the Annual Meeting will be held in a virtual format only to provide a safe experience for our shareholders and employees. To attend, vote, and submit questions during the Annual Meeting, please visit www.virtualshareholdermeeting.com/PSB2021 and enter the control number included in your Notice of Internet Availability of Proxy Materials, voting instruction form, or proxy card. Online access to the webcast will open approximately fifteen (15) minutes prior to the start of the Annual Meeting. Attendance at the Annual Meeting is subject to capacity limits set by the virtual meeting platform provider.
While we intend to hold the Annual Meeting virtually, we are actively monitoring the COVID-19 situation and the federal, state, and local government regulations that may affect the format of our Annual Meeting, including the ability to hold the Annual Meeting virtually. In the event it is not possible or advisable to hold the Annual Meeting virtually, we will announce the alternative meeting arrangements, which may include changing the date or location of the meeting or holding the meeting physically, in a press release filed with the Securities and Exchange Commission as promptly as practicable. We encourage you to monitor the Investor Relations section of our website at psbusinessparks.com for updated information about the Annual Meeting.
On behalf of the Board of Directors,
Jeffrey D. Hedges
Adeel Khan
Executive Vice President,
Chief Financial Officer and Corporate Secretary
Important Notice Regarding Availability of Proxy Materials for the 20212022 Annual Meeting:Meeting of Stockholders to be Held on April 29, 2022: This Proxy Statementproxy statement and our 20202021 Annual Report are available at the Investor Relations section of our website, psbusinessparks.com.
Deadline to Propose or Nominate Individuals to Serve as Directors for the | ||||
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This summary highlights information contained elsewhere in this proxy statement and does not contain all the information you should consider. You should carefully read the entire proxy statement before voting.
Your vote is very important. The Board of Directors (the Board) of PS Business Parks, Inc. (the Company, PS Business Parks, or PSB) requests that you allow the proxies named on the proxy card to represent your shares of PS Business Parks common stock, par value $0.01 (Common Stock) or, with respect to Proposal 3, your depositary shares of PS Business Parks preferred stock..
At the Board’s direction, our management has prepared this proxy statement, which is being sent or made available to you and our other shareholdersstockholders on or about [ ], 2021.March 28, 2022.
Voting Matters
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Proposal | Item | Board Recommendation | Vote Required | Page | ||||
1 | Election of Directors | FOR each nominee
| Majority of votes cast | 16 | ||||
2
| Advisory Vote to Approve Compensation of Named Executive Officers (NEOs)
| FOR | Non-binding vote | 41 | ||||
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| Approval of the 2022 Equity and Performance-Based Incentive Compensation Plan
| FOR | Majority of votes cast | 64 | ||||
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| Ratification of Ernst & Young LLP (EY) as our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2022
| FOR | Majority of votes cast | 75 | ||||
PS Business Parks • 20212022 Proxy Statement • 1
COMPANY OVERVIEW AND 20202021 HIGHLIGHTS
PS Business Parks Inc. (NYSE: PSB), a CaliforniaMaryland corporation that has elected to be taxed as a real estate investment trust (REIT), owns, operates, acquires, develops, owns, and operatesdevelops commercial properties, primarily multi-tenant industrial, flex,industrial-flex, andlow-rise suburban office space. TheAs of December 31, 2021, the Company wholly ownsowned and operated 27.7 million rentable square feet (RSF) concentratedof commercial space, comprising 97 business parks and 666 buildings located in 12 submarkets spread across six states and holdsstates. The Company also held a 95%95.0% interest in a joint venture entity that owns Highgate at The Mile, a 395-unit multifamily apartment complex located in Tysons, Virginia, and a 98.2% interest in a joint venture formed to develop Brentford at The Mile, a planned 411-unit multifamily apartment complex development.also located in Tysons, Virginia. The Company also manages for a fee approximately 0.3 million rentable square feet on behalf of Public Storage.
RESPONSE TO COVID-192021 BUSINESS HIGHLIGHTS
The COVID-19 pandemic has created onePS Business Parks executed on its longstanding core strategy of creating value for its stakeholders over the most difficult operating environmentslong-term and delivering superior results in our Company’s history and has highlighted2021. Under the importance of sustainable operations and financial fortitude in withstanding disruptions and crises. Our long-term strategy, dedicated employees, and fortress balance sheet allowed us to continue operating in difficult market conditions with a focus on serving our customers, protecting our employees, and creating shareholder value.
Serving our Customers
Manydirection of our customers operate essential businesses;senior management team, we delivered strong performance as such, we keptfocused on optimizing our parks open and operational throughout the pandemic. With a focus on health and safety, we implemented protocols consistent with local, state, and federal guidelines and best practices, and we made significant capital investments inportfolio, enhancing our properties by installing safety and sanitary equipment in an effort to reduce the likelihood of COVID-19 spread at our parks. Further, in order to continue to serve our customers, we instituted virtual tours, remained flexible on lease terms, and supercharged our electronic marketing channels.
Manyoperations, taking care of our people and customers, faced, and some continue to face, severe disruptions to their business as a resultnavigating the continuing effects of the COVID-19 pandemic. We have partnered with approximately 11% of our customers, based on rental income, to provide rent relief in the form of rent deferrals, rent abatement, or both in an effort to provide these customers time to adjust their operations and address liquidity needs. In doing so, we believe that we have helped many of our hardest hit customers better position themselves to remain solvent through the COVID-19 pandemic, and beyond.
Protecting and Supporting our Employees
Our commitment to our employees was paramount in our approach to navigating the COVID-19 pandemic. We instituted new health and safety protocols focused on our employees and their families, which allowed us to continue to serve our customers safely. We implemented a work-from-home arrangement for all corporate employees and field team members whose roles and responsibilities allow for remote working. We have offered an optional return-to-office policy with strict safety protocols, including safe social distancing practices and utilization of satellite offices, and instituted new office norms to ensure healthy interactions, providing protective equipment, protective barriers, temperature checks, designated walkways, and strict adherence to safety protocols when utilizing communal areas.
Shifting Our Focus to Value Preservation and Advancement of Long-Term Strategic Capabilities
The COVID-19 pandemic directly affected the Company’s business and operations in 2020. Importantly,further positioned the Company faced significant operational difficulties, rent collection challenges,for continued long-term value creation.
Strong 2021 Financial and reduced demand, in part as a result of the pandemic’s adverse economic effects and government restrictions on commercial activity.Operating Performance
In response, under the leadership of our senior management team, the Company took significant steps to adapt its strategic and operational priorities to focus on short-term value preservation while still advancing initiatives to enhance long-term strategic capabilities. Management’s key operational priorities included (i) stabilizing occupancy, (ii) maintaining lease economic values above a desired threshold as measured by our proprietary
We successfully executed on the Company’s strategy to deliver key financial and operational results in 2021(1) | ● Net income for the year ended December 31, 2021 was $553.0 million, including a gain on sale of real estate facilities of $359.9 million ● Increased Same Park Cash Rental Income by 6.9%, leading to increased Same Park Cash Net Operating Income (NOI) of 8.0% ● Increased Core Funds From Operations (Core FFO) to $6.97 per diluted share of Common Stock, a 6.1% increase from the prior year ● Produced $210.7 million of Funds Available for Distribution (FAD), a 10.8% increase from the prior year ● Completed 7.4 million square feet of lease production with associated cash rental rate growth of 5.2% and net effective rent growth of 14.7% ● Maintained lease economic values, as measured by our proprietary lease valuation metric, well above target levels as a result of (1) positive rent growth in nearly all markets, and (2) transaction cost capital at near record low levels ● Ended the year with total portfolio occupancy of 95.9%, an increase of 220 basis points from 93.7% in 2020; total portfolio weighted average occupancy was 94.3% in 2021, an increase of 210 basis points from 92.2% in 2020 ● Generated a Total Stockholder Return (TSR) of 46.1% compared to 41.3% for the NAREIT Equity Index |
(1) | Same Park Cash NOI, Core FFO, and FAD are non-GAAP measures. Refer to pages 46 to 47 of our Annual Report on Form 10-K filed on February 22, 2022 for information regarding Core FFO and FAD, including a reconciliation to GAAP net income. Refer to Appendix A for information regarding Same Park Cash NOI, including a reconciliation to net income. |
PS Business Parks • 20212022 Proxy Statement • 2
lease valuation metric, (iii) reducing accounts receivables to be in-line with historic averages, and (iv) maximizing repaymentExecution of deferred rent provided to certain customers to help mitigate the effects of the COVID-19 pandemic to their businesses. In addition, management focusedStrategic Objectives
We successfully executed on several key strategic priorities, including (i) initiating searchesoperational objectives and further positioned the Company for key executive positions to further bolster the senior executive team, (ii) investing in the Company’s information technology platform to enhance data collection and analytics, and (iii) pursuing redevelopment entitlements for near-term redevelopment opportunities.
WE ARE DEDICATED TO CREATING LONG-TERM VALUE AND DELIVERING SUPERIOR RESULTS
Although the unprecedented challenges created by the COVID-19 pandemic required us to implement the short-termcontinued long-term value preservation measures discussed above, our longstanding core strategy remains focused on creating value over the long-term. In 2020, we implemented the following principal strategies for creating long-term value:creation through:
● | continued refinement of our portfolio |
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Achieving Core-Market Density
We accomplished key initiatives that position the Company for superior long-term performance | ● Opportunistically disposed of 958,000 square feet of non-core office, industrial, and industrial-flex properties at a combined sale cap rate of 2.3%, generating $400.9 million of net sales proceeds ● Acquired two industrial business parks in the Dallas, Texas, market for a combined 859,000 square feet, bolstering our core industrial portfolio in both quantity and quality ● Made significant progress on the development of Brentford at The Mile, a 411-unit, $110 million multifamily development in Tysons, Virginia, and are on schedule to deliver the first units in the third quarter of 2022 ● Completed development of a new 83,000 square foot multi-tenant industrial building in Irving, Texas (Dallas metropolitan area), and commenced construction of an 83,000 square foot multi-tenant industrial building in Kent, Washington (Seattle metropolitan area) and a 17,000 square foot multi-tenant industrial building in Boca Raton, Florida ● Further strengthened our “fortress” balance sheet by redeeming in full our 5.20% Cumulative Preferred Stock, Series W, and reducing our net debt and preferred equity by $115.7 million to $759.9 million at December 31, 2021; we are one of very few REITs that maintain an S&P corporate credit rating of “A-,” which significantly enhances our liquidity and access to capital through various operating cycles |
Optimizing Our Portfolio through Opportunistic Dispositions and Scale through a Disciplined Investment StrategyInvesting
We enhancedseek to identify and refinedexploit opportunities to unlock value within our presenceportfolio through opportunistic sales of non-core assets, while at the same time continuing to invest in and grow our core gateway markets, with high barriers to entryportfolio of industrial and attractive demographics, through accretive acquisitionsindustrial-flex properties.
In 2021, we closed on the sale of a 371,000 square foot industrial-flex park located in San Diego, California; a 244,000 square foot office business park located in Herndon, Virginia; a 198,000 square foot office-oriented business park located in Chantilly, Virginia; a 70,000 square foot industrial-flex building located in Irving, Texas; a 53,000 square foot industrial building located in Beltsville, Maryland; and developmentsa 22,000 square foot industrial-flex building located in Irving, Texas (collectively, the 2021 Dispositions) at a combined sale cap rate of 2.3% based on actual and prudent dispositions, including:estimated 2021 property NOI. The aggregate net proceeds of the 2021 Dispositions was
PS Business Parks • 2022 Proxy Statement • 3
$400.9 million, of which $148.8 million was efficiently deployed as a Section 1031 exchange on the following industrial business parks (collectively, the 2021 Acquisitions):
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We acquired the 2021 Acquisitions at an aggregate cap rate of 3.8% based on underwritten 2022 NOI, well above the sale cap rate of the 2021 Dispositions. Further, the net sale proceeds from the 2021 Dispositions not used as a Section 1031 exchange were utilized, along with retained cash flow from operations and cash on hand, to (i) redeem in full our 5.20% Cumulative Preferred Stock, Series W, at par value of $189.8 million, reducing our cost of capital, and (ii) pay a one-time dividend distribution to stockholders of $4.60 per share of Common Stock, or $126.9 million in the aggregate, in addition to our regular quarterly dividends, providing a meaningful return to our stockholders.
In addition to the 2021 Acquisitions, we invested in growing our core industrial portfolio in 2021 with the development of modern, highly functional multi-tenant buildings on excess land parcels within existing parks, including the following:
● | Freeport Business Park—an approximately 83,000 square foot industrial building with suites ranging from 10,000 to 13,000 square feet; completed in March 2021 for a |
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● | Boca Commerce Park—an approximately 17,000 square foot industrial building with suites ranging from 650 to 800 square feet; construction commenced in the fourth quarter of 2021 and is expected to be completed in the fourth quarter of 2022 for a total estimated development cost of $4.0 million. |
In 2021, we also made significant progress on the construction of Brentford at The Mile. The Mile is an office and multifamily park we own that sits on 45 contiguous acres of land located in Tysons, Virginia. In 2019, we successfully rezoned The Mile, allowing us to develop, at our election, up to 3,000 additional multifamily units (in addition to the existing 395 units at Highgate at the Mile) and approximately 500,000 square feet for other commercial uses. Brentford at The Mile serves as Phase II of the master-planned redevelopment of the park, with a total estimated development cost of $110.0 million.
Superior Operations and a Disciplined Capital ExpendituresExpenditure Strategy
We effectively and proactively minimizedminimize maintenance capital and transaction costs (i.e., make-ready, tenant improvement, and leasing costs) through aggressive cost-containment strategies, including the use of pre-designed and pre-built generic space and finish designs that are appropriate for a wide range of companies and industries, minimizing our exposure to capital-intensive office-related expenditures, and optimizing the use ofindustries. Further, by utilizing our in-house leasing teams, we are able to minimizereduce leasing transaction costs.commissions and promote capital-efficient transactions, often with little-to-no tenant improvement allowances.
PS Business Parks • 20212022 Proxy Statement • 34
Same Park recurring capital expenditures have trended downwardheld steady at desired levels over the pastlast few years which isas the result of our effective transaction cost containment strategies:
(1) | Amounts shown in the table above reflect the reported Same Park data for each respective period. |
Developing our People
We hire and develop outstanding team members to lease and manage all of our properties and deliver superior performance.performance to our customers. Our decentralized platform givesallows us the flexibility to meet the needs of our customers, react quickly to local market dynamics and contain operating expenses and capital expenditures, while our vertically integrated platformvertical integration provides us with the ability to keep all property management and leasing activity in-house, maximize cost efficiencies, and speed up decision-making.
Prudent Balance Sheet Management
Consistent withAn important component of our long-term growth philosophy, in 2020 we maintainedlong term value-creation strategy is preserving and enhancing our “fortress” balance sheet, endingsheet. In 2021, we strengthened our financial position and liquidity by (i) renewing our unsecured revolving line of credit (the Credit Facility) and, in doing so, increasing our borrowing capacity from $250.0 million to $400.0 million while also lowering our cost of borrowing (LIBOR plus 70.0 basis points as of December 31, 2021), and (ii) reducing our net debt and preferred equity from $875.7 million at December 31, 2020 to $759.9 million at December 31, 2021, while also reducing our net debt plus preferred equity to Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) ratio from 3.2 times for the year with no debt outstanding and modest levels of permanent preferred equity.ended December 31, 2020, to 2.6 times for the year ended December 31, 2021. Our balance sheet has consistently been, and remains, one of the strongest in the REIT sector, and our balance sheet approachstrategy positions the Company to have sufficient access to capital necessary to sustain growth and financial performance through various market cycles. We are committed to responsible stewardship of our balance sheet—including, if appropriate, issuing debt as a capital source.
PS Business Parks • 20212022 Proxy Statement • 45
(1) | Amounts shown in the table above reflect values as of December 31, |
OUR FOCUS ON LONG-TERM VALUE CREATION DELIVERS SUPERIOR LONG-TERM PERFORMANCE
Our corporate strategy is uniquely focused on the long term. We manage all aspects of our business—operations, capital allocation, balance sheet, and risk management—for the decades, not just for months or years, to come. The result, as intended, is resiliency at the corporate and achieved result is resilience in our properties and Company,property levels, which, in turn, reinforces and perpetuates our ability to createmake strategic decisions aimed at maximizing long-term value for our stakeholders.
PS Business Parks • 20212022 Proxy Statement • 56
Dividends, Core FFO, and FAD
As shown in the table below, over the last ten years Core Funds from Operations (Core FFO), Funds Available for Distribution (FAD),FFO, FAD, and dividends per share grew at annual compound growth rates well in excess of the compound annual growth rate of our industrial/flex portfolio (by square footage) over the same period, demonstrating the significant value created relative to our capital outlay.
(1) | Amounts shown in the table above reflect compound annual growth rates for the metrics shown for the ten-year period ended December 31, |
PS Business Parks • 2021 Proxy Statement • 6
(2) | A one-time special cash dividend of $4.60 per share was paid in 2021 to distribute a portion of the excess income attributable to gains on sales from asset dispositions during the year. |
The following table demonstrates our success at growing Core FFO per share and annual dividends per share of Common Stock over the same ten-year period.
PS Business Parks • 2022 Proxy Statement • 7
(1) | Core FFO is a non-GAAP measure. Refer to pages |
(2) | A one-time special cash dividend of $2.75 and $4.60 per share was paid in 2014 and 2021, respectively, to distribute a portion of the excess income attributable to gains on sales from asset dispositions during the respective years. |
Return on Assets and Cost of Capital
During that same ten-year period, we increased returnReturn on assets,Assets and reduced our costCost of capital:Capital.
(1) | Return on Assets is a non-GAAP measure. Refer to Appendix A for information regarding Return on Assets, including a GAAP reconciliation. |
PS Business Parks • 2021 Proxy Statement • 7
Our strong operating performance, capital allocation discipline, and prudent balance sheet management have generated consistently higher returnsreturn on assets relative to our industrial REIT peers.
(1) | Duke Realty, EastGroup Properties, Rexford Industrial, Terreno Realty Corporation, STAG Industrial, Inc., and First Industrial Realty Trust are included in the peer set average for the one-year and five-year periods. |
PS Business Parks • 20212022 Proxy Statement • 8
Strong Credit Metrics
We believe that our outsized long-term performance and shareholderstockholder value creation is(SVC) are due in large part to maintaining our fortress balance sheet and adherenceadhering to an above-average credit profile. The following chart illustrates two of the Company’s key credit metrics over the trailing five-year period, when we reduced our already low leverage from 4.4xperiod: Fixed Charge Coverage Ratio and Debt plus Preferred Equity to 3.4x (debt and preferred equity to Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA)).EBITDAre Ratio.
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PS Business Parks • 20212022 Proxy Statement • 9
Total ShareholderStockholder Return (TSR)
Our TSR has exceeded that of the NAREIT Equity Index and the S&P MidCap 400, of which we are a member company, for each of the 5-year, 10-year, and 20-year periods ending December 31, 2020 and for the S&P MidCap 400, of which we are a member company, for the 20-year period,2021, averaging 11.6%12.8% per year since 2001.2002.
(1) | TSR assumes Common Stock price appreciation plus reinvestment of |
The following chart shows our TSR expressed as cumulative return to shareholders since December 31, 2015, and illustratesstockholders over the last ten years, illustrating that $100 invested in PS Business Parks on December 31, 2015,2011, would have been valued at $175.22$463.18 as of December 31, 2020.2021.
(1) | TSR assumes Common Stock price appreciation plus reinvestment of |
PS Business Parks • 20212022 Proxy Statement • 10
Rental Income and RevPAF Growth
In 2020,2021, we grew our Same Park rental income to $383.4$392.2 million, an increase of $1.4$22.8 million, or 0.4%6.2%, over 2019.2020. Our disciplined approach to managing our assets, which focuses on maximizing rental income growth while maintainingpromoting desired portfolio occupancy, has resulted in a multi-year trend of positive rental income growth. The following chart demonstrates the growth in Same Park revenue per available foot (“RevPAF”)(RevPAF) for our industrial and flex portfolio over the trailing five year period, and for our total Same Park portfolio (including our remaining office assets) over the same period.
(1) | Same Park |
(2) | For more information about Same Park rental income, including a reconciliation to GAAP net income, see page |
In addition to our multi-year trend of positive rental income growth, we are outperforming our competitive peer set and are extracting significantly higher RevPAF from our portfolio than our industrial REIT peers.
(1) | PSB Same Park RevPAF as shown in the table above reflects results from our industrial and flex portfolio only (excludes results from our office portfolio). |
PS Business Parks • 20212022 Proxy Statement • 11
Similar to the RevPAF results highlighted above, we continue to generate significantly higher levels of NOI per available square foot than most of our industrial REIT peers.
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PS Business Parks • 20212022 Proxy Statement • 12
2020 PERFORMANCE HIGHLIGHTS
Financial Performance
Despite an unprecedented and challenging operating environment caused by the COVID-19 pandemic, the senior management team led the successful execution of the Company’s strategy. Their leadership in navigating through the COVID-19 pandemic was directly responsible for the following key operational results:
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Execution of Operational Objectives
In addition, we successfully executed on several key operational objectives and further positioned the Company for continued long-term value creation.
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OUR COMMITMENT TO ENVIRONMENTAL STEWARDSHIP AND SUSTAINABILITY, SOCIAL RESPONSIBILITY, AND GOOD GOVERANCE PRACTICES
We believe that a strong commitment to environmental stewardship and sustainability, social responsibility, and sound governance practices is good for our business and benefits our shareholders,stockholders, employees, partners, and other stakeholders. We recognize our responsibility as a global citizen to operate in a responsible and sustainable manner that is aligned with the Company’s long-term strategy and promotes the best interests of ourthe Company and its stakeholders.
Our Board, with the assistance of the Nominating, Governance, and Sustainability Committee (the NGS Committee), oversees management’s efforts and activities on environmental, social, and governance (ESG) initiatives. As set forth in the NGS Committee’s charter, the NGS Committee is responsible for assisting the Board in overseeing the Company’s (i) human capital development, including matters of diversity and inclusion, (ii) sustainability initiatives, including ESG matters, and (iii) governance policies. These explicit responsibilities evidence the Board’s commitment to actively overseeing the Company’s sustainability initiatives.
Our Environmental, Social, and Governance Steering Committee (the ESG Committee), comprising our InterimPresident and CEO & COO and other senior executives, directs, supports, and reports on the Company’s ongoing commitment to environmental, health and safety, social responsibility, governance, and other related matters. The SustainabilityESG Committee Charter is available ononline in the Investor Relations section of our website, at psbusinessparks.com.psbusinessparks.com. In addition, the Board and the Nominating/Corporate GovernanceNGS Committee (Governance Committee) overseesoversee management’s efforts and activities on sustainability initiatives.initiatives, receiving updates from the ESG Committee Chair no less than quarterly. This ensures a focused and appropriate level of oversight by the Board and demonstrates the Board’s commitment to ensuring the Company’s progress across our sustainability initiatives.
We are committed to continuously improving our sustainability practices and related disclosures. As evidence of this commitment, we have a current initiative to develop and publish a comprehensive sustainability report aligned with the Sustainability Accounting Standards Board (SASB) framework.
PS Business Parks • 20212022 Proxy Statement • 1413
Below are highlights of our primary environmental, social, and governanceESG areas of focus and initiatives.
E | ENVIRONMENTAL. We are committed to growing and operating our business in an environmentally responsible and sustainable way. |
The vast majority of our properties are leased to our customers on a triple-net or triple-net like basis, whereby customers are responsible for their own energy usage, water consumption, and waste management. We do, generally speaking, retain control of the common areas of our parks and promote the following practices:
Buildings and Footprint
● We employ “on demand” controls and energy management systems, including occupancy sensors, photocell sensors, dimmers, and timers to maximize energy efficiency
● We use real-time energy management programs to collect energy consumption data, identify energy reduction opportunities, and incorporate “quick solutions” to inefficiently programmed systems
● New developments are LEED
● In
● We have integrated both green and socially responsible supplier selection criteria where possible into our purchasing process ● We encourage the adoption of renewable energy and seek to procure renewable energy contracts with utility
● In
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● During construction, we reuse existing material when possible and use ultra-low or no VOC paint
● Since 2010, we have invested
● We employ optimum start/stop programs to achieve temperature setbacks and increases during the night, weekends, and holidays
● We minimize “building envelope” energy leaks by using environmentally safe sealant, tinting windows to
● Since 2010, we have invested
● We encourage environmental practices, including energy, water, and resource conservation, among customers and suppliers by including environmental matters in business discussions and initiatives Waste and Recycling ● We use trash compactors to reduce recycling pickups and train staff on facility protocols that simplify and maximize waste segregation and safe disposal, including the safe disposal of electronics
● We reduce the use of single-purpose plastic at our facilities by purchasing reusable water bottles for each of our employees, eliminating consumption of over 25,000 plastic water bottles at our properties annually
● We reduce water consumption with efficient low flow and motion sensor plumbing devices, efficient irrigation systems, conversion of retention ponds to ecofriendly environments, and drought-tolerant and native landscaping
● In |
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S | SOCIAL. We are committed to investing in our employees and building customer, investor, and community relationships. |
● We are an Affirmative Action and Equal Opportunity Employer
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● We encourage employees to give back to our communities by providing two |
● We offer a charitable gift matching program, providing a donation match of up to a preset limit per employee annually to qualifying 501(c)(3) organizations
● We sponsor employee wellness initiatives aimed at promoting healthy lifestyle choices at work and at home
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● Our workforce has generational diversity: |
G | GOVERNANCE. The Company follows the corporate governance best practices highlighted |
● Substantial majority of independent directors
● Annual election of directors/no classified
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● Oversight of risk by the full
● Presiding Independent Director and separate CEO and Chairman
● Robust stock ownership requirements
● Annual Board and committee self-evaluations
● No poison pill |
● Anti-short-sale and anti-hedging policies |
● Executive compensation is tied to performance
● All Audit Committee members are independent and financial experts
● Robust
● Board members with diverse experiences, including fields of specialty in finance, real estate, executive recruitment, banking, private equity, talent management, and governance
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PS Business Parks • 20212022 Proxy Statement • 1615
Election of Directors
Our Board has nominated nineeleven directors, who, if elected by shareholdersstockholders at our 2022 Annual Meeting of Stockholders (Annual Meeting), have agreed to serve until next year’s Annual Meeting.annual meeting. All nominees are currently directors of the Company.
RECOMMENDATION:
Vote FOR all nominees
PS Business Parks • 20212022 Proxy Statement • 1716
PROPOSAL 1:
ELECTION OF DIRECTORS
Our Board has nominated eleven directors for election at this year’s Annual Meeting to hold office until the next annual meeting of stockholders.
Each of the eleven nominees has agreed to be named in this proxy statement and to serve on the Board if elected. We currently expect all nominees to attend the Annual Meeting.
If any of our nominees becomes unavailable to stand for election, the proxies named on the proxy card intend to vote your Common Stock for the election of any substitute nominee proposed by the Board.
We believe that each nominee has the skills, experience, and personal qualities that the Board seeks and that the combination of these nominees creates an effective, well-functioning Board that serves the best interests of PS Business Parks and our stockholders.
The Board is responsible for overseeing management and providing sound governance on behalf of our stockholders. The Board and each of its committees have an active role in overseeing management of the Company’s risks, a responsibility that the Board believes is one of its most important areas of oversight.
The Board carries out its responsibilities through (1) the effective collaboration of our highly capable and experienced directors; (2) a well-crafted Board structure, which includes separate individuals holding the positions of the CEO, the Chairman of the Board, and the Lead Independent Director; (3) a strong committee structure that enables directors to provide the appropriate level of focused oversight and subject-matter expertise; and (4) adherence to our Corporate Governance Guidelines and Directors’ Code of Ethics.
PS Business Parks • 2022 Proxy Statement • 17
Board diversity is important because having a variety of viewpoints improves the quality of dialogue, contributes to a more effective decision-making process, and enhances overall culture in the boardroom. Our directors represent a diversity of professional experience, race, ethnicity, gender, age, and Board tenure, including:
* | Racial diversity includes self-identification as a member of an underrepresented community. |
** | Average tenure is 9 years. |
PS Business Parks • 2022 Proxy Statement • 18
BOARD EVALUATIONS AND NOMINATIONS
In evaluating potential candidates for service on the Board, the Nominating/Corporate GovernanceNGS Committee of our Board (the Nominating/Corporate Governance Committee) and the Board select director candidates who will best serve the Board and PS Business Parks in the current and anticipated business environment. The goal in the vetting and nomination process is to achieve an appropriate balance of knowledge, experience, diversity, and capabilities on the Board. The Board, through the Nominating/Corporate GovernanceNGS Committee, considers the following non-exclusive list of experiences, qualifications, attributes, and skills of both potential director nominees and existing members of the Board:
● Senior leadership experience | ● Governance experience | |
● Accounting/financial expertise | ● Technology and cybersecurity expertise | |
● | ● Risk and crisis management experience | |
● Operational management experience | ● Legal and regulatory compliance expertise | |
● | ● Real estate development experience | |
● | ● Mergers and acquisitions experience | |
● | ● Diversity (gender, race, nationality, and other attributes) | |
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Our director nominees have qualifications, skills, and experience relevant to our business. Each director has experience, mainly at senior executive levels, in other organizations, and a majority of the directors hold or have held directorships at other U.S. public companies. MostFive of our directors have served as chief executive officers,CEO, and all have demonstrated superb leadership, intellectual, and analytical skills gained from deep experience in management, finance, and corporate governance.
ABOUT THE DIRECTOR NOMINEESBOARD FOCUS ON REFRESHMENT
Our Board and the NGS Committee understand the importance of Board refreshment and aim to strike a balance between the knowledge that comes from longer-term service on the Board with the new experience, ideas, and energy that can come from adding directors to the Board. Four of our eleven directors have joined our Board within the past three years. Our NGS Committee annually considers the long-term make up of our Board and how the members of our Board have changed over time, including the use of annual director questionnaires on the Board’s composition and effectiveness and the completion of rigorous director evaluations to ensure a continued match of each director’s skill sets against the Company’s needs.
In addition, as part of our stockholder engagement dialogue, we routinely ask our investors for input regarding Board performance. Our NGS Committee also regularly considers whether the range of our Board’s tenure appropriately encompasses directors who have historic institutional knowledge of PS Business Parks and the competitive environment, complemented by newer directors with varied backgrounds, perspectives, and skills. To facilitate Board refreshment, our Corporate Governance Guidelines provide that directors will not be nominated or appointed to the Board unless they will be 75 years of age or younger on the first day of their term of service. The robustness of our refreshment strategy combines experience and continuity with new perspectives.
Assuming the election of this year’s proposed director nominees, we believe we will have a good balance between tenured directors with significant experience with the Company and more recently appointed or elected directors with fresh perspectives, constituting a strong, independent Board that will be well-positioned to navigate the current challenging business environment and accelerate the Company’s growth and accomplishment of key corporate objectives for the benefit of all of our stakeholders.
PS Business Parks • 2022 Proxy Statement • 19
The Nominating/Corporate GovernanceCompany is committed to ensuring that a diversity of experiences and viewpoints are represented on the Board as well as the Company’s senior management team. As a reflection of the Company’s commitment, the NGS Committee’s Charter provides that, when evaluating possible director candidates, the NGS Committee should consider whether each director reflects a diversity of experience, skills, background, gender, race, and/or ethnicity. In addition, the NGS Committee will ask any search firm that it engages for the purpose of identifying potential director candidates to include diverse candidates who meet applicable search criteria in the pool of potential candidates. Our commitment has led to a Board that reflects diverse perspectives, including a complementary mix of skills, experience, and backgrounds that we believe are paramount to our ability to represent the interests of our stakeholders. Our Board comprises 36% women, and two directors self-identify as being racially diverse or belonging to an underrepresented community. Our Board recognizes the importance of diversity and supports management’s efforts to enhance all aspects of diversity throughout the Company.
The NGS Committee has recommended to the Board, and the Board has nominated, nineeleven of our incumbent directors listed below for re-election to the Board. James H. Kropp,On March 23, 2022, Dan M. Chandler, III, who has served onas President and CEO and a member of the Board since 1998, will retire2021, stepped down from his positions with the Board as of the 2021 Annual MeetingCompany for health reasons and thus has not been nominated for re-election. Six The Board believes that these nominees provide the Company with the combined skills, experience, diversity, and personal qualities needed for an effective and engaged Board. Seven of the nineeleven director nominees are independent. If elected, each of the nineeleven nominees will serve for thea one-year term beginning with our 2021 Annual Meeting and until our 2023 annual meeting of stockholders, or until their successors, if any, are elected or appointed. Each nominee has agreed to serve if elected.
PS Business Parks • 20212022 Proxy Statement • 1820
The Nominating/Corporate Governance Committee has recommended to the Board, and the Board has nominated, the nine incumbent directors listed below for re-election to the Board. The Board believes that these nominees provide the Company with the combined skills, experience, diversity, and personal qualities needed for an effective and engaged Board. We recommend that you vote FOR each nomineenominee..
THE BOARD HAS NOMINATED NINE DIRECTORS, SIX OF WHOM ARE INDEPENDENT
Nominee | Age | Principal Business Background | Director Since | Committee Membership | ||||
Ronald L. Havner, Jr. | 63 | Chairman of the Board and Former Chief Executive Officer of Public Storage and PS Business Parks, Inc. | 1998 |
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Maria R. Hawthorne | 61 | Former President and Chief Executive Officer of PS Business Parks, Inc. | 2016 | Capital | ||||
Jennifer Holden Dunbar (Independent Director) | 58 | Co-Founder and Managing Director of Dunbar Partners, LLC | 2009 | Audit, Capital, and Compensation (Chair) | ||||
Kristy M. Pipes (Independent Director) | 61 | Retired Managing Director and Chief Financial Officer of Deloitte Consulting | 2019 | Audit (Chair) and Nominating/Corporate Governance | ||||
Gary E. Pruitt (Independent Director) | 71 | Retired Chairman and Chief Executive Officer of Univar N.V. | 2012 | Audit | ||||
Robert S. Rollo (Presiding Independent Director for 2020)(1) | 73 | Retired Senior Partner of Heidrick and Struggles | 2013 | Nominating/Corporate Governance (Chair) and Compensation | ||||
Joseph D. Russell, Jr. | 61 | Chief Executive Officer and President of Public Storage and former Chief Executive Officer and President of PS Business Parks, Inc. | 2003 | Capital | ||||
Peter Schultz (Presiding Independent Director for 2021)(1) | 73 | Retired Chief Executive Officer of The Beacon Group, Inc. | 2012 | Audit and Capital (Chair) | ||||
Stephen W. Wilson (Independent Director) | 64 | Retired Executive Vice President – Development of AvalonBay Communities, Inc. | 2019 | Capital and Compensation |
Nominee | Age | Principal Business Background | Director Since | Committee Membership | ||||
Ronald L. Havner, Jr. | 64 | Chairman of the Board and Retired Chief Executive Officer of Public Storage and PS Business Parks, Inc. | 1998 | Investment | ||||
Maria R. Hawthorne(1) | 62 | Interim Chief Operating Officer and Former President and Chief Executive Officer of PS Business Parks, Inc. | 2016 | Investment (Chair) and Capital | ||||
Jennifer Holden Dunbar Presiding Independent Director for 2022(2) | 59 | Former Partner of Leonard Green & Partners, L.P. | 2009 | Compensation (Chair) and Audit | ||||
M. Christian Mitchell Independent Director | 67 | Managing partner of THG Advisory Services, LLC | 2021 | Compensation and Investment | ||||
Irene H. Oh Independent Director | 44 | Executive Vice President and Chief Financial Officer of East West Bancorp, Inc. and East West Bank | 2021 | Audit and NGS | ||||
Kristy M. Pipes Independent Director | 62 | Retired Managing Director and Chief Financial Officer of Deloitte Consulting | 2019 | Audit (Chair) and NGS | ||||
Gary E. Pruitt Independent Director | 72 | Retired Chairman and Chief Executive Officer of Univar N.V. | 2012 | Audit, Compensation, and NGS | ||||
Robert S. Rollo Independent Director | 74 | Retired Senior Partner of Heidrick and Struggles | 2013 | NGS (Chair) and Compensation | ||||
Joseph D. Russell, Jr. | 62 | President and Chief Executive Officer of Public Storage and former President and Chief Executive Officer of PS Business Parks, Inc. | 2003 | Capital and Investment | ||||
Peter Schultz Independent Director Presiding Independent Director for 2021(2) | 74 | Retired Chief Executive Officer of The Beacon Group, Inc. | 2012 | Audit and Capital (Chair) | ||||
Stephen W. Wilson(1) | 65 | Interim President and Chief Executive Officer of PS Business Parks, Inc. and Retired Executive Vice President–Development of AvalonBay Communities, Inc. | 2019 | Capital and Investment | ||||
(1) | As previously disclosed, Mr. Chandler took a leave of absence from the Company for health reasons effective January 17, 2022 and stepped down as President and CEO and as a member of the Board on March 23, 2022 due to such health reasons. Mr. Wilson was appointed as Interim President and CEO and Ms. Hawthorne was appointed as Interim Chief Operating Officer effective January 17, 2022. Prior to his appointment as Interim President and CEO, Mr. Wilson qualified as an independent director and, following his interim service as an executive, we expect he will again qualify as an independent director. Mr. Wilson previously served on the Compensation Committee throughout 2021 and until his appointment as Interim President and CEO. |
(2) | Please see “Corporate Governance and Board Matters—Presiding Independent Director” on page |
PS Business Parks • 20212022 Proxy Statement • 1921
DIRECTOR NOMINEES SKILLS SUMMARY
The Board believes that our director nominees provide PS Business Parks with the combined skills, experience, and personal qualities needed for an effective and engaged Board.
CEO or Executive Experience | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● | ||||||||||||
Other Public Board Experience | ● | ● | ● | ● | ● | ● | ● | ● | ||||||||||||||
Relevant Industry Experience | ● | ● | ● | ● | ● | ● | ● | |||||||||||||||
Financial Expert or Tax Expertise | ● | ● | ● | ● | ● | ● | ● | ● | ● | |||||||||||||
Corporate Governance Experience | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● | |||||||||||
M&A / Capital Markets / Capital Allocation Experience | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● | ||||||||||||
Succession Planning / Management Development Experience | ● | ● | ● | ● | ● | ● | ● | ● | ● | |||||||||||||
Cybersecurity or Risk / Crisis Management Experience | ● | ● | ● | ● | ● | ● | ● | ● | ● | |||||||||||||
Gender Diversity | ● | ● | ● | ● | ||||||||||||||||||
Racial Diversity (including self-identification as being from an underrepresented community) | ● | ● | ||||||||||||||||||||
PS Business Parks • 2022 Proxy Statement • 22
Age:
Director since: 1998 Committees: Investment
Director Qualification Highlights:
Extensive leadership experience
| Ronald L. Havner, Jr. Chairman of the Board of Public Storage
Mr. Havner has been Chairman of the Board of PS Business Parks since March 1998 and previously served as the Company’s Chief Executive Officer. Mr. Havner has been Chairman of the Board of Trustees of Public Storage (NYSE: PSA), a PS Business Parks affiliate, since August 2011 and was Chief Executive Officer from November 2002 until his retirement effective January 1, 2019. Mr. Havner
In considering
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PS Business Parks • 2022 Proxy Statement • 23
Age:
Director since: 2016
Committees: Investment (Chair) and Capital
Director Qualification Highlights:
Extensive
| Maria R. Hawthorne Interim Chief Operating Officer and Former President and Chief Executive Officer of PS Business Parks
Ms. Hawthorne has been the Company’s Interim Chief Operating Officer since January 17, 2022. Previously, she served as Chief Executive Officer and President of the Company from July 2016 and August 2015, respectively, until her retirement on September 1, 2020. In addition, Ms. Hawthorne also served as the Company’s acting Chief Financial Officer
Ms. Hawthorne also serves on the Board of Directors for Essex Property Trust (NYSE: ESS), a fully integrated REIT that acquires, develops, redevelops, and manages multifamily apartment communities
In considering
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PS Business Parks • 2021 Proxy Statement • 20
Age:
Director since: 2009
Committees:
Director Qualification Highlights:
Extensive financial
| Jennifer Holden Dunbar
Ms. Dunbar has been a director of PS Business Parks since February 2009. From 1994 to 1998, Ms. Dunbar was a partner with Leonard Green
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PS Business Parks • 2022 Proxy Statement • 24
Age: Director since: 2021 Committees: Compensation and Investment Director Qualification Highlights: Extensive operational, leadership, risk management, and corporate governance experience; knowledge and expertise in M&A and management succession and development | M. Christian Mitchell Managing Partner of THG Advisory Services, LLC Mr. Mitchell has been a director of PS Business Parks since September 2021. Mr. Mitchell serves as a managing partner of THG Advisory Services, LLC, an alternative investment and advisory firm. Mr. Mitchell is a retired senior partner at Deloitte & Touche LLP, where he served as the national or regional managing partner for various practices of the firm and was a founding member of the Board of Directors of Deloitte Consulting USA. Mr. Mitchell is a director of Pacific Premier Bancorp, Inc. (NASDAQ: PPBI), a regional bank holding company; Western Asset Mortgage Capital Corporation (NYSE: WMC), a mortgage REIT; and Parsons Corp. (NYSE: PSN), a global solutions provider to the defense, intelligence, and critical infrastructure markets. Mr. Mitchell also serves as the vice chairman of the Board of Directors of Marshall & Stevens, a national valuation and financial advisory firm; as a director of Huntington Memorial Hospital, a not-for-profit hospital; and as chairman emeritus of the National Association of Corporate Directors (NACD), Pacific Southwest Chapter. In considering Mr. Mitchell’s nomination for re-election to the Board, the NGS Committee and the Board considered Mr. Mitchell’s deep management and leadership experience, having held several senior leadership positions during his career, along with his experience in corporate governance. |
Age: 44 Director since: 2021 Committees: Audit and NGS Director Qualification Highlights: Extensive leadership, financial, and risk management experience | Irene H. Oh Executive Vice President and Chief Financial Officer of East West Bancorp, Inc. and East West Bank Ms. Oh has been a director of PS Business Parks since April 2021. Ms. Oh has served as Executive Vice President and Chief Financial Officer of East West Bancorp, Inc. and East West Bank (NASDAQ: EWBC) (East West), a bank holding company and its subsidiary bank that operates over 120 locations in the U.S. and Greater China, since January 2010. She has held various leadership roles at East West since joining in 2004. Prior to joining East West, Ms. Oh held positions at Deloitte and Goldman Sachs. Ms. Oh serves on the Board of Directors and the audit committee of the United Way of Greater Los Angeles. Ms. Oh qualifies as one of the Company’s Audit Committee financial experts, and in considering Ms. Oh’s nomination for re-election to the Board, the NGS Committee and the Board considered Ms. Oh’s extensive financial analysis and operational expertise. Ms. Oh also brings deep management and leadership experience to the Board, having held several senior leadership positions during her career. |
PS Business Parks • 2022 Proxy Statement • 25
Age: 62
Director since: 2019
Committees: Audit (Chair) and
Director Qualification Highlights:
| Kristy M. Pipes Retired Managing Director and Chief Financial Officer of Deloitte Consulting
Ms. Pipes has been a director of PS Business Parks since July 2019. Ms. Pipes was Managing Director and Chief Financial Officer of Deloitte Consulting, a management consultancy firm with operations in the United States, India, Germany, and Mexico, where she managed the finance function. Ms. Pipes held various leadership positions, including serving on the firm’s Management Committee and Consulting Operations Committee. Prior to joining Deloitte in 1999, Ms. Pipes was Vice President and Manager, Finance Division, at Transamerica Life Companies and Senior Vice President and Chief of Staff for the President and Chief Executive Officer (among other senior management positions) at First Interstate Bank of California. Ms. Pipes serves
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PS Business Parks • 2021 Proxy Statement • 21
Age:
Director since: 2012
Committees: Audit, Compensation, and NGS
Director Qualification Highlights:
Extensive leadership, financial, and
| Gary E. Pruitt Retired Chairman and Chief Executive Officer of Univar N.V.
Mr. Pruitt has served as a director of PS Business Parks since February 2012. He served as Chairman and Chief Executive Officer of Univar N.V. (Univar) from 2002 until his retirement as Chief Executive Officer in 2010 and as Chairman in 2011. Univar is a chemical distribution company
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PS Business Parks • 2022 Proxy Statement • 26
Age:
Director since: 2013
Committees:
Director Qualification Highlights:
Extensive knowledge and expertise in executive recruitment, compensation, and talent
| Robert S. Rollo Retired Senior Partner of Heidrick and Struggles
Mr. Rollo has served as a director of PS Business Parks since October 2013. Mr. Rollo most recently served as a Senior Partner at Heidrick and Struggles,
In considering |
PS Business Parks • 2021 Proxy Statement • 22
Age:
Director since: 2003
Committees: Capital and Investment
Director Qualification Highlights:
Leadership
| Joseph D. Russell, Jr. President and Chief Executive Officer
Mr. Russell has been a director of PS Business Parks since August 2003. Mr. Russell has been President and Chief Executive Officer of Public Storage since July 2016 and January 2019, respectively. Mr. Russell also joined the Public Storage
In considering
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PS Business Parks • 2022 Proxy Statement • 27
Age:
Director since: 2012
Committees: Audit and Capital (Chair)
Director Qualification Highlights:
Leadership and senior management
| Peter Schultz Retired Chief Executive Officer and Director of The Beacon Group, Inc.
Mr. Schultz has been a director of PS Business Parks since February 2012. He served as President, Chief Executive Officer, and a director of The Beacon Group, Inc. (Beacon) and its affiliates for more than 25 years until his retirement in 2010. Beacon and its affiliates were engaged in the development and management of more than three million square feet of retail, industrial, hospitality, and residential projects. Prior to working at Beacon, Mr. Schultz was employed by Arthur Andersen
Mr. Schultz is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.
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PS Business Parks • 2021 Proxy Statement • 23
Age:
Director since: 2019
Committees:
Director Qualification Highlights:
Extensive leadership, operational, and financial experience, as well as knowledge of the real estate industry | Stephen W. Wilson Interim President and Chief Executive Officer PS Business Parks
Mr. Wilson has been the Company’s Interim President and Chief Executive Officer since January 17, 2022. Mr. Wilson has been a director of PS Business Parks since July 2019. Mr. Wilson was Executive Vice President—Development of AvalonBay Communities, Inc. (NYSE:AVB) (AvalonBay), a real estate investment trust that develops, redevelops, acquires, and manages multifamily communities in the United States. Mr. Wilson held various senior leadership positions and was responsible for development activities on the West Coast and Mid-Atlantic at AvalonBay. Prior to joining AvalonBay in 1988, Mr. Wilson was Senior Vice President and Chief Operating Officer of SU Development, Inc. and Senior Vice President of Continental Pacific, Inc., with responsibilities in development, debt and equity financing, property management, and institutional sales.
Mr. Wilson is a member of
In considering
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PS Business Parks • 20212022 Proxy Statement • 24
DIRECTOR NOMINEES SKILLS SUMMARY
The Board believes that our director nominees provide PS Business Parks with the combined skills, experience, and personal qualities needed for an effective and engaged Board.
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PS Business Parks • 2021 Proxy Statement • 2528
CORPORATE GOVERNANCE AND BOARD MATTERS
CORPORATE GOVERNANCE FRAMEWORK
The Board has adopted the following corporate governance documents, which, along with our charter and bylaws, establish the framework for our corporate governance and outline the general practice of our Board with respect to boardBoard structure, function, conduct, and boardBoard and committee organization:
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● | Charters of our standing committees of the Board (the Committee Charters) |
● | Business Conduct Standards applicable to our officers and employees |
● | Directors’ Code of Ethics |
● | Code of Ethics for |
Our current Corporate Governance Guidelines, Business Conduct Standards, Directors’ Code of Ethics, Code of Ethics for Senior Financial Executives, and Committee Charters are available online in the “Investor Relations”Investor Relations section of our website, psbusinessparks.com/investor-relations/corporate-governance,psbusinessparks.com, or will be delivered to you by mail upon your request in writing to the Company’s Investor Services Department, 701 Western Avenue, Glendale, California 91201.
The Nominating/Corporate GovernanceNGS Committee reviews the Corporate Governance Guidelines at least annually and makes recommendations for any changes to the Board. We will disclose any substantive amendments or waivers to our ethics policies and standards on our website or in accordance with the SECSecurities and Exchange Commission (SEC) and New York Stock Exchange (NYSE) requirements.
BOARD ENGAGEMENT AND OVERSIGHT
During the COVID-19 pandemic, our management team has greatly benefited from the insights and oversight of our Board. Throughout 2020, ourThe Board and our senior leadership team engage regularly and collaborate closely to ensure the Company meets its committees not only maintained their regular schedule of quarterly meetings, but also began regularcommitments to all stakeholders, including our employees, customers, and frequent meetings with management regarding COVID-19, including its impact on employees, operations, financial performance, and legal and regulatory matters. The Board’s longstanding work to provide oversight, review, and counsel related to long-term strategy, risks, and opportunities provided the necessary foundation for management and the Board to build upon in responding quickly and appropriately to the unexpected challenges resulting from the COVID-19 pandemic.
While the COVID-19 pandemic has required the senior management team’s and the Board’s immediate attention, oneour stockholders. One of the Board’s highest priorities continues to be guiding the development and execution of the Company’s long-term strategy. The Board remains focused on working with management to develop strategies to accelerate growth and generate value to shareholders.stockholders.
AlthoughThe Board is also actively overseeing management’s efforts and activities on ESG initiatives. For example, the Nominating/Corporate GovernanceNGS Committee andassists the Board do not have a formal policy on diversity, the Company is committed to ensuring that a diversity of experiences and viewpoints are represented on the Board as well asin overseeing the Company’s senior management team. Our Board reflects diverse perspectives,(i) human capital development, including a complementary mix of skills, experience, and backgrounds that we believe are paramount to our ability to represent the interests of our stakeholders. Our Board recognizes the importancematters of diversity and supports management’s efforts to enhance all aspects of diversity throughout the Company. As a reflection of this commitment, 30% of our proposed Board composition is femaleinclusion, (ii) sustainability initiatives, including ESG matters, and one director is racially diverse and self-identifies as being from an underrepresented community.(iii) governance policies.
PS Business Parks • 2021 Proxy Statement • 26
We have separate individuals serving as Chairman of the Board and as CEO. Ronald L. Havner, Jr., has served as Chairman of the Board since March 1998. Mr. Havner has been involved with the Company since its founding and has extensive knowledge of the Company, the markets in which it operates, and the real estate industry. Dan M. Chandler, III has beenStephen W. Wilson was appointed to serve as our President and Chief Executive Officer, effective April 5, 2021, and will succeed John W. Petersen, our Chief Operating Officer, who has served as our Interim President and Chief Executive Officer since April 2020.CEO effective January 17, 2022.
We do not have a policy against one individual holding the positions of Chairman and CEO. Rather, the Board evaluates the desirability of having a combined or separate Chairman and CEO from time to time and adopts a structure based on what it believes to be in the best interests of PS Business Parks and its shareholders.stockholders. Currently, the Board believes that having separate Chairman and CEO roles serves the interests of the Company and its shareholdersstockholders well.
MAJORITY VOTE REQUIREMENTS FOR DIRECTORSPS Business Parks • 2022 Proxy Statement • 29
Our Corporate Governance Guidelines provide that, in an uncontested election of directors, each director nominee who does not receive at least a majority of the votes cast with respect to that director must submit his or her resignation to the Board. For the purpose of the Corporate Governance Guidelines, a majority means the number of votes cast “for” a director must exceed 50% of the votes cast with respect to the director. The Nominating/Corporate Governance Committee will then make a recommendation to the Board about whether to accept or reject the resignation or take other action. The Board will act on any such recommendation and publicly disclose its decision within 90 days from the date the election results were certified by the Inspector of Election. If a director’s resignation is accepted by the Board, the Board may fill the resulting vacancy or decrease the size of the Board in accordance with our bylaws.
PRESIDING INDEPENDENT DIRECTOR
The Board has established a position of Presiding Independent Director to provide an independent director with a leadership role on the Board. The Presiding Independent Director presides at meetings of all independent directors or all non-management directors in executive sessions without the presence of management. These meetings are held regularly in connection with each regularly scheduled boardBoard meeting and at the request of any independent or non-management director. In addition, the independent directors meet separately at least once annually. These sessions are designed to encourage open discussion of any matter of interest without the CEO or any other members of management present. The position of Presiding Independent Director generally rotates annually among the chairs of the standing committees of the Board. Robert S. RolloPeter Shultz was the Presiding Independent Director for 2020, and Peter Schultz2021. Jennifer Holden Dunbar is the Presiding Independent Director for 2021.
BOARD RESPONSIBILITIES AND OVERSIGHT OF RISK MANAGEMENT
The Board is responsible for overseeing our Company’s approach to major risks and our policies for assessing and managing these risks. In connection with its oversight function, the Board regularly receives presentations from management on areas of risk facing our business. The Board and management actively engage in discussions about these potential and perceived risks to the business.
In addition, the Board is assisted in its oversight responsibilities by the four standing Board committees (as described below), which have assigned areas of oversight responsibility for various matters, as described in the Committee Charters and as provided in the NYSE rules.
The Audit Committee assists the Board in overseeing the integrity of our financial statements, the qualifications, independence, and performance of our independent registered public accounting firm, and the performance of our internal audit function. Pursuant to its charter, the Audit Committee is also responsible for oversight of risk assessment and risk management, including any major financial risk exposures.
PS Business Parks • 2021 Proxy Statement • 27
The Compensation Committee oversees the compensation of our CEO and other executive officers and evaluates compensation incentives to ensure they will motivate senior management to grow long-term shareholder return without taking undue risk.
The Nominating/Corporate Governance Committee assists the Board by identifying individuals qualified to become Board members and makes recommendations on Board appointments and nominations. The Nominating/Corporate Governance Committee also oversees our governance policies and as part of that oversight focuses on risks associated with director and management succession planning, corporate governance, and overall Board effectiveness. The Nominating/Corporate Governance Committee also oversees our environmental, social, and governance (ESG) efforts and our political and charitable contributions and other public policy matters.
The Capital Committee oversees the optimization of the Company’s capital expenditures. The Capital Committee’s goal is to position the Company to maximize long-term benefit of its capital expenditures, while also ensuring the Company’s assets are well maintained and positioned to meet the needs of its current and prospective customers.
The Board committees also hear reports from members of management to enable each committee to identify, discuss, understand and manage risk. The chair of each of the Board’s standing committees reports on interim individual committee discussions to the full Board at each Board meeting. All directors have access to management in the event a director wishes to follow up on items discussed outside of Board meetings.
POLITICAL AND CHARITABLE CONTRIBUTIONS
In February 2020, our Board and Nominating/Corporate Governance Committee approved amendments to the Nominating/Corporate Governance Committee Charter to include oversight responsibilities with respect to the Company’s political and charitable contributions and other public policy matters. In order to facilitate accountability and informed decision-making with respect to the Company’s political and charitable contributions, the Nominating/Corporate Governance Committee has adopted certain Political and Charitable Contribution Guidelines, which apply to contributions or expenditures of corporate funds to various political entities, charitable organizations, and certain causes. Contributions subject to these guidelines must be approved by management and/or the Nominating/Corporate Governance Committee. All contributions are required to be reported quarterly to the Nominating/Corporate Governance Committee.
BOARD ORIENTATION AND EDUCATION
Each new director participates in an orientation program and receives materials and briefings concerning our business, industry, management, and corporate governance policies and practices. Continuing education is provided for all directors through Board materials and presentations, discussions with management, and the opportunity to attend external board education programs.
Our Corporate Governance Guidelines provide that no person will be nominated for election to the Board for any term unless he or she is 75 years of age or younger on the first day of the term. The Board has discretion to make exceptions to the policy, including to provide for a transition period.
The Board evaluates the independence of each director annually based on information supplied by the directors and the Company, and on the recommendations of the Nominating/Corporate Governance Committee. The Corporate Governance Guidelines require that a majority of the directors be independent in accordance with the requirements of the NYSE. A director qualifies as independent unless the Board determines, in accordance with NYSE rules, that the director has a material relationship with PS Business Parks, based on all relevant facts and
PS Business Parks • 2021 Proxy Statement • 28
circumstances. Material relationships may include commercial, industrial, consulting, legal, accounting, charitable, family, professional, personal, and other relationships. The Board also considers the director’s relationships with Public Storage, our largest shareholder.
Following its annual review of each director’s independence, the Nominating/ Corporate Governance Committee in February 2021 recommended to the Board, and the Board determined, that (i) each of Jennifer Holden Dunbar, James H. Kropp, Kristy M. Pipes, Gary E. Pruitt, Robert S. Rollo, Peter Schultz, and Stephen W. Wilson is independent pursuant to the rules of the NYSE, and (ii) each Audit Committee member and each Compensation Committee member meets the additional independence requirements of the rules of the SEC.2022.
Our Board has fourfive standing committees: the Audit Committee, the Compensation Committee, the Nominating/Corporate GovernanceNGS Committee, the Capital Committee, and the CapitalInvestment Committee. Each of the standing committees other than the Investment Committee operates pursuant to a written charter, which can be viewed atonline in the Investor Relations section of our website, at psbusinessparks.com/investor-relations/corporate-governance.psbusinessparks.com. Any shareholderstockholder may obtain a printed copy by writing to the Company’s Corporate Secretary at PS Business Parks, Inc., 701 Western Avenue, Glendale, CACalifornia 91201.
Our fourThe following table sets forth the current membership of the Board’s five standing committees, areeach of which is described below.below:
Director | Audit | Compensation | NGS | Capital | Investment | |||||||
Ronald L. Havner, Jr. | Member | |||||||||||
Maria R. Hawthorne | Member | Chair | ||||||||||
Jennifer H. Dunbar | Member | Chair | ||||||||||
M. Christian Mitchell | Member | Member | ||||||||||
Irene H. Oh | Member | Member | ||||||||||
Kristy M. Pipes | Chair | Member | ||||||||||
Gary E. Pruitt | Member | Member | Member | |||||||||
Robert S. Rollo | Member | Chair | ||||||||||
Joseph D. Russell, Jr. | Member | Member | ||||||||||
Peter Schultz | Member | Chair | ||||||||||
Steven W. Wilson(1) | Member | Member | ||||||||||
(1)Mr. Wilson was removed from the Compensation Committee effective January 17, 2022 in connection with his appointment as Interim President and Chief Executive Officer. |
Audit Committee
The primary functions of the Audit Committee, as set forth in its charter, are to:
● | oversee the integrity of our financial statements; |
● | oversee compliance with legal and regulatory requirements; |
● | consider the qualifications, independence, and performance of the independent registered public accounting firm; |
● | appoint, evaluate, and determine the compensation of the independent registered public accounting firm; |
PS Business Parks • 2022 Proxy Statement • 30
● | approve all services performed by the independent registered public accounting firm and related fees; |
● | review the scope and results of internal audits, the Company’s internal controls over financial reporting, and the performance of the Company’s internal audit function; |
|
● | review and approve the scope of the annual audit, the audit fee, and the financial statements; |
● |
|
prepare the Audit Committee Report for inclusion in the annual proxy statement; |
● | oversee the accuracy and reliability of the Company’s quantitative public disclosures relating to ESG matters; and |
● | annually review its charter and performance. |
Each member of the Audit Committee: (1) meets the financial literacy and independence standards of the NYSE; (2) qualifies as an audit committee financial expert pursuant to the rules of the SEC; and (3) qualifies as independent pursuant to the rules of the SEC and NYSE.
Additionally, the Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment policies.
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The Audit Committee also oversees cybersecurity and other IT risks affecting the Company. Management reports regularly to the Audit Committee regarding information security. We consider each member of our Audit Committee to possess information security experience by way of their oversight responsibilities over this area.
We identify See “Corporate Governance and addressBoard Matters—Cybersecurity” on page 35 for more information securityabout how the Audit Committee and the Company are committed to properly addressing cybersecurity risks by employing a defense-in-depth methodology that provides multiple, redundant defensive measureswe face in case a security control fails or a vulnerability is exploited. We leverage internal resources, along with strategic external partnerships to mitigate cybersecurity threats to the Company. We deploy both commercially available solutions and proprietary systems to manage threats to our information technology environment actively. We employ robust information security and training programs for our employees, including mandatory computer-based training, regular internal communications, and ongoing end-user testing to measure the effectiveness of our information security program. We are externally audited and certified by top information security standards to ensure we comply with this rigorous standard. We regularly engage appropriate external resources regarding emerging threats in order to navigate the diverse cybersecurity landscape.
We have experienced no material information security breaches in the last three years. As such, we have not spent any material amount of capital on addressing information security breaches in the last three years, nor have we incurred any material expenses from penalties and settlements related to a material breach during this same time.today’s global business environment.
Compensation Committee
The primary functions of the Compensation Committee, as set forth in its charter, are to:
● | determine, either as a committee or together with other independent directors, the compensation of the Company’s CEO; |
● | determine the compensation of other executive officers; |
● | administer the Company’s equity and |
● | review and discuss with management the Compensation Discussion and Analysis (CD&A) to be included in the proxy statement and incorporated by reference into the Annual Report on Form 10-K and to recommend to the Board for inclusion of the CD&A in the Annual Report on Form 10-K and proxy statement; |
● | provide a description of the processes and procedures for the consideration and determination of executive compensation for inclusion in the Company’s annual proxy statement; |
● | periodically review |
● | annually review the Company’s process for evaluating potential risks related to the Company’s compensation policies and practices |
● | review the advisory |
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● | produce the Compensation Committee Report for inclusion in the annual proxy statement; and |
● | annually review its charter and performance. |
The Compensation Committee has not delegated any of its responsibilities to individual members of the Compensation Committee or to a subcommittee of the Compensation Committee, although it has the discretion to do so. As required by its charter, the Compensation Committee and, in some instances, the Compensation Committee and all other independent members of the Board, made final compensation decisions for executive officers in 2020,2021, including the NEOs set forth in the Summary Compensation Table on page 53 below. The Compensation Committee has the sole authority to retain outside compensation consultants for advice, but historically and for 20202021 has not done so, relying instead on surveys of publicly available information about senior executive compensation at similar companies.
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Each member of the Compensation Committee qualifies as independent pursuant to the rules of the SEC and NYSE, including the heightened independence requirements for compensation committee members.
Compensation Committee Interlocks and Insider Participation. No executive officer of PS Business Parks served on the compensation committee or board of directors of any other entity that has an executive officer who also served on our Compensation Committee or Board at any time during 2020,2021, and no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of SEC Regulation S-K.
Messrs. HavnerNominating, Governance, and Russell and Ms. Hawthorne are former officers of the Company and are members of the Board. They do not serve on the Compensation Committee.
Oversight of Compensation Risks. With respect to consideration of risks related to compensation, the Compensation Committee annually considers a report from our senior management team concerning potential risks related to compensation policies and practices applicable to all of the Company’s employees.
In early 2021, the Compensation Committee considered management’s review of the target metrics for all of our employee incentive compensation plans and management’s conclusion that the Company’s incentive compensation plans, practices, and policies (1) properly incentivized employees to achieve short- and long-term Company goals, (2) did not create any significant motivation or opportunity for employees to take undue risks to achieve an incentive compensation award, and (3) are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee, following discussion, reached a similar conclusion. The Compensation Committee expects to further review compensation risks from time to time.
Nominating/Corporate GovernanceSustainability Committee
The primary functions of the Nominating/Corporate GovernanceNGS Committee, as set forth in its charter, are to:
● | identify, evaluate, and make recommendations to the Board for director nominees for each annual |
● | oversee the Company’s corporate governance policies and |
● | oversee the annual Board assessment of Board performance; |
● | assist the Board in overseeing the Company’s strategies for human capital development, including matters of diversity and inclusion; |
● | oversee the Company’s sustainability initiatives, including ESG matters; |
● | oversee the Company’s political and charitable |
● | annually review its charter and performance. |
Our Board has delegated to the Nominating/Corporate GovernanceNGS Committee responsibility for recommending nominees for election to the Board. Other duties and responsibilities of the Nominating/Corporate GovernanceNGS Committee include periodically reviewing the structure, size, composition, and operation of the Board and each Board committee; recommending assignments of directors to Board committees; conducting a preliminary review of director independence; and overseeing director orientation; and annually reviewing and evaluating its charter and performance.orientation. The principles set forth in its charter further guide the Nominating/Corporate GovernanceNGS Committee.
Director Qualifications. We believe that members of the Board should have high professional and personal ethics and values. They should have broad experience at the policy-making level in business or other relevant experience. They should be committed to enhancing shareholderstockholder value and should have sufficient time to carry
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out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to
PS Business Parks • 2021 Proxy Statement • 31
perform all director duties responsibly. In general, the Board seeks to add directors who meet the independence requirements of the NYSE rules. In addition, director candidates must annually submit a completed director questionnaire concerning matters related to independence determination, and the determination of their independence, including the heightened independence standards for audit committee and compensation committee members, and whether a candidate qualifies as an audit committee financial expert, and all director candidates must satisfactorily complete a background investigation by a third-party firm.firm prior to joining the Board.
Identifying and Evaluating Nominees for Directors. The Nominating/Corporate GovernanceNGS Committee utilizes a variety of methods for identifying and evaluating nominees for director.
The Nominating/Corporate GovernanceNGS Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating/Corporate GovernanceNGS Committee considers various potential candidates for director.
Candidates may come to the attention of the Nominating/Corporate GovernanceNGS Committee through current Board members, professional search firms, shareholders,stockholders, or other persons. These candidates are evaluated at meetings of the Nominating/Corporate GovernanceNGS Committee and may be considered at any point during the year.
The Nominating/Corporate GovernanceNGS Committee considers properly submitted shareholderstockholder nominations of candidates for the Board in the same manner as other candidates. Following verification of the shareholderstockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating/Corporate GovernanceNGS Committee prior to the issuance of the proxy statement for the annual meeting. Any materials provided by a shareholderstockholder in connection with the recommendation of a director candidate are forwarded to the Nominating/Corporate GovernanceNGS Committee. The Nominating/Corporate GovernanceNGS Committee may also review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a shareholder.stockholder. In evaluating such nominations, the Nominating/Corporate GovernanceNGS Committee seeks to achieve a balance of knowledge, experience, and capability on the Board. Consistent with our commitment to Board diversity, the NGS Committee will ask any search firm that it engages for the purpose of identifying potential director candidates to include diverse candidates who meet applicable search criteria in the pool of potential candidates.
We do not have any other policies or guidelines that limit the selection of director candidates by the Nominating/Corporate GovernanceNGS Committee, and the Nominating/Corporate GovernanceNGS Committee and the Board have and continue to exercise broad discretion to select director candidates who will best serve the Board and the Company in the current and anticipated business environment.
Capital Committee
The Capital Committee focuses on assessing, monitoring, and optimizing the Company’s capital expenditures, including development and redevelopment opportunities as well asand the Company’s annual recurring capital expenditures, which include maintenance capital, tenant improvements, and leasing commissions. The goal is to position the Company to maximize the long-term benefits of its capital expenditures while ensuring its assets are well maintained and positioned in the marketplace to meet the needs of the Company’s current and prospective customers. The Capital Committee operates pursuant to a formal charter.
Investment Committee
The Investment Committee focuses on the Company’s acquisitions, dispositions, and other investment transactions, and has the authority to approve such transactions up to a cumulative maximum value of $30 million per fiscal quarter. The Investment Committee meets as needed as and when potential transactions arise, and is intended to provide a forum through which the Board can more quickly review and approve qualifying transactions. The unanimous consent of all Investment Committee members is required for all approvals, and
PS Business Parks • 2022 Proxy Statement • 33
management provides a report to the Board at each regularly scheduled Board meeting of all transactions approved by the Investment Committee. The Investment Committee does not operate pursuant to a formal charter but does operate pursuant to these Board-approved guidelines.
In 2021, our Board amended our bylaws to provide for proxy access, thereby giving our stockholders an even greater voice in director elections. A stockholder, or a group of up to 20 stockholders, owning at least 3% of the Company’s outstanding Common Stock continuously for at least three years may include in our proxy materials director nominees constituting up to the greater of two directors or 20% of the number of directors on the Board, provided that the stockholder and the nominees satisfy the eligibility requirements in our bylaws.
MAJORITY VOTE REQUIREMENTS FOR DIRECTORS
Our bylaws provide that, in an uncontested election of directors, a majority of all the votes cast for and against a nominee at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a director. Our Corporate Governance Guidelines provide that each director nominee who does not receive at least a majority of the votes cast with respect to that director must submit his or her resignation to the Board. The NGS Committee will then make a recommendation to the Board about whether to accept or reject the resignation or take other action. The Board will act on any such recommendation within 90 days from the date the election results were certified by the Inspector of Election and publicly disclose its decision and rationale in a Form 8-K. If a director’s resignation is accepted by the Board, the Board may fill the resulting vacancy or decrease the size of the Board in accordance with our bylaws.
Our Corporate Governance Guidelines provide that no person will be nominated for election to the Board for any term unless he or she is 75 years of age or younger on the first day of the term. The Board has discretion to make exceptions to the policy, including to provide for a transition period.
BOARD RESPONSIBILITIES AND OVERSIGHT OF RISK MANAGEMENT
The Board is responsible for overseeing our Company’s approach to major risks and our policies for assessing and managing these risks. In connection with its oversight function, the Board regularly receives presentations from management on areas of risk facing our business. The Board and management actively engage in discussions about these potential and perceived risks to the business.
The Board’s risk management processes include a comprehensive ERM framework focused on:
● | evaluating the risks facing the Company and aligning the Company’s efforts to mitigate those risks with its strategy and risk appetite; |
● | communicating and improving the Company’s understanding of its key risks and responsive actions; and |
● | providing the Board with a measurable way to exercise its oversight responsibilities over the Company’s risk assessment and risk management efforts. |
In addition, the Board is assisted in its risk oversight responsibilities by the five standing Board committees (as described below), which have assigned areas of risk oversight responsibility for various matters, as described in the Committee Charters and as provided in the NYSE rules.
The Audit Committee, which comprises entirely independent directors and financial experts, is responsible for assisting the Board in fulfilling its oversight of the effectiveness of the accounting and financial reporting
PS Business Parks • 2022 Proxy Statement • 34
processes of the Company and audits of its financial statements, including the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the independent registered public accountants’ qualifications, independence, and performance; and the scope and results of internal audits, the Company’s internal controls over financial reporting, and the performance of the Company’s internal audit function.
The Audit Committee also oversees cybersecurity and other information technology risks affecting the Company. Management reports quarterly to the Audit Committee regarding information security. All five members of our Audit Committee have cybersecurity experience from their principal occupation or other professional experience or education. See “Corporate Governance—Cybersecurity” on page 35 for more information about how the Audit Committee and the Company are committed to properly addressing the cybersecurity risks we face.
The Compensation Committee, which comprises entirely independent directors, oversees the compensation of our CEO and other executive officers and evaluates compensation incentives to ensure they will motivate senior management to grow long-term stockholder return without taking undue risk. The Compensation Committee annually considers a report from management in their review of the Company’s processes for evaluating potential risks related to compensation policies and practices applicable to all employees and the Company’s management of such risks.
In early 2022, the Compensation Committee considered management’s review of the target metrics for all of our employee incentive compensation plans and management’s conclusion that the Company’s incentive compensation plans, practices, and policies (1) properly incentivized employees to achieve short- and long-term Company goals, (2) did not create any significant motivation or opportunity for employees to take undue risks to achieve an incentive compensation award, and (3) are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee, following discussion, reached a similar conclusion. The Compensation Committee expects to further review compensation risks from time to time.
The Nominating, Governance, and Sustainability Committee, which comprises entirely independent directors, assists the Board by identifying individuals qualified to become Board members and makes recommendations on Board appointments and nominations. The NGS Committee also supports the Board in identifying and overseeing risks associated with ESG and sustainability matters and, as appropriate, coordinates with other Board committees on such matters (such as the Audit Committee with respect to internal controls regarding ESG reporting and the Compensation Committee with respect to ESG-related compensation metrics).
The Capital Committee oversees the optimization of the Company’s capital expenditures. The Capital Committee’s goal is to position the Company to maximize the long-term benefit of its capital expenditures while also ensuring the Company’s assets are well maintained and positioned to meet the needs of its current and prospective customers.
The Investment Committee assists the Board with its review and approval of proposed acquisitions, dispositions, and other investment transactions. The Investment Committee’s goal is to facilitate the expeditious review of the Company’s investment transactions and to provide oversight and Board-level direction to management so that management can execute on these transactions against the Company’s strategic plan.
The Board committees also hear reports from members of management to enable each committee to identify, discuss, understand, and manage risk. The chair of each of the Board’s standing committees reports on interim individual committee discussions to the full Board at each Board meeting. All directors have access to management in the event a director wishes to follow up on items discussed outside of Board meetings.
PS Business Parks devotes significant resources to protecting and continuing to improve the security of our computer systems, software, networks, and other technology assets. Our security efforts are designed to preserve the confidentiality, integrity, and continued availability of all information owned by, or in the care of, the
PS Business Parks • 2022 Proxy Statement • 35
Company and protect against, among other things, cybersecurity attacks by unauthorized parties attempting to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems, or cause other damage.
Board Oversight
Our Board considers cybersecurity risk as one of the most significant risks to our business. The Board has delegated to the Audit Committee oversight of cybersecurity and other information technology risks affecting the Company. The Audit Committee periodically evaluates our cybersecurity strategy to ensure its effectiveness. Management provides quarterly reports to the Audit Committee regarding cybersecurity and other information technology risks, and the Audit Committee in turn provides reports to the full Board.
As part of our board refreshment efforts in recent years we have focused on adding directors with information technology skills. Currently, nine members of our Board, including all five members of our Audit Committee, have cybersecurity experience from their principal occupation or other professional experience or education. In addition, several members of our Audit Committee attended third-party director education courses on cybersecurity and privacy issues and trends in 2021.
Cybersecurity Risk Identification and Management
We identify and address information security risks by employing a defense-in-depth methodology that provides multiple, redundant defensive measures in case a security control fails or a vulnerability is exploited. We leverage internal resources, along with strategic external partnerships, to mitigate cybersecurity threats to the Company. We deploy both commercially available solutions and proprietary systems to actively manage threats to our information technology environment. We are audited and certified by a third-party information security firm to ensure we comply with these rigorous threat reduction control standards. We regularly engage appropriate external resources regarding emerging threats and the security posture of our systems in order to navigate the diverse cybersecurity landscape.
The Company takes data protection seriously and ensures every employee understands their role in keeping PS Business Parks safe from cyber-attacks. We employ a robust information security and training program for our employees, including mandatory computer-based training, regular internal communications, and ongoing end-user testing to measure the effectiveness of our information security program. As part of this commitment, we require our employees to complete a Cybersecurity Awareness eCourse each year. In addition, we have an established schedule and process for regular phishing awareness campaigns that are designed to emulate real-world contemporary threats and provide immediate feedback (and, if necessary, additional training or remedial action) to employees. As an additional measure, the Company performs an annual table-top incident response simulation.
We have experienced no material information security breaches in the last three years. As such, we have not spent any material amount of capital on addressing information security breaches in the last three years, nor have we incurred any material expenses from penalties and settlements related to a material breach during this same time.
POLITICAL AND CHARITABLE CONTRIBUTIONS
Our NGS Committee oversees the Company’s political and charitable contributions and other public policy matters. In order to facilitate accountability and informed decision-making with respect to the Company’s political and charitable contributions, the NGS Committee has adopted certain Political and Charitable Contribution Guidelines, which apply to contributions or expenditures of corporate funds to various political entities, charitable organizations, and certain causes. Contributions subject to these guidelines must be approved by management and/or the NGS Committee. All contributions are required to be reported quarterly to the NGS Committee.
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BOARD ORIENTATION AND EDUCATION
Each new director participates in July 2016.an orientation program and receives materials and briefings concerning our business, industry, management, and corporate governance policies and practices. Continuing education is provided for all directors through Board materials and presentations, discussions with management, and the opportunity to attend external board education programs. In addition, all Board members have access to resources of the NACD through a Company membership.
The Board evaluates the independence of each director annually based on information supplied by the directors and the Company, and on the recommendations of the NGS Committee. The Corporate Governance Guidelines require that a majority of the directors be independent in accordance with the requirements of the NYSE. A director qualifies as independent unless the Board determines, in accordance with NYSE rules, that the director does not satisfy the minimum requirements for independence or determines that the director has a material relationship with PS Business Parks, based on all relevant facts and circumstances. Material relationships may include commercial, industrial, consulting, legal, accounting, charitable, family, professional, personal, and other relationships. The Board also considers the director’s relationships with Public Storage, our largest stockholder.
Following its annual review of each director’s independence, the NGS Committee in February 2022 recommended to the Board, and the Board determined, that (i) each of Jennifer Holden Dunbar, M. Christian Mitchell, Irene H. Oh, Kristy M. Pipes, Gary E. Pruitt, Robert S. Rollo, and Peter Schultz is independent pursuant to the rules of the NYSE, and (ii) each Audit Committee member and each Compensation Committee member meets the additional independence requirements of the rules of the NYSE and SEC. Stephen W. Wilson, who has historically qualified as an independent director, will not qualify as such during his term as Interim President and CEO. The Company expects that following this interim service he will again qualify as independent.
The Company provides a process by which shareholdersstockholders and interested parties may communicate with the Board. Communication to the Board should be addressed to: Board of Directors, c/o Jeffrey D. Hedges, Executive Vice President, Chief Financial Officer, andCorporate Secretary, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201. Communications intended for a specified individual director or group of directors should be addressed to the director(s) c/o Corporate Secretary at the above address, and all such communications received will be forwarded to the designated director(s).
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BOARD AND COMMITTEE MEETINGS AND ATTENDANCE
The Board meets at regularly scheduled intervals and may hold additional special meetings as necessary or desirable in furtherance of its oversight responsibilities. As described above, the non-management directors generally meet in executive session without the presence of management in connection with each regularly scheduled Board meeting.
In 2020,2021, the Board held 11eleven meetings, including videoconference and telephonic meetings. During 2020,2021, all directors attended at least 75% of the meetings held by the Board and all committees of the Board on which each director served, except for Ms. Hawthorne, who attended 55% due to her medical leave of absence.served. We do not have a policy regarding directors’ attendance at the annual meeting of shareholders,stockholders, but directors are encouraged to attend. SevenAll of our directors attended the 20202021 annual meeting of shareholders.stockholders.
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The following table summarizes the membership of the Board’s standing committees andlists the number of meetings held by each committee in 2020:
BOARD COMMITTEE MEMBERSHIP AND 2020 MEETINGS
Director | Audit | Compensation |
Nominating/ Corporate Governance | Capital | ||||
Ronald L. Havner, Jr. | ||||||||
Joseph D. Russell, Jr.(1) | Member | |||||||
Maria R. Hawthorne | Member | |||||||
Jennifer Holden Dunbar | Member | Chair | Member | |||||
James H. Kropp(2) | Member | Member | ||||||
Kristy M. Pipes(1) | Chair | Member | ||||||
Gary E. Pruitt(1) | Member | |||||||
Robert S. Rollo (Presiding Independent Director for 2020) |
Member |
Chair | ||||||
Peter Schultz(1) | Member | Chair | ||||||
Stephen W. Wilson | Member | Member | ||||||
Number of Meetings in 2020 | 4 | 9 | 10 | 4 | ||||
(1) Mr. Russell served as the Interim Chairman of the Capital Committee from July 23, 2019 to February 18, 2020, when Mr. Schultz resumed his role as Chairman of the Capital Committee. Mr. Pruitt served as the Interim Chairman of the Audit Committee from July 23, 2019 to April 22, 2020. On April 22, 2020, Ms. Pipes was appointed as the Chairman of the Audit Committee.
(2) Mr. Kropp will retire from the Board immediately following the 2021 Annual Meeting. |
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Maria R. Hawthorne, the Company’s former President and Chief Executive Officer, commenced a medical leave of absence on April 20, 2020, and ultimately retired from her role as President and Chief Executive Officer on September 1, 2020. John W. Petersen, the Company’s long-tenured Chief Operating Officer, assumed the role of Interim President and Chief Executive Officer on April 20, 2020, will serve in this role until April 5, 2021, and then will continue his role as Chief Operating Officer. Dan M. Chandler, III has been appointed to serve as our President and Chief Executive Officer, effective April 5, 2021.
The following are biographical summaries of our executive officers.2021:
Committee |
Meetings in |
| 4 |
| 8 |
| 7 |
PS Business Parks • 2021 Proxy Statement • 34
| 3 | ||||
Investment | – | ||||
The Compensation Committee periodically reviews the Company’s non-employee director compensation and recommends any changes to the Board. The Board makes the final determination as to director compensation. The Board has approved the mix of cash and equity compensation described below.
Retainers and Meeting Fees. Non-employee directors (except for current executives of a PS Business Parks Inc. or its affiliates, including Public Storage and Shurgard Europe)Shurgard) receive annual cash retainers (paid quarterly and pro-rated for any partial year of service) for serving on the Board and for chairing a committee, and cash payments for attending Board and committee meetings (including all videoconference and telephonic meetings).
In light of the increased time and preparation required for attendance at meetings of the Board and its committees, the Compensation Committee in December 2020 recommended, and the Board approved, certain amendments to the Company’s Non-Employee Director Compensation Policies to modify per meeting attendance fees. The amendments provide that non-employee directors will be paid $1,000 for attending each of their Board and respective committee meetings, whether held telephonically or in person. The following is the current retainer/fee schedule:
Compensation | Amount | ||||||
Board member retainer (annual) | $ | 25,000 | |||||
Chairman of the Board supplemental retainer (annual) | 15,000 | ||||||
Audit Committee Chair’s supplemental retainer (annual) | 10,000 | ||||||
Other standing committee chairs’ supplemental retainer (annual) | 5,000 | ||||||
Board or committee per meeting attendance fee | 1,000 | ||||||
Equity Awards. Each new non-employee director whom the Board determines to be independent, upon the date of his or her initial election by the Board or the shareholdersstockholders to serve as a non-employee director, is granted a non-qualified stock option to purchase 10,000 shares of Common Stock, which vests in five equal annual installments beginning one year from the date of grant or the annual shareholdersstockholders meeting date in that year, whichever is earlier, subject to continued service. Directors who previously served as Company executives are not eligible to receive this award.
Annually, each non-employee director receives a non-qualified stock option to purchase 2,000 shares of Common Stock, which vests in five equal annual installments beginning one year from the date of grant or the annual shareholdersstockholders meeting date in that year, whichever is earlier, subject to continued service. The annual grants are made immediately following the annual meeting of shareholdersstockholders at the closing price of the Common Stock on the NYSE on such date.
Upon retirement of a non-employee director from the Board, all outstanding options vest effective on the date of retirement and the director has one year to exercise all vested options. A retirement shall have occurred if (i) a non-employee director is not nominated for re-election pursuant to the Company’s mandatory retirement policy; or (ii) a non-employee director ceases service on the Board and the non-employee director has a combined age and years of service of at least 80 years, where the non-employee director is at least age 55 and has provided at least
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10 years of Service (as defined in the 2012 Equity and Performance-Based Incentive Compensation Plan (the 2012 Plan)) to the Company (including its subsidiaries and affiliates).
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Each non-employee director who joins the Board receives a grant of 10,000 deferred stock units that vest in ten equal annual installments on each of the first ten anniversaries of the date the director commences service on the Board, subject to certain conditions. The awards are intended to retain and reward long-term service on the Board and to provide equity compensation to Board members. Directors receive dividend equivalents on vested retirement shares. Directors who are former Company employees do not earn retirement shares for Board service until his/hertheir completion of participation in the Company’s equity incentive plans as a former employee (i.e., until all unvested outstanding equity awards received by the former employee for his/her service as an employee have vested).
Director Stock Ownership Guidelines. Pursuant to the Corporate Governance Guidelines, each non-management director is encouraged to have a significant stock ownership in the Company. All directors are expected, within three years of initial election, to own at least $100,000 of Common Stock of the Company, as determined using the per-share value on the date of acquisition. All of our directors meetare in compliance with this stock ownership requirement.
Director Compensation in Fiscal 2020.2021. The following table presents the compensation provided by the Company to our directors for the fiscal year ended December 31, 2020.2021.
Director | Fees Earned or Paid in Cash | Director Retirement Shares(2) | Option Awards(3) | All Other | Total | ||||||||||||||||||||||||||||||||||||||||
Director(1) | Fees Earned or Paid in Cash(2) | Director Retirement Shares(3) | Option Awards(4) | All Other Compensation(5) | Total | ||||||||||||||||||||||||||||||||||||||||
Dan “Mac” Chandler, III(1) | - | - | �� | - | - | - | |||||||||||||||||||||||||||||||||||||||
Ronald L. Havner, Jr. | $51,000 | - | $33,420 | $42,000 | $126,420 | $49,000 | - | $30,860 | $88,000 | $167,860 | |||||||||||||||||||||||||||||||||||
Maria R. Hawthorne | 5,083 | - | - | - | 5,083 | 37,000 | - | 30,860 | 95,659 | 163,519 | |||||||||||||||||||||||||||||||||||
Jennifer Holden Dunbar | 58,500 | - | 33,420 | 42,000 | 133,920 | 55,000 | - | 30,860 | 88,000 | 173,860 | |||||||||||||||||||||||||||||||||||
James H. Kropp | 55,500 | - | 33,420 | 42,000 | 130,920 | ||||||||||||||||||||||||||||||||||||||||
M. Christian Mitchell | 7,250 | - | 135,600 | - | 142,850 | ||||||||||||||||||||||||||||||||||||||||
Kristy M. Pipes(6) | 58,000 | $175,480 | 33,420 | 2,100 | 269,000 | ||||||||||||||||||||||||||||||||||||||||
Irene H. Oh | 22,500 | - | 154,300 | - | 176,800 | ||||||||||||||||||||||||||||||||||||||||
Gary E. Pruitt(6) | 45,500 | 80,870 | 33,420 | 33,600 | 193,390 | ||||||||||||||||||||||||||||||||||||||||
Kristy M. Pipes | 54,000 | $175,480 | 30,860 | 15,500 | 275,840 | ||||||||||||||||||||||||||||||||||||||||
Gary E. Pruitt | 41,000 | 175,480 | 20,700 | 79,200 | 316,380 | ||||||||||||||||||||||||||||||||||||||||
Robert S. Rollo | 60,500 | 75,060 | 20,460 | 26,250 | 182,270 | 53,000 | 80,870 | 20,700 | 67,250 | 221,820 | |||||||||||||||||||||||||||||||||||
Joseph D. Russell(6) | - | - | 33,420 | - | 33,420 | ||||||||||||||||||||||||||||||||||||||||
Joseph D. Russell | - | - | 30,860 | - | 30,860 | ||||||||||||||||||||||||||||||||||||||||
Peter Schultz(6) | 49,500 | 80,870 | 20,460 | 33,600 | 184,430 | ||||||||||||||||||||||||||||||||||||||||
Peter Schultz | 47,000 | 175,480 | 30,860 | 79,200 | 332,540 | ||||||||||||||||||||||||||||||||||||||||
Stephen W. Wilson | 44,500 | 173,330 | 33,420 | 2,100 | 253,350 | 42,000 | 173,330 | 30,860 | 15,500 | 261,690 | |||||||||||||||||||||||||||||||||||
Total | $ | 428,083 | $ | 585,610 | $ | 274,860 | $ | 223,650 | $ | 1,512,203 | $ | 407,750 | $ | 780,640 | $ | 547,320 | $ | 528,309 | $ | 2,264,019 |
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Upon commencement of board service, eachnon-employee director receives a grant of 10,000 deferred stock units that vest in ten equal annual installments over the duration of their board service and are payable in shares of Common Stock upon retirement, subject to certain conditions. For a more detailed discussion, refer to “Compensation of Directors— |
Reflects the fair value on the date of grant of option awards granted during |
PS Business Parks • 20212022 Proxy Statement • 3639
All other compensation consists of dividend equivalents paid on vested retirement shares. |
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The Board recommends voting FOR all director nominees.
PS Business Parks • 20212022 Proxy Statement • 3740
Advisory Vote to Approve
Compensation of
Named Executive Officers
Approve,
RECOMMENDATION: Vote FOR approval, on an advisory basis, of the compensation of the Company’s NEOs |
PS Business Parks • 20212022 Proxy Statement • 3841
PROPOSAL 22:
ADVISORY VOTE TO APPROVE COMPENSATION
OF NAMED EXECUTIVE OFFICERS
Advisory Vote
Pursuant to Section 14A(a)(1) of the Securities Exchange Act of 1934, as amended (Exchange(the Exchange Act), we provide shareholdersstockholders an annual advisory vote to approve the compensation of our Named Executive Officers (NEOs), also known as a “Say-on-Pay”NEOs (Say-on-Pay proposal.proposal). Although the shareholderstockholder vote on the Say-on-Pay proposal is advisory and nonbinding on the Company, the Compensation Committee, which is responsible for designing and administering the compensation program, values the opinions expressed by shareholders.stockholders. The Compensation Committee will consider and weigh heavily the outcome of the vote when making future compensation decisions.
We believe our compensation program for NEOs helped the Company deliver strong performance in 2020,2021, despite an unprecedented and challenging operating environment due tothe continuing challenges of the COVID-19 pandemic and despite the Company’s full-time CEO, Maria Hawthorne, being on medical leave for nearly five months and ultimately retiringtransitions in September 2020. Our Compensation Committee’s determinations regarding 2020 incentive compensation were grounded in a principled, thoughtful, and comprehensive assessment our NEOs’ leadership during this crisis and their successful execution of strategic and operational priorities.senior management team.
Accordingly, we are asking our shareholdersstockholders to indicate their support for the compensation of our NEOs as disclosed in this proxy statement by voting “FOR” the following resolution:
“RESOLVED, that the shareholdersstockholders of the Company approve, on an advisory basis, the compensation paid to the Company’s NEOs, as disclosed in this proxy statement for the Annual Meeting pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and the narrative discussion that accompanies the compensation tables.”
In considering your vote, you should review with care the information presented in the Compensation Discussion and Analysis below.
The Board recommends a vote FOR approval of our NEO compensation
as described in this proxy statement.
PS Business Parks • 20212022 Proxy Statement • 3942
The following are biographical summaries of our executive officers, except for Mr. Wilson and Ms. Hawthorne, whose biographical summaries are presented above with the director biographical summaries.
● | Adeel Khan, age 48, was appointed as Executive Vice President, Chief Financial Officer and Corporate Secretary effective January 10, 2022. Mr. Khan previously served as Chief Financial Officer of Rexford Industrial Realty, Inc. (NYSE: REXR) (Rexford), a self-administered and self-managed full-service REIT focused on owning, operating, and acquiring industrial properties in Southern California infill markets, from July 2013 through August 2020. Mr. Khan served as Corporate Controller for Rexford’s predecessor business from March 2012 until July 2013. Mr. Khan is a Certified Public Accountant and obtained his Bachelor of Arts in Business Administration at the California State University, Fullerton. |
● | Trenton Groves, age 49, has served as the Company’s Senior Vice President, Chief Accounting Officer, Assistant Secretary, and principal accounting officer since September 2018. Mr. Groves joined the Company as Corporate Controller in 2004 and served as Vice President, Finance, and Corporate Controller since 2007. Prior to joining the Company, Mr. Groves was in public accounting, serving as a Manager in the Assurance (Audit) group at EY from 2002 to 2004 and as Manager at Arthur Andersen from 1998 to 2002. Mr. Groves is a certified public accountant and holds a Bachelor of Science in accounting from California State University, Northridge. |
PS Business Parks • 2022 Proxy Statement • 43
COMPENSATION DISCUSSION AND ANALYSIS (CD&A)
OVERVIEW OF EXECUTIVE COMPENSATION PROGRAM OBJECTIVES
The Compensation Committee’s goal for our executive compensation program is to hire, retain, and motivate our senior management team to achieve solid financial results and create long-term shareholderstockholder value. We believe that our compensation programs have been effective in helping the Company move towards its financial and operational goals.
In general:
● | our compensation program has helped establish a strong culture of performance, operational excellence, and consistency, and enabled us to build a high-performing organization; |
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our compensation philosophy and processes align compensation with performance and the creation of long-term value in a disciplined, balanced, and responsible manner; and |
● | our business model and supporting compensation program are effective in achieving our objective of building long-term value. |
OUR COMPENSATION PHILOSOPHY AND PRACTICES ALIGN EXECUTIVE PAY WITH PERFORMANCE AND CREATION OF LONG-TERM VALUE
Compensation Objectives and Process
Our compensation goals are to hire and retain exceptionalstrong executives and to motivate our senior management team to create long-term value. We pay our NEOs based on what the Compensation Committee considers appropriate in view of individual and corporate performance, market and peer compensation practices, and our objective of aligning our NEOs’ interests with those of our shareholdersstockholders to maximize long-term value.
In general, our compensation program for NEOs is composed of: (1) base salary; (2) short-term incentives generally in the form of annual cash bonuses; and (3) equity awards subject to long-term vesting, which may include restricted stock units (RSUs) and/or stock options.
We design our incentive compensation programs for NEOs to reward achievement of Company-wide, functional, and individual performance goals by tying awards to objectives that the Compensation Committee believes are key drivers of long-term, sustainable performance.
Because we design each component of our compensation program to accomplish or reward different objectives, the Compensation Committee generally determines the award of each component separately. With respect to 20202021 compensation, the Compensation Committee did not retain or rely on information provided by any third-party compensation consultant in setting compensation levels and awards for our NEOs.
The Compensation Committee generally considers corporate, business unit, and individual performance and other relevant factors when setting compensation of NEOs. The Compensation Committee solicits and considers our CEO’s views on the performance of the executive officers reporting to the CEO, including each of the other NEOs. The Compensation Committee may solicit and consider the views of the Chairman and the Board with respect to compensation of the CEO.
PS Business Parks • 2021 Proxy Statement • 40
Our CEO attends all meetings of the Compensation Committee at which the Compensation Committee discusses (i) the compensation of the other NEOs or other employees and/or (ii) Company-wide compensation matters, such as the consideration of new equity plans. Our CEO does not vote on items before the Compensation Committee.
PS Business Parks • 2022 Proxy Statement • 44
The Compensation Committee made all final 2021 compensation decisions for NEOs in 2020.NEOs. The Board was informed of all final compensation decisions for NEOs and ratified the final compensation decisions for the CEO. Our NEOs for 2021 were Dan M. Chandler, III, John W. Petersen, Jeffrey D. Hedges, and Trenton Groves. Neither Ms. HawthorneMr. Petersen, who previously served as Interim President and CEO, nor Mr. PetersenChandler, who previously served as President and CEO, participated in the deliberations of the Compensation Committee with respect to setting their own compensation.
For more information on the Compensation Committee and its responsibilities, see “Corporate Governance and Board Matters—Committees of the Board—Compensation Committee” on page 30.31.
Focus on Pay for Performance
The guiding principle of our executive compensation philosophy is to pay for performance and incentivize our NEOs to create long-term value. The Compensation Committee believes that NEO compensation should be based on the Company’s achievement of strategic, operational, and financial goals and on each executive’s individual contributions. This link between incentive payouts and achievement of goals has helped drive our strong and consistent performance year after year. We believe our focus on pay for performance has fueled our impressive long-term performance. For example, our TSR beat the NAREIT Equity Index and the S&P MidCap 400 for each of the 5-year, 10-year, and 20-year periods ending December 31, 2020 and the S&P MidCap 400 for the 20-year periods ending December 31, 2020,2021, averaging 11.6%12.8% in total annual return since 2001.2002.
Assessment of Individual Contributions to Overall Performance
The Compensation Committee’s evaluation of each NEO places strong emphasis on his or her contributions to the Company’s overall performance in addition to his or her individual business or functional area. The Compensation Committee believes that the NEOs share responsibility to support the goals and performance of the Company as a whole.
Sound Governance Practices
In designing our executive compensation around the philosophy and objectives outlined above, the Compensation Committee believes that our program encourages the highest performance standards and aligns the interests of our NEOs with the long-term interests of our shareholdersstockholders by:
● | keeping our NEOs focused on delivering sustainable results that are aligned with the Company’s business model; |
● | aligning the financial gains and losses of each NEO with objectives the Compensation Committee believes will drive long-term |
● | supporting retention and continuity of leadership. |
At the same time, the following features of our program discourage inappropriate risk taking:risk-taking:
● | extensive stock holding requirements; |
● | long vesting periods on equity compensation; |
● | no guaranteed bonuses other than for new hires in their first year of employment; and |
● | no additional grants to balance changes in value of prior grants. |
PS Business Parks • 20212022 Proxy Statement • 4145
The following key features of our compensation program reflect our philosophy:
What We Do | What We Don’t Do | |||||
Substantial portion of our NEOs’ compensation “at risk” |
No guaranteed bonus arrangements with our NEOs except for new hires | |||||
High percentage of executive compensation in equity |
| No excessive perquisites | ||||
Long equity vesting periods promote retention and align pay with long-term value creation |
| No repricing of stock options | ||||
No tax gross ups | ||||||
Robust stock ownership guidelines | No | |||||
Strong clawback provisions | No | |||||
Double trigger for accelerated vesting of equity upon a change in control |
WE USE VARIOUS COMPENSATION ELEMENTS TO INCENTIVIZE AND REWARD LONG-TERM VALUE CREATION
We typically pay our NEOs a mix of cash and equity, the majority of which is “at risk” and tied to achieving performance objectives set by the Compensation Committee in light of the Company’s long-term strategy and the current business environment. We promote responsible growth and risk management and align the interests of our executives with the interests of our shareholdersstockholders by using performance-based equity awards that are subject to long vesting periods as the predominant form of compensation.
Compensation Type
| Pay Element
| Primary Objectives
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Fixed Pay | Cash Compensation | Base Salary | ● As the only fixed element of compensation, provides stable income and compensation for day-to-day responsibilities
● Helps attract and retain exceptional talent
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Performance-Based Bonus |
● Variable compensation aligned with business strategy
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At-Risk Pay | Equity Compensation | Performance-Based RSUs | ●
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We may also occasionally grant stock options, which provide significant value in the retention of executives, including in connection with new executive hiring or promotions. As with our practice with RSUs, we motivate executives to focus on long-term value creation and sustained financial performance and improve retention by subjecting stock option grants to long vesting periods. Stock options are granted with an exercise price of not less
PS Business Parks • 2021 Proxy Statement • 42
than 100% of the fair market value of the Common Stock on the grant date. This ensures that the options will have value only when the price of our Common Stock increases after the grant date and remains above the exercise price through the vesting period, which further aligns the interests of our executives and shareholders.
Equity grants to all of our executive officers, including the NEOs, must be approved by the Compensation Committee, which consists entirely of independent directors, and:
● | grants occur only at meetings or upon written actions of the Board or the Compensation Committee (including telephonic meetings), and are made effective as of the date of the meeting or written action, or a future date if appropriate (such as in the case of a new hire); |
PS Business Parks • 2022 Proxy Statement • 46
● | equity awards to executive officers are not timed in coordination with the release of material non-public information; |
● | awards are subject to the terms of |
● | equity awards to executive officers have |
● | with respect to awards to NEOs other than our CEO, the Compensation Committee determines award levels based on recommendations from our CEO, taking into consideration each individual’s responsibilities and performance, as discussed in more detail below; and |
● | with respect to awards to the CEO, the Compensation Committee may solicit and consider the views of the Chairman and the Board when determining award levels. |
In January 2020, the Compensation Committee approved the Employee RSU Deferral Program under the 2012 Equity and Performance-Based Incentive Compensation Plan approved by shareholders. The Employee RSU Deferral Program gives certain employees, including the NEOs, under certain circumstances the option of deferring receipt of shares that the Company would otherwise deliver to the employee on the vesting dates of RSUs, which may provide tax benefits for employees, deferring taxation to later dates.
Executive Officer Stock Ownership Guidelines
The Board has implemented stock ownership guidelines for NEOs effective April 28, 2015.NEOs. Each NEO is expected to beneficially own Common Stock equal in market value to a specified multiple of his or her annual base salary—five times base salary for the CEO and three times base salary for the other NEOs. All of our NEOs who have been with the Company at least five years exceed his/her stock ownership requirement. Only shares of Common Stock (1) owned by the executive, (2) owned jointly by him/her and his/her spouse, (3) owned by his/her spouse, (4) held by him/her in the Company’s 401(k)/Profit Sharing Plan (the 401(k) Plan,Plan), or (5) held in custodial accounts or trust for him/her or for his/her spouse and/or children are counted for determining compliance with these guidelines. Unvested time-based RSUs and in-the-money value of vested options are NOT counted for determining compliance with these guidelines.
2020 SAY ON PAY2021 SAY-ON-PAY VOTE
At our 2020 Annual Meeting,2021 annual meeting of stockholders, 98% of the votes cast were in favor of the compensation paid to our NEOs in 2019, up from 97% support at our 2019 Annual Meeting.2020. This approval, signaledwhich was consistent with the 99% and 97% levels of support received at the 2020 and 2019 annual meetings, respectively, signals strong shareholderstockholder support offor the elements and amounts of our 2020 compensation paid for both 2019 performance andprogram, the substantive elements of which were all retained in our 2021 compensation opportunities established to reward long-term growth and performance.program, as described below.
PS Business Parks • 2021 Proxy Statement • 43
20202021 NEO COMPENSATION FRAMEWORK
In early 2020,As described in more detail below, the 2021 compensation program consisted of (i) the 2021 base salary, annual cash incentive program, and equity incentive program as designed by the Compensation Committee approved the following key components of the Company’s 2020 compensation program, taking into accountin early 2021 based on the Company’s financial and strategic goals and performance expectations at that time:time; (ii) the compensation package approved by the Compensation Committee for Mr. Chandler in connection with his appointment as our President and CEO on February 26, 2021; (iii) the special retention awards approved by the Compensation Committee for Mr. Hedges in May 2021 and Mr. Groves in November 2021 that were made in response to retention considerations related to the resignations of Mr. Petersen (in the case of the retention grant to Mr. Hedges) and Mr. Hedges (in the case of the retention grant to Mr. Groves); and (iv) the consulting contract entered into with Mr. Hedges in connection with his November 2021 resignation.
Base Salaries. Consistent with theThe Compensation Committee’s philosophy is that executive compensation should be more heavily weighted towards performance-based, at-risk compensation, the Compensation Committeerather than base salary. The 2021 base salary for Mr. Hedges did not change NEO base salaries for 2020 from year-end-2019 levels, except for2020. Mr. Groves, whosePetersen’s base salary was increased from $200,000$400,000 to $240,000 effective January 1, 2020. The 2020 base salary for Mr. Petersen did not change in connection with$450,000 based on his promotion torole as Interim President and Chief Executive OfficerCEO. Mr. Groves’s base salary was increased from $240,000 to $275,000 in November 2021, to be effective for 2022, in response to changes in his responsibilities resulting from senior management transitions. As described below, Mr. Chandler’s base salary of $600,000 was set as part of his appointment as President and CEO, effective in April 2020.2021.
2020PS Business Parks • 2022 Proxy Statement • 47
2021 Annual Cash Incentive Program. Prior to the onset of the economic effects of the COVID-19 pandemic in the U.S., the Compensation Committee established the 2020The 2021 annual cash incentive program withestablished by the following performance thresholds for fundingCompensation Committee provides that our executives are only eligible to receive awards to the program: (i) at least 2.0% growth in 2020 Same Park Cash NOI and (ii)extent the Company achieves at least 5.0% growth in Adjusted FAD. ActualIf this threshold requirement is satisfied, actual payouts were set according toare based on the following rubric: 50%following: (i) 70% based on achievement of Same Park Cash NOI growth;growth targets; and (ii) 30% based on achievement of leadership and individual business goals; and 20% on acquisitions and balance sheet management. performance goals.
The Same Park Cash NOI growth component (50%(70% of target bonus opportunity) was furtheris conditioned on actual performance against the Company’s Cash NOI growth budget for 2020,2021, according to the following payout scale, which incentivizes our management team to exceed their budgeted goal:
Actual Performance against
| Payout (50% of Target Opportunity)
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100% | 90% | |||
105% | 100% | |||
110% | 110% | |||
115%
| 125%
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Actual Performance against Budgeted Same Park Cash NOI Growth | Payout (70% of Target Opportunity) | |||
Below 94% | 0% | |||
94-94.9% | 30% | |||
95-95.9% | 50% | |||
96-96.9% | 70% | |||
97-97.9% | 80% | |||
98-98.9% | 90% | |||
99-100.9% | 100% | |||
101-101.9% | 110% | |||
102-102.9% | 120% | |||
103% and above | 130% | |||
The Compensation Committee selected these metrics because of their importance to the long-term success of the Company. The Compensation Committee set 20202021 bonus target amounts at 100% of base salary for Ms. Hawthorne and Messrs.each of Mr. Petersen and Mr. Hedges and at 83% of base salary for Mr. Groves.
For purposes of determining performance metrics, Adjusted FAD is calculated as FAD after neutralizing the effect of (a) property dispositions during the performance year and/or the year prior,prior; (b) year-over-year changes in maintenance capital,capital; and (c) year-over-year changes in cash paid for taxes in lieu of shares upon vesting of RSUs. FAD is computed by adjusting consolidated Funds From Operations (FFO)FFO to (a)(i) deduct recurring capital improvements that maintain the real estate value, capitalized tenant improvements, and lease commissions, (b)(ii) eliminate certain income or expenses such as straight-line rent and stock compensation expense, and (c)(iii) eliminate the impact of non-cash charges related to preferred equity redemptions. FFO represents GAAP net income before real estate depreciation and amortization expense, gains or losses on sales of operating properties and land and impairment charges on real estate assets.
Same Park Cash NOI is measured consistent with the Company’s definition as set forth in the Company’s earnings supplement as furnished to the SEC, except that the measurements may be adjusted by the Compensation Committee as it deems equitable and necessary, including in light of acquisitions, dispositions, 2020non-routine or opportunistic expenses, transactions, or other extraordinary or other one-time events that impact the Company’s operations.
With respect to the 30% of the award based on achievement of leadership and individual performance goals, the Compensation Committee, giving consideration to the CEO’s recommendation for the other NEOs, and the Board’s recommendation for the CEO, assesses each individual’s achievement of their top goals and areas of focus as set at the beginning of the performance year.
2021 Equity Incentive Plan. The Company did not have an equity incentive program for 2018 and 2019. In January 2020, the Compensation Committee approved a new annual Equity Incentive Plan under the Company’s 2012 Equity and Performance-Based Incentive Compensation Plan. The Equity Incentive Plan applies to the Company’s senior management, including its NEOs.
Under the Equity Incentive Plan, NEOs are eligible to receive RSUs subject to achievement of threshold levels of performance for two pre-established annual performance metrics: (1) growth in the Company’s net asset value
PS Business Parks • 2022 Proxy Statement • 48
(NAV) per share, and (2) change in total shareholder value creation (SVC)SVC (with such metric to be based on growth in net asset valueNAV per share plus dividend yield calculated as common dividend distributions divided by the trailing 90-day price of our common stockCommon Stock at the beginning of the performance year), each as computed by the Compensation Committee pursuant to the terms of the Equity Incentive Plan. Under the Equity Incentive Plan,
PS Business Parks • 2021 Proxy Statement • 44
NAV is calculated as the sum of the value of the Same Park portfolio, which is calculated by applying a static cap rate (same rate applied to both periods) against trailing twelve month reported Cash NOI, the value of the stabilized multifamily portfolio computed in the same manner, and the undepreciated cost of other properties owned, less net debt, preferred stock, and other liabilities (net of other assets) all as reported in the GAAP balance sheet, and less the value of G&Ageneral and administrative expense using the same cap rate valuation methodology discussed above.
The Compensation Committee sets threshold levels of achievement each year. For 2020,2021, the Compensation Committee set the performance targets to be (1) at least 5.0% growth in NAV per share; and (2) SVC growth of at least 7.4%8.3%. Both performance metrics must be satisfied for any awards to be granted. The Compensation Committee set these performance metrics prior to the onset of the COVID-19 pandemic’s economic effects, based on the Company’s budget and outlook at that time. If threshold levels for both of the pre-established performance targets are achieved, NEOs will generally receive their target award. However, the Compensation Committee may implement up to a 25% upward or downward adjustment of the actual RSU award based on the Compensation Committee’s assessment of the individual’s execution of certain long-term strategic and operational goals during the performance period. Any RSUs earned upon achievement of the performance goals will vest in five equal installments, with the first installment vesting on or around March 2021,February 2022, and each subsequent installment vesting annually thereafter.
2020 At-Risk Compensation.Appointment of New President and Chief Executive Officer. We believe that paying a significantly larger percentage of total compensation to our NEOs in performance-based cashOn February 26, 2021, the Board appointed Mr. Chandler as President and equity incentive awards advances our pay-for-performance compensation philosophy. The following charts depictCEO, effective April 5, 2021. In connection with the split between (i) compensation tiedappointment, the Board and Mr. Chandler agreed to the achievement of performance goals, consisting of RSUs and annual cash incentive awards and (ii)following compensation not tied to performance goals, consisting of base salary, for our CEO and for all of our NEOs together as approved by the Compensation Committee in the beginning of 2020 (prior to the onset of the COVID-19arrangements: pandemic’s economic effects).
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PS Business Parks • 2021 Proxy Statement • 45
CHANGES IN COMPANY STRATEGY AND OUTLOOK FOR 2020 AS A RESULT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic resulted in sudden and severe disruptions to the U.S and global economic environment. The pandemic and government responses to combat it—including widespread “stay-at-home” orders, business closure orders, and other restrictions on commercial activities—resulted in adverse economic consequences, including a historic increase in U.S. unemployment and a disproportionate effect on small businesses. These adverse economic effects directly and significantly affected the Company’s business starting in March 2020 and continuing throughout the year. The immediate and most impactful effects of the COVID-19 pandemic on the Company’s business and operations included:
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REVISED 2020 OPERATIONAL AND STRATEGIC PRIORITIES
In lightOn March 23, 2022, following a medical leave of the significant adverse effect of the COVID-19 pandemic on our business, the Company’s Boardabsence, Mr. Chandler stepped down for health reasons and senior management met regularly beginning in March 2020—ultimately meeting ten times through the end of the year—to discuss the Company’s strategy for mitigating these effectsentered into a separation agreement and protecting the well-being of the Company’s employees and customers.
As a result of these deliberations, senior management, under the oversight of the Board, adopted a number of changes to its operational and strategic priorities in response to the COVID-19 pandemic. Specifically, the senior management team determined that the following key priorities were paramount to the continued success ofgeneral release with the Company as it navigated throughdescribed under “Potential Payments Upon Termination or Change in Control—Payments Upon Termination” on page 56.
Special Retention Grants. The 2021 changes in management, including the COVID-19 environment:
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PS Business Parks • 2021 Proxy Statement • 46
Managementappointment of a new CEO and the Board deemed the foregoing revised key operational priorities to be significant and designed to preserve near-term portfolio cash flow generation without disrupting long-term value creation. In addition, management determined, and the Board affirmed, that the above strategic priorities were critical toresignations of Mr. Petersen, the Company’s long-term capabilitiesformer Interim President and abilityCEO and Chief Operating Officer, in May 2021, and Mr. Hedges, the Company’s former Chief Financial Officer, in November 2021 significantly increased the importance of retaining other executives in order to generate shareholder value inmanage the pandemic environment and beyond.
THE COMPENSATION COMMITTEE’S APPROACH TO COVID-19 EFFECTS ON 2020 INCENTIVE COMPENSATION
Aftermanagement transition. To address this risk, the Compensation Committee setapproved the 2020 incentive compensation framework and performance targets in early 2020, the COVID-19following special retention grants: pandemic began fundamentally to alter the economic and operational landscape for the Company. The pandemic has had a materially adverse effect on the Company’s business results. In order to address the challenges of the pandemic, our management team, in close consultation with the Compensation Committee and the Board, updated the Company’s strategic and operational priorities, as discussed above.
In the wake of these strategic and operational changes and the material change to the Company’s 2020 financial outlook resulting from the pandemic, beginning in June 2020, the Compensation Committee commenced a comprehensive process to review the Company’s 2020 incentive compensation program. Through these deliberations, the Compensation Committee concluded that the 2020 financial performance metrics and targets that it had previously established for 2020 incentive compensation awards were likely unattainable due to the pandemic and were no longer consistent with the Company’s updated strategic and operational priorities. Indeed, incentivizing management to achieve the previously established short-term performance targets could, given the current environment, have had significant adverse effects on long-term performance.
Accordingly, the Compensation Committee concluded that the original 2020 incentive compensation goals were no longer consistent with the objectives of the compensation program of retaining and motivating our senior management team to achieve solid financial results and create long-term value. Moreover, because the duration and effects of the COVID-19 pandemic continue to be unpredictable, the Compensation Committee did not believe it could reasonably set revised metrics or targets. Instead, the Compensation Committee concluded that it was in the best interest of the Company and its shareholders—and consistent with the Company’s compensation philosophy—to realign the Company’s approach to 2020 NEO compensation to incentivize management to focus on the Company’s revised strategic and operational priorities.
The Compensation Committee received regular updates regarding management’s performance against these strategic and operational priorities, meeting five times in Q3 and Q4 2020. In early 2021, the Compensation Committee determined 2020 compensation awards after considering (i) the operating environment and the effects of COVID-19 on financial performance, (ii) management’s performance against all relevant factors, including management’s execution of the revised strategic and operational priorities and the Company’s financial performance, and (iii) each NEO’s performance against individual goals and objectives, as further discussed below.
Original Annual Cash Incentive Plan and Equity Incentive Plan Threshold Goals
Primarily due to the economic and other effects of the COVID-19 pandemic, the Company in 2020 saw a 0.9% decline in Same Park Cash NOI and 2.6% growth in adjusted FAD—below the threshold performance metrics under the Annual Cash Incentive Plan originally approved by the Compensation Committee prior to the COVID-19 pandemic. In addition, NAV per share and SVC grew by 0.3% and 2.7%, respectively, in 2020, below the threshold performance metrics under the 2020 Equity Incentive Plan.
PS Business Parks • 2021 Proxy Statement • 47
However, in evaluating appropriate 2020 incentive awards, the Compensation Committee considered the effects of the COVID-19 pandemic on the Company’s performance relative to these metrics. Specifically, the Committee considered the Company’s strong Q1 2020 pre-pandemic results and the pandemic’s effects on the following:
● |
|
PS Business Parks • 2022 Proxy Statement • 49
● | In November 2021, the Compensation Committee approved a one-time special equity grant of 1,681 RSUs to Mr. Groves. The grant will vest in three equal installments, with the first installment vesting one year from the date of grant and each subsequent installment vesting annually thereafter. In approving the grant, the Compensation Committee considered a number of factors, including that Mr. Groves would play a key role in facilitating the transition between the outgoing and incoming Chief Financial Officer. |
Consulting Agreement with Mr. Hedges. In October 2021, Mr. Hedges notified the Company that he would resign as the Company’s Chief Financial Officer, effective November 12, 2021. The Company and Mr. Hedges entered into a consulting agreement pursuant to which Mr. Hedges agreed to facilitate the transition of his duties to Mr. Khan for approximately a three-month period commencing on the effective date of his resignation. The Company and Mr. Hedges also entered into a separation and release agreement that provides, among other things, that upon execution and non-revocation of the separation and release agreement and execution of the consulting agreement, Mr. Hedges would be entitled to receive a prorated portion of his 2021 annual cash incentive award at target.
2021 PERFORMANCE RESULTS AND INCENTIVE COMPENSATION AWARDS
Annual Cash Incentive Program
Under the leadership of senior management, the Company achieved the following results with respect to the annual cash incentive program metrics:
● | 2021 Adjusted FAD Growth: 14.2%, which exceeded the threshold requirement. |
● |
|
With respect to Mr. Groves’ achievement of leadership and individual performance goals, the Compensation Committee recognized the stability and positive leadership he provided throughout 2021, particularly in light of Mr. Chandler’s hiring and onboarding and the resignations of Messrs. Petersen and Hedges, resulting in this component of the award being earned at 100% of target.
Based on the performance described above, the Compensation Committee awarded the NEOs 2021 annual cash incentive payouts equal to $200,000 for Mr. Groves (100% of target). As described above, since Mr. Hedges executed the consulting agreement and did not revoke his separation agreement, he was entitled to receive an annual cash incentive award of $325,000 (86.7% of target), and since Mr. Chandler’s cash incentive was guaranteed, he received an annual cash incentive award of $600,000 (100% of target).
Equity Incentive Plan
The Compensation Committee determined that the Company achieved the following results with respect to the Equity Incentive Plan:
● | 2021 NAV Per Share Growth: 9.4%, which exceeds the threshold requirement. |
● |
|
|
|
The Committee determined that these pandemic effectsBased on the Company’s financial performance were significant, and that adjusting for these effects would have resulted inforegoing results, the Company meeting or exceeding (1) the original Same Park Cash NOI and Adjusted FAD Growth performance thresholds under the Annual Cash Incentive Plan and (2) the original NAV per share and SVC growth targetsCompensation Committee awarded RSUs at 100% of target—equivalent to 1,877 RSUs—to Mr. Groves under the Equity Incentive Plan.
ACHIEVEMENT OF REVISED 2020 OPERATIONAL AND STRATEGIC PRIORITIES
In early 2021, the Compensation Committee met to evaluate the senior management team’s performance against the Company’s revised operational and strategic priorities. In its evaluation, the Compensation Committee considered the following notable achievements:
Operational Priorities
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|
|
|
|
PS Business Parks • 2021 Proxy Statement • 48
Strategic Priorities
|
|
|
|
Management Performance
In addition to the Company’s performance relative to the foregoing operational and strategic priorities, the Compensation Committee evaluated our NEOs’ performance individually and as a group, particularly with respect to their effectiveness in leading the Company through the COVID-19 crisis when the Company’s former CEO was on a medical leave of absence and, subsequently, when the Company was conducting an internal and external search for a permanent CEO. Specifically, the Committee recognized the following accomplishments:
|
|
| ||||||
|
|
|
Based on the foregoing, the Compensation Committee concluded that our NEOs met, and in most cases, exceeded, the revised strategic, operational, and individual goals that the Board, the Committee, and management had previously set in light of the COVID pandemic’s economic and other effects. Our management team’s exemplary performance informed the Committee’s decisions regarding 2020 incentive compensation, as discussed below.
2020 INCENTIVE COMPENSATION AWARDS
In early 2021, the Compensation Committee determined 2020 compensation awards after considering (i) the operating environment and the effects of COVID-19 on financial performance, (ii) management’s performance against all relevant factors, including management’s achievement of the strategic and operational priorities described above and the Company’s financial performance, and (iii) each NEO’s performance against individual and team goals and objectives, including the individual achievements described above.
PS Business Parks • 2021 Proxy Statement • 49
The following is a summary of the Compensation Committee’s decisions with respect to 2020 incentive compensation for our NEOs. The Compensation Committee believes that these payouts reasonably reward our NEOs for exemplary performance under extraordinarily difficult circumstances, reflect management’s contributions to the successes the Company achieved in 2020, and are consistent with the Company’s compensation philosophy.
Annual Cash Incentive Plan. In recognition of the exemplary performance of our NEOs in leading the Company through the COVID-19 pandemic as discussed above, while being mindful of the Company’s overall financial performance in the difficult business environment caused by the pandemic, the Compensation Committee awarded the NEOs 2020 annual cash incentive payouts equal to 95% of target (amounting to 95% of base salary) for Mr. Petersen, 95% of target (amounting to 95% of base salary) for Mr. Hedges, and 85% of target (amounting to 70.8% of base salary) for Mr. Groves.
Equity Incentive Plan. The Compensation Committee also awarded RSUs in an amount equal to 100% of the 2020 Equity Incentive Plan target for Mr. Hedges and Mr. Groves. As a result, RSU awards were granted as follows: Mr. Hedges—4,429 RSUs and Mr. Groves—1,372 RSUs. These grants will vest in five equal installments, with the first installment vesting on or around March 1, 2021, and each subsequent installment vesting annually thereafter.
In determining the amount of the RSU grants to Messrs. Hedges and Groves, the Compensation Committee considered the Company’s achievement of the critical strategic and operational priorities discussed above and how the long vesting periods of these awards address retention considerations stemming from the Company’s lack of an equity incentive plan since 2018.
In light of the special one-time retention equity grant approved by the Compensation Committee in October 2020 to Mr. Petersen for his service as Interim President and Chief Executive Officer (as described below), the Compensation Committee determined that no further RSU awards were appropriate and therefore did not award Mr. Petersen any additional awards under the Equity Incentive Plan.
Special One-Time Equity Award to Mr. Petersen. On October 30, 2020, the Compensation Committee approved a one-time special equity retention grant of 20,000 RSUs to Mr. Petersen. The Compensation Committee determined that the special retention grant was appropriate in light of Mr. Petersen’s service as the Interim President and Chief Executive Officer, a role Mr. Petersen held from April 20, 2020 and throughout the remainder of 2020. Further, the Compensation Committee deemed it important to retain Mr. Petersen while the Board continued its search for a permanent Chief Executive Officer and beyond, especially in light of the operational challenges associated with the COVID-19 pandemic and the competitive market for talent. Mr. Petersen did not otherwise receive any additional special compensation for his service as Interim President and Chief Executive Officer in 2020, and the Compensation Committee did not award Mr. Petersen any additional equity incentive awards for 2020 performance under the Equity Incentive Plan. The special retention This grant will vest in five equal installments, with the first installment vesting on or around March 1, 2021,February 16, 2022, and each subsequent installment vesting annually thereafter.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Compensation Committee considers the tax deductibility of compensation as one factor when considering executive compensation program alternatives. Due to its tax status as a REIT, the Company must generally distribute its taxable income to shareholders.stockholders. To the extent that compensation is not deductible, taxable income will be higher and so, distributions to shareholdersstockholders may be higher than they would be otherwise.
PS Business Parks • 2022 Proxy Statement • 50
Prior to January 1, 2018, Section 162(m) imposed a $1,000,000 per person limit on the annual tax deduction for compensation paid to the Company’s current chief executive officerCEO and certain other executive officers. Certain “performance-based” compensation exceeding $1,000,000 annually paid to the executives was excluded from Section 162(m)’s limitation and was deductible if certain requirements were met. The Company generally designed awards of stock options, certain restricted share units,RSUs, and cash incentives to qualify as deductible “performance-based” compensation.
PS Business Parks • 2021 Proxy Statement • 50
Under tax reform legislation signed into law on December 22, 2017 (the “TaxTax Cuts and Jobs Act”)Act), the deductibility of executive compensation was limited further, effective January 1, 2018. Section 162(m) still imposes a $1,000,000 per person limit on the annual tax deduction for compensation paid to the Company’s current chief executive officerCEO and certain other executive officers. But, the exclusion for “performance-based” compensation was repealed, and the group of employees subject to the limitation was expanded to include the chief financial officer and certain former executive officers.
The Compensation Committee has in the past approved and has reserved the right in the future to approve compensation that does not qualify for deductibility in circumstances it deems in the Company’s best interests.
The Compensation Committee believes the Company is well-positioned as a result of management’s focus and successful execution over the last several years. Given these expectations, the Compensation Committee met in January and February 2021early 2022 and made the following decisions for 20212022 NEO compensation:
● | Interim Chief Executive Officer and Chief Operating Officer Arrangement. In connection with their appointments as Interim President and CEO and Interim Chief Operating Officer, the Board agreed to provide each of Mr. Wilson and Ms. Hawthorne, respectively, a special monthly retainer of $100,000 with an option to receive 50% of such compensation in unrestricted shares of Common Stock. Mr. Wilson and Ms. Hawthorne will not participate in the 2022 Annual Cash Incentive Program or Equity Incentive Plan. The Compensation Committee may in its discretion provide for additional compensation upon the conclusion of their interim service. |
● | New Chief Financial Officer Compensation Arrangements. On October 5, 2021, Adeel Khan was appointed as the Executive Vice President, Chief Financial Officer and Corporate Secretary of the Company, effective January 10, 2022. In connection with Mr. Khan’s appointment, the Company and Mr. Khan agreed that Mr. Khan will be paid an annual base salary of $425,000, will be eligible to receive a target annual cash incentive award equal to 100% of his base salary, and will also be entitled, beginning in the 2022 performance year, to a target annual equity performance-based award no less than the share-equivalent number of RSUs equal to $800,000, which, to the extent earned based upon achievement of applicable performance goals, will vest in five equal annual installments, subject to continued employment. In addition, upon his start date Mr. Khan received a one-time award of RSUs having a value on the grant date equal to $500,000, which will vest ratably over five years subject to continued employment. |
● | Base Salaries. NEO (excluding the interim officers) base salaries for |
● | Annual Cash Incentive Plan. Target bonus amounts for |
● | Equity Incentive Plan. The Compensation Committee approved the following aggregate target number of RSUs that would be granted to the NEOs (excluding the interim officers) for |
On February 26, 2021, the Board appointed Mr. Chandler as President and Chief Executive Officer, effective April 5, 2021. In connection with the appointment the Board provided Mr. Chandler an offer letter which provides that:
Khan; and 1,749 RSUs for Mr. |
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|
|
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PS Business Parks • 20212022 Proxy Statement • 51
The Compensation Committee of the Board of PS Business Parks, Inc. has reviewed and discussed the foregoing CD&A with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this proxy statement and incorporated by reference in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
This report is provided by the following independent directors who comprise the Compensation Committee:
Jennifer Holden Dunbar, Chair
James H. KroppM. Christian Mitchell
Gary E. Pruitt
Robert S. Rollo
Stephen W. Wilson
PS Business Parks • 20212022 Proxy Statement • 52
The following table sets forth certain information regarding the compensation of each NEO serving in 20202021 for the years ended December 31, 2021, 2020, 2019, and 2018.2019.
I. SUMMARY COMPENSATION TABLESummary Compensation Table
Name and Principal Position | Year | Salary(1) | Bonus(2) | Stock Awards(3) | Option Awards | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5)(6) | Total | ||||||||||||||||||||||||
John W. Petersen
| 2020 | $ | 400,764 | - | $ | 3,207,873 | - | $ | 380,000 | $ | 11,400 | $ | 4,000,037 | |||||||||||||||||||
2019 | 393,264 | - | - | - | 460,000 | 11,200 | 864,464 | |||||||||||||||||||||||||
2018 | 355,801 | - | - | - | 355,000 | 11,000 | 721,801 | |||||||||||||||||||||||||
Jeffrey D. Hedges
| 2020 | 375,764 | - | 756,473 | - | 356,250 | 11,400 | 1,499,887 | ||||||||||||||||||||||||
2019 | 375,764 | - | - | - | 375,000 | 11,200 | 761,964 | |||||||||||||||||||||||||
2018 | 101,343 | $ | 325,000 | 1,257,400 | - | - | 216,321 | 1,900,064 | ||||||||||||||||||||||||
Trenton A. Groves Senior Vice President and Chief Accounting Officer
| 2020 | 240,764 | - | 234,338 | - | 170,000 | 11,400 | 656,502 | ||||||||||||||||||||||||
2019 | 200,764 | - | - | - | 200,000 | 11,200 | 411,964 | |||||||||||||||||||||||||
2018 | 184,760 | - | 228,940 | - | 145,334 | 11,000 | 570,034 | |||||||||||||||||||||||||
Maria R. Hawthorne Former President and CEO | 2020 | 318,683 | (7) | - | 1,464,098 | - | - | 11,400 | 1,794,181 | |||||||||||||||||||||||
2019 | 450,764 | - | - | - | 495,000 | 11,200 | 956,964 | |||||||||||||||||||||||||
2018 | 450,801 | - | $ | 2,861,750 | - | 450,000 | 11,000 | 3,773,551 |
Name and Principal Position | Year | Salary(1) | Bonus(2) | Stock Awards(3) | Option Awards | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5) | Total | ||||||||||||||||||||||||
Dan M. Chandler III(6)
|
| 2021 |
| $ | 434,994 |
| $ | 600,000 |
| $ | 6,584,406 |
|
| - |
|
| - |
| $ | 11,600 |
| $ | 7,631,000 |
| ||||||||
| 2020 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| |||||||||
| 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
| |||||||||
|
|
| ||||||||||||||||||||||||||||||
John W. Petersen(7)
|
| 2021 |
|
| 262,240 |
|
| - |
|
| 1,068,666 |
|
| - |
|
| - |
|
| 11,600 |
|
| 1,342,506 |
| ||||||||
| 2020 |
|
| 400,764 |
|
| - |
|
| 3,207,873 |
|
| - |
| $ | 380,000 |
|
| 11,400 |
|
| 4,000,037 |
| |||||||||
| 2019 |
|
| 393,264 |
|
| - |
|
| - |
|
| - |
|
| 460,000 |
|
| 11,200 |
|
| 864,464 |
| |||||||||
|
|
| ||||||||||||||||||||||||||||||
Jeffrey D. Hedges(8) Former Executive Vice President, Chief
|
| 2021 |
|
| 361,630 |
|
| 325,000 |
|
| 2,509,097 |
|
| - |
|
| - |
|
| 46,600 |
|
| 3,242,327 |
| ||||||||
| 2020 |
|
| 375,764 |
|
| - |
|
| 756,473 |
|
| - |
|
| 356,250 |
|
| 11,400 |
|
| 1,499,887 |
| |||||||||
| 2019 |
|
| 375,764 |
|
| - |
|
| - |
|
| - |
|
| 375,000 |
|
| 11,200 |
|
| 761,964 |
| |||||||||
|
|
| ||||||||||||||||||||||||||||||
Trenton A. Groves Senior Vice President and |
| 2021 |
|
| 240,764 |
|
| - |
|
| 767,492 |
|
| - |
|
| 200,000 |
|
| 11,600 |
|
| 1,219,856 |
| ||||||||
| 2020 |
|
| 240,764 |
|
| - |
|
| 234,338 |
|
| - |
|
| 170,000 |
|
| 11,400 |
|
| 656,502 |
| |||||||||
| 2019 |
|
| 200,764 |
|
| - |
|
| - |
|
| - |
|
| 200,000 |
|
| 11,200 |
|
| 411,964 |
| |||||||||
|
(1) | Includes an amount of $764, $764 and |
(2) | The amount shown for Mr. |
(3) | The 2021 values reflected in this column reflect (i) the regular annual 2021 performance-based RSU awards (for Messrs. Petersen, Hedges, and Groves); (ii) the special 2021 retention grants (for Messrs. Hedges and Groves); (iii) the Sign-On Award and retention award (for Mr. Chandler); and (iv) the value attributable to the COVID-19 related modifications made by the Compensation Committee in 2021 to the 2020 performance-based RSU awards (for Messrs. Hedges and Groves). Refer to the “Grants of Plan-Based Awards” table below for the values attributable to each of these grants. |
The regular annual 2021 performance-based RSU award amounts |
With respect to the special 2021 retention grants, Mr. Hedges was granted 6,526 RSUs that were subject to time vesting and were forfeited following his resignation in November 2021, and Mr. Groves was granted 1,681 RSUs which vest over three years. |
Mr. Chandler’s 2021 stock awards included one-time RSU awards of 41,186 RSUs in connection with his onboarding package. |
As a result of the impact of the COVID-19 pandemic on the Company’s 2020 operations, the Company did not satisfy the threshold levels for the performance metrics under the 2020 performance-based RSU program. In February 2021, based in part on the Company’s achievement of the critical strategic and operational priorities set by the Board in response to the COVID-19 pandemic, the Compensation Committee decided to award the 2020 performance-based RSUs at 100% of target for Messrs. Hedges and Groves, which resulted in awards of 4,429 RSUs to Mr. Hedges and 1,372 RSUs to Mr. Groves. Mr. Petersen was not granted any award in light of the special one-time retention equity grant he received in October 2020. In accordance with SEC rules, although the full grant date fair value of the 2020 performance-based RSUs is reflected in 2020 compensation, the Compensation Committee’s determination in 2021 to exercise discretion and grant Mr. Hedges and Mr. Groves an award based on modified performance metrics requires the Company to report the February 2021 grant date fair value of the modified 2020 performance-based RSUs in the 2021 compensation as well. |
PS Business Parks • 2022 Proxy Statement • 53
(4) | Includes amounts earned pursuant to the Company’s annual incentive award program. |
(5) | All Other Compensation for |
(6) |
|
(7) |
|
(8) | Mr. Hedges resigned from the Company effective November 12, 2021. |
PS Business Parks • 2021 Proxy Statement • 53
II. GRANTS OF PLAN-BASED AWARDSGrants of Plan-Based Awards
The following table sets forth information relating to estimated future payouts under non-equity incentive plan awards, stock options, and RSUs granted pursuant to our equity incentive plans during the year ended December 31, 20202021 to each of our NEOs.
Name
| Grant Date(1)
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards ($)(1)
| Estimated Future Payouts Under Equity Incentive Plan Awards (#)
| All Other (#)
| Grant Date Fair Value of Option
| Grant Date
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards ($)(1)
| Estimated Future Payouts Under Equity Incentive Plan Awards (#)(1)
| All Other (#)
| Grant Date Fair Value of Option
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold
| Target
| Maximum
| Threshold
| Target
| Maximum
| Threshold
| Target
| Maximum
| Threshold
| Target
| Maximum
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maria R. Hawthorne | 03/01/2020 | 6,429 | 8,572 | 10,715 | $1,464,098 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dan M. Chandler, III | 04/05/2021 | 23,113 | 3,695,075 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | $427,500 | $450,000 | $506,250 | 04/05/2021 | 18,073 | 2,889,331 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John W. Petersen | 03/01/2020 | 4,072 | 5,429 | 6,786 | $ 927,273 | 03/01/2021 | 5,571 | 7,428 | 9,285 | 1,068,666 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/30/2020 | 20,000 | td,280,600 | - | 135,000 | 450,000 | 544,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | $380,000 | $400,000 | $450,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeffrey D. Hedges | 03/01/2021 | 4,545 | 6,060 | 7,575 | 871,852 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeffrey D. Hedges | 03/01/2020 | 3,322 | 4,429 | 5,536 | $ 756,473 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/01/2021 | (3) | 4,429 | 37,200 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
05/11/2021 | 6,526 | 1,000,044 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | $356,250 | $375,000 | $421,875 | - | 112,500 | 375,000 | 453,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trenton A. Groves | 03/01/2020 | 1,029 | 1,372 | 1,715 | $ 234,338 | 03/01/2021 | 1,408 | 1,877 | 2,346 | 270,044 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | $190,000 | $200,000 | $225,000 | �� | 03/01/2021 | (3) | 1,372 | 197,390 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/15/2021 | 1,681 | 300,059 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | 60,000 | 200,000 | 242,000 |
|
|
|
|
|
(1) | The amounts shown in these columns represent the range of possible payouts under the annual incentive award program based upon achievement of performance targets. |
(2) | Represents the grant date fair value (at target level in the case of |
(3) | As discussed in footnote 3 of the Summary Compensation Table, as a result of the impact of the COVID-19 pandemic on the Company’s 2020 operations, the Company did not satisfy the threshold levels for the performance metrics under the 2020 performance-based RSU program. In February 2021, based in part on the Company’s achievement of the critical strategic and operational priorities set by the Board in response to the COVID-19 pandemic, the Compensation Committee decided to award the 2020 performance-based RSUs at 100% of target for Messrs. Hedges and Groves. In accordance with SEC rules, this modification of the 2020 performance-based RSUs is reflected in the table as a new 2021 grant and is valued at the February 2021 grant date fair value. |
III. OPTION EXERCISES AND STOCK VESTED IN 2020PS Business Parks • 2022 Proxy Statement • 54
Option Exercises and Stock Vested in 2021
The following table provides information about options exercised by the NEOs and RSUs vested during the fiscal year ended December 31, 2020.2021.
Option Awards
| Stock Awards
| Option Awards
| Stock Awards
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise | Number of Shares Acquired on | Value Realized on Vesting(1) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise | Number of Shares Acquired on | Value Realized on Vesting ($)(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maria R. Hawthorne | - | - | 16,000 | $ | 2,334,230 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dan M. Chandler, III |
| - |
| - |
| - |
| - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John W. Petersen | - | - | 9,000 | 1,286,640 |
| - |
| - |
| 10,000 |
| 1,521,380 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeffrey D. Hedges | - | - | 2,000 | 250,420 |
| - |
| - |
| 2,885 |
| 446,925 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Trenton A. Groves | - | - | 2,500 | 362,580 |
| - |
| - |
| 2,074 |
| 320,042 |
(1) | Value realized upon vesting was calculated by multiplying the number of shares vesting by the closing price of our Common Stock on the NYSE on the vesting date as follows: |
PS Business Parks • 2021 Proxy Statement • 54
Name
| RSU Vesting Date
| Fair Market RSUs ($)
| |||||||||||||||||
| 03/ | 575,480 | |||||||||||||||||
| 03/15/ | ||||||||||||||||||
| |||||||||||||||||||
| |||||||||||||||||||
945.900 | |||||||||||||||||||
Jeffrey D. Hedges | 03/01/2021 | 127,325 | |||||||||||||||||
10/01/2021 | 319,600 | ||||||||||||||||||
Trenton A. Groves | 03/01/2021 | 39,420 | |||||||||||||||||
03/08/2021 | 59,912 | ||||||||||||||||||
03/15/2021 | 220,710 |
PS Business Parks • 2022 Proxy Statement • 55
IV. OUTSTANDING EQUITY AWARDS ATOutstanding Equity Awards at YEAR-ENDYear-End
The following table sets forth certain information concerning outstanding equity awards held by the NEOs at December 31, 2020.2021.
Option Awards | Stock Awards |
| Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested (#) (3) | Market Value of Shares of Stock that Have Not Vested ($) (3) | Grant Date | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Number of Shares or Units of Stock that Have Not Vested (#)(1) | Market Value of Shares of Stock that Have Not Vested ($)(1) | ||||||||||||||||||||||||||||||||||||
Maria R. Hawthorne | 07/01/16 | 10,000 | (1) | 5,000 | (1) | $ | 105.76 | 07/01/26 | 2,000 | (1) | $ | 265,740 | ||||||||||||||||||||||||||||||||||||
03/08/18 | - | - | - | - | 15,000 | (1) | 1,993,050 | |||||||||||||||||||||||||||||||||||||||||
03/15/18 | - | - | - | - | 6,000 | (2) | 797,220 | |||||||||||||||||||||||||||||||||||||||||
TOTAL | 10,000 | 5,000 | - | - | 23,000 | $ | 3,056,010 | |||||||||||||||||||||||||||||||||||||||||
John W. Petersen | 03/15/18 | - | - | - | - | 6,000 | (2) | 797,220 | ||||||||||||||||||||||||||||||||||||||||
Dan M. Chandler, III | 04/05/2021 | - | - | 41,186 | (2) | 7,585,226 | ||||||||||||||||||||||||||||||||||||||||||
10/30/20 | - | - | - | - | 20,000 | (1) | 2,657,400 | TOTAL | - | - | 41,186 | 7,585,226 | ||||||||||||||||||||||||||||||||||||
TOTAL | - | - | - | - | 26,000 | $ | 3,454,620 |
|
| |||||||||||||||||||||||||||||||||||||||
Jeffrey D. Hedges | 10/01/18 | - | - | - | - | 6,000 | (1) | $ | 797,220 | 10/01/2018 | - | - | 4,000 | (2) | 736,680 | |||||||||||||||||||||||||||||||||
TOTAL | - | - | - | - | 6,000 | $ | 797,220 | 03/01/2021 | - | - | 3,544 | (3) | 652,698 | |||||||||||||||||||||||||||||||||||
03/01/2021 | 6,060 | (4) | 1,116,070 | - | - | |||||||||||||||||||||||||||||||||||||||||||
05/11/2021 | - | - | 6,526 | (5) | 1,201,893 | |||||||||||||||||||||||||||||||||||||||||||
TOTAL | 6,060 | 1,116,070 | 14,070 | 2,591,271 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||
Trenton A. Groves | 03/08/18 | - | - | - | - | 1,200 | (1) | 159,444 | 03/08/2018 | - | - | 800 | (2) | 147,336 | ||||||||||||||||||||||||||||||||||
03/15/18 | - | - | - | - | 1,400 | (2) | 186,018 | 03/01/2021 | - | - | 1,098 | (3) | 202,219 | |||||||||||||||||||||||||||||||||||
TOTAL | - | - | - | - | 2,600 | $ | 345,462 | 03/01/2021 | 1,877 | (4) | 345,687 | - | - | |||||||||||||||||||||||||||||||||||
11/15/2021 | - | - | 1,681 | (5) | 309,590 | |||||||||||||||||||||||||||||||||||||||||||
TOTAL | 1,877 | 345,687 | 3,579 | 659,144 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
(1) |
|
|
Stock awards consist of RSUs granted to the named executive officers, and the values shown assume a price of |
(2) | These RSUs vest in five equal annual installments beginning one year from the grant date. |
PS Business Parks • 2021 Proxy Statement • 55
(3) | These RSUs vest in five equal annual installments, with the first installment vesting on the grant date and each subsequent installment vesting annually thereafter. |
(4) | These performance-based RSUs will vest (assuming the performance conditions are met) in five equal installments beginning upon certification by the Compensation Committee of the level of achievement of the performance targets at the conclusion of the one-year performance period. |
(5) | These RSUs vest in three equal annual installments beginning one year from the grant date. |
V. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OFIN CONTROL
Payments Upon Termination. We do not have a formal severance program for termination of employment through voluntary or involuntary termination, other than as specifically set forth in the 2012 Plan or as required by law. These include:The following indicates our general practice:
● | vested stock options following a voluntary termination of employment must be exercised within 30 days following the individual’s last date of employment; |
● | all unvested stock options, restricted shares, and/or RSUs are forfeited (except in the case of death or disability, |
|
● | accrued and unused vacation pay is paid in a lump sum. |
We also may enter into severance arrangements in connection with new hires, such as in connection with our appointmenthires. Refer to “2021 NEO Compensation Framework—Appointment of Mr. Chandler asNew President and Chief Executive OfficerOfficer” on page 49 for a discussion of the arrangements we entered into with Mr. Chandler in connection with his appointment as President and CEO in February 20212021.
PS Business Parks • 2022 Proxy Statement • 56
On March 23, 2022, following a medical leave of absence, Mr. Chandler stepped down from his positions with the Company due to health reasons that qualified as discussed above.a disability under the terms of his outstanding RSU awards. As set forth in a separation agreement and general release the Company and Mr. Chandler entered into in connection with his departure, the Company will settle his RSU awards in cash based on the market value of the underlying shares of Common Stock and will pay $90,573 towards reimbursement of future COBRA premiums and related expenses.
Payments Upon Retirement. In February 2020, the Board and Compensation Committee approved an Equity Awards Retirement Policy to provide for the accelerated vesting of outstanding equity awards upon retirement, subject to certain requirements. OurThe policy applies to our NEOs participate in the Equity Awards Retirement Policy on the same terms as other employees. Pursuant to the policy, in the event of an NEO’s qualifying retirement:
● | all outstanding unvested stock options and earned but unvested RSUs accelerate and vest on the date of retirement; |
● | all such stock options may be exercised during the one-year period following the date of retirement (but before the termination date of the option) |
● | all unearned performance-based RSUs are forfeited. |
In order for an NEO to be eligible for potential acceleration of equity award vesting underin the Equity Awards Retirement Policy,event of retirement, all eligibility conditions must be satisfied, including: (1) the NEO must be at least 55 years old and have been in service for at least 10 years, and the sum of the employee’s age and total years of service must be at least 80; (2) the NEO must provide at least 12 months’ prior written notice of his or her intention to retire; (3) the NEO must enter into a written separation agreement; and (4) the Chairman of the Compensation Committee shall have, in his or her sole discretion, approved the application of the Equity Awards Policy to the NEO.vesting acceleration.
Payments Upon Death or Disability. In the event of the death or permanent and total disability of an NEO while employed by the Company, the executive officer will receive 401(k) Plan contributions and accrued unused vacation pay as noted above, in addition to the following:
● |
|
● |
|
● | in the case of death or permanent and total disability, all unearned performance-based RSUs are forfeited; and |
● |
|
Payments Upon a Change ofin Control. Under the 2012 Plan, the vesting of outstanding awards will not accelerate unless (1) the Company experiences a qualifying change in control, and (2) one of the following
PS Business Parks • 2021 Proxy Statement • 56
conditions is also met: (a) for a change ofin control where such awards will be assumed or continued by the surviving entity, the holder’s employment must be terminated without “cause” (as defined in the 2012 Plan) within one year following the change ofin control, or (b) such awards must be terminated in connection with the change ofin control.
A “change ofin control” is defined in the 2012 Plan to generally include the following:
● | the dissolution or liquidation of PS Business Parks or merger (other than with Public Storage) in which PS Business Parks does not survive; |
● | the sale of substantially all of PS Business Parks’ |
PS Business Parks • 2022 Proxy Statement • 57
● | a merger in which the |
● | the acquisition, sale or transfer of more than 50% of the Company’s outstanding Common Stock by tender offer or similar transaction (other than by or to Public Storage); of |
● | any other transaction that |
The following table shows the cash payments and the estimated value of the acceleration of unvested equity awards pursuant tothat could result from the termination events that trigger such payments and accelerations as described above, in each case assuming the event occurred as of December 31, 20202021 and using a closing market price of our Common Stock on the NYSE as of December 31, 20202021 of $132.87$184.17 per share. Messrs. Petersen and Hedges, who ceased serving as executive officers during 2021, did not receive any accelerated payments as a result of their termination of service and their unvested equity awards as of the termination of their service were forfeited.
Name
| Value of Vestings
| Value of RSU Vestings
| Total
| ||||||||||||
Maria R. Hawthorne | |||||||||||||||
$
| 135,550
|
| $
| 3,056,010
|
| $
| 3,191,560
|
| |||||||
John W. Petersen | |||||||||||||||
| -
|
|
| 3,454,620
|
|
| 3,454,620
|
| |||||||
Jeffrey D. Hedges | |||||||||||||||
| -
|
|
| 797,220
|
|
| 797,220
|
| |||||||
Trenton A. Groves | |||||||||||||||
| -
|
|
| 345,462
|
|
| 345,462
|
|
Equity Compensation Plan Information as of December 31, 2020. The following table sets forth certain equity compensation plan information as of December 31, 2020:
Plan Category
| (a) Number of securities to be
| (b) Weighted average exercise
| (c)
| ||||||||||||
Equity compensation plans approved by security holders (1)
|
| 171,694
|
| $
| 108.29
|
|
| 815,894
|
| ||||||
Equity compensation plans not approved by security holders
|
| -
|
|
| -
|
|
| -
|
| ||||||
Total
|
| 171,694
|
| $
| 108.29
|
|
| 815,894
|
|
|
|
Name
| Cash
| Value of Vestings
| Value of RSU Vestings
| Total
| ||||||||||||||||
Dan M. Chandler, III
| $ | 1,200,000 | - | $ | 7,585,226 | $ | 8,785,226 | |||||||||||||
Trenton A. Groves
| - | - | $ | 659,144 | $ | 659,144 |
PS Business Parks • 20212022 Proxy Statement • 5758
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 Common Stock:
Shares of Common Stock Beneficially Owned | ||||
Name and Address | Number of Shares | Percent of Class | ||
Public Storage 701 Western Avenue Glendale, California 91201(1)(2) | 7,158,354 | 26.04% | ||
The Vanguard Group 100 Vanguard Blvd. Malvern, Pennsylvania 19355(3) | 3,067,728 | 11.16% | ||
BlackRock, Inc. 55 East 52nd Street New York, New York 10055(4) | 2,871,064 | 10.40% | ||
T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21202(5) | 2,327,870 | 8.4% | ||
Wellington Management Group LLP 280 Congress Street Boston, MA 02210(6) | 2,114,007 | 7.69% |
Shares of Common Stock Beneficially Owned | ||||
Name and Address | Number of Shares | Percent of Class | ||
Public Storage(1) 701 Western Avenue Glendale, California 91201 | 7,158,354 | 25.9% | ||
The Vanguard Group(2) 100 Vanguard Boulevard Malvern, Pennsylvania 19355 | 3,148,456 | 11.4% | ||
BlackRock, Inc.(3) 55 East 52nd Street New York, New York 10055 | 2,850,035 | 10.3% | ||
T. Rowe Price Associates, Inc.(4) 100 E. Pratt Street Baltimore, Maryland 21202 | 2,299,797 | 8.3% | ||
Wellington Management Group LLP(5) c/o Wellington Management Company LLP 280 Congress Street Boston, Massachusetts 02210 | 2,089,604 | 7.6% |
(1) |
|
|
|
(3) | This information is as of December 31, 2021 and is based solely on a Schedule 13G/A filed on January 27, 2022 by BlackRock, Inc. to report that it (including affiliates) has sole voting power with respect to 2,689,149 shares of Common Stock, no shared voting power with respect to the shares of Common Stock, sole dispositive power with respect to 2,850,035 shares of Common Stock, and no shared dispositive power with respect to the shares of Common Stock. |
(4) |
|
|
|
PS Business Parks • 20212022 Proxy Statement • 5859
Security Beneficial Ownership of Directors and Management
The following table sets forth information as of February 26, 202125, 2022 concerning the beneficial ownership of Common Stock of each of our directors and executive officersNEOs and all directors and executive officers as a group:
Shares of Common Stock Beneficially Owned
| Shares of Common Stock Beneficially Owned
| |||||||||||||||||
Name | Number of Shares (1) | Percent of Class(1) | Number of Shares(1) | Percent of Class(1) | ||||||||||||||
Ronald L. Havner, Jr. | 177,789 | (2) | * | 182,214 | (2) | * | ||||||||||||
Joseph D. Russell, Jr. | 49,242 | * | ||||||||||||||||
Dan “Mac” Chandler, III | 41,186 | * | ||||||||||||||||
Jennifer Holden Dunbar | 20,560 | (3) | * | 20,702 | (3) | * | ||||||||||||
James H. Kropp | 30,761 | (4) | * | |||||||||||||||
Maria R. Hawthorne | 54,087 | * | ||||||||||||||||
M. Christian Mitchell | - | - | ||||||||||||||||
Irene H. Oh | 3,070 | * | ||||||||||||||||
Kristy M. Pipes | 3,120 | * | 8,111 | * | ||||||||||||||
Gary E. Pruitt | 26,410 | * | 39,333 | * | ||||||||||||||
Robert S. Rollo | 10,972 | * | 21,380 | * | ||||||||||||||
Joseph D. Russell, Jr. | 28,089 | * | ||||||||||||||||
Peter Schultz | 25,620 | * | 25,700 | * | ||||||||||||||
Stephen W. Wilson | 2,400 | * | 7,385 | * | ||||||||||||||
John W. Petersen | 51,924 | * | 18,747 | * | ||||||||||||||
Maria R. Hawthorne | 62,613 | * | ||||||||||||||||
Jeffrey D. Hedges | 9,183 | * | 3,921 | * | ||||||||||||||
Trenton A. Groves | 10,506 | * | 4,661 | * | ||||||||||||||
All Directors and Executive Officers as a Group (13 persons) | 481,100 | (1)(2)(3)(4) | 1.75 | % | ||||||||||||||
All Directors and Executive Officers as a Group (14 persons) | 435,918 | (2)(3) | 1.6 | % |
* | Less than 1% |
(1) | Represents shares of Common Stock beneficially owned as of February |
(2) | Includes 155,584 shares held by Mr. Havner in a joint margin account with |
(3) |
|
|
PS Business Parks • 20212022 Proxy Statement • 5960
ADDITIONAL INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS; CERTAIN RELATIONSHIPS
Incentive Compensation Recoupment Policy (Clawback Policy)
The Board has adopted an Incentive Compensation Recoupment Policy which applies to an officer of the Company that is subject to Section 16 of the Exchange Act. Pursuant to this policy, in the event the Company’s financial results (i) are restated due to material noncompliance with any financial reporting requirement or (ii) have been determined by the Board to have been materially misstated, then an independent committee of the Board may require any covered officer to repay to the Company all or part of any “Excess Compensation” that such officer had previously received. Excess Compensation is defined as that part of the cash or equity incentive compensation received by a covered officer during the three-year period preceding the restatement or material misstatement determination that was in excess of the amount that such officer would have received had such incentive compensation been calculated based on the restated or corrected financial results.
Policy Regarding Pledging of Shares
Our insider trading policy discourages (but does not prohibit) the pledging of shares of Common Stock by insiders. We have considered the fact that Mr. Havner holds 155,584 shares in a joint margin account in light of the Company’s securities trading policy and the position of ISS Corporate Solutions (ISS), which is that pledges of shares of Common Stock by insiders may adversely affect stockholders if the insiders are forced to sell their shares of Common Stock. We believe that this existing margin account arrangement does not present a significant risk of a foreclosure or an unexpected sale of large volumes of Common Stock by Mr. Havner in the open market. None of Mr. Havner’s shares that are held in the joint margin account have been pledged as security for a loan. In the Board’s view, these arrangements are unlikely to result in adverse effects to stockholders.
Anti-Hedging Policy
Our insider trading policy includes an anti-hedging provision that prohibits directors, officers, and employees from directly or indirectly engaging in hedging against future declines in the market value of any securities of the Company. The objective of this policy is to enhance alignment between the interests of our directors, officers, and employees and those of our shareholders.stockholders.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of any registered class of our equity securities, to file with the SEC initial reports of beneficial ownership of PS Business Parks’ equity securities on Form 3 and reports of changes in beneficial ownership on Form 4 or Form 5. As a matter of practice, we typically assist our executive officers and directors with these matters and file these reports on their behalf.
Based solely on a review of reports we filed on behalf of our directors and executive officers, and written representations from these individuals that no other reports were required, all reports on behalf of our directors and executive officers were filed on a timely basis under Section 16(a), except for one report for Jeffrey D. Hedges regarding an award of RSUs and two reports for Trenton Groves regarding an award of RSUs and the Company’s redemption of preferred shares, which were reported late due to an administrative error.
Related Party Transaction Approval Policies and Procedures
The Audit Committee, in accordance with its charter, must review any related party transaction and make recommendations to the independent and disinterested directors of the Board with respect to approval or disapproval of such transactions.
In addition, pursuant to the charter of the Nominating/Corporate Governance Committee and the Director Code of Ethics, the Nominating/Corporate Governance Committee is generally responsible for considering conflicts of interest related to directors and executive officers and makes a recommendation to the Board with respect to any action to be taken. The director with an actual, potential or apparent conflict of interest does not participate in the decision-making process related to the transaction.
PS Business Parks • 2022 Proxy Statement • 61
Relationship with Public Storage
The properties in which the Company has an equity interest are generally owned by our operating partnership (thethe Operating Partnership).Partnership. As of February 26, 2021,25, 2022, the Company owned approximately 79.0%79.1% of the Operating Partnership’s common partnership units. The remaining common partnership units were owned by Public Storage and affiliated partnerships. The 7,305,355 units held by Public Storage and affiliated partnerships are redeemable (pursuant to the terms of the agreement of limited partnership of the Operating Partnership) by the holder for cash or, at the Company’s election, for shares of our Common Stock on a one-for-one basis. Upon conversion of the units to Common Stock, Public Storage and its affiliated partnerships would own approximately 41.6%41.4% of the Common Stock (based upon the Common Stock outstanding at February 26, 2021,25, 2022, and assuming such conversion).
PS Business Parks • 2021 Proxy Statement • 60
Management Agreement with Affiliates
The Operating Partnership operates industrial, retail, and office facilities for Public Storage and partnerships and joint ventures of which Public Storage is a general partner or joint venture (the Affiliated Entities) pursuant to a management agreement under which Public Storage and the Affiliated Entities pay to the Operating Partnership a fee of 5% of the gross revenues of the facilities operated for Public Storage and the Affiliated Entities. During 2020,2021, Public Storage and the Affiliated Entities paid fees of approximately $0.3 million to the Operating Partnership pursuant to that management agreement. In 2020,2021, we allocated approximately $0.4$0.3 million in operating expenses to Public Storage relating to the management agreement, including payroll and other overhead expenses.
Public Storage also provides property management services for the self-storage component of two assets owned by the Company. These self-storage facilities, located in Palm Beach County, Florida, operate under the “Public Storage” name. Under the property management contracts, Public Storage is compensated based on a percentage of the gross revenues of the facilities managed. Under the supervision of the Company, Public Storage coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activities, and the selection and engagement of vendors, suppliers, and independent contractors. In addition, Public Storage assists and advises the Company in establishing policies for the hire, discharge, and supervision of employees for the operation of these facilities, including on-site managers, assistant managers, and associate managers. Both the Company and Public Storage can cancel the property management contract upon 60 days’ notice. Management fees paid for these facilities were approximately $0.1 million for the year ended December 31, 2020,2021, and, in 2020,2021, Public Storage allocated approximately $0.1 million in operating expenses to us related to the management of the facilities, including payroll and overhead expenses. Public Storage also owns and licenses the PS Business Parks name and logo to the Company under a royalty-free license that may be terminated upon six months’ notice to the Company.
Cost Sharing and Other Arrangements with Public Storage
Pursuant to a cost sharing and administrative services arrangement, we share certain administrative services, corporate office space, and certain other third party arrangements with Public Storage which are allocated based upon time, effort, and other methodologies. For the year ended December 31, 2020,2021, Public Storage reimbursed us less than $0.1 million for costs paid on their behalf, and we reimbursed Public Storage $1.2$1.4 million in costs that Public Storage incurred on our behalf. We had net amounts due tofrom Public Storage of less than $0.1$0.2 million at December 31, 2020.2021.
Common Management/Board Members with Public Storage
Ronald L. Havner, Jr., Chairman of the Board, is also Chairman of Public Storage. Joseph D. Russell, Jr., a director, is also the President and Chief Executive OfficerCEO and a trustee of Public Storage. Kristy M. Pipes is also trustee of Public Storage.
PS Business Parks • 2022 Proxy Statement • 62
This section presents the ratio of annual total compensation of our Interimformer President and CEO, John W. PetersenDan M. Chandler, III (as disclosed in the Summary Compensation Table above)above and annualized for purposes of this pay ratio disclosure), to the annual total compensation of our median employee (excluding Mr. Petersen)Chandler). The ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act.
We selected the median employee based on the Company’s 154155 employees (excluding Mr. Petersen)Chandler) as of December 31, 2020.2021. In identifying our median employee, we calculated the annual total compensation of each employee as of December 31, 2020,2021, based on Form W-2 information. We did not apply any cost-of-living adjustments as part of the calculation. There has been no change in our employee population or employee compensation arrangement since the median employee was identified that we believe would significantly impact our pay ratio disclosure.
PS Business Parks • 2021 Proxy Statement • 61
The 2020 annualannualized 2021 total compensation for our CEO was $7,796,770. Because Mr. Chandler did not serve as disclosedour CEO for all of 2021, for purposes of the pay ratio calculation we annualized his 2021 compensation. As a result, the annual total compensation for Mr. Chandler for purposes of this pay ratio disclosure differs from the amounts shown in the Summary Compensation Table below, and as determined under Item 402on page 53 of Regulation S-K,this proxy statement, which reflects the actual compensation that Mr. Chandler earned or was $4,000,037.paid in 2021. The 20202021 annual total compensation for our median employee, as determined under Item 402 of Regulation S-K, was $91,540.$94,839. The ratio of our CEO’s annual total compensation to our median employee’s total compensation for fiscal year 20202021 is 4482 to 1. Mr. Chandler’s 2021 compensation included both a one-time sign-on RSU award and a retention RSU award, together having a grant date fair value of $6,584,406, which awards were granted in connection with his commencement of service as our CEO. Mr. Chandler’s normalized target annual equity award would have been a number of RSUs having a grant date fair value of $2,600,000. Adjusting Mr. Chandler’s 2021 compensation to reflect this normalized target annual equity award in lieu of his one-time sign-on and retention awards, Mr. Chandler’s annualized 2021 total compensation would have been $3,812,364, resulting in a ratio of our CEO’s annual total compensation to our median employee’s total compensation for 2021 of 40 to 1.
The Board recommends a vote FOR approval of
our executive compensation as described in this proxy statement.
PS Business Parks • 20212022 Proxy Statement • 6263
Approval of 2022 Equity and
ReincorporationPerformance-Based Incentive Compensation Plan
Approve the reincorporation of the Company from the State of California to the State of Maryland.2022 Equity and Performance-Based Incentive Compensation Plan
RECOMMENDATION:
Vote FOR approval of the 2022 Equity and Performance-Based Incentive Compensation Plan
PS Business Parks • 20212022 Proxy Statement • 6364
PROPOSAL 3
APPROVAL OF REINCORPORATION2022 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
On February 25, 2022, upon the recommendation of our Compensation Committee, our Board approved the PS Business Parks, Inc. 2022 Equity and Performance-Based Incentive Compensation Plan (the “2022 Plan”), subject to approval by our stockholders at this Annual Meeting or by February 25, 2023.
The 2022 Plan would replace the 2012 Plan, which terminated automatically on February 20, 2022 (ten years after its effective date), and would apply to awards granted on or after February 25, 2022.
Stockholder Approval
At our Annual Meeting, we are asking our stockholders to consider and approve adoption of the 2022 Plan.
Protection of Stockholder Interests and Alignment with Compensation Principles
The Board unanimously approved2022 Plan includes the following features designed to protect stockholder interests and recommendsreflect our compensation principles:
✓ | Fixed plan term of ten years; |
✓ | A ten-year maximum term for stock options and stock appreciation rights (SARs); |
✓ | No “evergreen” provision to automatically increase the number of shares available for issuance without stockholder approval; |
✓ | Awards granted pursuant to the 2022 Plan will be subject to our Incentive Compensation Recoupment Policy; |
✓ | No repricing without stockholder approval; |
✓ | Stock options and SARs must be granted at an exercise price that is at least equal to the fair market value of our Common Stock on the grant date; |
✓ | No liberal share recycling; |
✓ | Double-trigger change of control provisions that limit acceleration in a change of control unless the employee was also terminated without cause; and |
✓ | No payment of dividends on performance awards before performance standards are met. |
Importance of the 2022 Plan
Our equity plan continues to shareholdersbe a proposalcrucial component of our compensation program for our executives and other key employees. Without a stockholder-approved equity plan, we would be reliant on cash-settled awards as our sole method of incentive-based compensation. Our ability to changegrant equity-based awards is critical to us and our stockholders because equity-based awards allow us to make a substantial portion of our executive officers’ compensation at-risk and contingent on the Company’s stateoperating and stock-price performance over the long-term.
PS Business Parks • 2022 Proxy Statement • 65
Historical Burn Rate and Potential Dilution
The average rate at which we grant equity awards is well below the “burn rate” benchmark that ISS has set for our industry. The following table sets forth information relating to our historical burn rate under the 2012 Plan over the last three years:
| 2019 | 2020 | 2021 | Average | ||||||||||||
Shares underlying options granted(1) | 34,000 | 18,000 | 43,422 | 31,807 | ||||||||||||
RSUs and performance-based RSUs granted(1) | 6,400 | 46,036 | 76,266 | 42,901 | ||||||||||||
Weighted-average basic shares outstanding | 27,418,000 | 27,475,000 | 27,534,000 | 27,475,667 | ||||||||||||
Burn rate(2) | 0.15 | % | 0.23 | % | 0.43 | % | 0.27 | % | ||||||||
Adjusted burn rate(3) | 0.18 | % | 0.48 | % | 0.85 | % | 0.51 | % |
(1) | Represents the gross number of shares underlying option and RSU awards granted during the applicable year. |
(2) | Equity-based awards granted divided by weighted average shares outstanding. |
(3) | Adjusted to reflect the ISS “multiplier” counting each full value award (RSUs) as 2.5 option shares. |
The number of incorporationnew shares requested represents a reserve pool of approximately 2.7% of our Common Stock outstanding, which we believe puts us in line with market practices for share reserves based on a review of share reserve requests over the past two years among similar companies. The following table sets forth the total shares outstanding under the 2012 Plan and, assuming it is approved, the 2022 Plan as of February 25, 2022:
Shares available under the 2022 Plan | 750,000 | |||
Shares underlying outstanding awards(1) | 340,106 | |||
Shares remaining available under the 2012 Plan(2) | 0 | |||
Total shares authorized for or outstanding under awards | 1,090,106 | |||
Total Common Stock outstanding | 27,606,127 | |||
Overhang (shares available and outstanding divided by total Common Stock outstanding) | 3.9 | % |
(1) | Of such shares, 146,727 are option awards with a weighted average exercise price of $129.36 per share and a remaining contractual term of 6.58 years and 137,070 are RSUs. Also includes 56,309 performance-based RSUs that, if and when earned based on satisfaction of applicable performance conditions, would be settled in RSUs and subject to continued time vesting. Amounts shown reflect amounts that would be earned for maximum performance. At the target level, the amounts would be 45,047 performance-based RSUs. |
(2) | The 2012 Plan expired on February 20, 2022. |
We also maintain the amended and restated Retirement Plan for Non-Employee Directors (the Director Retirement Plan). Under the Director Retirement Plan, each non-employee director who joins the Board receives a grant of 10,000 deferred stock units that vest in ten equal annual installments on each of the first ten anniversaries of the date the director commences service on the Board subject to certain conditions. The awards are intended to retain and reward long-term service on the Board and to provide equity compensation to Board members. Deferred stock unit awards were made as follows: 32,000 in 2019, 0 in 2020 and 30,000 in 2021. As of the record date, 100,000 deferred stock units remain outstanding and 100,000 remain available for future issuance under the Director Retirement Plan.
Effectiveness of 2022 Plan
The 2022 Plan became effective on February 25, 2022, subject to approval of the plan by our stockholders at the Annual Meeting or by February 25, 2023. Upon approval of the 2022 Plan by our stockholders, all awards made under the plan between February 25, 2022 and the date of stockholder approval, will be fully effective as if our stockholders approved the plan on February 25, 2022. If our stockholders fail to approve the 2022 Plan on or before February 25, 2023, any award made under the plan will be null and void and of no effect. As of the date of this proxy statement, we had made no awards under the 2022 Plan.
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Equity Compensation Plan Information
The following table sets forth information as of December 31, 2021 on the Company’s equity compensation plans:
| Number of rights | Weighted options, | Number of plans | ||||||||||||
Equity compensation plans approved by security holders(1) | 159,570 | $ | 123.87 | (2) | 714,146 | ||||||||||
Equity compensation plans not approved by security holders(3) | - | - | - |
(1) | Represents shares of our Common Stock available for issuance under the 2012 Plan. The 2012 Plan expired on February 20, 2022. The Company’s stock option and stock incentive plans are described more fully in Note 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2021, included in the Annual Report on Form 10-K filed with the SEC on February 22, 2022. |
(2) | Represents the weighted average exercise price of 159,570 stock options outstanding at December 31, 2021. We also had 118,591 RSUs outstanding at December 31, 2021 that vest for no consideration. |
(3) | There are no securities available for future issuance or currently outstanding under plans not approved by the Company’s stockholders as of December 31, 2021. |
SUMMARY OF THE MATERIAL TERMS OF THE 2022 PLAN
In assessing the terms of the 2022 Plan, our Compensation Committee considered, among other things, the terms of the 2012 Plan, our compensation philosophy and practices, and feedback from our stockholders.
The following summary of the Statematerial terms of Californiathe 2022 Plan is qualified in its entirety by reference to the State of Maryland (the Reincorporation). If our shareholders approve the Reincorporation, we will complete the Reincorporation through the mergertext of the Company with and into a wholly-owned subsidiary of2022 Plan, which is attached to this proxy statement as Appendix B.
If approved by our stockholders, the Company formed under the laws of the State of Maryland for the purpose of the Reincorporation (PSB-Maryland), whereby the existence of the Company will cease and PSB-Maryland, as the surviving corporation, will succeed to all business, properties, assets, and liabilities of the Company, as described in more detail below. For the purposes of this Proposal 3, we sometimes refer to the Company as “PSB-California” prior to the Reincorporation and “PSB-Maryland” after the Reincorporation.
Following the Reincorporation:2022 Plan would:
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Purpose
The purposes of the 2022 Plan are to:
● | provide eligible persons with an incentive to contribute to the success of the Company and to operate and manage the Company’s business in a manner that will provide for the Company’s long-term growth and profitability to benefit its stockholders and other important stakeholders, including its employees and customers; and |
● | provide a means of hiring, rewarding, and retaining key personnel. |
PS Business Parks • 2022 Proxy Statement • 67
Types of Awards
The 2022 Plan provides for grants of the following specific types of awards and permits other equity-based or equity-related awards (each, an Award and, collectively, Awards). Each Award will be evidenced by an award agreement (together with any award statement or supplemental documents, an Award Agreement), which will govern that Award’s terms and conditions.
● | Stock Units. A stock unit, which includes an RSU, is an unfunded, unsecured obligation to deliver a share |
● | Restricted Stock. Restricted stock is Common Stock that is registered in the recipient’s name, but that is subject to transfer restrictions and may be subject to forfeiture or vesting conditions for a period of time as specified in the Award Agreement. |
The recipient of Restricted Stock has the rights of a stockholder, including voting and dividend rights, subject to any restrictions and conditions specified in the Award Agreement.
● | Dividend Equivalent Rights. A dividend equivalent right represents an unfunded and unsecured promise to pay to the recipient an amount equal to all or any portion of the regular cash dividends that would be paid on a specified number of shares of Common Stock if those shares were owned by the recipient. |
A dividend equivalent right may be granted alone or in connection with another Award, except that no dividend equivalent right may be granted in tandem with an option or SAR. Under the 2022 Plan, no payments will be made in respect of dividend equivalent rights before any applicable performance goals relating to the dividend equivalent right or the related Award are satisfied.
● | Options.An option entitles the recipient to purchase a share of Common Stock at an exercise price specified in the Award Agreement (which may be paid in cash or through a cashless exercise). As of February 25, 2022, the closing price of a share of |
Options become exercisable as specified in the Award Agreement. The term of an option cannot exceed ten years from the date of grant; provided that in the event the participant is a 10% stockholder, an option granted to such participant that is intended to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), will not be exercisable five years from the date of grant. Except in the case of substitute awards (as defined in the 2022 Plan), the exercise price of each option granted under the 2022 Plan cannot be less than the fair market value of a share of Common Stock on the grant date of such option; provided that in the event the participant is a 10% stockholder, an option granted to such participant that is intended to be an incentive stock option cannot be less than 110% of the fair market value of a share of Common Stock on the grant date of such option. All options granted under the 2022 Plan will be nonqualified stock options or incentive stock options.
● | Stock Appreciation Rights.SARs provide the recipient with the right to receive, upon exercise of the SAR, cash, shares of Common Stock, or a combination of the two. The amount that the recipient will receive upon exercise of the SAR generally will equal the excess of the fair market value of the Common Stock on the date of exercise over the per share strike price of the SAR as determined by the Compensation Committee. SARs will become exercisable in accordance with terms determined by the Compensation Committee. SARs may be granted in tandem with an option grant or independently from an option grant. The term of a SAR cannot exceed ten years from the date of grant. |
● | Performance-Based Awards.The 2022 Plan provides for the grant of performance-based awards, which are awards of options, SARs, restricted stock, stock units (including RSUs), performance shares, other equity-based awards, or cash made subject to the achievement of |
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● | Other Equity-Based Awards.The Compensation Committee may grant other types of |
Eligibility
The 2022 Plan permits grants of Awards to any employees (including officers), directors, consultants, and advisers (who are natural persons) currently providing services to the Company or its affiliates or subsidiaries, and any other individual whose participation in the 2022 Plan the Compensation Committee determines is in the best interests of the Company.
The Compensation Committee, in its discretion, will approve Awards to be granted under the 2022 Plan. We expect that substantially all Award grants pursuant to the 2022 Plan will be made to the Company’s employees, executive officers, and non-employee directors. As of February 25, 2022, the record date, the Company had approximately 163 employees, including 5 executive officers (consisting of Messrs. Wilson, Chandler, Khan, and Groves and Ms. Hawthorne), and 9 non-employee directors who were eligible to participate in the 2022 Plan. The approximate number of total persons eligible to participate in the 2022 Plan is 174.
Term
The 2022 Plan will terminate on, and no more Awards will be permitted to be granted thereunder without further stockholder approval on or after, February 25, 2032. The termination of the 2022 Plan will not affect previously granted Awards. We expect to seek stockholder approval of a new equity compensation plan before expiration of the 2022 Plan, when we have used all shares available for grant under the 2022 Plan, or if earlier approval is otherwise deemed appropriate by our Compensation Committee (see—“Shares Subject to the 2022 Plan; Other Limitations of Awards”below).
Administration
Except where authority to act on matters is specifically reserved to the Board under the 2022 Plan or applicable law, the Compensation Committee will administer the 2022 Plan and will have the authority to make all determinations in its discretion that it deems necessary or advisable for the administration of the 2022 Plan. The Compensation Committee may also delegate to one or more directors the authority to grant awards to employees and other service providers who are not subject to Section 16 of the Exchange Act.
References to the Compensation Committee include reference to the Board and/or other delegates of the Compensation Committee for those periods when the Board or such other delegate(s) appointed by the Compensation Committee are acting.
Shares Subject to the 2022 Plan; Other Limitations of Awards
The number of shares of Common Stock that may be issued under the 2022 Plan is 750,000 shares of Common Stock. As of February 25, 2022, the record date, up to 340,106 shares of Common Stock may be issued pursuant to awards outstanding under the 2012 Plan.
If an award issued under the 2022 Plan terminates by expiration, forfeiture, cancellation, or otherwise without the related issuance of shares of Common Stock, then such unissued shares will again be available for awards under the 2022 Plan.
PS Business Parks • 2022 Proxy Statement • 69
However, the number of shares of Common Stock issuable under the 2022 Plan will not be increased by the number of shares of Common Stock (i) tendered or withheld or subject to an award surrendered in connection with the purchase of shares upon exercise of an option, (ii) deducted or delivered from payment of an award of an option in connection with the Company’s tax withholding obligations, or (iii) purchased by the Company with proceeds from option exercises.
● | The maximum number of shares of Common Stock subject to options or SARs that can be granted under the 2022 Plan to any person in a calendar year is 250,000 shares. |
● | The maximum number of shares of Common Stock that can be granted under the 2022 Plan, other than pursuant to options or SARs, to any person in a calendar year is 250,000 shares. |
● | The maximum amount that may be paid as a cash-settled performance-based award for a performance period of twelve months or less to any person is $10 million. |
In the event of any increase or decrease in the number of issued shares of Common Stock (or issuance of shares of stock other than shares of Common Stock) resulting from certain corporate transactions that affect the Company’s capitalization, the Compensation Committee will adjust the number of shares of Common Stock issuable under the 2022 Plan and the terms of any outstanding Awards in such manner as it deems appropriate to prevent the enlargement or dilution of rights.
Amendment
The Board may, at any time, amend, suspend, or terminate the 2022 Plan; provided, however, that that no amendment, suspension, or termination may impair rights or obligations under any outstanding award without the participant’s consent. The stockholders must approve any amendment if such approval is required under applicable law or stock exchange requirements. The stockholders also must approve any amendment that changes the no-repricing provisions of the 2022 Plan.
In general, we will seek stockholder approval of any amendment, suspension, or termination to the extent necessary to comply with NYSE listing standards and any applicable law, rule, or regulation, including any amendment to increase the shares of Common Stock available under the 2022 Plan.
Change in Control
A change in control occurs under the 2022 Plan upon any of the following:
● | the dissolution or liquidation of the Company or a merger, consolidation, or reorganization (other than with Public Storage or its affiliates) in which the Company is not the surviving corporation; |
● | the sale of substantially all Company |
● | a merger in which the |
● | the acquisition, sale, or transfer of more than 50% of the Company’s |
● | any other transaction that the |
Accelerated Vesting if Awards Not Assumed. Except as otherwise provided in the applicable Award Agreement or in another agreement with the participant, or as otherwise set forth in writing, if the Company experiences a change in control where awards will not be assumed or continued by the surviving entity:
● | except for performance-based awards, (i) all outstanding awards of restricted stock, stock units, and |
PS Business Parks • 2022 Proxy Statement • 70
control, all options and SARs will become immediately exercisable and will remain exercisable for a period of 15 days; and/or (ii) the Compensation Committee may elect to cancel any outstanding awards of options, restricted stock, stock units, dividend equivalent rights, and/or SARs and pay or deliver, or cause to be paid or delivered, to the holder of such award an amount in cash or securities having a value, in the case of restricted stock, stock units, and dividend equivalent rights, equal to the formula or fixed price per share paid to holders of our Common Stock pursuant to such change in control and, in the case of options or SARs, equal to the product of the number of shares of our Common Stock subject to such options or SARs multiplied by the amount, if any, by which (x) the formula or fixed price per share paid to holders of our Common Stock pursuant to such transaction exceeds (y) the applicable exercise price; |
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● | other equity-based awards will be governed by the terms of the applicable Award Agreement. |
Double-Trigger Accelerated Vesting if Awards Assumed. If the Company experiences a change in control where awards will be assumed or continued by the surviving entity and do not otherwise accelerate or become exercisable at such time, the assumed or continued awards will not vest unless (in addition to any other conditions set forth in the Award Agreement):
● | the change in control occurs; and |
● | the |
REASONS FOR THE REINCORPORATIONMandatory Repayment and Clawback
WhenAny Award granted pursuant to the 2022 Plan will be subject to the Company’s Incentive Compensation Recoupment Policy, which applies any officer of the Company was originally reorganized fromthat is subject to Section 16 of the Exchange Act. Refer to “Incentive Compensation Recoupment Policy (Clawback Policy)” on page 61 of this proxy statement for a California limited partnershipsummary of the policy. In addition, Awards may also be subject to mandatory repayment pursuant to any law, rule, or regulation that imposes mandatory recoupment, under circumstances set forth in such law, rule, or regulation.
The Compensation Committee may reserve the right in an Award Agreement to cause a California corporationforfeiture of the gain realized by a participant with respect to an Award on account of actions taken by, or failed to be taken by, such participant in 1990, it was a small, privately-controlled company focused on propertiesviolation or breach of or in California. The decision then to incorporate in California reflected the Company’s status as a private company, locationconflict with any (a) employment agreement, (b) non-competition agreement, (c) agreement prohibiting solicitation of its shareholders and focus on conducting business within the state. Today,employees or clients of the Company or any affiliate of the Company, (d) confidentiality obligation with respect to the Company or any affiliate of the Company, (e) Company policy or procedure, (f) other agreement, or (g) any other obligation of such participant to the Company or any affiliate of the Company, as and to the extent specified in such Award Agreement. Furthermore, the Compensation Committee may annul an Award if the recipient is a publicly-traded REIT that ownsan employee of the Company and operates about 27.7 million rentable square feet of commercial space in six states. As of March 1, 2021, the market value of our outstanding Common Stock was approximately $4.0 billionis terminated for Cause.
Performance-Based Compensation
The Compensation Committee may designate whether any Awards, such as restricted stock, options, stock units, or cash awards being granted are intended to be performance-based compensation. The performance goals used for such awards may be based on the closing price of our Common Stock on the New York Stock Exchange and our Common Stock is widely held by institutional and individual shareholders located throughout the world.
The Board believes that the choiceany one or more of the state of incorporation is important because state corporate law governs the internal affairs of a corporation. Management and boards of directors of corporations look to state corporate law and judicial interpretations of state law to guide their decision-making on many key issues, including appropriate governance policies and procedures, satisfaction of director duties to shareholders, and consideration of key strategic transactions for the corporation, including financings, mergers, acquisitions, and divestitures.following performance measures (or such other
PS Business Parks • 20212022 Proxy Statement • 6471
We believeperformance measures as the Company isCompensation Committee may determine), which may reflect objective or subjective criteria, as selected by the only publicly-traded REIT incorporated in California. On the other hand, a substantial majority of publicly-traded REITs, including most of the Company’s peers, are domiciled in Maryland, either as Maryland corporations or Maryland real estate investment trusts.
The concentration of REITs domiciled in Maryland has been driven by (i) Maryland’s comprehensive, modern, and flexible corporate laws that are periodically updated and revised to meet changing business needs and (ii) Maryland statutory and judicial laws that provide more certainty to REIT boards and management on legal matters particularly relevant to REITs. For example, as compared to the California Corporations Code, the MGCL and other provisions of Maryland law are more favorable in permitting charter restrictions on the transferability of capital stock, which are necessary to satisfy REIT tax qualification requirements. As a result of this concentration of REITs in Maryland, Maryland courts have developed a greater expertise than California courts in dealing with REITs and REIT issues and thus have developed a greater body of relevant case law.
The Board believes that the MGCL and Maryland’s established body of relevant case law are more conducive to the operations of a REIT than the laws and policies of California and provide the directors and management of a REIT with greater certainty and predictability in managing its affairs. As a result of the above and the anticipated benefits and possible negatives of Reincorporation summarized below, the Board believes that being incorporated in Maryland and being governed by Maryland law would be in the best interest of the Company and its shareholders.
Maryland law offers protections not available under California law in the event of an unsolicited takeover attempt. These include the Maryland Unsolicited Takeovers Act (MUTA), the Maryland Business Combinations Act, and the Maryland Control Share Acquisition Act. While the Company recognizes that these laws may be used by companies in a manner that can protect shareholder interests, the Company understands that many of its shareholders believe these Maryland law provisions may be used in a manner that can be harmful to shareholder interests. The Company also believes that it has sufficient existing protections against unsolicited takeover attempts that are not in the best interests of the Company and its shareholders. Therefore, the proposed PSB-Maryland charter provides that PSB-Maryland will opt out of these Maryland law provisions and will not be able to opt in without shareholder approval.
While the Board believes that the Reincorporation is in the best interests of the Company and its shareholders, California and Maryland law differ in some respects. The rights of shareholders and the powers of our Board under California and Maryland law are discussed in more detail below. See “Comparison of Shareholder Rights.”
WHAT ARE THE BENEFITS OF THE REINCORPORATION?
The Board believes that the Company will benefit from the Reincorporation proposal in several ways, including:Compensation Committee:
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● | NOI (including on a cash basis) and Same Store NOI; |
● | FFO; |
● | intrinsic business value; |
● | implementation or completion of |
● | return on invested capital; |
● | rental income, transaction costs, occupancy, or geographic business expansion; |
● | customer or employee satisfaction or human resources management; |
● | operations, cost targets, reductions and savings, productivity and efficiencies, legal matters, or information technology; |
● | compliance, financial controls and savings, investor relations, or staffing; |
● | ESG criteria; and |
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The Company intendsThese performance measures (a) may be used to maintain and enhance its strong governance profile, notwithstandingmeasure the flexibility to do otherwise under Maryland law, including:
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WHAT ARE THE DISADVANTAGES OF THE REINCORPORATION?
While the Board believes that the Reincorporation is in the best interestsperformance of (i) the Company and its shareholders, Californiasubsidiaries and Maryland law differ in some respects. In these instances, some shareholdersother affiliates as a whole, (ii) the Company, any subsidiary of the Company, and/or any other affiliate of the Company or any combination thereof, or (iii) any one or more business units of the Company, any subsidiary of the Company, and/or any other affiliate of the Company, as the Compensation Committee deems appropriate, and (b) may prefer California law. Abe compared to the performance of one or more other companies or one or more published or special indices designated or approved by the Compensation Committee for such comparison, as the Compensation Committee deems appropriate. The Compensation Committee also has the authority to provide for accelerated vesting of any performance-based award based on the achievement of performance goals.
Other Terms of Awards
No recipient of any Award under the 2022 Plan (other than restricted stock) will have any of the rights of shareholdersa stockholder of the Company with respect to shares subject to an Award until the delivery of the shares, except that holders of stock units may be entitled to amounts equal to the dividends declared and paid on the powers of our Board and our officers under California law andunderlying shares to the current charter and bylaws compared to Maryland law andextent the proposed PSB-Maryland charter and bylaws is set forth below.applicable performance goals are satisfied (for performance-based stock units).
MECHANISM FOR REINCORPORATIONNew Awards
If the Reincorporation is approved by the Company’s shareholders, the ReincorporationThe awards, if any, that will be accomplished bymade to eligible recipients under the merger2022 Plan are subject to the Compensation Committee’s discretion, and we cannot currently determine the benefits or number of PSB-California with and into PSB-Maryland wherebyshares subject to awards that may be granted to eligible recipients under the separate legal existence of PSB-California will cease and PSB-Maryland, as the surviving corporation, will succeed to all business, properties, assets, and liabilities of PSB-California. As a result of the Merger, the Company’s legal domicile will2022 Plan. Therefore, no new plan benefits table can be changed from California to Maryland.provided at this time.
PS Business Parks • 2021 Proxy Statement • 66
Upon the terms and subject to the conditions of the Agreement and Plan of Merger, a form of which is attached hereto as Annex A, by and between PSB-California and PSB-Maryland (the Merger Agreement), at the Effective Time (as defined in the Merger Agreement), each outstanding share of the Common Stock, par value $0.01 per share, of PSB-California will be converted into one share of Common Stock, par value $0.01 per share, of PSB-Maryland, and each outstanding depositary share representing 1/1,000 of a share of cumulative preferred stock of PSB-California will be converted into one depositary share representing 1/1,000 of a cumulative preferred share of beneficial interest, on the same terms of such depositary share’s respective series, of PSB-Maryland. In addition, at the Effective Time, each outstanding option, warrant or other right to purchase shares of PSB-California will continue outstanding as an option, warrant or other right to purchase shares of PSB-Maryland, upon the same terms and conditions as exist immediately prior to the Effective Time.
If the Reincorporation is approved by our shareholders, the Reincorporation will become effective when articles of merger are filed with and accepted for record by the State Department of Assessments and Taxation of the State of Maryland and when the certificate of merger is accepted for record by the Secretary of State of the State of California. If the Reincorporation is approved, we anticipate that the Board will cause the Reincorporation to be effected as soon as reasonably practicable following such approval. However, the Reincorporation may be delayed or terminated and abandoned by action of the Board at any time prior to the Effective Time, whether before or after the approval by the Company’s shareholders, if the Board determines for any reason that the consummation of the Reincorporation should be delayed or would be inadvisable or not in the best interests of the Company and its shareholders, as the case may be.
At the Effective Time of the Reincorporation, our Common Stock and depositary shares will continue to be traded on the New York Stock Exchange under the symbols “PSB,” “PSBPrW,” PSBPrX,” “PSBPrY” and “PSBPrZ.” There will be no interruption in the trading of our capital stock as a result of the Reincorporation. The Company will continue to file periodic reports and other documents with the SEC and provide to its shareholders the same type of information that it has previously filed and provided.
PSB-Maryland will change its name to “PS Business Parks, Inc.” as part of the merger and, consequently, the Reincorporation will not result in any change in the Company’s name. In addition, the Reincorporation will not, in and of itself, result in any change in the business, management, assets, liabilities or shareholders’ equity of the Company. The Company will continue to operate as a fully-integrated, self-advised and self-managed REIT that owns, operates, acquires and develops commercial properties, primarily multi-tenant industrial, flex, and office space. The directors and officers of PSB-California prior to the merger will be the directors and officers of PSB-Maryland after the merger, assuming the director nominees named in Proposal I of this proxy statement are re-elected at the Annual Meeting. The Company’s principal executive offices will not be changed.
Except for any changes attributable to the differences between the PSB-California charter and bylaws and the PSB-Maryland charter and bylaws, and between the California Corporations Code and the MGCL, as generally described below under “Comparison of Shareholder Rights,” the Company anticipates that the merger will not cause any significant change in the business or financial condition of the Company, and the Company anticipates that the merger will not cause any change in the Company’s management or day-to-day operations.
Following the Reincorporation, the transfer agent for PSB-Maryland will continue to be American Stock Transfer & Trust Company.
ACCOUNTING TREATMENT OF THE REINCORPORATION
The Reincorporation will have no effect on the Company from an accounting perspective because there will be no change in the entity as a result of the Reincorporation. Accordingly, the historical consolidated financial statements of PSB-California previously reported to the SEC as of and for all periods through the date of this proxy statement will remain the consolidated financial statements of PSB-Maryland.
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To the Company’s knowledge, the only required regulatory or governmental approval or filing necessary in connection with the consummation of the Reincorporation will be the filing of the articles of merger with the State Department of Assessments and Taxation of the State of Maryland and the filing of the certificate of merger with the Secretary of State of the State of California.
DISSENTERS’ RIGHTS OF APPRAISAL FOR REINCORPORATION MERGERS
Pursuant to California law, if the Reincorporation is approved by the Company’s shareholders, shareholders who dissent from the Reincorporation will not be entitled to appraisal rights.
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Reincorporation, the rights of the shareholders of the Company will be governed by the applicable laws of the State of Maryland, including the MGCL, and by the charter and bylaws of PSB-Maryland, which will effect some changes in the rights of our shareholders. The following is a summary comparison of the current rights of our shareholders under the California Corporations Code and the PSB-California charter and bylaws and the future rights of our shareholders under the MGCL and the PSB-Maryland charter and bylaws, if the Reincorporation is approved by our shareholders.
The statements in this section are qualified in their entirety by reference to, and are subject to, the detailed provisions of the California Corporations Code and the PSB-California charter and bylaws, and the MGCL and the PSB-Maryland charter and bylaws. Copies of the PSB-California charter and bylaws, respectively, have been previously filed with the SEC, and copies of the PSB-Maryland charter and bylaws are attached as Annexes B and C, respectively, to this proxy statement. The Company will send copies of the PSB-California charter and bylaws and the PSB-Maryland charter and bylaws to shareholders upon request without charge.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
None. We believe that the Reincorporationshares lapse, the recipient will not recognize any additional income. If the recipient does not make the Section 83(b) election, the fair market value of the Common Stock on the date the restrictions lapse (less the purchase price, if any) will be a tax-free reorganization undertreated as compensation income to the Code. Assuming the Reincorporation qualifies as a reorganization under the Code, no gain or lossrecipient and will be recognizedtaxable in the year the restrictions lapse, and dividends paid while the Common Stock is subject to restrictions will be subject to withholding taxes. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the holderslimitations of the Company’s Common Section 162(m).
Stock or preferred stock as a result of the Reincorporation, andUnits (including RSUs). There are no gain or loss will be recognized by PSB-California or PSB-Maryland for U.S. federal income tax purposes. Each former holder of stock of PSB-California will have the same basis in the stock of PSB-Maryland received by such holder pursuant to the Reincorporation as such holder has in the stock of PSB-California held by such holder prior to the Reincorporation. Each shareholder’s holding period with respect to the PSB-California stock will include the period during which such holder held the corresponding PSB-California stock, provided the latter was held by such holder as a capital asset at the time of the Reincorporation. We have not obtained a ruling from the Internal Revenue Service (the IRS) or an opinion of legal counsel or tax advisor with respect to theimmediate U.S. federal income tax consequences of receiving an award of Stock Units under the Reincorporation,2022 Plan. A recipient who is awarded Stock Units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued or, for a cash-settled award, the amount of the cash payment made, to such recipient at the later of the end of the restriction period or the payment date. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
Dividend Equivalent Rights. Recipients who receive Dividend Equivalent Rights or cash awards under the 2022 Plan will be required to recognize ordinary income in an amount distributed to the recipient pursuant to the award. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
Other Equity-Based Awards. A recipient generally will recognize income upon receipt of the shares subject to the other equity-based award (or, if later, at the time of vesting of such shares).
Section 280G. If payments contingent on a change in control are determined to exceed certain limitations, such payments may be subject to a 20% nondeductible excise tax, and the IRS could reachCompany’s deduction for the associated compensation expense may be disallowed in whole or in part. The 2022 Plan includes a different conclusion as toSection 280G “best after tax” provision, which provides that if any payments under the U.S. federal income tax consequences2022 Plan or otherwise would constitute parachute payments under Section 280G of the Reincorporation. We urge our shareholders to consult their own tax advisors as to any federal, state, local and foreign tax consequences of the Reincorporation.
Approval of the Proposal 3 requires the affirmative vote of (a) the holders of at least a majority of the outstanding shares of Common Stock and (b) the holders of at least a majority of outstanding preferred stock (voting as a single class). Abstentions and broker shares that are not voted on this proposal have the same effect as a vote against the proposal. Approval of this Proposal 3 constitutes approval of the Reincorporation, as well as approval of the Merger Agreement and the PSB-Maryland charter and bylaws.
If this Proposal 3 fails to obtain the requisite vote for approval, the Reincorporation will not be consummated and the Company will continue to be incorporated in CaliforniaCode and be subject to the currentexcise tax imposed under Section 4999 of the Code, then the payments will be reduced by the amount required to avoid the excise tax if the reduction would give the recipient a better PSB-Californiaafter-tax charterresult than if the recipient received the payments in full.
Section 409A. It is the intention of the Company that the 2022 Plan and bylaws.awards granted under the 2022 Plan either be exempt from, or comply with, Section 409A of the Code.
VOTE REQUIRED AND RECOMMENDATION
The proposed amendments toaffirmative vote of a majority of the Company’s bylaws relating to proxy access, majority votingvotes cast at the Annual Meeting is necessary for directors in uncontested elections and exclusive forum are conditioned on the approval of Proposal 3. If Proposal 3 fails the Board may in2022 Plan. For purposes of the future amendvote on this proposal, abstentions and broker non-votes will not affect the PSB-California bylaws to provide for proxy access or an exclusive forum without the approval of shareholders.vote.
The Board recommends a vote FOR approval of
the Reincorporation of the Company from the State of California to the State of Maryland2022 Equity and Performance-Based Incentive Compensation Plan
as described in this proxy statement.
PS Business Parks • 20212022 Proxy Statement • 7974
RatificationJennifer Holden Dunbar
Maria R. Hawthorne
M. Christian Mitchell
Irene H. Oh
Kristy M. Pipes
Gary E. Pruitt
Robert S. Rollo
Joseph D. Russell, Jr.
Peter Schultz
Stephen W. Wilson
John W. Petersen
Jeffrey D. Hedges
Trenton A. Groves
All Directors and Executive Officers as a Group (14 persons)
* | Less than 1% |
(1) | Represents shares of |
(2) |
|
(3) | Includes 4,425 shares of Common Stock held by Ms. Dunbar and her spouse as trustees of the Lilac II Trust. |
PS Business Parks • 2022 Proxy Statement • 60
ADDITIONAL INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS; CERTAIN RELATIONSHIPS
Incentive Compensation Recoupment Policy (Clawback Policy)
The Board has adopted an Incentive Compensation Recoupment Policy which applies to an officer of the Company that is subject to Section 16 of the Exchange Act. Pursuant to this policy, in the event the Company’s financial results (i) are restated due to material noncompliance with any financial reporting requirement or (ii) have been determined by the Board to have been materially misstated, then an independent committee of the Board may require any covered officer to repay to the Company all or part of any “Excess Compensation” that such officer had previously received. Excess Compensation is defined as that part of the cash or equity incentive compensation received by a covered officer during the three-year period preceding the restatement or material misstatement determination that was in excess of the amount that such officer would have received had such incentive compensation been calculated based on the restated or corrected financial results.
Policy Regarding Pledging of Shares
Our insider trading policy discourages (but does not prohibit) the pledging of shares of Common Stock by insiders. We have considered the fact that Mr. Havner holds 155,584 shares in a joint margin account in light of the Company’s securities trading policy and the position of ISS Corporate Solutions (ISS), which is that pledges of shares of Common Stock by insiders may adversely affect stockholders if the insiders are forced to sell their shares of Common Stock. We believe that this existing margin account arrangement does not present a significant risk of a foreclosure or an unexpected sale of large volumes of Common Stock by Mr. Havner in the open market. None of Mr. Havner’s shares that are held in the joint margin account have been pledged as security for a loan. In the Board’s view, these arrangements are unlikely to result in adverse effects to stockholders.
Anti-Hedging Policy
Our insider trading policy includes an anti-hedging provision that prohibits directors, officers, and employees from directly or indirectly engaging in hedging against future declines in the market value of any securities of the Company. The objective of this policy is to enhance alignment between the interests of our directors, officers, and employees and those of our stockholders.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of any registered class of our equity securities, to file with the SEC initial reports of beneficial ownership of PS Business Parks’ equity securities on Form 3 and reports of changes in beneficial ownership on Form 4 or Form 5. As a matter of practice, we typically assist our executive officers and directors with these matters and file these reports on their behalf.
Based solely on a review of reports we filed on behalf of our directors and executive officers, and written representations from these individuals that no other reports were required, all reports on behalf of our directors and executive officers were filed on a timely basis under Section 16(a), except for one report for Jeffrey D. Hedges regarding an award of RSUs and two reports for Trenton Groves regarding an award of RSUs and the Company’s redemption of preferred shares, which were reported late due to an administrative error.
Related Party Transaction Approval Policies and Procedures
The Audit Committee, in accordance with its charter, must review any related party transaction and make recommendations to the independent and disinterested directors of the Board with respect to approval or disapproval of such transactions.
PS Business Parks • 2022 Proxy Statement • 61
Relationship with Public Storage
The properties in which the Company has an equity interest are generally owned by the Operating Partnership. As of February 25, 2022, the Company owned approximately 79.1% of the Operating Partnership’s common partnership units. The remaining common partnership units were owned by Public Storage and affiliated partnerships. The 7,305,355 units held by Public Storage and affiliated partnerships are redeemable (pursuant to the terms of the agreement of limited partnership of the Operating Partnership) by the holder for cash or, at the Company’s election, for shares of our Common Stock on a one-for-one basis. Upon conversion of the units to Common Stock, Public Storage and its affiliated partnerships would own approximately 41.4% of the Common Stock (based upon the Common Stock outstanding at February 25, 2022, and assuming such conversion).
Management Agreement with Affiliates
The Operating Partnership operates industrial, retail, and office facilities for Public Storage and partnerships and joint ventures of which Public Storage is a general partner or joint venture (the Affiliated Entities) pursuant to a management agreement under which Public Storage and the Affiliated Entities pay to the Operating Partnership a fee of 5% of the gross revenues of the facilities operated for Public Storage and the Affiliated Entities. During 2021, Public Storage and the Affiliated Entities paid fees of approximately $0.3 million to the Operating Partnership pursuant to that management agreement. In 2021, we allocated approximately $0.3 million in operating expenses to Public Storage relating to the management agreement, including payroll and other overhead expenses.
Public Storage also provides property management services for the self-storage component of two assets owned by the Company. These self-storage facilities, located in Palm Beach County, Florida, operate under the “Public Storage” name. Under the property management contracts, Public Storage is compensated based on a percentage of the gross revenues of the facilities managed. Under the supervision of the Company, Public Storage coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activities, and the selection and engagement of vendors, suppliers, and independent contractors. In addition, Public Storage assists and advises the Company in establishing policies for the hire, discharge, and supervision of employees for the operation of these facilities, including on-site managers, assistant managers, and associate managers. Both the Company and Public Storage can cancel the property management contract upon 60 days’ notice. Management fees paid for these facilities were approximately $0.1 million for the year ended December 31, 2021, and, in 2021, Public Storage allocated approximately $0.1 million in operating expenses to us related to the management of the facilities, including payroll and overhead expenses. Public Storage also owns and licenses the PS Business Parks name and logo to the Company under a royalty-free license that may be terminated upon six months’ notice to the Company.
Cost Sharing and Other Arrangements with Public Storage
Pursuant to a cost sharing and administrative services arrangement, we share certain administrative services, corporate office space, and certain other third party arrangements with Public Storage which are allocated based upon time, effort, and other methodologies. For the year ended December 31, 2021, Public Storage reimbursed us less than $0.1 million for costs paid on their behalf, and we reimbursed Public Storage $1.4 million in costs that Public Storage incurred on our behalf. We had net amounts due from Public Storage of $0.2 million at December 31, 2021.
Common Management/Board Members with Public Storage
Ronald L. Havner, Jr., Chairman of the Board, is also Chairman of Public Storage. Joseph D. Russell, Jr., a director, is also the President and CEO and a trustee of Public Storage. Kristy M. Pipes is also trustee of Public Storage.
PS Business Parks • 2022 Proxy Statement • 62
This section presents the ratio of annual total compensation of our former President and CEO, Dan M. Chandler, III (as disclosed in the Summary Compensation Table above and annualized for purposes of this pay ratio disclosure), to the annual total compensation of our median employee (excluding Mr. Chandler). The ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act.
We selected the median employee based on the Company’s 155 employees (excluding Mr. Chandler) as of December 31, 2021. In identifying our median employee, we calculated the annual total compensation of each employee as of December 31, 2021, based on Form W-2 information. We did not apply any cost-of-living adjustments as part of the calculation. There has been no change in our employee population or employee compensation arrangement since the median employee was identified that we believe would significantly impact our pay ratio disclosure.
The annualized 2021 total compensation for our CEO was $7,796,770. Because Mr. Chandler did not serve as our CEO for all of 2021, for purposes of the pay ratio calculation we annualized his 2021 compensation. As a result, the annual total compensation for Mr. Chandler for purposes of this pay ratio disclosure differs from the amounts shown in the Summary Compensation Table on page 53 of this proxy statement, which reflects the actual compensation that Mr. Chandler earned or was paid in 2021. The 2021 annual total compensation for our median employee, as determined under Item 402 of Regulation S-K, was $94,839. The ratio of our CEO’s annual total compensation to our median employee’s total compensation for 2021 is 82 to 1. Mr. Chandler’s 2021 compensation included both a one-time sign-on RSU award and a retention RSU award, together having a grant date fair value of $6,584,406, which awards were granted in connection with his commencement of service as our CEO. Mr. Chandler’s normalized target annual equity award would have been a number of RSUs having a grant date fair value of $2,600,000. Adjusting Mr. Chandler’s 2021 compensation to reflect this normalized target annual equity award in lieu of his one-time sign-on and retention awards, Mr. Chandler’s annualized 2021 total compensation would have been $3,812,364, resulting in a ratio of our CEO’s annual total compensation to our median employee’s total compensation for 2021 of 40 to 1.
The Board recommends a vote FOR approval of
our executive compensation as described in this proxy statement.
PS Business Parks • 2022 Proxy Statement • 63
Approval of 2022 Equity and
Performance-Based Incentive Compensation Plan
* |
|
(1) |
|
(2) | Includes 155,584 shares held by Mr. Havner in a joint margin account with his spouse. Does not include shares owned by Public Storage as to which Mr. Havner disclaims beneficial ownership. Mr. Havner is Chairman of the |
(3) | Includes 4,425 shares of Common Stock held by Ms. Dunbar and her spouse as trustees of the Lilac II Trust. |
PS Business Parks • 2022 Proxy Statement • 60
ADDITIONAL INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS; CERTAIN RELATIONSHIPS
Incentive Compensation Recoupment Policy (Clawback Policy)
The Board has adopted an Incentive Compensation Recoupment Policy which applies to an officer of the Company that is subject to Section 16 of the Exchange Act. Pursuant to this policy, in the event the Company’s financial results (i) are restated due to material noncompliance with any financial reporting requirement or (ii) have been determined by the Board to have been materially misstated, then an independent committee of the Board may require any covered officer to repay to the Company all or part of any “Excess Compensation” that such officer had previously received. Excess Compensation is defined as that part of the cash or equity incentive compensation received by a covered officer during the three-year period preceding the restatement or material misstatement determination that was in excess of the amount that such officer would have received had such incentive compensation been calculated based on the restated or corrected financial results.
Policy Regarding Pledging of Shares
Our insider trading policy discourages (but does not prohibit) the pledging of shares of Common Stock by insiders. We have considered the fact that Mr. Havner holds 155,584 shares in a joint margin account in light of the Company’s securities trading policy and the position of ISS Corporate Solutions (ISS), which is that pledges of shares of Common Stock by insiders may adversely affect stockholders if the insiders are forced to sell their shares of Common Stock. We believe that this existing margin account arrangement does not present a significant risk of a foreclosure or an unexpected sale of large volumes of Common Stock by Mr. Havner in the open market. None of Mr. Havner’s shares that are held in the joint margin account have been pledged as security for a loan. In the Board’s view, these arrangements are unlikely to result in adverse effects to stockholders.
Anti-Hedging Policy
Our insider trading policy includes an anti-hedging provision that prohibits directors, officers, and employees from directly or indirectly engaging in hedging against future declines in the market value of any securities of the Company. The objective of this policy is to enhance alignment between the interests of our directors, officers, and employees and those of our stockholders.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of any registered class of our equity securities, to file with the SEC initial reports of beneficial ownership of PS Business Parks’ equity securities on Form 3 and reports of changes in beneficial ownership on Form 4 or Form 5. As a matter of practice, we typically assist our executive officers and directors with these matters and file these reports on their behalf.
Based solely on a review of reports we filed on behalf of our directors and executive officers, and written representations from these individuals that no other reports were required, all reports on behalf of our directors and executive officers were filed on a timely basis under Section 16(a), except for one report for Jeffrey D. Hedges regarding an award of RSUs and two reports for Trenton Groves regarding an award of RSUs and the Company’s redemption of preferred shares, which were reported late due to an administrative error.
Related Party Transaction Approval Policies and Procedures
The Audit Committee, in accordance with its charter, must review any related party transaction and make recommendations to the independent and disinterested directors of the Board with respect to approval or disapproval of such transactions.
PS Business Parks • 2022 Proxy Statement • 61
Relationship with Public Storage
The properties in which the Company has an equity interest are generally owned by the Operating Partnership. As of February 25, 2022, the Company owned approximately 79.1% of the Operating Partnership’s common partnership units. The remaining common partnership units were owned by Public Storage and affiliated partnerships. The 7,305,355 units held by Public Storage and affiliated partnerships are redeemable (pursuant to the terms of the agreement of limited partnership of the Operating Partnership) by the holder for cash or, at the Company’s election, for shares of our Common Stock on a one-for-one basis. Upon conversion of the units to Common Stock, Public Storage and its affiliated partnerships would own approximately 41.4% of the Common Stock (based upon the Common Stock outstanding at February 25, 2022, and assuming such conversion).
Management Agreement with Affiliates
The Operating Partnership operates industrial, retail, and office facilities for Public Storage and partnerships and joint ventures of which Public Storage is a general partner or joint venture (the Affiliated Entities) pursuant to a management agreement under which Public Storage and the Affiliated Entities pay to the Operating Partnership a fee of 5% of the gross revenues of the facilities operated for Public Storage and the Affiliated Entities. During 2021, Public Storage and the Affiliated Entities paid fees of approximately $0.3 million to the Operating Partnership pursuant to that management agreement. In 2021, we allocated approximately $0.3 million in operating expenses to Public Storage relating to the management agreement, including payroll and other overhead expenses.
Public Storage also provides property management services for the self-storage component of two assets owned by the Company. These self-storage facilities, located in Palm Beach County, Florida, operate under the “Public Storage” name. Under the property management contracts, Public Storage is compensated based on a percentage of the gross revenues of the facilities managed. Under the supervision of the Company, Public Storage coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activities, and the selection and engagement of vendors, suppliers, and independent contractors. In addition, Public Storage assists and advises the Company in establishing policies for the hire, discharge, and supervision of employees for the operation of these facilities, including on-site managers, assistant managers, and associate managers. Both the Company and Public Storage can cancel the property management contract upon 60 days’ notice. Management fees paid for these facilities were approximately $0.1 million for the year ended December 31, 2021, and, in 2021, Public Storage allocated approximately $0.1 million in operating expenses to us related to the management of the facilities, including payroll and overhead expenses. Public Storage also owns and licenses the PS Business Parks name and logo to the Company under a royalty-free license that may be terminated upon six months’ notice to the Company.
Cost Sharing and Other Arrangements with Public Storage
Pursuant to a cost sharing and administrative services arrangement, we share certain administrative services, corporate office space, and certain other third party arrangements with Public Storage which are allocated based upon time, effort, and other methodologies. For the year ended December 31, 2021, Public Storage reimbursed us less than $0.1 million for costs paid on their behalf, and we reimbursed Public Storage $1.4 million in costs that Public Storage incurred on our behalf. We had net amounts due from Public Storage of $0.2 million at December 31, 2021.
Common Management/Board Members with Public Storage
Ronald L. Havner, Jr., Chairman of the Board, is also Chairman of Public Storage. Joseph D. Russell, Jr., a director, is also the President and CEO and a trustee of Public Storage. Kristy M. Pipes is also trustee of Public Storage.
PS Business Parks • 2022 Proxy Statement • 62
This section presents the ratio of annual total compensation of our former President and CEO, Dan M. Chandler, III (as disclosed in the Summary Compensation Table above and annualized for purposes of this pay ratio disclosure), to the annual total compensation of our median employee (excluding Mr. Chandler). The ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act.
We selected the median employee based on the Company’s 155 employees (excluding Mr. Chandler) as of December 31, 2021. In identifying our median employee, we calculated the annual total compensation of each employee as of December 31, 2021, based on Form W-2 information. We did not apply any cost-of-living adjustments as part of the calculation. There has been no change in our employee population or employee compensation arrangement since the median employee was identified that we believe would significantly impact our pay ratio disclosure.
The annualized 2021 total compensation for our CEO was $7,796,770. Because Mr. Chandler did not serve as our CEO for all of 2021, for purposes of the pay ratio calculation we annualized his 2021 compensation. As a result, the annual total compensation for Mr. Chandler for purposes of this pay ratio disclosure differs from the amounts shown in the Summary Compensation Table on page 53 of this proxy statement, which reflects the actual compensation that Mr. Chandler earned or was paid in 2021. The 2021 annual total compensation for our median employee, as determined under Item 402 of Regulation S-K, was $94,839. The ratio of our CEO’s annual total compensation to our median employee’s total compensation for 2021 is 82 to 1. Mr. Chandler’s 2021 compensation included both a one-time sign-on RSU award and a retention RSU award, together having a grant date fair value of $6,584,406, which awards were granted in connection with his commencement of service as our CEO. Mr. Chandler’s normalized target annual equity award would have been a number of RSUs having a grant date fair value of $2,600,000. Adjusting Mr. Chandler’s 2021 compensation to reflect this normalized target annual equity award in lieu of his one-time sign-on and retention awards, Mr. Chandler’s annualized 2021 total compensation would have been $3,812,364, resulting in a ratio of our CEO’s annual total compensation to our median employee’s total compensation for 2021 of 40 to 1.
The Board recommends a vote FOR approval of
our executive compensation as described in this proxy statement.
PS Business Parks • 2022 Proxy Statement • 63
Approval of 2022 Equity and
Performance-Based Incentive Compensation Plan
Approve the 2022 Equity and Performance-Based Incentive Compensation Plan
RECOMMENDATION:
Vote FOR approval of the 2022 Equity and Performance-Based Incentive Compensation Plan
PS Business Parks • 2022 Proxy Statement • 64
PROPOSAL 3
APPROVAL OF 2022 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
On February 25, 2022, upon the recommendation of our Compensation Committee, our Board approved the PS Business Parks, Inc. 2022 Equity and Performance-Based Incentive Compensation Plan (the “2022 Plan”), subject to approval by our stockholders at this Annual Meeting or by February 25, 2023.
The 2022 Plan would replace the 2012 Plan, which terminated automatically on February 20, 2022 (ten years after its effective date), and would apply to awards granted on or after February 25, 2022.
Stockholder Approval
At our Annual Meeting, we are asking our stockholders to consider and approve adoption of the 2022 Plan.
Protection of Stockholder Interests and Alignment with Compensation Principles
The 2022 Plan includes the following features designed to protect stockholder interests and reflect our compensation principles:
✓ | Fixed plan term of ten years; |
✓ | A ten-year maximum term for stock options and stock appreciation rights (SARs); |
✓ | No “evergreen” provision to automatically increase the number of shares available for issuance without stockholder approval; |
✓ | Awards granted pursuant to the 2022 Plan will be subject to our Incentive Compensation Recoupment Policy; |
✓ | No repricing without stockholder approval; |
✓ | Stock options and SARs must be granted at an exercise price that is at least equal to the fair market value of our Common Stock on the grant date; |
✓ | No liberal share recycling; |
✓ | Double-trigger change of control provisions that limit acceleration in a change of control unless the employee was also terminated without cause; and |
✓ | No payment of dividends on performance awards before performance standards are met. |
Importance of the 2022 Plan
Our equity plan continues to be a crucial component of our compensation program for our executives and other key employees. Without a stockholder-approved equity plan, we would be reliant on cash-settled awards as our sole method of incentive-based compensation. Our ability to grant equity-based awards is critical to us and our stockholders because equity-based awards allow us to make a substantial portion of our executive officers’ compensation at-risk and contingent on the Company’s operating and stock-price performance over the long-term.
PS Business Parks • 2022 Proxy Statement • 65
Historical Burn Rate and Potential Dilution
The average rate at which we grant equity awards is well below the “burn rate” benchmark that ISS has set for our industry. The following table sets forth information relating to our historical burn rate under the 2012 Plan over the last three years:
| 2019 | 2020 | 2021 | Average | ||||||||||||
Shares underlying options granted(1) | 34,000 | 18,000 | 43,422 | 31,807 | ||||||||||||
RSUs and performance-based RSUs granted(1) | 6,400 | 46,036 | 76,266 | 42,901 | ||||||||||||
Weighted-average basic shares outstanding | 27,418,000 | 27,475,000 | 27,534,000 | 27,475,667 | ||||||||||||
Burn rate(2) | 0.15 | % | 0.23 | % | 0.43 | % | 0.27 | % | ||||||||
Adjusted burn rate(3) | 0.18 | % | 0.48 | % | 0.85 | % | 0.51 | % |
(1) | Represents the gross number of shares underlying option and RSU awards granted during the applicable year. |
(2) | Equity-based awards granted divided by weighted average shares outstanding. |
(3) | Adjusted to reflect the ISS “multiplier” counting each full value award (RSUs) as 2.5 option shares. |
The number of new shares requested represents a reserve pool of approximately 2.7% of our Common Stock outstanding, which we believe puts us in line with market practices for share reserves based on a review of share reserve requests over the past two years among similar companies. The following table sets forth the total shares outstanding under the 2012 Plan and, assuming it is approved, the 2022 Plan as of February 25, 2022:
Shares available under the 2022 Plan | 750,000 | |||
Shares underlying outstanding awards(1) | 340,106 | |||
Shares remaining available under the 2012 Plan(2) | 0 | |||
Total shares authorized for or outstanding under awards | 1,090,106 | |||
Total Common Stock outstanding | 27,606,127 | |||
Overhang (shares available and outstanding divided by total Common Stock outstanding) | 3.9 | % |
(1) | Of such shares, 146,727 are option awards with a weighted average exercise price of $129.36 per share and a remaining contractual term of 6.58 years and 137,070 are RSUs. Also includes 56,309 performance-based RSUs that, if and when earned based on satisfaction of applicable performance conditions, would be settled in RSUs and subject to continued time vesting. Amounts shown reflect amounts that would be earned for maximum performance. At the target level, the amounts would be 45,047 performance-based RSUs. |
(2) | The 2012 Plan expired on February 20, 2022. |
We also maintain the amended and restated Retirement Plan for Non-Employee Directors (the Director Retirement Plan). Under the Director Retirement Plan, each non-employee director who joins the Board receives a grant of 10,000 deferred stock units that vest in ten equal annual installments on each of the first ten anniversaries of the date the director commences service on the Board subject to certain conditions. The awards are intended to retain and reward long-term service on the Board and to provide equity compensation to Board members. Deferred stock unit awards were made as follows: 32,000 in 2019, 0 in 2020 and 30,000 in 2021. As of the record date, 100,000 deferred stock units remain outstanding and 100,000 remain available for future issuance under the Director Retirement Plan.
Effectiveness of 2022 Plan
The 2022 Plan became effective on February 25, 2022, subject to approval of the plan by our stockholders at the Annual Meeting or by February 25, 2023. Upon approval of the 2022 Plan by our stockholders, all awards made under the plan between February 25, 2022 and the date of stockholder approval, will be fully effective as if our stockholders approved the plan on February 25, 2022. If our stockholders fail to approve the 2022 Plan on or before February 25, 2023, any award made under the plan will be null and void and of no effect. As of the date of this proxy statement, we had made no awards under the 2022 Plan.
PS Business Parks • 2022 Proxy Statement • 66
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2021 on the Company’s equity compensation plans:
| Number of rights | Weighted options, | Number of plans | ||||||||||||
Equity compensation plans approved by security holders(1) | 159,570 | $ | 123.87 | (2) | 714,146 | ||||||||||
Equity compensation plans not approved by security holders(3) | - | - | - |
(1) | Represents shares of our Common Stock available for issuance under the 2012 Plan. The 2012 Plan expired on February 20, 2022. The Company’s stock option and stock incentive plans are described more fully in Note 10 to the Company’s audited financial statements for the fiscal year ended December 31, 2021, included in the Annual Report on Form 10-K filed with the SEC on February 22, 2022. |
(2) | Represents the weighted average exercise price of 159,570 stock options outstanding at December 31, 2021. We also had 118,591 RSUs outstanding at December 31, 2021 that vest for no consideration. |
(3) | There are no securities available for future issuance or currently outstanding under plans not approved by the Company’s stockholders as of December 31, 2021. |
SUMMARY OF THE MATERIAL TERMS OF THE 2022 PLAN
In assessing the terms of the 2022 Plan, our Compensation Committee considered, among other things, the terms of the 2012 Plan, our compensation philosophy and practices, and feedback from our stockholders.
The following summary of the material terms of the 2022 Plan is qualified in its entirety by reference to the complete text of the 2022 Plan, which is attached to this proxy statement as Appendix B.
If approved by our stockholders, the 2022 Plan would:
● | Reserve 750,000 shares of Common Stock for issuance under the 2022 Plan; and |
● | Provide for a termination date of February 25, 2032, which is the tenth anniversary of the date of Board approval. |
Purpose
The purposes of the 2022 Plan are to:
● | provide eligible persons with an incentive to contribute to the success of the Company and to operate and manage the Company’s business in a manner that will provide for the Company’s long-term growth and profitability to benefit its stockholders and other important stakeholders, including its employees and customers; and |
● | provide a means of hiring, rewarding, and retaining key personnel. |
PS Business Parks • 2022 Proxy Statement • 67
Types of Awards
The 2022 Plan provides for grants of the following specific types of awards and permits other equity-based or equity-related awards (each, an Award and, collectively, Awards). Each Award will be evidenced by an award agreement (together with any award statement or supplemental documents, an Award Agreement), which will govern that Award’s terms and conditions.
● | Stock Units. A stock unit, which includes an RSU, is an unfunded, unsecured obligation to deliver a share of Common Stock (or cash or other securities or property) at a future date upon satisfaction of the conditions specified in the Award Agreement. |
● | Restricted Stock. Restricted stock is Common Stock that is registered in the recipient’s name, but that is subject to transfer restrictions and may be subject to forfeiture or vesting conditions for a period of time as specified in the Award Agreement. |
The recipient of Restricted Stock has the rights of a stockholder, including voting and dividend rights, subject to any restrictions and conditions specified in the Award Agreement.
● | Dividend Equivalent Rights. A dividend equivalent right represents an unfunded and unsecured promise to pay to the recipient an amount equal to all or any |
A dividend equivalent right may be granted alone or in connection with another Award, except that no dividend equivalent right may be granted in tandem with an option or SAR. Under the 2022 Plan, no payments will be made in respect of dividend equivalent rights before any applicable performance goals relating to the dividend equivalent right or the related Award are satisfied.
● | Options.An option entitles the recipient to purchase a share of Common Stock at an exercise price specified in the Award Agreement (which may be paid in cash or through a cashless exercise). As of February 25, 2022, the closing price of a share of Common Stock on the NYSE was $161.84. |
Options become exercisable as specified in the Award Agreement. The term of an option cannot exceed ten years from the date of grant; provided that in the event the participant is a 10% stockholder, an option granted to such participant that is intended to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code), will not be exercisable five years from the date of grant. Except in the case of substitute awards (as defined in the 2022 Plan), the exercise price of each option granted under the 2022 Plan cannot be less than the fair market value of a share of Common Stock on the grant date of such option; provided that in the event the participant is a 10% stockholder, an option granted to such participant that is intended to be an incentive stock option cannot be less than 110% of the fair market value of a share of Common Stock on the grant date of such option. All options granted under the 2022 Plan will be nonqualified stock options or incentive stock options.
● | Stock Appreciation Rights.SARs provide the recipient with the right to receive, upon exercise of the SAR, cash, shares of Common Stock, or |
● | Performance-Based Awards.The 2022 Plan provides for the grant of performance-based awards, which are awards of options, SARs, restricted stock, stock units (including RSUs), performance shares, other equity-based awards, or cash made subject to the achievement of performance goals over a performance period specified by the Compensation Committee. The Compensation Committee will determine the applicable performance period, the performance goals, and such other conditions that apply to the performance-based award. Performance goals may relate to financial performance, the participant’s performance, or such other criteria determined by the Compensation Committee. If the performance goals are met, performance-based awards will be paid in cash, shares of Common Stock, other awards, or a combination thereof. |
PS Business Parks • 2022 Proxy Statement • 68
● | Other Equity-Based Awards.The Compensation Committee may grant other types of equity-based or equity-related awards, including the grant or offer for sale of shares of unrestricted stock, in such amounts and subject to such terms as the Compensation Committee may determine. Any such awards may involve the transfer of shares of Common Stock to participants, or payment in cash or otherwise of amounts based on the value of the shares of Common Stock. Any other equity-based awards granted by the Compensation Committee may be subject to performance goals established by the Compensation Committee based on one or more of the performance measures. |
Eligibility
The 2022 Plan permits grants of Awards to any employees (including officers), directors, consultants, and advisers (who are natural persons) currently providing services to the Company or its affiliates or subsidiaries, and any other individual whose participation in the 2022 Plan the Compensation Committee determines is in the best interests of the Company.
The Compensation Committee, in its discretion, will approve Awards to be granted under the 2022 Plan. We expect that substantially all Award grants pursuant to the 2022 Plan will be made to the Company’s employees, executive officers, and non-employee directors. As of February 25, 2022, the record date, the Company had approximately 163 employees, including 5 executive officers (consisting of Messrs. Wilson, Chandler, Khan, and Groves and Ms. Hawthorne), and 9 non-employee directors who were eligible to participate in the 2022 Plan. The approximate number of total persons eligible to participate in the 2022 Plan is 174.
Term
The 2022 Plan will terminate on, and no more Awards will be permitted to be granted thereunder without further stockholder approval on or after, February 25, 2032. The termination of the 2022 Plan will not affect previously granted Awards. We expect to seek stockholder approval of a new equity compensation plan before expiration of the 2022 Plan, when we have used all shares available for grant under the 2022 Plan, or if earlier approval is otherwise deemed appropriate by our Compensation Committee (see—“Shares Subject to the 2022 Plan; Other Limitations of Awards”below).
Administration
Except where authority to act on matters is specifically reserved to the Board under the 2022 Plan or applicable law, the Compensation Committee will administer the 2022 Plan and will have the authority to make all determinations in its discretion that it deems necessary or advisable for the administration of the 2022 Plan. The Compensation Committee may also delegate to one or more directors the authority to grant awards to employees and other service providers who are not subject to Section 16 of the Exchange Act.
References to the Compensation Committee include reference to the Board and/or other delegates of the Compensation Committee for those periods when the Board or such other delegate(s) appointed by the Compensation Committee are acting.
Shares Subject to the 2022 Plan; Other Limitations of Awards
The number of shares of Common Stock that may be issued under the 2022 Plan is 750,000 shares of Common Stock. As of February 25, 2022, the record date, up to 340,106 shares of Common Stock may be issued pursuant to awards outstanding under the 2012 Plan.
If an award issued under the 2022 Plan terminates by expiration, forfeiture, cancellation, or otherwise without the related issuance of shares of Common Stock, then such unissued shares will again be available for awards under the 2022 Plan.
PS Business Parks • 2022 Proxy Statement • 69
However, the number of shares of Common Stock issuable under the 2022 Plan will not be increased by the number of shares of Common Stock (i) tendered or withheld or subject to an award surrendered in connection with the purchase of shares upon exercise of an option, (ii) deducted or delivered from payment of an award of an option in connection with the Company’s tax withholding obligations, or (iii) purchased by the Company with proceeds from option exercises.
● | The maximum number of shares of Common Stock subject to options or SARs that can be granted under the 2022 Plan to any person in a calendar year is 250,000 shares. |
● | The maximum number of shares of Common Stock that can be granted under the 2022 Plan, other than pursuant to options or SARs, to any person in a calendar year is 250,000 shares. |
● | The maximum amount that may be paid as a cash-settled performance-based award for a performance period of twelve months or less to any person is $10 million. |
In the event of any increase or decrease in the number of issued shares of Common Stock (or issuance of shares of stock other than shares of Common Stock) resulting from certain corporate transactions that affect the Company’s capitalization, the Compensation Committee will adjust the number of shares of Common Stock issuable under the 2022 Plan and the terms of any outstanding Awards in such manner as it deems appropriate to prevent the enlargement or dilution of rights.
Amendment
The Board may, at any time, amend, suspend, or terminate the 2022 Plan; provided, however, that that no amendment, suspension, or termination may impair rights or obligations under any outstanding award without the participant’s consent. The stockholders must approve any amendment if such approval is required under applicable law or stock exchange requirements. The stockholders also must approve any amendment that changes the no-repricing provisions of the 2022 Plan.
In general, we will seek stockholder approval of any amendment, suspension, or termination to the extent necessary to comply with NYSE listing standards and any applicable law, rule, or regulation, including any amendment to increase the shares of Common Stock available under the 2022 Plan.
Change in Control
A change in control occurs under the 2022 Plan upon any of the following:
● | the dissolution or liquidation of the Company or a merger, consolidation, or reorganization (other than with Public Storage or its affiliates) in which the Company is not the surviving corporation; |
● | the sale of substantially all Company assets (other than to Public Storage or its affiliates); |
● | a merger in which the Company is the surviving corporation but after which the Company’s stockholders immediately prior to such merger cease to own their shares or other equity interest in the Company (other than a merger with Public Storage or its affiliates); |
● | the acquisition, sale, or transfer of more than 50% of the Company’s outstanding shares by tender offer or similar transaction (other than by or to Public Storage or its affiliates); or |
● | any other transaction that the Board specifies constitutes a change in control. |
Accelerated Vesting if Awards Not Assumed. Except as otherwise provided in the applicable Award Agreement or in another agreement with the participant, or as otherwise set forth in writing, if the Company experiences a change in control where awards will not be assumed or continued by the surviving entity:
● | except for performance-based awards, (i) all outstanding awards of restricted stock, stock units, and dividend equivalent rights will vest, and 15 days prior to the scheduled consummation of such |
PS Business Parks • 2022 Proxy Statement • 70
control, all options and SARs will become immediately exercisable and will remain exercisable for a period of 15 days; and/or (ii) the Compensation Committee may elect to cancel any outstanding awards of
|
● | for performance-based awards, all performance goals and conditions will be deemed to have been |
● | other equity-based awards will be governed by the terms of the applicable Award Agreement. |
Double-Trigger Accelerated Vesting if Awards Assumed. If the Company experiences a change in control where awards will be assumed or continued by the surviving entity and do not otherwise accelerate or become exercisable at such time, the assumed or continued awards will not vest unless (in addition to any other conditions set forth in the Award Agreement):
● | the change in control occurs; and |
● | the recipient’s employment is terminated without Cause (as defined in the 2022 Plan) within one year following the change in control, in which case such award will be fully vested and may be exercised in full, to the extent applicable, for the one-year period immediately following such termination of employment (or for such longer period as the Compensation Committee will determine). |
Mandatory Repayment and Clawback
Any Award granted pursuant to the 2022 Plan will be subject to the Company’s Incentive Compensation Recoupment Policy, which applies any officer of the Company that is subject to Section 16 of the Exchange Act. Refer to “Incentive Compensation Recoupment Policy (Clawback Policy)” on page 61 of this proxy statement for a summary of the policy. In addition, Awards may also be subject to mandatory repayment pursuant to any law, rule, or regulation that imposes mandatory recoupment, under circumstances set forth in such law, rule, or regulation.
The Compensation Committee may reserve the right in an Award Agreement to cause a forfeiture of the gain realized by a participant with respect to an Award on account of actions taken by, or failed to be taken by, such participant in violation or breach of or in conflict with any (a) employment agreement, (b) non-competition agreement, (c) agreement prohibiting solicitation of employees or clients of the Company or any affiliate of the Company, (d) confidentiality obligation with respect to the Company or any affiliate of the Company, (e) Company policy or procedure, (f) other agreement, or (g) any other obligation of such participant to the Company or any affiliate of the Company, as and to the extent specified in such Award Agreement. Furthermore, the Compensation Committee may annul an Award if the recipient is an employee of the Company and is terminated for Cause.
Performance-Based Compensation
The Compensation Committee may designate whether any Awards, such as restricted stock, options, stock units, or cash awards being granted are intended to be performance-based compensation. The performance goals used for such awards may be based on any one or more of the following performance measures (or such other
PS Business Parks • 2022 Proxy Statement • 71
performance measures as the Compensation Committee may determine), which may reflect objective or subjective criteria, as selected by the Compensation Committee:
● | FAD and adjusted FAD; |
● | TSR or stock price; |
● | NAV and SVC; |
● | revenues; |
● | NOI (including on a cash basis) and Same Store NOI; |
● | FFO; |
● | intrinsic business value; |
● | implementation or completion of critical or strategic projects, acquisitions, dispositions, joint ventures, developments, or processes; |
● | return on invested capital; |
● | rental income, transaction costs, occupancy, or geographic business expansion; |
● | customer or employee satisfaction or human resources management; |
● | operations, cost targets, reductions and savings, productivity and efficiencies, legal matters, or information technology; |
● | compliance, financial controls and savings, investor relations, or staffing; |
● | ESG criteria; and |
● | any combination of any of the foregoing criteria. |
These performance measures (a) may be used to measure the performance of (i) the Company and its subsidiaries and other affiliates as a whole, (ii) the Company, any subsidiary of the Company, and/or any other affiliate of the Company or any combination thereof, or (iii) any one or more business units of the Company, any subsidiary of the Company, and/or any other affiliate of the Company, as the Compensation Committee deems appropriate, and (b) may be compared to the performance of one or more other companies or one or more published or special indices designated or approved by the Compensation Committee for such comparison, as the Compensation Committee deems appropriate. The Compensation Committee also has the authority to provide for accelerated vesting of any performance-based award based on the achievement of performance goals.
Other Terms of Awards
No recipient of any Award under the 2022 Plan (other than restricted stock) will have any of the rights of a stockholder of the Company with respect to shares subject to an Award until the delivery of the shares, except that holders of stock units may be entitled to amounts equal to the dividends declared and paid on the underlying shares to the extent the applicable performance goals are satisfied (for performance-based stock units).
New Awards
The awards, if any, that will be made to eligible recipients under the 2022 Plan are subject to the Compensation Committee’s discretion, and we cannot currently determine the benefits or number of shares subject to awards that may be granted to eligible recipients under the 2022 Plan. Therefore, no new plan benefits table can be provided at this time.
PS Business Parks • 2022 Proxy Statement • 72
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF GRANTS OF AWARDS UNDER THE 2022 PLAN. THE FOLLOWING SUMMARY DOES NOT DESCRIBE STATE, LOCAL, OR FOREIGN TAX CONSIDERATIONS. THE APPLICABLE RULES ARE COMPLEX AND MAY VARY WITH A RECIPIENT’S INDIVIDUAL CIRCUMSTANCES.
Non-Qualified Stock Options. The grant of a non-qualified stock option will not be a taxable event for the recipient or the Company. Upon exercising a non-qualified stock option, a recipient will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the Common Stock on the exercise date. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a non-qualified stock option, the recipient will have taxable capital gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares of Common Stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised).
If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m) of the Code (Section 162(m)).
Incentive Stock Options. Neither the grant nor the exercise of an incentive stock option will result in taxable income to a recipient or a deduction to the Company. However, for purposes of the alternative minimum tax, the spread on the exercise of an incentive stock option will be considered as part of the recipient’s income.
The sale of shares received pursuant to the exercise of an incentive stock option that satisfies the holding period rules will result in capital gain to a recipient and will not result in a tax deduction to us. To receive incentive stock option treatment as to the shares acquired upon exercise of an incentive stock option, a recipient must neither dispose of such shares within two years after such incentive stock option is granted nor within one year after the exercise of such incentive stock option. In addition, a recipient generally must be our employee, or an employee of one of our subsidiaries, at all times between the date of grant and the date three months before exercise of such incentive stock option. If an incentive stock option is exercised more than three months after the termination of a participant’s employment with us, the stock option will be treated as a nonqualified stock option.
If the holding period rules are not satisfied, the portion of any gain recognized on the disposition of the shares of our Common Stock acquired upon the exercise of an incentive stock option that is equal to the lesser of (a) the fair market value of the shares on the date of exercise minus the exercise price or (b) the amount realized on the disposition minus the exercise price, will be treated as ordinary (compensation) income, with any remaining gain being treated as capital gain. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
SARs. There are no immediate U.S. federal income tax consequences of receiving an award of SARs under the 2022 Plan. Upon exercising a SAR, a recipient will recognize ordinary income in an amount equal to the difference between the SAR exercise price and the fair market value of the Common Stock on the exercise date. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
Restricted Stock. A recipient who is awarded restricted stock will not recognize any taxable income for U.S. federal income tax purposes in the year of the award, provided that the shares of Common Stock are subject to restrictions (that is, the shares are nontransferable and subject to a substantial risk of forfeiture). However, if permitted by the Company, within 30 days after a recipient receives the award of restricted stock, the recipient may elect under Section 83(b) of the Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the Common Stock on the grant date (less the purchase price, if any), determined without regard to the restrictions. If the Section 83(b) election is timely made, when the restrictions on
PS Business Parks • 2022 Proxy Statement • 73
the shares lapse, the recipient will not recognize any additional income. If the recipient does not make the Section 83(b) election, the fair market value of the Common Stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the recipient and will be taxable in the year the restrictions lapse, and dividends paid while the Common Stock is subject to restrictions will be subject to withholding taxes. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
Stock Units (including RSUs). There are no immediate U.S. federal income tax consequences of receiving an award of Stock Units under the 2022 Plan. A recipient who is awarded Stock Units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued or, for a cash-settled award, the amount of the cash payment made, to such recipient at the later of the end of the restriction period or the payment date. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
Dividend Equivalent Rights. Recipients who receive Dividend Equivalent Rights or cash awards under the 2022 Plan will be required to recognize ordinary income in an amount distributed to the recipient pursuant to the award. If we comply with applicable reporting requirements, we will be entitled to a business expense deduction in the same amount and generally at the same time as the recipient recognizes ordinary income, subject to the limitations of Section 162(m).
Other Equity-Based Awards. A recipient generally will recognize income upon receipt of the shares subject to the other equity-based award (or, if later, at the time of vesting of such shares).
Section 280G. If payments contingent on a change in control are determined to exceed certain limitations, such payments may be subject to a 20% nondeductible excise tax, and the Company’s deduction for the associated compensation expense may be disallowed in whole or in part. The 2022 Plan includes a Section 280G “best after tax” provision, which provides that if any payments under the 2022 Plan or otherwise would constitute parachute payments under Section 280G of the Code and be subject to the excise tax imposed under Section 4999 of the Code, then the payments will be reduced by the amount required to avoid the excise tax if the reduction would give the recipient a better after-tax result than if the recipient received the payments in full.
Section 409A. It is the intention of the Company that the 2022 Plan and awards granted under the 2022 Plan either be exempt from, or comply with, Section 409A of the Code.
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual Meeting is necessary for approval of the 2022 Plan. For purposes of the vote on this proposal, abstentions and broker non-votes will not affect the vote.
The Board recommends a vote FOR approval of
the 2022 Equity and Performance-Based Incentive Compensation Plan
as described in this proxy statement.
PS Business Parks • 2022 Proxy Statement • 74
Ratification of Independent
Registered Public Accounting Firm
The Audit Committee has appointed EY as the Company’s independent registered public accounting firm to audit the Consolidated Financial Statements of PS Business Parks and its subsidiaries for the year ending December 31, 2022 Representatives from EY will be in attendance at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions
RECOMMENDATION: Vote FOR ratification of the appointment of EY as our independent registered public accounting firm for the year ending December 31, 2022 |
PS Business Parks • 2022 Proxy Statement • 75
PROPOSAL 4
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The Board recommends that stockholders ratify the Audit Committee’s appointment of EY as the Company’s independent registered public accounting firm (Independent Accountants) for the year ending December 31, 2022. EY has acted as the Company’s independent registered public accounting firm since the Company’s organization in 1997.
The Company’s bylaws do not require ratification of EY’s appointment, but the Board believes that stockholder ratification is good corporate governance. If stockholders do not ratify the appointment of EY, the Audit Committee may consider the selection of a different registered public accounting firm. Even if stockholders ratify the appointment of EY, the Audit Committee, in its discretion, 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 stockholders.
The following table shows the fees billed or expected to be billed to the Company by EY for audit and other services provided for 2021 and 2020:
2021
|
2020
| |||||||
Audit Fees
| $
| 686,000
|
| $
| 627,000
|
| ||
|
|
| ||||||
Audit-Related Fees
|
| 30,000
|
|
| 24,000
|
| ||
|
|
| ||||||
Tax Fees
|
| 47,000
|
|
| 62,000
|
| ||
|
|
| ||||||
All Other Fees
|
| —
|
|
| —
|
| ||
|
|
| ||||||
Total | $
| 763,000
|
| $
| 713,000
|
|
Audit Fees. Audit fees represent fees for professional services provided in connection with the audit of the Company’s annual financial statements and internal control over financial reporting, 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.
Audit related fees. Audit-related fees represent professional fees provided in connection with the audit of the 401(k) Plan.
Tax fees. During 2021 and 2020, tax services consisted of tax compliance and consulting services.
The Audit Committee has determined that the Independent Accountants’ provision of the non-audit services described above is compatible with maintaining the Independent Accountants’ independence.
POLICY TO APPROVE ERNST & YOUNG LLP SERVICES
The Audit Committee has adopted a pre-approval policy relating to services performed by the Company’s Independent Accountants. The policy requires that all services provided by EY to us, including audit services, audit-related services, tax services, and other services, must be pre-approved by the Audit Committee.
PS Business Parks • 2022 Proxy Statement • 76
Under this policy, the Audit Committee pre-approved all services performed by EY during 2021 and 2020, including those listed in the previous table. The Chairman of the Audit Committee has the authority to grant required approvals between meetings of the Audit Committee, provided that any exercise of this authority is presented at the next Audit Committee meeting.
The Audit Committee’s responsibilities include appointing the Company’s Independent Accountants, pre-approving audit and non-audit services provided by the firm, and assisting the Board in providing oversight to the Company’s financial reporting process.
In fulfilling its responsibilities, the Audit Committee meets with the Company’s Independent Accountants, internal auditor, and management to review the Company’s accounting, auditing internal controls, and financial reporting matters. Management is responsible for the Company’s financial statements, including the estimates and judgments on which they are based, for maintaining effective internal controls over financial reporting, and for assessing the effectiveness of internal controls over financial reporting. The Independent Accountant is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the PCAOB and for issuing a report thereon. It is not the Audit Committee’s responsibility to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete, accurate, and in accordance with U.S. generally accepted accounting principles and applicable laws, rules, and regulations. The Audit Committee’s responsibility is to monitor and oversee these processes and necessarily relies on the work and assurances of the Company’s management and of the Company’s Independent Accountants.
In connection with its oversight responsibilities related to the Company’s financial statements included in the Company’s Annual Report on Form 10-K, the Audit Committee met with management and EY, the Company’s Independent Accountants, and 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 U.S. generally accepted accounting principles. The Audit Committee discussed with the Independent Accountants matters required to be discussed by PCAOB Auditing Standard No. 1301 (Communication with Audit Committees), as modified or supplemented. The discussion included, but was not limited to, the overall scope and plans for the annual audit, the results of their procedures, including the critical audit matter addressed during the audit, their evaluation of the Company’s internal controls, and the overall quality of the Company’s financial reporting.
In addition to providing the required written disclosures and communications, the Company’s Independent Accountants also provided to the Audit Committee the letter confirming their independence of the Company as required by the applicable rules of the PCAOB, and the Audit Committee discussed with the Independent Accountants that firm’s independence. In addition, the Audit Committee has considered whether the Independent Accountant’s provision of non-audit services to the Company and its affiliates is compatible with the firm’s independence.
During 2021, management documented, tested, and evaluated the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and SEC regulations adopted thereunder. The Audit Committee met with representatives of management, the internal auditors, legal counsel, and the Independent Accountants on a regular basis throughout the year to discuss the progress of the process. At the conclusion of this process, the Audit Committee received from management its assessment and report on the effectiveness of the Company’s internal controls over financial reporting. In addition, the Audit Committee received from EY its assessment of and opinion on the Company’s internal control over financial reporting. These assessments and reports are as of December 31, 2021. The Audit Committee reviewed and discussed the results of management’s assessment and EY’s audit.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited consolidated financial statements be included in the Company’s
PS Business Parks • 2022 Proxy Statement • 77
Annual Report on Form 10-K for the year ended December 31, 2021 for filing with the SEC. The Audit Committee also approved the appointment of EY as the Company’s independent registered public accountants for the fiscal year ending December 31, 2022, and recommended that the Board submit this appointment to the Company’s stockholders for ratification at the Annual Meeting.
Kristy M. Pipes, Chair
Jennifer Holden Dunbar
Irene H. Oh
Gary E. Pruitt
Peter Schultz
The Board recommends a vote FOR the ratification of
EY as the Company’s Independent Registered Public Accounting Firm
as described in this proxy statement.
PS Business Parks • 2022 Proxy Statement • 78
GENERAL INFORMATION ABOUT THE MEETING
PURPOSE OF THE PROXY SOLICITATION
We are providing these proxy materials on behalf of the Board to ask for your vote and to solicit your proxies for use at our Annual Meeting to be held on April 29, 2022, or any adjournments or postponements thereof.
This proxy statement contains important information regarding the Annual Meeting. Specifically, it identifies the proposals on which you are being asked to vote, provides information you may find useful in deciding how to vote, and describes voting procedures. This Notice of the Annual Meeting (Notice) and proxy statement are first being distributed and made available on or about March 28, 2022, to holders of our Common Stock on the record date. A copy of our Annual Report to Stockholders for the year ended December 31, 2021, which includes a copy of our Annual Report on Form 10-K, accompanies this proxy statement.
DATE, TIME, AND PLACE OF THE ANNUAL MEETING
The Annual Meeting will be held on Friday, April 29, 2022 at 8:00 a.m., Central Time, at the Rosewood Mansion on Turtle Creek in Dallas, Texas.
Holders of Common Stock at the close of business on the record date may vote the shares of Common Stock they hold on that date at the Annual Meeting. For all matters submitted for vote at the Annual Meeting, each share of Common Stock is entitled to one vote.
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 will constitute a quorum for the transaction of business.
As of the record date, we had 27,606,127 shares of Common Stock outstanding and entitled to vote on all proposals.
For the election of directors, director nominees receiving an affirmative majority of votes cast (i.e., the number of shares cast “for” a director nominee exceeds the number of votes cast “against” that nominee) will be elected. Shares of Common Stock not voted (whether by abstention or otherwise) will not affect the vote. As discussed above, the Company has adopted a policy whereby directors who do not receive a majority of the votes cast for his or her election must submit their resignation to be considered by the Board.
Similarly, approval of Proposals 2, 3, and 4 require an affirmative majority of votes cast (i.e., the number of shares cast “for” each other proposal must exceed the number of votes cast “against” that proposal for approval of the proposal). Shares of Common Stock not voted (whether by abstention or otherwise) will not affect the vote.
Although the advisory vote to approve executive compensation in Proposal 2 is non-binding, the Compensation Committee will consider and take into account the vote results in making future determinations on executive compensation.
PS Business Parks • 2022 Proxy Statement • 79
If you hold shares through a broker or nominee and do not provide the broker or nominee with specific voting instructions, under the rules that govern brokers or nominees in such circumstances, your broker or nominee will have the discretion to vote such shares on routine matters, but not on non-routine matters. As a result:
● | Your broker or nominee will not have the authority to exercise discretion to vote such shares with respect to Proposals 1, 2, and 3 because the NYSE rules treat these matters as non-routine; and |
● | Your broker or nominee will have the authority to exercise discretion to vote such shares with respect to Proposal 4 because that matter is treated as routine under the NYSE rules. |
Broker non-votes will be counted as present for purposes of determining the presence or absence of a quorum but will otherwise have no effect on the outcome of the vote on Proposals 1, 2 and 3.
If you are a registered stockholder and submit a properly executed proxy card containing no instructions, the shares represented by the proxy will be voted FOR (i) each of Proposals 1, 2, 3, and 4, and (ii) in accordance with the judgment of the proxy holders as to any other matter that may properly be brought before the Annual Meeting or any adjournments or postponements thereof.
You may vote by any of the following means:
● |
|
● | By Telephone: If provided on your proxy card or voting instruction card and if you live in the United States or Canada, you may submit proxies by telephone by calling the telephone number indicated on the card and following the instructions. You will need the control number on the card when voting. |
● | By Mail: Stockholders who received a paper copy of a proxy card or voting instruction card by mail may submit proxies by completing, signing, and dating their proxy card or voting instruction card and mailing it in the accompanying self-addressed envelope. No postage is necessary if mailed in the United States. |
● | In Person at the Annual Meeting: Stockholders who hold shares in their name as the stockholder of record may vote in person at the Annual Meeting. Stockholders who are beneficial owners but not stockholders of record may vote in person at the Annual Meeting only with a legal proxy obtained from their broker, trustee, or nominee, as applicable. |
Properly completed and submitted proxy cards and voting instruction cards, and proxies properly completed and submitted over the Internet, if received in time for voting and not revoked, will be voted at the Annual Meeting in accordance with the instructions contained therein.
HOW TO VOTE AS A PARTICIPANT IN THE 401(K) PLAN
If you hold your shares as a participant in the 401(k) Plan, your proxy will serve as a voting instruction for the trustee of the 401(k) Plan with respect to the number of shares of Common Stock credited to your account as of the record date. If you provide voting instructions via your proxy card or voting instruction card with respect to your shares of Common Stock held in the 401(k) Plan, the trustee will vote those shares of Common Stock in the manner specified. The trustee will vote any shares of Common Stock for which it does not receive instructions in the same proportion as the shares of Common Stock for which voting instructions have been received unless the trustee is required by law to exercise its discretion in voting such shares.
PS Business Parks • 2022 Proxy Statement • 80
To allow sufficient time for the trustee to vote your shares of Common Stock, the trustee must receive your voting instructions by 11:59 p.m., Pacific Time, on April 25, 2022.
You can change your vote at any time before your proxy is voted at the Annual Meeting. To revoke your proxy, you must either:
● | file an instrument of revocation with our Corporate Secretary at our principal executive offices, 701 Western Avenue, Glendale, California 91201; |
● | mail a new proxy card dated after the date of the proxy you wish to revoke to our Corporate Secretary at our principal executive offices; |
● | submit a later dated proxy over the Internet in accordance with the instructions set forth on the Internet voting website; or |
● | if you are a stockholder of record, or you obtain a legal proxy from your broker, trustee, or nominee, as applicable, attend the Annual Meeting and vote in person. |
We will vote your unrevoked proxy at the Annual Meeting in accordance with your instructions indicated on the proxy card, voting instruction card, or, if submitted over the Internet, as indicated on the submission.
COST OF THIS PROXY SOLICITATION
We bear all proxy solicitation costs. In addition to solicitations by mail, our Board, our officers, and our regular employees, without additional remuneration, may solicit proxies by telephone, facsimile, electronic transmission, and personal interviews.
We will request brokers, banks, custodians, and other fiduciaries to forward proxy soliciting materials to the beneficial owners of Common Stock. We will reimburse them for their reasonable out-of-pocket expenses incurred in connection with distributing proxy materials.
Please contact PS Business Parks’ transfer agent at the address or phone number listed below with questions concerning share certificates, dividend checks, transfer of ownership, or other matters pertaining to your share account: American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, New York 11219, (800) 937-5449.
CONSIDERATION OF CANDIDATES FOR DIRECTOR
The policy of the NGS Committee is to consider properly submitted stockholder recommendations for candidates for membership on the Board. Under this policy, stockholder recommendations may only be submitted by a stockholder entitled to submit stockholder proposals under the SEC rules. Any stockholder recommendations proposed for consideration by the NGS Committee should include the nominee’s name and qualifications for Board membership, including the information required under Regulation 14A under the Exchange Act, and should be addressed to: Adeel Khan, Executive Vice President, Chief Financial Officer, and Corporate Secretary, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201.
DEADLINE TO PROPOSE OR NOMINATE INDIVIDUALS TO SERVE AS DIRECTORS FOR THE 2023 ANNUAL MEETING
To nominate an individual for election at the 2023 annual meeting of stockholders (2023 Annual Meeting), a stockholder must give timely notice to the Corporate Secretary in accordance with our bylaws, which, in general,
PS Business Parks • 2022 Proxy Statement • 81
require that the notice be received by the Corporate Secretary no earlier than December 30, 2022, and no later than 5:00 p.m., Eastern Time, on January 29, 2023, provided however that in the event that the date of the 2023 Annual Meeting is more than 30 days before or more than 60 days after the first anniversary date of this year’s Annual Meeting, or if no annual meeting was held in the preceding year, notice by the stockholder must be delivered no earlier than the 120th day and no later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such annual meeting or the tenth day following the date we announce publicly the date for our 2023 Annual Meeting.
In addition to satisfying the foregoing requirements under our bylaws, to comply with the universal proxy rules under the Exchange Act, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than February 28, 2023.
Our bylaws provide that a stockholder, or a group of up to 20 stockholders, owning at least 3% of the Company’s outstanding Common Stock continuously for at least three years, may include in our proxy materials director nominees constituting up to the greater of two directors or 20% of the number of directors on the Board, provided that the stockholder and the nominees satisfy the eligibility requirements in our bylaws. If you wish to nominate any person for election to our Board at the 2023 Annual Meeting under the proxy access provision of our bylaws, your nomination notice must be submitted to the Corporate Secretary between the close of business on November 28, 2022, and the close of business on December 28, 2022, provided however that in the event that the date of mailing of the notice for our 2023 Annual Meeting is moved more than 30 days before or more than 60 days after the first anniversary date of mailing of the notice for this year’s Annual Meeting, or if no annual meeting was held in the preceding year, the nomination must be received no earlier than the close of business on the 120th day and no later than the close of business on the later of the 90th day prior to the mailing of the notice for the 2023 Annual Meeting or the tenth day following the date we announce publicly the date of mailing of the notice for 2023 Annual Meeting.
DEADLINES FOR RECEIPT OF STOCKHOLDER PROPOSALS
Any proposal that a holder of our shares wishes to submit for inclusion in our 2023 proxy statement pursuant to SEC Rule 14a-8 must be received by the Company no later than November 28, 2022. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in Company-sponsored proxy materials. Under Rule 14a-8, we are not required to include stockholder proposals in our proxy materials unless certain conditions specified in the rule are met.
In addition, in accordance with our bylaws, notice of any proposal that a holder of our shares wishes to propose for consideration at the 2023 Annual Meeting, but does not seek to include in the 2023 proxy statement pursuant to Rule 14a-8, must be received by the Corporate Secretary no earlier than December 30, 2022, and no later than 5:00 p.m., Eastern Time, on January 29, 2023, provided however that in the event that the date of the 2023 Annual Meeting is more than 30 days before or more than 60 days after the first anniversary date of this year’s Annual Meeting, or if no annual meeting was held in the preceding year, notice by the stockholder must be delivered no earlier than the 120th day and no later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such annual meeting or the tenth day following the date we announce publicly the date for our 2023 Annual Meeting.
A copy of our 2021 Annual Report on Form 10-K accompanies this proxy statement. Additional copies are available online in the Investor Relations section of our website, psbusinessparks.com.
The Company will furnish a paper copy of the Annual Report on Form 10-K, excluding exhibits, without charge, upon the written request of any stockholder to Adeel Khan, Executive Vice President, Chief Financial Officer, and Corporate Secretary, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201. Copies of exhibits will be provided at a copying charge of $0.20 per page to reimburse us for a portion of the cost.
PS Business Parks • 2022 Proxy Statement • 82
If you share an address with one or more other stockholders, you may have received notification that you will receive only a single copy of the Annual Report to Stockholders, Notice and proxy statement for your entire household unless you have notified us that you wish to continue receiving individual copies. This practice, known as “householding,” is designed to reduce printing and mailing costs. If you would like to revoke your consent to “householding,” or if you are receiving multiple copies at your address and would like to enroll in “householding,” please submit your request to PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201, Attention: Corporate Secretary or call us at (818) 244-8080. If you own your shares in “street name,” please contact your broker, bank, trustee or other intermediary to make your request.
The Board knows of no other matters to be presented for stockholder action at the Annual Meeting. If any other matters are properly presented at the Annual Meeting for action, the persons named in the accompanying proxy will vote the shares represented by the proxy in accordance with their best judgment on such matters.
We urge you to vote the accompanying proxy and sign, date, and return it in the enclosed pre-addressed postage-paid envelope at your earliest convenience, whether or not you currently plan to attend the meeting in person.
PS Business Parks • 2022 Proxy Statement • 83
Reconciliation of non-GAAP measures to GAAP and other information
SUPPLEMENTAL NON-GAAP DISCLOSURES (UNAUDITED)
RETURN ON ASSETS (IN THOUSANDS)
The following table reconciles from rental income on our income statement to net operating income (NOI), and sets forth the calculation of return on assets.
| For The Years Ended December 31, | |||||||||||||||
| 2011 | 2016 | 2021 | |||||||||||||
Rental Income | $ | 297,819 | $ | 386,871 | $ | 438,703 | ||||||||||
Cost of operations | 100,148 | 120,518 | 130,896 | |||||||||||||
Net operating income | $ | 197,671 | $ | 266,353 | $ | 307,807 | ||||||||||
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| As of December 31, | |||||||||||||||
| 2011 | 2016 | 2021 | |||||||||||||
Land | $ | 772,933 | $ | 789,531 | $ | 880,028 | ||||||||||
Buildings and improvements | 2,157,729 | 2,226,881 | 2,313,872 | |||||||||||||
Pre-depreciation cost of real estate facilities | $ | 2,930,662 | $ | 3,016,412 | $ | 3,193,900 | ||||||||||
Return on assets (1) | 6.7 | % | 8.8 | % | 9.6 | % | ||||||||||
RATIO OF NET DEBT AND PREFERRED EQUITY TO EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) (IN THOUSANDS)
The table below reflects the ratio of net debt and preferred equity to EBITDA and reconciles net income to EBITDA.
| For The Years Ended December 31, | |||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||||
Credit facility | $ | — | $ | — | $ | — | $ | — | $ | 32,000 | ||||||||||||||||||
Preferred stock | 1,089,750 | 959,750 | 944,750 | 944,750 | 755,000 | |||||||||||||||||||||||
Cash | (114,882 | ) | (37,379 | ) | (62,786 | ) | (69,083 | ) | (27,074 | ) | ||||||||||||||||||
Combined net debt and preferred stock | $ | 974,868 | $ | 922,371 | $ | 881,964 | $ | 875,667 | $ | 759,926 | ||||||||||||||||||
Net Income | $ | 179,316 | $ | 271,901 | $ | 203,972 | $ | 206,705 | $ | 553,029 | ||||||||||||||||||
Adjustments: |
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Depreciation and amortization | 94,270 | 99,242 | 104,249 | 96,314 | 93,486 | |||||||||||||||||||||||
Depreciation from unconsolidated joint venture | 1,180 | — | — | — | — | |||||||||||||||||||||||
Income tax expense | — | — | — | — | 3,600 | |||||||||||||||||||||||
Interest expense | 1,179 | 555 | 611 | 548 | 728 | |||||||||||||||||||||||
Interest income | (356 | ) | (489 | ) | (1,885 | ) | (370 | ) | (18 | ) | ||||||||||||||||||
Gain on sale of land and real estate facilities | (1,209 | ) | (93,484 | ) | (16,644 | ) | (27,273 | ) | (359,875 | ) | ||||||||||||||||||
Gain on sale of development rights | (6,365 | ) | — | — | — | — | ||||||||||||||||||||||
EBITDA (2) | $ | 268,015 | $ | 277,725 | $ | 290,303 | $ | 275,924 | $ | 290,950 | ||||||||||||||||||
Net Debt and Preferred to EBITDA Ratio | 3.6 | 3.3 | 3.0 | 3.2 | 2.6 | |||||||||||||||||||||||
PS Business Parks • 2022 Proxy Statement • A-1
(1) |
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(2) | EBITDA is a non-GAAP financial measure that represents net income before interest, depreciation and amortization and adjusted to exclude gains or losses from sales of depreciable real estate assets and impairment charges on real estate assets. Management believes that EBITDA is frequently used by analysts and investors in evaluating the operating performance of our business activities, including the impact of general and administrative expenses, and without the impact from gains or losses from sales of depreciable real estate assets. |
RATIO OF FFO TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS
The table below reflects ratio of Funds From Operations (FFO) to combined fixed charges and preferred distributions (in thousands).
For The Years Ended December 31, | ||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||
FFO allocable to diluted common stock and units | $ | 203,341 | $ | 225,766 | $ | 226,075 | $ | 227,442 | $ | 233,504 | ||||||||||
Interest expense | 1,179 | 555 | 611 | 548 | 728 | |||||||||||||||
Allocation to preferred stockholders based upon | ||||||||||||||||||||
Distributions | 52,873 | 51,880 | 54,346 | 48,186 | 46,624 | |||||||||||||||
Redemptions | 10,978 | — | 11,007 | — | 6,434 | |||||||||||||||
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FFO available to cover fixed charges | $ | 268,371 | $ | 278,201 | $ | 292,039 | $ | 276,176 | $ | 287,290 | ||||||||||
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Fixed charges (1) | 1,685 | 555 | 611 | 548 | 728 | |||||||||||||||
Distribution to preferred stockholders | 52,873 | 51,880 | 54,346 | 48,186 | 46,624 | |||||||||||||||
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Combined fixed charges and preferred distributions | $ | 54,558 | $ | 52,435 | $ | 54,957 | $ | 48,734 | $ | 47,352 | ||||||||||
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Ratio of available FFO to combined fixed charges and preferred distributions paid | 4.9 | 5.3 | 5.3 | 5.7 | 6.1 | |||||||||||||||
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(1) | Fixed charges include interest expense and capitalized interest. |
PS Business Parks • 2022 Proxy Statement • A-2
SAME PARK CASH NOI (IN THOUSANDS)
The following table reconciles from Same Park Cash NOI to net income on our income statement.
For The Years Ended December 31, | ||||||||
2020 | 2021 | |||||||
Rental income | ||||||||
Same Park Cash Rental Income (1) | $ | 365,881 | $ | 391,125 | ||||
Same Park Non-Cash Rental Income (2) | 3,567 | 1,096 | ||||||
Non-Same Park | 9,311 | 17,829 | ||||||
Multifamily | 9,464 | 9,069 | ||||||
Assets sold or held for sale | 27,400 | 19,584 | ||||||
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Total rental income | 415,623 | 438,703 | ||||||
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Adjusted cost of operations (3) | ||||||||
Same Park | 106,860 | 111,333 | ||||||
Non-Same Park | 3,661 | 5,523 | ||||||
Multifamily | 4,264 | 4,647 | ||||||
Assets sold or held for sale | 9,518 | 7,636 | ||||||
Stock compensation expense (4) | 1,210 | 1,757 | ||||||
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Total cost of operations | 125,513 | 130,896 | ||||||
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Net operating income (5) | ||||||||
Same Park Cash NOI (6) | 259,021 | 279,792 | ||||||
Same Park Non-Cash Rental Income (2) | 3,567 | 1,096 | ||||||
Non-Same Park | 5,650 | 12,306 | ||||||
Multifamily | 5,200 | 4,422 | ||||||
Assets sold or held for sale | 17,882 | 11,948 | ||||||
Stock compensation expense (4) | (1,210 | ) | (1,757 | ) | ||||
Depreciation and amortization expense | (96,314 | ) | (93,486 | ) | ||||
General and administrative expense | (14,526 | ) | (19,057 | ) | ||||
Interest and other income | 1,234 | 2,536 | ||||||
Interest and other expense | (1,072 | ) | (4,646 | ) | ||||
Gain on sale of real estate facilities | 27,273 | 359,875 | ||||||
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Net income | $ | 206,705 | $ | 553,029 | ||||
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(1) | Same Park Cash Rental Income represents Same Park rental income excluding Same Park Non-Cash Rental Income (defined below). |
(2) | Same Park Non-Cash Rental Income represents amortization of deferred rent receivable (net of write-offs), in-place lease intangible, tenant improvement reimbursements, and lease incentives. |
(3) | Adjusted Cost of Operations, as presented above, excludes stock compensation expense for employees whose compensation expense is recorded in cost of operations. |
(4) | Stock compensation expense, as shown here, represents stock compensation expense for employees whose compensation expense is recorded in cost of operations. Note that stock compensation expense attributable to the executive management team (including divisional vice presidents) and other corporate employees is recorded within general and administrative expense. |
(5) | The Company utilizes NOI, a non-GAAP financial measure, to evaluate the operating performance of its |
(6) | The Company utilizes Cash NOI to evaluate the cash flow performance of its business parks, and believes investors utilize this metric for the |
PS Business Parks • 2022 Proxy Statement • A-3
CORE FFO AND FAD (IN THOUSANDS)
The following table reconciles net income allocable to common stockholders Core FFO and FAD.
For the Year Ended December 31, 2021
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Net income allocable to common stockholders | $ | 393,088 | |||
Adjustments | |||||
Gain on sale of real estate facilities | (359,875 | ) | |||
Depreciation and amortization | 93,486 | ||||
Net income allocable to noncontrolling interests | 104,270 | ||||
Net income allocable to restricted stock unit holders | 2,613 | ||||
FFO allocated to joint venture partner | (78 | ) | |||
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FFO allocable to diluted common stock and units | 233,504 | ||||
Maryland reincorporation costs | 510 | ||||
Income tax expense | 3,600 | ||||
Charge related to the redemption of preferred securities | 6,434 | ||||
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Core FFO allocable to diluted common stock and units | 244,048 | ||||
Adjustments | |||||
Recurring capital improvements | (11,335 | ) | |||
Tenant improvements | (13,680 | ) | |||
Capitalized lease commissions | (8,492 | ) | |||
Total recurring capital expenditures for assets sold | (1,615 | ) | |||
Total multifamily capital expenditures | (13 | ) | |||
Non-cash rental income | (2,800 | ) | |||
Non-cash stock compensation expense | 8,495 | ||||
Cash paid for taxes in lieu of shares upon vesting of restricted stock units | (3,940 | ) | |||
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FAD allocable to diluted common stock and units | 210,668 | ||||
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PS Business Parks • 2022 Proxy Statement • A-4
Page | ||||||||
1. | PURPOSE | B-1 | ||||||
2. | DEFINITIONS | B-1 | ||||||
3. | ADMINISTRATION OF THE PLAN | B-5 | ||||||
3.1 | Committee | B-5 | ||||||
3.1.1 | Powers and Authorities | B-5 | ||||||
3.1.2 | Composition of Committee | B-5 | ||||||
3.1.3 | Other Committees | B-6 | ||||||
3.2 | Board | B-6 | ||||||
3.3 | Terms of Awards | B-6 | ||||||
3.3.1 | Committee Authority | B-6 | ||||||
3.3.2 | Forfeiture; Recoupment | B-6 | ||||||
3.4 | No Repricing | B-7 | ||||||
3.5 | Deferral Arrangement | B-7 | ||||||
3.6 | No Liability | B-7 | ||||||
3.7 | Registration; Share Certificates | B-7 | ||||||
4. | STOCK SUBJECT TO THE PLAN | B-7 | ||||||
4.1 | Number of Shares of Stock | B-7 | ||||||
4.2 | Adjustments in | B-8 | ||||||
4.3 | Share Usage | B-8 | ||||||
5. | EFFECTIVE DATE; TERM; AMENDMENT AND TERMINATION | B-8 | ||||||
5.1 | Effective Date | B-8 | ||||||
5.2 | Term | B-8 | ||||||
5.3 | Amendment and | B-9 | ||||||
6. | AWARD ELIGIBILITY AND LIMITATIONS | B-9 | ||||||
6.1 | Eligible Grantees | B-9 | ||||||
6.2 | Limitation on Shares of Stock Subject to Awards | B-9 | ||||||
6.3 | Stand-Alone, Additional, Tandem and Substitute Awards | B-9 | ||||||
7. | AWARD AGREEMENT | B-10 | ||||||
8. | TERMS AND CONDITIONS OF OPTIONS | B-10 | ||||||
8.1 | Option Price | B-10 | ||||||
8.2 | Vesting | B-10 | ||||||
8.3 | Term | B-10 | ||||||
8.4 | Termination of | B-10 | ||||||
8.5 | Limitations on | B-10 | ||||||
8.6 | Method of Exercise | B-11 | ||||||
8.7 | Rights of Holders of Options | B-11 | ||||||
8.8 | Delivery of Stock | B-11 | ||||||
8.9 | Transferability of | B-11 | ||||||
8.10 | Family Transfers | B-11 | ||||||
8.11 | Limitations on Incentive Stock Options | B-11 | ||||||
8.12 | Notice of Disqualifying Disposition | B-12 | ||||||
9. | TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS | B-12 | ||||||
9.1 | Right to Payment and
| B-12 | ||||||
9.2 | Other Terms | B-12 | ||||||
9.3 | Term | B-12 | ||||||
9.4 | Transferability of | B-12 | ||||||
9.5 | Family Transfers | B-12 | ||||||
10. | TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS | B-13 | ||||||
10.1 | Grant of Restricted Stock | B-13 | ||||||
10.2 | Restrictions | B-13 | ||||||
10.3 | Registration; Restricted Share Certificates | B-13 | ||||||
10.4 | Rights of
| B-13 |
PS Business Parks • 2022 Proxy Statement • B-i
Page | ||||||||
10.5 | Rights of Holders of Stock Units | B-14 | ||||||
10.5.1 | Voting and Dividend Rights | B-14 | ||||||
10.5.2 | Creditor’s Rights | B-14 | ||||||
10.6 | Termination of Service | B-14 | ||||||
10.7 | Purchase of Restricted Stock and Shares of Stock Subject to Stock Units | B-14 | ||||||
10.8 | Delivery of Shares of Stock | B-14 | ||||||
11. | TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS AND OTHER EQUITY-BASED AWARDS | B-15 | ||||||
11.1 | Unrestricted Stock Awards | B-15 | ||||||
11.2 | Other Equity-Based Awards | B-15 | ||||||
12. | FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK | B-15 | ||||||
12.1 | General Rule | B-15 | ||||||
12.2 | Surrender of Shares of Stock | B-15 | ||||||
12.3 | Cashless Exercise | B-15 | ||||||
12.4 | Other Forms of Payment | B-15 | ||||||
13. | TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS | B-16 | ||||||
13.1 | Dividend Equivalent Rights | B-16 | ||||||
13.2 | Termination of Service | B-16 | ||||||
14. | TERMS AND CONDITIONS OF PERFORMANCE-BASED AWARDS | B-16 | ||||||
14.1 | Grant of Performance-Based Awards | B-16 | ||||||
14.2 | Structure of Performance-Based Awards | B-16 | ||||||
14.3 | Earning of Performance-Based Awards | B-16 | ||||||
14.4 | Form and Timing of Payment of Performance-Based Awards | B-17 | ||||||
14.5 | Performance Conditions | B-17 | ||||||
14.6 | Performance Goals Generally | B-17 | ||||||
14.7 | Payment of Awards; Other Terms | B-17 | ||||||
14.8 | Performance Measures | B-17 | ||||||
14.9 | Evaluation of Performance | B-18 | ||||||
15. | PARACHUTE LIMITATIONS | B-18 | ||||||
16. | REQUIREMENTS OF LAW | B-19 | ||||||
16.1 | General | B-19 | ||||||
16.2 | Rule 16b-3 | B-19 | ||||||
17. | EFFECT OF CHANGES IN CAPITALIZATION | B-20 | ||||||
17.1 | Changes in Stock | B-20 | ||||||
17.2 | Reorganization in Which the Company Is the Surviving Entity Which Does not Constitute a Change in Control | B-20 | ||||||
17.3 | Change in Control in which Awards are not Assumed | B-21 | ||||||
17.4 | Change in Control in which Awards are Assumed | B-21 | ||||||
17.5 | Adjustments | B-22 | ||||||
17.6 | No Limitations on | B-22 | ||||||
18. | GENERAL PROVISIONS | B-22 | ||||||
18.1 | Disclaimer of Rights | B-22 | ||||||
18.2 | Nonexclusivity of the | B-22 | ||||||
18.3 | Withholding Taxes | B-23 | ||||||
18.4 | Captions | B-23 | ||||||
18.5 | Construction | B-23 | ||||||
18.6 | Other Provisions | B-23 | ||||||
18.7 | Number and | B-24 | ||||||
18.8 | Severability | B-24 | ||||||
18.9 | Governing Law | B-24 | ||||||
18.10 | Section
| B-24 |
PS Business Parks • 2022 Proxy Statement • B-ii
PS BUSINESS PARKS, INC.
2022 EQUITY AND PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
PS Business Parks, Inc., a Maryland corporation (the “Company”), sets forth herein the terms of its 2022 Equity and Performance-Based Incentive Compensation Plan (the “Plan”), as follows:
The Plan is intended to (a) provide eligible persons with an incentive to contribute to the success of the Company and to operate and manage the Company’s business in a manner that will provide for the Company’s long-term growth and profitability to benefit its stockholders and other important stakeholders, including its employees and customers, and (b) provide a means of obtaining, rewarding and retaining key personnel. To this end, the Plan provides for the grant of awards of stock options, stock appreciation rights, restricted stock, stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards. Any of these awards may, but need not, be made as performance incentives to reward the holders of such awards for the achievement of performance goals in accordance with the terms of the Plan. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.
For purposes of interpreting the Plan documents (including the Plan and Award Agreements), the following definitions shall apply:
2.1“Affiliate” means any company or other entity that controls, is controlled by or is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including any Subsidiary. For purposes of grants of Options or Stock Appreciation Rights, an entity may not be considered an Affiliate unless the Company holds a “controlling interest” in such entity within the meaning of Treasury Regulation Section 1.414(c)-2(b)(2)(i),provided that (a) except as specified in clause (b) below, an interest of “at least 50 percent” shall be used instead of an interest of “at least 80 percent” in each case where “at least 80 percent” appears in Treasury Regulation Section 1.414(c)-2(b)(2)(i) and (b) where the grant of Options or Stock Appreciation Rights is based upon a legitimate business criterion, an interest of “at least 20 percent” shall be used instead of an interest of “at least 80 percent” in each case where “at least 80 percent” appears in Treasury Regulation Section 1.414(c)-2(b)(2)(i).
2.2“Applicable Laws” means the legal requirements relating to the Plan and the Awards under (a) applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders of any jurisdiction applicable to Awards granted to residents therein and (b) the rules of any Stock Exchange on which the Stock is listed.
2.3“Award” means a grant under the Plan of an Option, a Stock Appreciation Right, Restricted Stock, a Stock Unit, Unrestricted Stock, a Dividend Equivalent Right, a Performance Share or other Performance-Based Award, an Other Equity-Based Award or cash.
2.4“Award Agreement” means the agreement between the Company and a Grantee that evidences and sets out the terms and conditions of an Award.
2.5“Award Stock” shall have the meaning set forth in Section 17.3(a)(ii).
2.6“Benefit Arrangement” shall have the meaning set forth in Section 15.
2.7“Board” means the Board of Directors of the Company.
2.8“Cause” means, with respect to any Grantee, as determined by the Committee and unless otherwise provided in an applicable agreement between such Grantee and the Company or an Affiliate, (a) gross negligence
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or willful misconduct in connection with the performance of duties; (b) conviction of a criminal offense (other than minor traffic offenses); or (iii) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the Service Provider and the Company or an Affiliate.
2.9 “Change in Control” means
(a) the dissolution or liquidation of the Company or upon a merger, consolidation or reorganization of the Company with one or more entities (other than Public Storage or its affiliates) in which the Company is not the surviving entity;
(b) a sale of substantially all of the assets of the Company to another entity (other than Public Storage or its affiliates);
(c) a merger in which the Company is the surviving corporation but after which the Company’s stockholders immediately prior to such merger cease to own their shares or other equity interest in the Company (other than a merger with Public Storage or its affiliates);
(d) the acquisition, sale or transfer of more than 50% of the Company’s outstanding shares by tender offer or similar transaction (other than by or to Public Storage or its affiliates); or
(e) any other transaction that the Board specifies constitutes a Change of Control, in its sole discretion.
2.10“Code” means the Internal Revenue Code of 1986, as amended, as now in effect or as hereafter amended, and any successor thereto. References in the Plan to any Code Section shall be deemed to include, as applicable, regulations promulgated under such Code Section.
2.11“Committee” means a committee of, and designated from time to time by resolution of, the Board, which shall be constituted as provided in Section 3.1.2 and Section 3.1.3 (or, if no Committee has been so designated, the Board).
2.12“Company” means PS Business Parks, Inc., a Maryland corporation.
2.13“Determination Date” means the Grant Date or such other date as of which the Fair Market Value of a share of Stock is required to be established for purposes of the Plan.
2.14“Disability” means the Grantee is unable to perform each of the essential duties of such Grantee’s position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months; provided, however, that, with respect to rules regarding expiration of an Incentive Stock Option following termination of the Grantee’s Service, Disability shall mean the Grantee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
2.15“Dividend Equivalent Right” means a right, granted to a Grantee pursuant to Section 13, to receive cash, Stock, other Awards or other property equal in value to dividends or other periodic payments paid or made with respect to a specified number of shares of Stock.
2.16“Effective Date” means February 25, 2022, the date on which the Plan was approved by the Board of Directors.
2.17“Employee” means, as of any date of determination, an employee (including an officer) of the Company or an Affiliate.
2.18“Exchange Act” means the Securities Exchange Act of 1934, as amended, as now in effect or as hereafter amended.
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2.19“Fair Market Value” means the fair market value of a share of Stock for purposes of the Plan, which shall be determined as of any Determination Date as follows:
(a) If on such Determination Date the shares of Stock are listed on a Stock Exchange, or are publicly traded on another established securities market (a “Securities Market”), the Fair Market Value of a share of Stock shall be the closing price of the Stock on such Determination Date as reported on such Stock Exchange or such Securities Market (provided that, if there is more than one such Stock Exchange or Securities Market, the Committee shall designate the appropriate Stock Exchange or Securities Market for purposes of the Fair Market Value determination). If there is no such reported closing price on such Determination Date, the Fair Market Value of a share of Stock shall be the closing price of the Stock on the next preceding day on which any sale of Stock shall have been reported on such Stock Exchange or such Securities Market.
(b) If on such Determination Date the shares of Stock are not listed on a Stock Exchange or publicly traded on a Securities Market, the Fair Market Value of a share of Stock shall be the value of the Stock on such Determination Date as determined by the Committee by the reasonable application of a reasonable valuation method, in a manner consistent with Code Section 409A.
Notwithstanding this Section 2.19 or Section 18.3, for purposes of determining taxable income and the amount of the related tax withholding obligation pursuant to Section 18.3, for any shares of Stock subject to an Award that are sold by or on behalf of a Grantee on the same date on which such shares may first be sold pursuant to the terms of the related Award Agreement, the Fair Market Value of such shares shall be the sale price of such shares on such date (or if sales of such shares are effectuated at more than one sale price, the weighted average sale price of such shares on such date).
2.20“Family Member” means, with respect to any Grantee as of any date of determination, (a) a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law,father-in-law,son-in-law,daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of such Grantee, (b) any person sharing such Grantee’s household (other than a tenant or employee), (c) a trust in which any one or more of the persons specified in clauses (a) and (b) above (and such Grantee) own more than fifty percent (50%) of the beneficial interest, (d) a foundation in which any one or more of the persons specified in clauses (a) and (b) above (and such Grantee) control the management of assets, and (e) any other entity in which one or more of the persons specified in clauses (a) and (b) above (and such Grantee) own more than fifty percent (50%) of the voting interests.
2.21“Grant Date” means, as determined by the Committee, the latest to occur of (a) the date as of which the Committee approves the Award, (b) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 6 hereof (e.g., in the case of a new hire, the first date on which such new hire performs any Service), or (c) such subsequent date specified by the Committee in the corporate action approving the Award.
2.22“Grantee” means a person who receives or holds an Award under the Plan.
2.23“Incentive Stock Option” means an “incentive stock option” within the meaning of Code Section 422, or the corresponding provision of any subsequently enacted tax statute, as amended from time to time.
2.24“Non-qualified Stock Option” means an Option that is not an Incentive Stock Option.
2.25“Option” means an option to purchase one or more shares of Stock pursuant to the Plan.
2.26“Option Price” means the exercise price for each share of Stock subject to an Option.
2.27“Other Agreement” shall have the meaning set forth in Section 15.
2.28“Other Equity-Based Award” means an Award representing a right or other interest that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, other than an Option, a Stock Appreciation Right, Restricted Stock, a Stock Unit, Unrestricted Stock, a Dividend Equivalent Right or a Performance Share.
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2.29“Outside Director” means a member of the Board who is not an employee of the Company or any Affiliate.
2.30“Parachute Payment” shall have the meaning set forth in Section 15(a).
2.31“Performance-Based Award” means an Award of Options, Stock Appreciation Rights, Restricted Stock, Stock Units, Performance Shares, Other Equity-Based Awards or cash made subject to the achievement of performance goals (as provided in Section 14) over a Performance Period specified by the Committee.
2.32“Performance Measures” means measures as specified in Section 14 on which the performance goals under Performance-Based Awards are based.
2.33“Performance Period” means the period of time of up to ten (10) years during which the performance goals under Performance-Based Awards must be met in order to determine the degree of payout and/or vesting with respect to any such Performance-Based Awards.
2.34“Performance Shares” means a Performance-Based Award representing a right or other interest that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, made subject to the achievement of performance goals (as provided in Section 14) over a Performance Period.
2.35“Plan” means this PS Business Parks, Inc. 2022 Equity and Performance-Based Incentive Compensation Plan, as amended from time to time.
2.36“Reporting Person” means a person who is required to file reports under Section 16(a) of the Exchange Act, or any successor provision.
2.37“Restricted Period” shall have the meaning set forth in Section 10.2.
2.38“Restricted Stock” means shares of Stock awarded to a Grantee pursuant to Section 10.
2.39“SAR Price” shall have the meaning set forth in Section 9.1.
2.40“Securities Act” means the Securities Act of 1933, as amended, as now in effect or as hereafter amended.
2.41“Service” means service qualifying the Grantee as a Service Provider in the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Grantee’s change in position or duties shall not result in interrupted or terminated Service, so long as such Grantee continues to qualify as a Service Provider in the Company or an Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of the Plan shall be determined by the Committee, which determination shall be final, binding and conclusive. If a Service Provider’s employment or other service relationship is with an Affiliate and the applicable entity ceases to be an Affiliate, a termination of Service shall be deemed to have occurred when such entity ceases to be an Affiliate unless the Service Provider transfers his or her employment or other service relationship to the Company or any other Affiliate.
2.42“Service Provider” means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser (who is a natural person) currently providing services to the Company or an Affiliate.
2.43“Stock” means the common stock, par value $0.01 per share, of the Company, or any security which shares of Stock may be changed into or for which shares of Stock may be exchanged as provided in Section 17.1.
2.44“Stock Appreciation Right” or “SAR” means a right granted to a Grantee pursuant to Section 9.
2.45“Stock Exchange” means the New York Stock Exchange or another established national or regional stock exchange.
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2.46“Stock Unit” means a bookkeeping entry representing the equivalent of one (1) share of Stock awarded to a Grantee pursuant to Section 10.
2.47“Subsidiary” means any corporation (other than the Company) or non-corporate entity with respect to which the Company owns, directly or indirectly, fifty percent (50%) or more of the total combined voting power of all classes of stock, membership interests or other ownership interests of any class or kind ordinarily having the power to vote for the directors, managers or other voting members of the governing body of such corporation or non-corporate entity. In addition, any other entity may be designated by the Committee as a Subsidiary, provided that (a) such entity could be considered as a subsidiary according to generally accepted accounting principles in the United States of America, and (b) in the case of an Award of Options or Stock Appreciation Rights, such Award would be considered to be granted in respect of “service recipient stock” under Code section 409A.
2.48“Substitute Award” means an Award granted upon assumption of, or in substitution for, outstanding awards previously granted under a compensatory plan by a business entity acquired or to be acquired by the Company or an Affiliate or with which the Company or an Affiliate has combined or will combine.
2.49“Ten Percent Stockholder” means a natural person who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding voting securities of the Company, the Company’s parent (if any) or any of the Company’s Subsidiaries. In determining stock ownership, the attribution rules of Code Section 424(d) shall be applied.
2.50“Unrestricted Stock” shall have the meaning set forth in Section 11.
The Committee shall administer the Plan and shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s charter and bylaws and Applicable Laws. As to the selection of, and Awards to, Grantees who are not Reporting Persons, the Committee may delegate any or all of its responsibilities to one or more members of the Board. Without limiting the generality of the foregoing, the Committee shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan which the Committee deems to be necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All such actions and determinations shall be made by (a) the affirmative vote of a majority of the members of the Committee present at a meeting at which a quorum is present, or (b) the unanimous consent of the members of the Committee executed in writing in accordance with the Company’s charter and bylaws and Applicable Laws. Unless otherwise expressly determined by the Board, the Committee shall have the authority to interpret and construe all provisions of the Plan, any Award and any Award Agreement, and any such interpretation or construction, and any other determination contemplated to be made under the Plan or any Award Agreement, by the Committee shall be final, binding and conclusive whether or not expressly provided for in any provision of the Plan, such Award or such Award Agreement. In the event that the Plan, any Award or any Award Agreement provides for any action to be taken by the Board or any determination to be made by the Board, such action may be taken or such determination may be made by the Committee constituted in accordance with this Section 3.1 if the Board has delegated the power and authority to do so to such Committee.
3.1.2 Composition of Committee.
The Committee shall be a committee composed of not fewer than two directors of the Company designated by the Board to administer the Plan. Each member of the Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act and, for so long as the Stock is listed on the New York Stock Exchange, an “independent director” within the meaning of Section 303A of the New York Stock Exchange Listed
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Company Manual (or, in each case, any successor term or provision); provided, that any action taken by the Committee shall be valid and effective whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 3.1.2 or otherwise provided in any charter of the Committee. Without limiting the generality of the foregoing, the Committee may be the Compensation Committee of the Board or a subcommittee thereof if the Compensation Committee of the Board or such subcommittee satisfies the foregoing requirements.
The Board also may appoint one or more committees of the Board, each composed of one or more directors of the Company who need not be Outside Directors, subject to the requirements of applicable law, which may administer the Plan with respect to Grantees who are not “executive officers” as defined in Rule 3b-7 under the Exchange Act or directors of the Company, may grant Awards under the Plan to such Grantees, and may determine all terms of such Awards, subject to the requirements of Rule 16b-3 under the Exchange Act and, for so long as the Stock is listed on the New York Stock Exchange, the rules of the New York Stock Exchange.
The Board from time to time may exercise any or all of the powers and authorities related to the administration and implementation of the Plan, as set forth in Section 3.1 and other applicable provisions of the Plan, as the Board shall determine, consistent with the Company’s charter and bylaws and Applicable Laws.
Subject to the other terms and conditions of the Plan, the Committee shall have full and final authority to:
(a) designate Grantees;
(b) determine the type or types of Awards to be made to a Grantee;
(c) determine the number of shares of Stock to be subject to an Award;
(d) establish the terms and conditions of each Award (including the Option Price of any Option or the purchase price for Restricted Stock), the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock subject thereto, the treatment of an Award in the event of a Change in Control (subject to applicable agreements), and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options;
(e) prescribe the form of each Award Agreement evidencing an Award; and
(f) subject to the limitation on repricing in Section 3.4, amend, modify or supplement the terms of any outstanding Award, which authority shall include the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to make Awards or to modify outstanding Awards made to eligible natural persons who are foreign nationals or are natural persons who are employed outside the United States to reflect differences in local law, tax policy, or custom, provided that, notwithstanding the foregoing, no amendment, modification or supplement of the terms of any outstanding Award shall, without the consent of the Grantee thereof, impair the Grantee’s rights under such Award.
The Committee shall have the right, in its discretion, to make Awards in substitution or exchange for any award granted under another compensatory plan of the Company, any Affiliate, or any business entity acquired or to be acquired by the Company or an Affiliate or with which the Company or an Affiliate has combined or will combine.
The Committee may reserve the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee with respect to an Award thereunder on account of actions taken by, or failed to be taken by, such
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Grantee in violation or breach of or in conflict with any (a) employment agreement, (b) non-competition agreement, (c) agreement prohibiting solicitation of Employees or clients of the Company or any Affiliate, (d) confidentiality obligation with respect to the Company or any Affiliate, (e) Company policy or procedure, (f) other agreement or (g) any other obligation of such Grantee to the Company or any Affiliate, as and to the extent specified in such Award Agreement. The Committee may annul an outstanding Award if the Grantee thereof is an Employee of the Company or any Affiliate and is terminated for Cause as defined in the Plan or the applicable Award Agreement or for “cause” as defined in any other agreement between the Company or such Affiliate and such Grantee, as applicable.
Any Award granted pursuant to the Plan shall be subject to mandatory repayment by the Grantee to the Company to the extent the Grantee is, or in the future becomes, subject to (a) any Company “clawback” or recoupment policy that is adopted to comply with the requirements of any Applicable Law, rule or regulation, or otherwise, or (b) any law, rule or regulation which imposes mandatory recoupment under circumstances set forth in such law, rule or regulation.
Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, distribution (whether in the form of cash, shares of Stock, other securities or other property), stock split, extraordinary cash dividend, recapitalization, change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of Stock or other securities or similar transaction), the Company may not, without obtaining stockholder approval: (a) amend the terms of outstanding Options or SARs to reduce the exercise price of such outstanding Options or SARs; (b) cancel outstanding Options or SARs in exchange for or substitution of Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs; or (c) cancel outstanding Options or SARs with an exercise price above the current stock price in exchange for cash or other securities.
The Committee may permit or require the deferral of any payment pursuant to any Award into a deferred compensation arrangement, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or Dividend Equivalent Rights and, in connection therewith, provisions for converting such credits into Stock Units and for restricting deferrals to comply with hardship distribution rules affecting tax-qualified retirement plans subject to Code Section 401(k)(2)(B)(IV), provided that no Dividend Equivalent Rights may be granted in connection with, or related to, an Award of Options or SARs. Any such deferrals shall be made in a manner that complies with Code Section 409A.
No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement.
3.7 Registration; Share Certificates.
Notwithstanding any provision of the Plan to the contrary, the ownership of the shares of Stock issued under the Plan may be evidenced in such a manner as the Committee, in its sole discretion, deems appropriate, including by book-entry or direct registration or the issuance of one or more share certificates.
4.1 Number of Shares of Stock Available for Awards.
(a) Subject to such additional shares of Stock as shall be available for issuance under the Plan pursuant to Section 4.2, and subject to adjustment pursuant to Section 17, the maximum number of shares of Stock available for issuance under the Plan shall be equal to 750,000 shares of Stock.
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(b) The maximum number of shares of Stock available for issuance pursuant to Incentive Stock Options shall be the same as the maximum number of shares available for issuance under the Plan pursuant to Section 4.1(a).
(c) Shares of Stock to be issued under the Plan shall be authorized but unissued shares.
4.2 Adjustments in Authorized Shares of Stock.
In connection with mergers, reorganizations, separations, or other transactions to which Code Section 424(a) applies, the Committee shall have the right to cause the Company to assume awards previously granted under a compensatory plan by another business entity that is a party to such transaction and to substitute Awards under the Plan for such awards. The number of shares of Stock available for issuance under the Plan pursuant to Section 4.1(a) shall be increased by the number of shares of Stock subject to any such assumed awards and substitute Awards. Shares available for issuance under a stockholder-approved plan of a business entity that is a party to such transaction (as appropriately adjusted, if necessary, to reflect such transaction) may be used for Awards under the Plan and shall not reduce the number of shares of Stock otherwise available for issuance under the Plan, subject to applicable rules of any Stock Exchange on which the Stock is listed.
(a) Shares of Stock subject to an Award shall be counted as used as of the Grant Date.
(b) Any shares of Stock that are subject to Awards shall be counted against the share issuance limit set forth in Section 4.1(a) as one (1) share of Stock for every one (1) share of Stock subject to an Award. With respect to SARs, the number of shares subject to an award of SARs will be counted against the aggregate number of shares of Stock available for issuance under the Plan regardless of the number of shares actually issued to settle the SAR upon exercise. The maximum number of shares issuable under a Performance Share grant shall be counted against the share issuance limit set forth in Section 4.1(a) as of the Grant Date, but such number shall be adjusted to equal the actual number of shares issued upon settlement of the Performance Shares to the extent different from such maximum number of shares.
(c) Notwithstanding anything to the contrary in Section 4.3(a) or Section 4.3(b), any shares of Stock subject to Awards under the Plan which thereafter terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares shall be available again for issuance under the Plan in the same amount as such shares were counted against the limit set forth in Section 4.1.
(d) The number of shares of Stock available for issuance under the Plan shall not be increased by the number of shares of Stock (i) tendered or withheld or subject to an Award surrendered in connection with the purchase of shares of Stock upon exercise of an Option as provided in Section 12.2, (ii) deducted or delivered from payment of an Award in connection with the Company’s tax withholding obligations as provided in Section 18.3 or (iii) purchased by the Company with proceeds from Option exercises.
5. EFFECTIVE DATE; TERM; AMENDMENT AND TERMINATION
The Plan shall be effective as of the Effective Date, subject to approval of the Plan by the Company’s stockholders within one year of the Effective Date. Upon approval of the Plan by the stockholders of the Company as set forth above, all Awards made under the Plan on or after the Effective Date shall be fully effective as if the stockholders of the Company had approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one year of the Effective Date, any Awards made hereunder shall be null and void and of no effect.
The Plan shall terminate automatically ten (10) years after the Effective Date and may be terminated on any earlier date as provided in Section 5.3.
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5.3 Amendment and Termination.
The Board may, at any time and from time to time, amend, suspend or terminate the Plan as to any shares of Stock as to which Awards have not been made. The effectiveness of any amendment to the Plan shall be contingent on approval of such amendment by the Company’s stockholders to the extent provided by the Board or required by Applicable Laws (including the rules of any Stock Exchange on which the Stock is then listed), provided that no amendment shall be made to the no-repricing provisions of Section 3.4 or the Option pricing provisions of Section 8.1 without the approval of the Company’s stockholders. No amendment, suspension or termination of the Plan shall impair rights or obligations under any Award theretofore made under the Plan without the consent of the Grantee thereof.
6. AWARD ELIGIBILITY AND LIMITATIONS
Subject to this Section 6, Awards may be made under the Plan to (i) any Service Provider (including any employee, officer or director of the Company or an Affiliate, or a consultant or adviser (who is a natural person) currently providing services to the Company or an Affiliate) as the Committee shall determine and designate from time to time, and (ii) any other individual whose participation in the Plan is determined to be in the best interests of the Company by the Committee.
6.2 Limitation on Shares of Stock Subject to Awards.
During any time when the Company has a class of equity securities registered under Section 12 of the Exchange Act:
(a) the maximum number of shares of Stock subject to Options or SARs that may be granted under the Plan in a calendar year to any person eligible for an Award under Section 6 is 250,000 shares;
(b) the maximum number of shares of Stock that may be granted under the Plan, other than pursuant to Options or SARs, in a calendar year to any person eligible for an Award under Section 6 is 250,000 shares;
(c) the maximum amount that may be paid as a cash-settled Performance-Based Award for a performance period of twelve (12) months or less to any person eligible for an Award shall be $10,000,000.
(d) In the event a Performance Period is greater than twelve-months, then the maximum award that may be paid to a participant under the Plan with respect to the Performance Period will be an amount that bears the same relationship to the new period of time as the foregoing amounts bear to a twelve-month Performance Period.
The preceding limitations in this Section 6.2 are subject to adjustment as provided in Section 17.
6.3 Stand-Alone, Additional, Tandem and Substitute Awards.
Subject to Section 3.4, Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, (a) any other Award, (b) any award granted under another plan of the Company, any Affiliate, or any business entity that has been a party to a transaction with the Company or any Affiliate, or (c) any other right of a Grantee to receive payment from the Company or any Affiliate. Such additional, tandem and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, or for an award granted under another plan of the Company, any Affiliate, or any business entity that has been a party to a transaction with the Company or any Affiliate, the Committee shall require the surrender of such other Award or award under such other plan in consideration for the grant of such substitute or exchange Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash payments under other plans of the Company or any Affiliate. Notwithstanding Section 8.1 and Section 9.1, but subject to Section 3.4, the Option Price of an Option or the
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SAR Price of a SAR that is a Substitute Award may be less than one hundred percent (100%) of the Fair Market Value of a share of Stock on the original Grant Date; provided that the Option Price or SAR Price is determined in accordance with the principles of Code Section 424 for any Incentive Stock Option and consistent with Code Section 409A for any other Option or SAR.
Each Award granted pursuant to the Plan shall be evidenced by an Award Agreement, which shall be in such form or forms as the Committee shall from time to time determine. Award Agreements employed under the Plan from time to time or at the same time need not contain similar provisions, but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and, in the absence of such specification, such Options shall be deemed to constitute Non-qualified Stock Options.
8. TERMS AND CONDITIONS OF OPTIONS
The Option Price of each Option shall be fixed by the Committee and stated in the Award Agreement evidencing such Option. Except in the case of Substitute Awards, the Option Price of each Option shall be at least the Fair Market Value of one (1) share of Stock on the Grant Date; provided that in the event that a Grantee is a Ten Percent Stockholder, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than one hundred ten percent (110%) of the Fair Market Value of one (1) share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.
Subject to Sections 8.3 and 17.3, each Option granted under the Plan shall become exercisable at such times and under such conditions as shall be determined by the Committee and stated in the Award Agreement, in another agreement with the Grantee or otherwise in writing, provided that no Option, other than Options granted to persons who are not entitled to overtime under applicable state or federal laws, will vest or be exercisable within a six-month period starting on the Grant Date.
Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten (10) years from the Grant Date of such Option, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Committee and stated in the Award Agreement relating to such Option; provided, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option shall not be exercisable after the expiration of five (5) years from its Grant Date.
Each Award Agreement with respect to the grant of an Option shall set forth the extent to which the Grantee thereof, if at all, shall have the right to exercise such Option following termination of such Grantee’s Service. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.
8.5 Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Company as provided herein or after the occurrence of an event referred to in Section 17 which results in the termination of such Option.
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Subject to the terms of Section 12 and Section 18.3, an Option that is exercisable may be exercised by the Grantee’s delivery to the Company or its designee or agent of notice of exercise on any business day, at the Company’s principal office or the office of such designee or agent, on the form specified by the Company and in accordance with any additional procedures specified by the Committee. Such notice shall specify the number of shares of Stock with respect to which such Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares of Stock for which such Option is being exercised plus the amount (if any) of federal and/or other taxes which the Company may, in its judgment, be required to withhold with respect to the exercise of such Option.
8.7 Rights of Holders of Options.
Unless otherwise stated in the applicable Award Agreement, a Grantee or other person holding or exercising an Option shall have none of the rights of a stockholder of the Company (for example, the right to receive cash or dividend payments or distributions attributable to the shares of Stock subject to such Option, to direct the voting of the shares of Stock subject to such Option, or to receive notice of any meeting of the Company’s stockholders) until the shares of Stock subject thereto are fully paid and issued to such Grantee or other person. Except as provided in Section 17, no adjustment shall be made for dividends, distributions or other rights with respect to any shares of Stock subject to an Option for which the record date is prior to the date of issuance of such shares of Stock.
Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price with respect thereto, such Grantee shall be entitled to receive such evidence of such Grantee’s ownership of the shares of Stock subject to such Option as shall be consistent with Section 3.7.
8.9 Transferability of Options.
Except as provided in Section 8.10, during the lifetime of a Grantee of an Option, only such Grantee (or, in the event of such Grantee’s legal incapacity or incompetency, such Grantee’s guardian or legal representative) may exercise such Option. Except as provided in Section 8.10, no Option shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution.
If authorized in the applicable Award Agreement and by the Committee, in its sole discretion, a Grantee may transfer, not for value, all or part of an Option which is not an Incentive Stock Option to any Family Member. For the purpose of this Section 8.10, a transfer “not for value” is a transfer which is (a) a gift, (b) a transfer under a domestic relations order in settlement of marital property rights or (c) unless Applicable Laws do not permit such transfer, a transfer to an entity in which more than fifty percent (50%) of the voting interests are owned by Family Members (and/or the Grantee) in exchange for an interest in such entity. Following a transfer under this Section 8.10, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to such transfer, and the shares of Stock acquired pursuant to such Option shall be subject to the same restrictions with respect to transfers of such shares of Stock as would have applied to the Grantee thereof. Subsequent transfers of transferred Options shall be prohibited except to Family Members of the original Grantee in accordance with this Section 8.10 or by will or the laws of descent and distribution. The provisions of Section 8.4 relating to termination of Service shall continue to be applied with respect to the original Grantee of the Option, following which such Option shall be exercisable by the transferee only to the extent, and for the periods specified, in Section 8.4.
8.11 Limitations on Incentive Stock Options.
An Option shall constitute an Incentive Stock Option only (a) if the Grantee of such Option is an Employee of the Company or any corporate Subsidiary, (b) to the extent specifically provided in the related Award Agreement and
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(c) to the extent that the aggregate Fair Market Value (determined at the time such Option is granted) of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Company and its Affiliates) does not exceed one hundred thousand dollars ($100,000). Except to the extent provided in the regulations under Code Section 422, this limitation shall be applied by taking Options into account in the order in which they were granted.
8.12 Notice of Disqualifying Disposition.
If any Grantee shall make any disposition of shares of Stock issued pursuant to the exercise of an Incentive Stock Option under the circumstances provided in Code Section 421(b) (relating to certain disqualifying dispositions), such Grantee shall notify the Company of such disposition within ten (10) days thereof.
9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
9.1 Right to Payment and Grant Price.
A SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise thereof, the excess of (x) the Fair Market Value of one (1) share of Stock on the date of exercise over (y) the per share exercise price of such SAR (the “SAR Price”) as determined by the Committee. The Award Agreement for a SAR shall specify the SAR Price, which shall be no less than the Fair Market Value of one (1) share of Stock on the Grant Date of such SAR. SARs may be granted in tandem with all or part of an Option granted under the Plan or at any subsequent time during the term of such Option, in combination with all or any part of any other Award or without regard to any Option or other Award; provided that a SAR that is granted subsequent to the Grant Date of a related Option must have a SAR Price that is no less than the Fair Market Value of one (1) share of Stock on the Grant Date of such SAR.
The Committee shall determine, on the Grant Date or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future Service requirements), the time or times at which SARs shall cease to be or become exercisable following termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which shares of Stock shall be delivered or deemed to be delivered to Grantees, whether or not a SAR shall be granted in tandem or in combination with any other Award, and any and all other terms and conditions of any SAR.
Each SAR granted under the Plan shall terminate, and all rights thereunder shall cease, upon the expiration of ten (10) years from the Grant Date of such SAR or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Committee and stated in the Award Agreement relating to such SAR.
Except as provided in Section 9.5, during the lifetime of a Grantee of a SAR, only the Grantee (or, in the event of such Grantee’s legal incapacity or incompetency, such Grantee’s guardian or legal representative) may exercise such SAR. Except as provided in Section 9.5, no SAR shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution.
If authorized in the applicable Award Agreement and by the Committee, in its sole discretion, a Grantee may transfer, not for value, all or part of a SAR to any Family Member. For the purpose of this Section 9.5, a transfer “not for value” is a transfer which is (a) a gift, (b) a transfer under a domestic relations order in settlement of
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marital property rights or (c) unless Applicable Laws do not permit such transfer, a transfer to an entity in which more than fifty percent (50%) of the voting interests are owned by Family Members (and/or the Grantee) in exchange for an interest in such entity. Following a transfer under this Section 9.5, any such SAR shall continue to be subject to the same terms and conditions as were in effect immediately prior to such transfer, and shares of Stock acquired pursuant to a SAR shall be subject to the same restrictions on transfers of such shares of Stock as would have applied to the Grantee or such SAR. Subsequent transfers of transferred SARs shall be prohibited except to Family Members of the original Grantee in accordance with this Section 9.5 or by will or the laws of descent and distribution.
10. TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS
10.1 Grant of Restricted Stock and Stock Units.
Awards of Restricted Stock and Stock Units may be made for consideration or for no consideration, other than the par value of the shares of Stock, which shall be deemed paid by past Service or, if so provided in the related Award Agreement or a separate agreement, the promise by the Grantee to perform future Service to the Company or an Affiliate.
At the time a grant of Restricted Stock or Stock Units is made, the Committee may, in its sole discretion, (a) establish a period of time (a “Restricted Period”) applicable to such Award and (b) prescribe restrictions in addition to or other than the expiration of the Restricted Period, including the satisfaction of corporate or individual performance goals, which may be applicable to all or any portion of such Award as provided in Section 14. Awards of Restricted Stock and Stock Units may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or prior to the satisfaction of any other restrictions prescribed by the Committee with respect to such Awards.
10.3 Registration; Restricted Share Certificates.
Pursuant to Section 3.7, to the extent that ownership of Restricted Stock is evidenced by a book-entry registration or direct registration, such registration shall be notated to evidence the restrictions imposed on such Award of Restricted Stock under the Plan and the applicable Award Agreement. Subject to Section 3.7 and the immediately following sentence, the Company may issue, in the name of each Grantee to whom Restricted Stock has been granted, share certificates representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date of such Restricted Stock. The Committee may provide in an Award Agreement with respect to an Award of Restricted Stock that either (a) the Secretary of the Company shall hold such share certificates for such Grantee’s benefit until such time as such shares of Restricted Stock are forfeited to the Company or the restrictions applicable thereto lapse and such Grantee shall deliver a stock power to the Company with respect to each share certificate, or (b) such share certificates shall be delivered to such Grantee, provided that such share certificates shall bear legends that comply with applicable securities laws and regulations and make appropriate reference to the restrictions imposed on such Award of Restricted Stock under the Plan and such Award Agreement.
10.4 Rights of Holders of Restricted Stock.
Unless the Committee otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such shares of Restricted Stock and the right to receive any dividends declared or paid with respect to such shares of Restricted Stock. The Committee may provide that any dividends paid on Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and restrictions as the vesting conditions and restrictions applicable to such Restricted Stock. Dividends paid on Restricted Stock which vests or is earned based upon the achievement of performance goals shall not vest unless such performance goals for such Restricted Stock are achieved, and if such performance goals are not achieved, the Grantee of such Restricted Stock shall promptly forfeit and repay to the Company such dividend payments.All stock distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of stock, or other similar transaction shall be subject to the vesting conditions and restrictions applicable to such Restricted Stock.
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10.5 Rights of Holders of Stock Units.
10.5.1 Voting and Dividend Rights.
Holders of Stock Units shall have no rights as stockholders of the Company (for example, the right to receive cash or dividend payments or distributions attributable to the shares of Stock subject to such Stock Units, to direct the voting of the shares of Stock subject to such Stock Units, or to receive notice of any meeting of the Company’s stockholders). The Committee may provide in an Award Agreement evidencing a grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the Company’s payment of a cash dividend on its outstanding shares of Stock, a cash payment for each such Stock Unit which is equal to the per-share dividend paid on such shares of Stock. Such Award Agreement also may provide that such cash payment shall be deemed reinvested in additional Stock Units at a price per unit equal to the Fair Market Value of a share of Stock on the date that such cash dividend is paid. Such cash payments paid in connection with Stock Units which vest or are earned based upon the achievement of performance goals shall not vest unless such performance goals for such Stock Units are achieved, and if such performance goals are not achieved, the Grantee of such Stock Units shall promptly forfeit and repay to the Company such cash payments.
A holder of Stock Units shall have no rights other than those of a general unsecured creditor of the Company. Stock Units represent unfunded and unsecured obligations of the Company, subject to the terms and conditions of the applicable Award Agreement.
Unless the Committee otherwise provides in an Award Agreement, in another agreement with the Grantee or otherwise in writing after such Award Agreement is entered into, but prior to termination of Grantee’s Service, upon the termination of such Grantee’s Service, any Restricted Stock or Stock Units held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of such Restricted Stock or Stock Units, the Grantee thereof shall have no further rights with respect thereto, including any right to vote such Restricted Stock or any right to receive dividends with respect to such Restricted Stock or Stock Units.
10.7 Purchase of Restricted Stock and Shares of Stock Subject to Stock Units.
The Grantee of an Award of Restricted Stock or vested Stock Units shall be required, to the extent required by Applicable Laws, to purchase such Restricted Stock or the shares of Stock subject to such vested Stock Units from the Company at a purchase price equal to the greater of (x) the aggregate par value of the shares of Stock represented by such Restricted Stock or such vested Stock Units or (y) the purchase price, if any, specified in the Award Agreement relating to such Restricted Stock or such vested Stock Units. Such purchase price shall be payable in a form provided in Section 12 or, in the sole discretion of the Committee, in consideration for past or future Services rendered to the Company or an Affiliate.
10.8 Delivery of Shares of Stock.
Upon the expiration or termination of any Restricted Period and the satisfaction of any other conditions prescribed by the Committee, including but not limited to any delayed delivery period, the restrictions applicable to Restricted Stock or Stock Units settled in shares of Stock shall lapse, and, unless otherwise provided in the applicable Award Agreement, a book-entry or direct registration or a share certificate evidencing ownership of such shares of Stock shall, consistent with Section 3.7, be issued, free of all such restrictions, to the Grantee thereof or such Grantee’s beneficiary or estate, as the case may be. Neither the Grantee, nor the Grantee’s beneficiary or estate, shall have any further rights with regard to a Stock Unit once the shares of Stock represented by such Stock Unit have been delivered in accordance with this Section 10.8.
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11. TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS AND OTHER EQUITY-BASED AWARDS
11.1 Unrestricted Stock Awards.
The Committee may, in its sole discretion, grant (or sell at the par value of a share of Stock or at such other higher purchase price as shall be determined by the Committee) an Award to any Grantee pursuant to which such Grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted Stock Awards may be granted or sold to any Grantee as provided in the immediately preceding sentence in respect of past or, if so provided in the related Award Agreement or a separate agreement, the promise by the Grantee to perform future Service to the Company or an Affiliate or other valid consideration, or in lieu of, or in addition to, any cash compensation due to such Grantee.
11.2 Other Equity-Based Awards.
The Committee may, in its sole discretion, grant awards in the form of Other Equity-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. Awards granted pursuant to this Section 11.2 may be granted with vesting, value and/or payment contingent upon the achievement of one or more performance goals. The Committee shall determine the terms and conditions of Other Equity-Based Awards at the Grant Date or thereafter. Unless the Committee otherwise provides in an Award Agreement, in another agreement with the Grantee, or otherwise in writing after such Award Agreement is issued, upon the termination of a Grantee’s Service, any Other Equity-Based Awards held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of any Other Equity-Based Award, the Grantee thereof shall have no further rights with respect to such Other Equity-Based Award.
12. FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK
Payment of the Option Price for the shares of Stock purchased pursuant to the exercise of an Option or the purchase price, if any, for shares of Restricted Stock shall be made in cash or in cash equivalents acceptable to the Company.
12.2 Surrender of Shares of Stock.
To the extent that the applicable Award Agreement so provides, payment of the Option Price for shares of Stock purchased pursuant to the exercise of an Option or the purchase price, if any, for Restricted Stock may be made all or in part through the tender or attestation to the Company of shares of Stock, which shall be valued, for purposes of determining the extent to which such Option Price or purchase price has been paid thereby, at their Fair Market Value on the date of such tender or attestation.
To the extent permitted by Applicable Laws and to the extent the Award Agreement so provides, payment of the Option Price for shares of Stock purchased pursuant to the exercise of an Option may be made all or in part by delivery (on a form acceptable to the Committee) of an irrevocable direction to a licensed securities broker acceptable to the Company to sell shares of Stock and to deliver all or part of the proceeds of such sale to the Company in payment of such Option Price and any withholding taxes described in Section 18.3, or, with the consent of the Company, by issuing the number of shares of Stock equal in value to the difference between such Option Price and the Fair Market Value of the shares of Stock subject to the portion of such Option being exercised.
To the extent the Award Agreement so provides and/or unless otherwise specified in an Award Agreement, payment of the Option Price for shares of Stock purchased pursuant to exercise of an Option or the purchase
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price, if any, for Restricted Stock may be made in any other form that is consistent with Applicable Laws, including (a) Service to the Company or any Affiliate and (b) by withholding shares of Stock that would otherwise vest or be issuable in an amount equal to the Option Price or purchase price and the required tax withholding amount.
13. TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS
13.1 Dividend Equivalent Rights.
A Dividend Equivalent Right is an Award entitling the recipient thereof to receive credits based on cash distributions that would have been paid on the shares of Stock specified in such Dividend Equivalent Right (or other Award to which such Dividend Equivalent Right relates) if such shares of Stock had been issued to and held by the recipient of such Dividend Equivalent Right as of the record date. A Dividend Equivalent Right may be granted hereunder to any Grantee, provided that no Dividend Equivalent Rights may be granted in connection with, or related to, an Award of Options or SARs. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Agreement therefor. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently (with or without being subject to forfeiture or a repayment obligation) or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional Dividend Equivalent Rights (with or without being subject to forfeiture or a repayment obligation). Any such reinvestment shall be at the Fair Market Value thereof on the date of such reinvestment. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or in multiple installments, all as determined in the sole discretion of the Committee. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award. A Dividend Equivalent Right granted as a component of another Award also may contain terms and conditions which are different from the terms and conditions of such other Award, provided that Dividend Equivalent Rights credited pursuant to a Dividend Equivalent Right granted as a component of another Award which vests or is earned based upon the achievement of performance goals shall not vest unless such performance goals for such underlying Award are achieved, and if such performance goals are not achieved, the Grantee of such Dividend Equivalent Rights shall promptly forfeit and repay to the Company payments made in connection with such Dividend Equivalent Rights.
Unless the Committee otherwise provides in an Award Agreement, in another agreement with the Grantee, or otherwise in writing after such Award Agreement is issued, a Grantee’s rights in all Dividend Equivalent Rights shall automatically terminate upon the Grantee’s termination of Service for any reason.
14. TERMS AND CONDITIONS OF PERFORMANCE-BASED AWARDS
14.1 Grant of Performance-Based Awards.
Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Performance-Based Awards to a Plan participant in such amounts and upon such terms as the Committee shall determine.
14.2 Structure of Performance-Based Awards.
Each grant of a Performance-Based Award shall have an actual or target number of shares of Stock or initial value that is established by the Committee at the time of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are achieved, shall determine the number of shares of Stock or value subject to a Performance-Based Award that will be paid out to the Grantee thereof as described in Section 14.6.3.
14.3 Earning of Performance-Based Awards.
Subject to the terms of the Plan, in particular Section 14.6.3, after the applicable Performance Period has ended, the Grantee of Performance-Based Awards shall be entitled to receive a payout on the number of the
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Performance-Based Awards or value earned by such Grantee over such Performance Period as determined by the Committee.
14.4 Form and Timing of Payment of Performance-Based Awards.
Payment of earned Performance-Based Awards shall be made in the manner described in the applicable Award Agreement as determined by the Committee. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance-Based Awards in the form of cash or shares of Stock (or a combination thereof) equal to the value of such earned Performance-Based Awards and shall pay the Awards that have been earned at the close of the applicable Performance Period, or as soon as reasonably practicable after the Committee has determined that the performance goal or goals relating thereto have been achieved; provided that, unless specifically provided in the Award Agreement for such Awards, such payment shall occur no later than the 15th day of the third month following the end of the calendar year in which such Performance Period ends. Any shares of Stock paid out under such Performance-Based Awards may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Performance-Based Awards shall be set forth in the Award Agreement therefor.
The right of a Grantee to exercise or receive a grant or settlement of any Performance-Based Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions and may exercise its discretion to increase or reduce the amounts payable under any Award subject to performance conditions.
14.6 Performance Goals Generally.
The performance goals for Performance-Based Awards shall consist of one or more business criteria or other measure of performance and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 14. The Committee may determine that such Awards shall be granted, exercised and/or settled upon achievement of any single performance goal or of two (2) or more performance goals. Performance goals may differ for Awards granted to any one Grantee or to different Grantees.
14.7 Payment of Awards; Other Terms.
Payment of Performance-Based Awards shall be in cash, shares of Stock or other Awards, including an Award that is subject to additional Service-based vesting, as determined in the sole discretion of the Committee. The Committee may, in its sole discretion, increase or reduce the amount of a payment otherwise to be made in connection with such Awards. The Committee shall specify the circumstances in which such Performance-Based Awards shall be paid or forfeited in the event of termination of Service by the Grantee prior to the end of a Performance Period or settlement of such Awards. In the event payment of the Performance-Based Award is made in the form of another Award subject to Service-based vesting, the Committee shall specify the circumstances in which the payment Award will be paid or forfeited in the event of a termination of Service.
The performance goals upon which the payment or vesting of a Performance-Based Award may by conditioned may include one or more of the following Performance Measures (or such other Performance Measures as the Committee may determine), with or without adjustment:
(1) funds available for distribution (FAD) and adjusted FAD;
(2) total stockholder return or stock price;
(3) net asset value (NAV) and stockholder value creation;
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(4) revenues;
(5) net operating income (including on a cash basis) and same store net operating income;
(6) funds from operations (FFO);
(7) intrinsic business value;
(8) implementation or completion of critical or strategic projects, acquisitions, dispositions, joint ventures, development or processes;
(9) return on invested capital;
(10) rental income, transaction costs, occupancy or geographic business expansion;
(11) customer or employee satisfaction or human resources management;
(12) operations, cost targets, reductions and savings, productivity and efficiencies, legal matters or information technology,
(13) compliance, financial controls and savings, investor relations, or staffing;
(14) environmental, social or governance (ESG) criteria; and
(15) any combination of the foregoing criteria.
Performance under any of the foregoing Performance Measures (a) may be used to measure the performance of (i) the Company and its Subsidiaries and other Affiliates as a whole, (ii) the Company, any Subsidiary, and/or any other Affiliate or any combination thereof, or (iii) any one or more business units of the Company, any Subsidiary, and/or any other Affiliate, as the Committee, in its sole discretion, deems appropriate and (b) may be compared to the performance of one or more other companies or one or more published or special indices designated or approved by the Committee for such comparison, as the Committee, in its sole discretion, deems appropriate. In addition, the Committee, in its sole discretion, may select performance under the Performance Measure specified in clause (b) above for comparison to performance under one or more stock market indices designated or approved by the Committee. The Committee also shall have the authority to provide for accelerated vesting of any Performance-Based Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Section 14.
14.9 Evaluation of Performance.
The Committee may provide in any Performance-Based Award that any evaluation of performance may include or exclude any of the following events that occur during a Performance Period: (a) asset write-downs; (b) litigation or claims, judgments or settlements; (c) the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results; (d) any reorganization or restructuring events or programs; (e) extraordinary, non-core, non-operating or non-recurring items; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses.
If any Grantee is a “disqualified individual,” as defined in Code Section 280G(c), then, notwithstanding any other provision of the Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by such Grantee with the Company or an Affiliate, except an agreement, contract, or understanding that expressly addresses Code Section 280G or Code Section 4999 (an “Other Agreement”), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Grantee (including groups or classes of Grantees or beneficiaries of which the Grantee is a member), whether or not such
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compensation is deferred, is in cash, or is in the form of a benefit to or for the Grantee (a “Benefit Arrangement”), any right of the Grantee to any exercise, vesting, payment or benefit under the Plan shall be reduced or eliminated:
(a) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Grantee under the Plan, all Other Agreements, and all Benefit Arrangements, would cause any exercise, vesting, payment, or benefit to the Grantee under the Plan to be considered a “parachute payment” within the meaning of Code Section 280G(b)(2) as then in effect (a “Parachute Payment”); and
(b) if, as a result of receiving such Parachute Payment, the aggregate after-tax amounts received by the Grantee from the Company under the Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by the Grantee without causing any such payment or benefit to be considered a Parachute Payment.
The Company shall accomplish such reduction by first reducing or eliminating any cash payments (with the payments to be made furthest in the future being reduced first), then by reducing or eliminating any accelerated vesting of Performance-Based Awards, then by reducing or eliminating any accelerated vesting of Options or SARs, then by reducing or eliminating any accelerated vesting of Restricted Stock or Stock Units, then by reducing or eliminating any other remaining Parachute Payments.
The Company shall not be required to offer, sell or issue any shares of Stock under any Award, whether pursuant to the exercise of an Option or SAR or otherwise, if the offer, sale or issuance of such shares of Stock would constitute a violation by the Grantee, the Company or an Affiliate, or any other person, of any provision of Applicable Laws, including any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares of Stock subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the offering, issuance, sale or purchase of shares of Stock in connection with any Award, no shares of Stock may be offered, issued or sold to the Grantee or any other person under such Award, whether pursuant to the exercise of an Option or SAR or otherwise, unless such listing, registration or qualification shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of such Award. Without limiting the generality of the foregoing, upon the exercise of any Option or any SAR that may be settled in shares of Stock or the delivery of any shares of Stock underlying an Award, unless a registration statement under the Securities Act is in effect with respect to the shares of Stock subject to such Award, the Company shall not be required to offer, sell or issue such shares of Stock unless the Committee shall have received evidence satisfactory to it that the Grantee or any other person exercising such Option or SAR or accepting delivery of such shares may acquire such shares of Stock pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Committee shall be final, binding, and conclusive. The Company may register, but shall in no event be obligated to register, any shares of Stock or other securities issuable pursuant to the Plan pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or a SAR or the issuance of shares of Stock or other securities issuable pursuant to the Plan or any Award to comply with any Applicable Laws. As to any jurisdiction that expressly imposes the requirement that an Option or SAR that may be settled in shares of Stock shall not be exercisable until the shares of Stock subject to such Option or SAR are registered under the securities laws thereof or are exempt from such registration, the exercise of such Option or SAR under circumstances in which the laws of such jurisdiction apply shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intention of the Company that Awards pursuant to the Plan and the exercise of Options and SARs
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granted hereunder that would otherwise be subject to Section 16(b) of the Exchange Act shall qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Committee does not comply with the requirements of such Rule 16b-3, such provision or action shall be deemed inoperative with respect to such Awards to the extent permitted by Applicable Laws and deemed advisable by the Committee, and shall not affect the validity of the Plan. In the event that such Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify the Plan in any respect necessary or advisable in its judgment to satisfy the requirements of, or to permit the Company to avail itself of the benefits of, the revised exemption or its replacement.
17. EFFECT OF CHANGES IN CAPITALIZATION
If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number of shares or kind of capital stock or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse stock split, spin-off, combination of stock, exchange of stock, stock dividend or other distribution payable in capital stock, or other increase or decrease in shares of Stock effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares of stock for which grants of Options and other Awards may be made under the Plan, including the share limits set forth in Section 6.2, shall be adjusted proportionately and accordingly by the Committee. In addition, the number and kind of shares of stock for which Awards are outstanding shall be adjusted proportionately and accordingly by the Committee so that the proportionate interest of the Grantee therein immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options or SARs shall not change the aggregate Option Price or SAR Price payable with respect to shares that are subject to the unexercised portion of such outstanding Options or SARs, as applicable, but shall include a corresponding proportionate adjustment in the per share Option Price or SAR Price, as the case may be. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of any distribution to the Company’s stockholders of securities of any other entity or other assets (including an extraordinary dividend, but excluding a non-extraordinary dividend, declared and paid by the Company) without receipt of consideration by the Company, the Board or the Committee constituted pursuant to Section 3.1.2 shall, in such manner as the Board or the Committee deems appropriate, adjust (a) the number and kind of shares of stock subject to outstanding Awards and/or (b) the aggregate and per share Option Price of outstanding Options and the aggregate and per share SAR Price of outstanding SARs as required to reflect such distribution.
17.2 Reorganization in Which the Company Is the Surviving Entity Which Does not Constitute a Change in Control.
Subject to Section 17.3, if the Company shall be the surviving entity in any reorganization, merger or consolidation of the Company with one or more other entities which does not constitute a Change in Control, any Option or SAR theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option or SAR would have been entitled immediately following such reorganization, merger or consolidation, with a corresponding proportionate adjustment of the per share Option Price or SAR Price so that the aggregate Option Price or SAR Price thereafter shall be the same as the aggregate Option Price or SAR Price of the shares of Stock remaining subject to the Option or SAR as in effect immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement or in another agreement with the Grantee, or otherwise set forth in writing, any restrictions applicable to such Award shall apply as well to any replacement shares received by the Grantee as a result of such reorganization, merger or consolidation. In the event of any reorganization, merger or consolidation of the Company referred to in this Section 17.2, Performance-Based Awards shall be adjusted (including any adjustment to the Performance Measures applicable to such Awards deemed appropriate by the Committee) so as to apply to the securities that a holder of the number of shares of Stock subject to the Performance-Based Awards would have been entitled to receive immediately following such reorganization, merger or consolidation.
PS Business Parks • 2022 Proxy Statement • B-20
17.3 Change in Control in which Awards are not Assumed.
Except as otherwise provided in the applicable Award Agreement or in another agreement with the Grantee, or as otherwise set forth in writing, upon the occurrence of a Change in Control in which outstanding Options, SARs, Restricted Stock, Stock Units, Dividend Equivalent Rights or Other Equity-Based Awards are not being assumed or continued, the following provisions shall apply to such Award, to the extent not assumed or continued:
(a) in each case, with the exception of Performance-Based Awards,
(i) all outstanding Restricted Stock shall be deemed to have vested, all Stock Units shall be deemed to have vested and the shares of Stock subject thereto shall be delivered, and all Dividend Equivalent Rights shall be deemed to have vested and the shares of Stock (or cash in the case of Dividend Equivalent Rights) subject thereto shall be delivered, immediately prior to the occurrence of such Change in Control, and fifteen (15) days prior to the scheduled consummation of such Change in Control, all Options and SARs outstanding hereunder shall become immediately exercisable and shall remain exercisable for a period of fifteen (15) days; and/or
(ii) the Committee may elect, in its sole discretion, to cancel any outstanding Awards of Options, Restricted Stock, Stock Units, Dividend Equivalent Rights and/or SARs and pay or deliver, or cause to be paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Committee acting in good faith), in the case of Restricted Stock, Stock Units, and Dividend Equivalent Rights (for shares of Stock subject thereto) equal to the formula or fixed price per share paid to holders of shares of Stock pursuant to such Change in Control and, in the case of Options or SARs, equal to the product of the number of shares of Stock subject to such Options or SARs (the “Award Stock”) multiplied by the amount, if any, by which (x) the formula or fixed price per share paid to holders of shares of Stock pursuant to such transaction exceeds (y) the Option Price or SAR Price applicable to such Award Stock.
(b) For Performance-Based Awards, all performance goals and conditions shall be deemed to have been satisfied immediately prior to the occurrence of such Change in Control based on either actual performance as of a date reasonably close to the date of the Change in Control or target performance, as determined by the Committee in its sole discretion, and such Awards shall become payable pro-rata based on the portion of the applicable Performance Period completed as of the Change in Control. If any Awards arise from application of this Section 17.3(b), such Awards will be settled under the applicable provision of Section 17.3(a).
(c) Other Equity-Based Awards shall be governed by the terms of the applicable Award Agreement.
With respect to the Company’s establishment of an exercise window, (A) any exercise of an Option or SAR during the fifteen (15)-day period referred to above shall be conditioned upon the consummation of the applicable Change in Control and shall be effective only immediately before the consummation thereof, and (B) upon consummation of any Change in Control, the Plan and all outstanding but unexercised Options and SARs shall terminate. The Committee shall send notice of an event that shall result in such a termination to all natural persons and entities who hold Options and SARs not later than the time at which the Company gives notice thereof to its stockholders. Notwithstanding the foregoing, a majority of the Board may determine that a Change in Control shall not trigger application of the provisions of this Section 17.3.
17.4 Change in Control in which Awards are Assumed.
Except as otherwise provided in the applicable Award Agreement or in another agreement with the Grantee, or as otherwise set forth in writing, upon the occurrence of a Change in Control in which outstanding Options, SARs, Restricted Stock, Stock Units, Dividend Equivalent Rights or Other-Equity Based Awards are being assumed or continued, the following provisions shall apply to such Award, to the extent assumed or continued:
The Plan and the Options, SARs, Restricted Stock, Stock Units, Dividend Equivalent Rights and Other Equity-Based Awards granted under the Plan shall continue in the manner and under the terms so provided in the event of any Change in Control to the extent that provision is made in writing in connection with such Change in Control
PS Business Parks • 2022 Proxy Statement • B-21
for the assumption or continuation of such Options, SARs, Restricted Stock, Stock Units, Dividend Equivalent Rights and Other Equity-Based Awards for the substitution for such Options, SARs, Restricted Stock, Stock Units and Dividend Equivalent Rights of new common stock options, stock appreciation rights, restricted stock, common restricted stock units, dividend equivalent rights and other equity-based awards relating to the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and option and stock appreciation rights exercise prices. In the event an Award is assumed, continued or substituted upon the consummation of any Change in Control and the employment of such Grantee with the Company or any Affiliate is involuntarily terminated without Cause within one year following the consummation of such Change in Control, such Award shall be fully vested and may be exercised in full, to the extent applicable, beginning on the date of such termination and for the one-year period immediately following such termination or for such longer period as the Committee shall determine.
Adjustments under this Section 17 related to shares of Stock or other securities of the Company shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. The Committee shall determine the effect of a Change in Control upon Awards other than Options, SARs, Stock Units and Restricted Stock, and such effect shall be set forth in the applicable Award Agreements, in another agreement with the Grantee, or otherwise in writing. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The Committee may provide in the applicable Award Agreement at the time of grant, in another agreement with the Grantee, or otherwise in writing at any time thereafter with the consent of the Grantee, for different provisions to apply to an Award in place of those provided in Sections 17.1, 17.2, 17.3 and 17.4. This Section 17 shall not limit the Committee’s ability to provide for alternative treatment of Awards outstanding under the Plan in the event of a change in control event that is not a Change in Control.
17.6 No Limitations on Company.
The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets (including all or any part of the business or assets of any Subsidiary or other Affiliate) or engage in any other transaction or activity.
No provision in the Plan or in any Award or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or Service of the Company or an Affiliate, or to interfere in any way with any contractual or other right or authority of the Company or an Affiliate either to increase or decrease the compensation or other payments to any natural person or entity at any time, or to terminate any employment or other relationship between any natural person or entity and the Company or an Affiliate. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, in another agreement with the Grantee, or otherwise in writing, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee thereof, so long as such Grantee continues to provide Service. The obligation of the Company to pay any benefits pursuant to the Plan shall be interpreted as a contractual obligation to pay only those amounts provided herein, in the manner and under the conditions prescribed herein. The Plan and Awards shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan.
18.2 Nonexclusivity of the Plan.
Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other
PS Business Parks • 2022 Proxy Statement • B-22
incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable.
The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an Award or upon the issuance of any shares of Stock upon the exercise of an Option or pursuant to any other Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay in cash to the Company or an Affiliate, as the case may be, any amount that the Company or such Affiliate may reasonably determine to be necessary to satisfy such withholding obligation; provided that if there is a same-day sale of shares of Stock subject to an Award, the Grantee shall pay such withholding obligation on the day on which such same-day sale is completed. Subject to the prior approval of the Company or an Affiliate, which may be withheld by the Company or such Affiliate, as the case may be, in its sole discretion, the Grantee may elect to satisfy such withholding obligation, in whole or in part, (a) by causing the Company or such Affiliate to withhold shares of Stock otherwise issuable to the Grantee or (b) by delivering to the Company or such Affiliate shares of Stock already owned by the Grantee. The shares of Stock so withheld or delivered shall have an aggregate Fair Market Value equal to such withholding obligation. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or such Affiliate as of the date on which the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this Section 18.3 may satisfy such Grantee’s withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements. The maximum number of shares of Stock that may be withheld from any Award to satisfy any federal, state or local tax withholding requirements upon the exercise, vesting, or lapse of restrictions applicable to any Award or payment of shares of Stock pursuant to such Award, as applicable, may not exceed such number of shares of Stock having a Fair Market Value equal to the minimum statutory amount required by the Company or the applicable Affiliate to be withheld and paid to any such federal, state or local taxing authority with respect to such exercise, vesting, lapse of restrictions or payment of shares of Stock; provided, however, that for so long as Accounting Standards Update 2016-09 or a similar rule remains in effect, the Board or the Committee has full discretion to choose, or to allow a Grantee to elect, to withhold a number of shares of Stock having an aggregate Fair Market Value that is greater than the applicable minimum required statutory withholding obligation (but such withholding may in no event be in excess of the maximum required statutory withholding amount(s) in such Grantee’s relevant tax jurisdictions). Notwithstanding Section 2.19 or this Section 18.3, for purposes of determining taxable income and the amount of the related tax withholding obligation pursuant to this Section 18.3, for any shares of Stock subject to an Award that are sold by or on behalf of a Grantee on the same date on which such shares may first be sold pursuant to the terms of the related Award Agreement, the Fair Market Value of such shares shall be the sale price of such shares on such date (or if sales of such shares are effectuated at more than one sale price, the weighted average sale price of such shares on such date), so long as such Grantee has provided the Company, or its designee or agent, with advance written notice of such sale.
The use of captions in the Plan or any Award Agreement is for convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement.
Unless the context otherwise requires, all references in the Plan to “including” shall mean “including without limitation.”
Each Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion.
PS Business Parks • 2022 Proxy Statement • B-23
With respect to words used in the Plan, the singular form shall include the plural form and the masculine gender shall include the feminine gender, as the context requires.
If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
The validity and construction of the Plan and the instruments evidencing the Awards hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of Maryland, other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan and the instruments evidencing the Awards granted hereunder to the substantive laws of any other jurisdiction.
18.10 Section 409A of the Code.
For Awards that constitute nonqualified deferred compensation within the meaning of Code Section 409A, the Company generally intends, but is not obligated, to grant Awards that will comply with Code Section 409A or an exemption to Code Section 409A. To the extent that the Company determines that a Grantee would be subject to the additional twenty percent (20%) tax imposed on certain nonqualified deferred compensation plans pursuant to Code Section 409A as a result of any provision of any Award granted under the Plan, such provision shall be deemed amended to the minimum extent necessary to avoid application of such additional tax. The nature of any such amendment shall be determined by the Committee.
Notwithstanding any provisions of the Plan to the contrary, to the extent required to avoid accelerated taxation and tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6)-month period immediately following the Grantee’s “separation from service” (as defined for purposes of Code Section 409A) will instead be paid on the first payroll date after the six (6)-month anniversary of the Grantee’s separation from service (or the Grantee’s death, if earlier). Notwithstanding any provision of the Plan to the contrary, in the case of an Award that is characterized as deferred compensation under Code Section 409A, and pursuant to which settlement and delivery of the cash or shares of Stock subject to the Award is triggered based on a Change in Control, in no event will a Change in Control be deemed to have occurred for purposes of such settlement and delivery of cash or shares of Stock if the transaction is not also a “change in the ownership or effective control of” the Company, or “a change in the ownership of a substantial portion of the assets of” the Company, as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). If an Award characterized as deferred compensation under Code Section 409A is not settled and delivered on account of the provision of the preceding sentence, the settlement and delivery shall occur on the next succeeding settlement and delivery triggering event that is a permissible triggering event under Code Section 409A. No provision of this paragraph shall in any way affect the determination of a Change in Control for purposes of vesting in an Award that is characterized as deferred compensation under Code Section 409A. Notwithstanding anything in this Section 18.10 to the contrary, neither the Company nor the Board or the Committee will have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Grantee under Code Section 409A, and neither the Company nor the Board or the Committee will have any liability to any Grantee for such tax or penalty.
* * *
PS Business Parks • 2022 Proxy Statement • B-24
PS BUSINESS PARKS, INC. ATTN: INVESTOR SERVICES DEPARTMENT 701 WESTERN AVE. GLENDALE, CA 91201-2349 | ||
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PS Business Parks • 2021 Proxy Statement • B-13
ANNEX A
5.20% CUMULATIVE PREFERRED STOCK, SERIES W
The following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the 5.20% Cumulative Preferred Stock, Series W (the “Series W Preferred Stock”) as set forth below shall be deemed to be part of Article V of the Articles of Amendment and Restatement (the “Charter”) of PS Business Parks, Inc. (the “Corporation”), with any necessary or appropriate changes to the enumeration or lettering of sections or subsections hereof:
(a) Dividend Rights.
(1) Dividends shall be payable in cash on the shares of Series W Preferred Stock when, as and if declared by the Board of Directors, out of funds legally available therefor: (i) for the period (the “Initial Dividend Period”) from the Deemed Original Issue Date (as defined below) to but excluding January 1, 2017, and (ii) for each quarterly dividend period thereafter (the Initial Dividend Period and each quarterly dividend period being hereinafter individually referred to as a “Dividend Period” and collectively referred to as “Dividend Periods”), which quarterly Dividend Periods shall be in four equal amounts and shall commence on January 1, April 1, July 1 and October 1 in each year (each, a “Dividend Period Commencement Date”), commencing on January 1, 2017, and shall end on and include the day next preceding the next Dividend Period Commencement Date, at a rate per annum equal to 5.20% of the $25,000 per share stated value thereof (the “Dividend Rate”). Dividends on each share of Series W Preferred Stock shall be cumulative from the Deemed Original Issue Date of such share and shall be payable, without interest thereon, when, as and if declared by the Board of Directors, on or before March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2016 or, in the case of shares of Series W Preferred Stock with a Deemed Original Issue Date after December 31, 2016, the first such dividend payment date following such Deemed Original Issue Date; provided, that if any such day shall be a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of California are authorized or obligated by law to close, or a day which is or is declared a national or a New York or California state holiday (any of the foregoing a “Non-Business Day”), then the payment date shall be the next succeeding day which is not a Non-Business Day. Each such dividend shall be paid to the holders of record of shares of Series W Preferred Stock as they appear on the stock register of the Corporation on such record date, not more than 45 days nor less than 15 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not more than 45 days nor less than 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. After full cumulative dividends on Series W Preferred Stock have been paid or declared and funds therefor set aside for payment, including for the then current Dividend Period, the holders of shares of Series W Preferred Stock will not be entitled to any further dividends with respect to that Dividend Period.
“Deemed Original Issue Date” means (a) in the case of any share which is part of the first issuance of shares of Series W Preferred Stock or part of a subsequent issuance of shares of Series W Preferred Stock prior to January 1, 2017, the date of such first issuance and (b) in the case of any share which is part of a subsequent issuance of shares of Series W Preferred Stock on or after January 1, 2017, the later of (x) January 1, 2017 and (y) the latest Dividend Period Commencement Date which precedes the date of issuance of such share and which succeeds the last Dividend Period for which full cumulative dividends have been paid; provided that, in the case of any share which is part of a subsequent issuance, the date of issuance of which falls between (i) the record date for dividends payable on the first succeeding dividend payment date and (ii) such dividend payment date, the “Deemed Original Issue Date” means the date of the Dividend Period Commencement Date that immediately follows the date of issuance.
(2) Dividends payable on shares of Series W Preferred Stock for any period greater or less than a full Dividend Period, including the Initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
PS Business Parks • 2021 Proxy Statement • B-14
(3) The Corporation shall not declare or pay or set apart for payment any dividends on any series of preferred shares ranking, as to dividends, on a parity with the shares of Series W Preferred Stock unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for payment thereof is set apart for payment, for all Dividend Periods terminating on or prior to the date of payment of any such dividends on such other series of preferred shares. When dividends are not paid in full upon the shares of Series W Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends (including, without limitation, the shares of the Corporation’s 5.25% Cumulative Preferred Stock, Series X (the “Series X Preferred Stock”), 5.20% Cumulative Preferred Stock, Series Y (the “Series Y Preferred Stock”), and 4.875% Cumulative Preferred Stock, Series Z (the “Series Z Preferred Stock”)), all dividends declared upon shares of Series W Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends shall be declared pro rata so that the amount of dividends declared per share on the shares of Series W Preferred Stock and such other series of preferred shares shall in all cases bear to each other that same ratio that the accumulated dividends per share on the shares of Series W Preferred Stock and such other series of preferred shares bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on the shares of Series W Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no dividends (other than in shares of the Corporation’s common stock, par value $.01 per share (together with any other shares of capital stock of the Corporation into which such shares shall be reclassified or changed, the “Common Shares”), or another stock ranking junior to the shares of Series W Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be made upon the Common Shares or on any other stock of the Corporation ranking junior to or on a parity with the shares of Series W Preferred Stock as to dividends or upon liquidation. Unless full cumulative dividends on the shares of Series W Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no Common Shares or any other stock of the Corporation ranking junior to or on a parity with the shares of Series W Preferred Stock as to dividends or upon liquidation shall be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation or any subsidiary, except by conversion into or exchange for stock of the Corporation ranking junior to the shares of Series W Preferred Stock as to dividends and upon liquidation.
(b) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of Series W Preferred Stock are entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets is made to holders of Common Shares or any other class or series of shares ranking junior to the shares of Series W Preferred Stock upon liquidation, liquidating distributions in the amount of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) for the then current and all past Dividend Periods. If, upon any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation the amounts payable with respect to the shares of Series W Preferred Stock and any other shares of the Corporation ranking as to any such distribution on a parity with the shares of Series W Preferred Stock are not paid in full, the holders of shares of Series W Preferred Stock and of such other shares (including the shares of the Series X Preferred Stock, the Series Y Preferred Stock and the Series Z Preferred Stock) will share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series W Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation.
(1) Written notice of any such liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the shares of Series W Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation.
(2) For purposes of liquidation rights, a reorganization, consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation shall be deemed not to be a liquidation, dissolution or winding up of the Corporation.
PS Business Parks • 2021 Proxy Statement • B-15
(c) Redemption.
(1) Except as provided in clause (9) below, the shares of Series W Preferred Stock are not redeemable prior to October 20, 2021. On and after such date, the shares of Series W Preferred Stock are redeemable at the option of the Corporation, by resolution of the Board of Directors, in whole or in part, from time to time upon not less than 30 nor more than 60 days’ notice, at a cash redemption price of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) to the date of redemption.
(2) If fewer than all the outstanding shares of Series W Preferred Stock are to be redeemed, the number of shares to be redeemed will be determined by the Board of Directors, and such shares shall be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by the Board of Directors.
(3) Notwithstanding the foregoing, if any dividends, including any accumulation, on the shares of Series W Preferred Stock are in arrears, no shares of Series W Preferred Stock shall be redeemed unless all outstanding shares of Series W Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any shares of Series W Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Series W Preferred Stock pursuant to a purchase or exchange offer provided such offer is made on the same terms to all holders of shares of Series W Preferred Stock.
(4) Immediately prior to any redemption of shares of Series W Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the redemption date, unless a redemption date falls after a dividend payment record date and prior to the corresponding dividend payment date, in which case each holder of shares of Series W Preferred Stock at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as expressly provided herein above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series W Preferred Stock called for redemption.
(5) A notice of redemption (which may be contingent on the occurrence of a future event) will be mailed by the Corporation by first class mail, postage pre-paid, to each record holder of the shares of Series W Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series W Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series W Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series W Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series W Preferred Stock to be redeemed from such holder.
(6) In order to facilitate the redemption of shares of Series W Preferred Stock, the Board of Directors may fix a record date for the determination of the shares to be redeemed, such record date to be not less than 30 nor more than 60 days prior to the date fixed for such redemption.
(7) Notice having been given as provided above, from and after the date fixed for the redemption of shares of Series W Preferred Stock by the Corporation (unless the Corporation shall fail to make available the money necessary to effect such redemption), the holders of shares selected for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation, less any required tax withholding amount, without interest thereon, upon surrender (and endorsement or assignment of transfer, if required by the Corporation and so stated in the notice) of their certificates, and the shares represented thereby shall no longer
PS Business Parks • 2021 Proxy Statement • B-16
be deemed to be outstanding. If fewer than all the shares represented by a certificate are redeemed, a new certificate shall be issued, without cost to the holder thereof, representing the unredeemed shares. The Corporation may, at its option, at any time after a notice of redemption has been given, deposit the redemption price for the shares of Series W Preferred Stock designated for redemption and not yet redeemed, plus any accumulated and unpaid dividends thereon to the date fixed for redemption, with the transfer agent or agents for Series W Preferred Stock, as a trust fund for the benefit of the holders of the shares of Series W Preferred Stock designated for redemption, together with irrevocable instructions and authority to such transfer agent or agents that such funds be delivered upon redemption of such shares and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates. From and after the making of such deposit, the holders of the shares designated for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive from such trust fund the moneys payable upon such redemption, without interest thereon, upon surrender (and endorsement, if required by the Corporation) of their certificates, and the shares represented thereby shall no longer be deemed to be outstanding. Any balance of such moneys remaining unclaimed at the end of the five-year period commencing on the date fixed for redemption shall be repaid to the Corporation upon its request expressed in a resolution of its Board of Directors.
(8) Any shares of Series W Preferred Stock that shall at any time have been redeemed or otherwise reacquired shall, after such redemption, have the status of authorized but unissued preferred shares, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors.
(9) If the Board of Directors of the Corporation shall, at any time and in good faith, be of the opinion that ownership of securities of the Corporation has or may become concentrated to an extent that may prevent the Corporation from qualifying as a real estate investment trust under the REIT Provisions of the Internal Revenue Code (as defined below), then the Board of Directors shall have the power, by lot or other means deemed equitable by them to prevent the transfer of and/or to call for redemption a number of shares of Series W Preferred Stock sufficient, in the opinion of the Board of Directors, to maintain or bring the direct or indirect ownership thereof into conformity with the requirements of such a real estate investment trust under the REIT Provisions of the Internal Revenue Code. The redemption price to be paid for shares of Series W Preferred Stock so called for redemption, on the date fixed for redemption, shall be the closing price of the shares on the principal national stock exchange on which the shares are listed on the last business day prior to the redemption date, or if no sales of shares were made on such date, the average of the highest bid and the lowest asked quotations on the last business day prior to the redemption date as reported by the National Quotation Bureau, Incorporated or a similar organization selected from time to time by the Corporation or if there be no such bid and asked quotations, $25,000 per share; provided that if interests in shares of Series W Preferred Stock are represented by depositary shares, then the redemption price shall be determined in accordance with the foregoing, but with respect to one depositary share, multiplied by the number of depositary shares that together represent an interest in one share of Series W Preferred Stock. From and after the date fixed for redemption by the Board of Directors, the holder of any shares of Series W Preferred Stock so called for redemption shall cease to be entitled to any distributions, voting rights and other benefits with respect to such shares of Series W Preferred Stock, other than the right to payment of the redemption price determined as aforesaid. “REIT Provisions of the Internal Revenue Code” shall mean Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In order to exercise the redemption option set forth in this clause (9), with respect to the shares of Series W Preferred Stock, the Corporation shall mail a notice of redemption by first class mail, postage pre-paid, to each record holder of the shares of Series W Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series W Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series W Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series W Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series W Preferred Stock to be redeemed from such holder.
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(d) Voting Rights. The shares of Series W Preferred Stock shall not have any voting powers either general or special, except as required by law, except that:
(1) If the Corporation shall fail to pay full cumulative dividends on the shares of Series W Preferred Stock or any other of its preferred shares for six quarterly dividend payment periods, whether or not consecutive (a “Dividend Default”), the holders of all outstanding preferred shares that are similarly entitled to this right, voting as a single class without regard to series, will be entitled to elect two Directors until full cumulative dividends for all past dividend payment periods on all preferred shares have been paid or declared and funds therefor set apart for payment. Such right to vote separately as a class to elect Directors shall, when vested, be subject, always, to the same provisions for the vesting of such right to elect Directors separately as a class in the case of future Dividend Defaults. At any time when such right to elect Directors separately as a class shall have so vested, the Corporation may call, and, upon the written request of the holders of record of not less than 10% of the total number of preferred shares of the Corporation then outstanding, shall call, a special meeting of stockholders for the election of Directors. In the case of such a written request, such special meeting shall be held within 90 days after the delivery of such request and, in either case, at the place and upon the notice provided by law and in the Bylaws of the Corporation, provided that the Corporation shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next ensuing Annual Meeting of Shareholders of the Corporation and the holders of all classes of outstanding preferred shares are afforded the opportunity to elect such Directors (or fill any vacancy) at such Annual Meeting of Shareholders. Directors elected as aforesaid shall serve until the next Annual Meeting of Shareholders of the Corporation or until their respective successors shall be elected and qualified. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a Dividend Default by reason of death, resignation, or disability, such vacancy shall be filled for the unexpired term by the appointment of a new Director for the unexpired term of such former Director, such appointment to be made by the remaining Director elected as aforesaid.
(2) The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series W Preferred Stock, voting separately as a class, will be required for any amendment to the Charter that will adversely alter or change the powers, preferences, privileges or rights of the shares of Series W Preferred Stock, except as set forth below. The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series W Preferred Stock and any other series of preferred shares similarly entitled to this right and ranking on a parity with Series W Preferred Stock as to dividends and upon liquidation (including the shares of the Series X Preferred Stock, the Series Y Preferred Stock and the Series Z Preferred Stock), voting as a single class without regard to series, will be required to issue, authorize or increase the authorized amount of any class or series of shares ranking prior to Series W Preferred Stock as to dividends or upon liquidation or to issue or authorize any obligation or security convertible into or evidencing a right to purchase any such security. In addition, the Charter may be amended to increase the number of authorized preferred shares ranking on a parity with or junior to Series W Preferred Stock or to create another class of preferred shares ranking on a parity with or junior to Series W Preferred Stock without the vote of the holders of outstanding shares of Series W Preferred Stock.
(3) Nothing herein shall be taken to require a class vote or consent in connection with the authorization, designation, increase or issuance of any shares of any class or series (including additional preferred shares of any series) that rank junior to or on a parity with Series W Preferred Stock as to dividends or liquidation rights or in connection with the authorization, designation, increase or issuance of any bonds, mortgages, debentures or other debt obligations of the Corporation.
(e) Conversion. The shares of Series W Preferred Stock are not convertible into shares of any other class or series of the capital stock of the Corporation.
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ANNEX B
5.25% CUMULATIVE PREFERRED STOCK, SERIES X
The following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the 5.25% Cumulative Preferred Stock, Series X (the “Series X Preferred Stock”) as set forth below shall be deemed to be part of Article V of the Articles of Amendment and Restatement (the “Charter”) of PS Business Parks, Inc. (the “Corporation”), with any necessary or appropriate changes to the enumeration or lettering of sections or subsections hereof:
(a) Dividend Rights.
(1) Dividends shall be payable in cash on the shares of Series X Preferred Stock when, as and if declared by the Board of Directors, out of funds legally available therefor: (i) for the period (the “Initial Dividend Period”) from the Deemed Original Issue Date (as defined below) to but excluding January 1, 2018 (to be paid on December 28, 2017), and (ii) for each quarterly dividend period thereafter (the Initial Dividend Period and each quarterly dividend period being hereinafter individually referred to as a “Dividend Period” and collectively referred to as “Dividend Periods”), which quarterly Dividend Periods shall be in four equal amounts and shall commence on January 1, April 1, July 1 and October 1 in each year (each, a “Dividend Period Commencement Date”), commencing on January 1, 2018, and shall end on and include the day next preceding the next Dividend Period Commencement Date, at a rate per annum equal to 5.25% of the $25,000 per share stated value thereof (the “Dividend Rate”). Dividends on each share of Series X Preferred Stock shall be cumulative from the Deemed Original Issue Date of such share and shall be payable, without interest thereon, when, as and if declared by the Board of Directors, on or before March 31, June 30, September 30 and December 31 (except in the case of the dividend for the Initial Dividend Period which will be paid December 28, 2017) of each year, commencing on December 28, 2017 (for the period from the Deemed Original Issue Date to but excluding January 1, 2018) or, in the case of shares of Series X Preferred Stock with a Deemed Original Issue Date after December 28, 2017, the first such dividend payment date following such Deemed Original Issue Date; provided, that if any such day shall be a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of California are authorized or obligated by law to close, or a day which is or is declared a national or a New York or California state holiday (any of the foregoing a “Non-Business Day”), then the payment date shall be the next succeeding day which is not a Non-Business Day. Each such dividend shall be paid to the holders of record of shares of Series X Preferred Stock as they appear on the stock register of the Corporation on such record date, not more than 45 days nor less than 15 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not more than 45 days nor less than 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. After full cumulative dividends on Series X Preferred Stock have been paid or declared and funds therefor set aside for payment, including for the then current Dividend Period, the holders of shares of Series X Preferred Stock will not be entitled to any further dividends with respect to that Dividend Period.
“Deemed Original Issue Date” means (a) in the case of any share which is part of the first issuance of shares of Series X Preferred Stock or part of a subsequent issuance of shares of Series X Preferred Stock prior to January 1, 2018, the date of such first issuance and (b) in the case of any share which is part of a subsequent issuance of shares of Series X Preferred Stock on or after January 1, 2018, the later of (x) January 1, 2018 and (y) the latest Dividend Period Commencement Date which precedes the date of issuance of such share and which succeeds the last Dividend Period for which full cumulative dividends have been paid; provided that, in the case of any share which is part of a subsequent issuance, the date of issuance of which falls between (i) the record date for dividends payable on the first succeeding dividend payment date and (ii) such dividend payment date, the “Deemed Original Issue Date” means the date of the Dividend Period Commencement Date that immediately follows the date of issuance.
(2) Dividends payable on shares of Series X Preferred Stock for any period greater or less than a full Dividend Period, including the Initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
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(3) The Corporation shall not declare or pay or set apart for payment any dividends on any series of preferred shares ranking, as to dividends, on a parity with the shares of Series X Preferred Stock unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for payment thereof is set apart for payment, for all Dividend Periods terminating on or prior to the date of payment of any such dividends on such other series of preferred shares. When dividends are not paid in full upon the shares of Series X Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends (including, without limitation, the shares of the Corporation’s 5.20% Cumulative Preferred Stock (the “Series W Preferred Stock”), 5.20% Cumulative Preferred Stock, Series Y (the “Series Y Preferred Stock”), and 4.875% Cumulative Preferred Stock, Series Z (the “Series Z Preferred Stock”)), all dividends declared upon shares of Series X Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends shall be declared pro rata so that the amount of dividends declared per share on the shares of Series X Preferred Stock and such other series of preferred shares shall in all cases bear to each other that same ratio that the accumulated dividends per share on the shares of Series X Preferred Stock and such other series of preferred shares bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on the shares of Series X Preferred Stock have been paid or declared and funds therefor set aside for payment for all past Dividend Periods, no dividends (other than in shares of the Corporation’s common stock, par value $.01 per share (together with any other shares of capital stock of the Corporation into which such shares shall be reclassified or changed, the “Common Shares”), or another stock ranking junior to the shares of Series X Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be made upon the Common Shares or on any other stock of the Corporation ranking junior to or on a parity with the shares of Series X Preferred Stock as to dividends or upon liquidation. Unless full cumulative dividends on the shares of Series X Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no Common Shares or any other stock of the Corporation ranking junior to or on a parity with the shares of Series X Preferred Stock as to dividends or upon liquidation shall be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation or any subsidiary, except by conversion into or exchange for stock of the Corporation ranking junior to the shares of Series X Preferred Stock as to dividends and upon liquidation.
(b) Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of Series X Preferred Stock are entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets is made to holders of Common Shares or any other class or series of shares ranking junior to the shares of Series X Preferred Stock upon liquidation, liquidating distributions in the amount of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) for the then current and all past Dividend Periods. If, upon any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation the amounts payable with respect to the shares of Series X Preferred Stock and any other shares of the Corporation ranking as to any such distribution on a parity with the shares of Series X Preferred Stock are not paid in full, the holders of shares of Series X Preferred Stock and of such other shares (including the shares of the Series W Preferred Stock, the Series Y Preferred Stock, and the Series Z Preferred Stock) will share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series X Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation.
(1) Written notice of any such liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the shares of Series X Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation.
(2) For purposes of liquidation rights, a reorganization, consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation shall be deemed not to be a liquidation, dissolution or winding up of the Corporation.
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(c) Redemption.
(1) Except as provided in clause (9) below, the shares of Series X Preferred Stock are not redeemable prior to September 21, 2022. On and after such date, the shares of Series X Preferred Stock are redeemable at the option of the Corporation, by resolution of the Board of Directors, in whole or in part, from time to time upon not less than 30 nor more than 60 days’ notice, at a cash redemption price of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) to the date of redemption.
(2) If fewer than all the outstanding shares of Series X Preferred Stock are to be redeemed, the number of shares to be redeemed will be determined by the Board of Directors, and such shares shall be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by the Board of Directors.
(3) Notwithstanding the foregoing, if any dividends, including any accumulation, on the shares of Series X Preferred Stock are in arrears, no shares of Series X Preferred Stock shall be redeemed unless all outstanding shares of Series X Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any shares of Series X Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Series X Preferred Stock pursuant to a purchase or exchange offer provided such offer is made on the same terms to all holders of shares of Series X Preferred Stock.
(4) Immediately prior to any redemption of shares of Series X Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the redemption date, unless a redemption date falls after a dividend payment record date and prior to the corresponding dividend payment date, in which case each holder of shares of Series X Preferred Stock at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as expressly provided herein above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series X Preferred Stock called for redemption.
(5) A notice of redemption (which may be contingent on the occurrence of a future event) will be mailed by the Corporation by first class mail, postage pre-paid, to each record holder of the shares of Series X Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series X Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series X Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series X Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series X Preferred Stock to be redeemed from such holder.
(6) In order to facilitate the redemption of shares of Series X Preferred Stock, the Board of Directors may fix a record date for the determination of the shares to be redeemed, such record date to be not less than 30 nor more than 60 days prior to the date fixed for such redemption.
(7) Notice having been given as provided above, from and after the date fixed for the redemption of shares of Series X Preferred Stock by the Corporation (unless the Corporation shall fail to make available the money necessary to effect such redemption), the holders of shares selected for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation, less any required tax withholding amount, without interest thereon, upon surrender (and endorsement or assignment of transfer, if required by the Corporation and so stated in the notice) of their certificates, and the shares represented thereby shall no longer
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be deemed to be outstanding. If fewer than all the shares represented by a certificate are redeemed, a new certificate shall be issued, without cost to the holder thereof, representing the unredeemed shares. The Corporation may, at its option, at any time after a notice of redemption has been given, deposit the redemption price for the shares of Series X Preferred Stock designated for redemption and not yet redeemed, plus any accumulated and unpaid dividends thereon to the date fixed for redemption, with the transfer agent or agents for Series X Preferred Stock, as a trust fund for the benefit of the holders of the shares of Series X Preferred Stock designated for redemption, together with irrevocable instructions and authority to such transfer agent or agents that such funds be delivered upon redemption of such shares and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates. From and after the making of such deposit, the holders of the shares designated for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive from such trust fund the moneys payable upon such redemption, without interest thereon, upon surrender (and endorsement, if required by the Corporation) of their certificates, and the shares represented thereby shall no longer be deemed to be outstanding. Any balance of such moneys remaining unclaimed at the end of the five-year period commencing on the date fixed for redemption shall be repaid to the Corporation upon its request expressed in a resolution of its Board of Directors.
(8) Any shares of Series X Preferred Stock that shall at any time have been redeemed or otherwise reacquired shall, after such redemption, have the status of authorized but unissued preferred shares, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors.
(9) If the Board of Directors of the Corporation shall, at any time and in good faith, be of the opinion that ownership of securities of the Corporation has or may become concentrated to an extent that may prevent the Corporation from qualifying as a real estate investment trust under the REIT Provisions of the Internal Revenue Code (as defined below), then the Board of Directors shall have the power, by lot or other means deemed equitable by them to prevent the transfer of and/or to call for redemption a number of shares of Series X Preferred Stock sufficient, in the opinion of the Board of Directors, to maintain or bring the direct or indirect ownership thereof into conformity with the requirements of such a real estate investment trust under the REIT Provisions of the Internal Revenue Code. The redemption price to be paid for shares of Series X Preferred Stock so called for redemption, on the date fixed for redemption, shall be the closing price of the shares on the principal national stock exchange on which the shares are listed on the last business day prior to the redemption date, or if no sales of shares were made on such date, the average of the highest bid and the lowest asked quotations on the last business day prior to the redemption date as reported by the National Quotation Bureau, Incorporated or a similar organization selected from time to time by the Corporation or if there be no such bid and asked quotations, $25,000 per share; provided that if interests in shares of Series X Preferred Stock are represented by depositary shares, then the redemption price shall be determined in accordance with the foregoing, but with respect to one depositary share, multiplied by the number of depositary shares that together represent an interest in one share of Series X Preferred Stock. From and after the date fixed for redemption by the Board of Directors, the holder of any shares of Series X Preferred Stock so called for redemption shall cease to be entitled to any distributions, voting rights and other benefits with respect to such shares of Series X Preferred Stock, other than the right to payment of the redemption price determined as aforesaid. “REIT Provisions of the Internal Revenue Code” shall mean Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In order to exercise the redemption option set forth in this clause (9), with respect to the shares of Series X Preferred Stock, the Corporation shall mail a notice of redemption by first class mail, postage pre-paid, to each record holder of the shares of Series X Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series X Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series X Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series X Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series X Preferred Stock to be redeemed from such holder.
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(d) Voting Rights. The shares of Series X Preferred Stock shall not have any voting powers either general or special, except as required by law, except that:
(1) If the Corporation shall fail to pay full cumulative dividends on the shares of Series X Preferred Stock or any other of its preferred shares for six quarterly dividend payment periods, whether or not consecutive (a “Dividend Default”), the holders of all outstanding preferred shares that are similarly entitled to this right, voting as a single class without regard to series, will be entitled to elect two Directors until full cumulative dividends for all past dividend payment periods on all preferred shares have been paid or declared and funds therefor set apart for payment. Such right to vote separately as a class to elect Directors shall, when vested, be subject, always, to the same provisions for the vesting of such right to elect Directors separately as a class in the case of future Dividend Defaults. At any time when such right to elect Directors separately as a class shall have so vested, the Corporation may call, and, upon the written request of the holders of record of not less than 10% of the total number of preferred shares of the Corporation then outstanding, shall call, a special meeting of stockholders for the election of Directors. In the case of such a written request, such special meeting shall be held within 90 days after the delivery of such request and, in either case, at the place and upon the notice provided by law and in the Bylaws of the Corporation, provided that the Corporation shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next ensuing Annual Meeting of Shareholders of the Corporation and the holders of all classes of outstanding preferred shares are afforded the opportunity to elect such Directors (or fill any vacancy) at such Annual Meeting of Shareholders. Directors elected as aforesaid shall serve until the next Annual Meeting of Shareholders of the Corporation or until their respective successors shall be elected and qualified. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a Dividend Default by reason of death, resignation, or disability, such vacancy shall be filled for the unexpired term by the appointment of a new Director for the unexpired term of such former Director, such appointment to be made by the remaining Director elected as aforesaid.
(2) The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series X Preferred Stock, voting separately as a class, will be required for any amendment to the Charter that will adversely alter or change the powers, preferences, privileges or rights of the shares of Series X Preferred Stock, except as set forth below. The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series X Preferred Stock and any other series of preferred shares similarly entitled to this right and ranking on a parity with Series X Preferred Stock as to dividends and upon liquidation (including the shares of the Series W Preferred Stock, the Series Y Preferred Stock and the Series Z Preferred Stock), voting as a single class without regard to series, will be required to issue, authorize or increase the authorized amount of any class or series of shares ranking prior to Series X Preferred Stock as to dividends or upon liquidation or to issue or authorize any obligation or security convertible into or evidencing a right to purchase any such security. In addition, the Charter may be amended to increase the number of authorized preferred shares ranking on a parity with or junior to Series X Preferred Stock or to create another class of preferred shares ranking on a parity with or junior to Series X Preferred Stock without the vote of the holders of outstanding shares of Series X Preferred Stock.
(3) Nothing herein shall be taken to require a class vote or consent in connection with the authorization, designation, increase or issuance of any shares of any class or series (including additional preferred shares of any series) that rank junior to or on a parity with Series X Preferred Stock as to dividends or liquidation rights or in connection with the authorization, designation, increase or issuance of any bonds, mortgages, debentures or other debt obligations of the Corporation.
(e) Conversion. The shares of Series X Preferred Stock are not convertible into shares of any other class or series of the capital stock of the Corporation.
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ANNEX C
5.20% CUMULATIVE PREFERRED STOCK, SERIES Y
The following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the 5.20% Cumulative Preferred Stock, Series Y (the “Series Y Preferred Stock”) as set forth below shall be deemed to be part of Article V of the Articles of Amendment and Restatement (the “Charter”) of PS Business Parks, Inc. (the “Corporation”), with any necessary or appropriate changes to the enumeration or lettering of sections or subsections hereof:
(a) Dividend Rights.
(1) Dividends shall be payable in cash on the shares of Series Y Preferred Stock when, as and if declared by the Board of Directors, out of funds legally available therefor: (i) for the period (the “Initial Dividend Period”) from the Deemed Original Issue Date (as defined below) to but excluding April 1, 2018 (to be paid on March 29, 2018), and (ii) for each quarterly dividend period thereafter (the Initial Dividend Period and each quarterly dividend period being hereinafter individually referred to as a “Dividend Period” and collectively referred to as “Dividend Periods”), which quarterly Dividend Periods shall be in four equal amounts and shall commence on January 1, April 1, July 1 and October 1 in each year (each, a “Dividend Period Commencement Date”), commencing on April 1, 2018, and shall end on and include the day next preceding the next Dividend Period Commencement Date, at a rate per annum equal to 5.20% of the $25,000 per share stated value thereof (the “Dividend Rate”). Dividends on each share of Series Y Preferred Stock shall be cumulative from the Deemed Original Issue Date of such share and shall be payable, without interest thereon, when, as and if declared by the Board of Directors, on or before March 31, June 30, September 30 and December 31 (except in the case of dividend for the Initial Dividend Period which will be paid March 29, 2018) of each year, commencing on March 29, 2018 (for the period from the Deemed Original Issue Date to but excluding April 1, 2018) or, in the case of shares of Series Y Preferred Stock with a Deemed Original Issue Date after March 29, 2018, the first such dividend payment date following such Deemed Original Issue Date; provided, that if any such day shall be a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of California are authorized or obligated by law to close, or a day which is or is declared a national or a New York or California state holiday (any of the foregoing a “Non-Business Day”), then the payment date shall be the next succeeding day which is not a Non-Business Day. Each such dividend shall be paid to the holders of record of shares of Series Y Preferred Stock as they appear on the stock register of the Corporation on such record date, not more than 45 days nor less than 15 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not more than 45 days nor less than 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. After full cumulative dividends on Series Y Preferred Stock have been paid or declared and funds therefor set aside for payment, including for the then current Dividend Period, the holders of shares of Series Y Preferred Stock will not be entitled to any further dividends with respect to that Dividend Period.
“Deemed Original Issue Date” means (a) in the case of any share which is part of the first issuance of shares of Series Y Preferred Stock or part of a subsequent issuance of shares of Series Y Preferred Stock prior to April 1, 2018, the date of such first issuance and (b) in the case of any share which is part of a subsequent issuance of shares of Series Y Preferred Stock on or after April 1, 2018, the later of (x) April 1, 2018 and (y) the latest Dividend Period Commencement Date which precedes the date of issuance of such share and which succeeds the last Dividend Period for which full cumulative dividends have been paid; provided that, in the case of any share which is part of a subsequent issuance, the date of issuance of which falls between (i) the record date for dividends payable on the first succeeding dividend payment date and (ii) such dividend payment date, the “Deemed Original Issue Date” means the date of the Dividend Period Commencement Date that immediately follows the date of issuance.
(2) Dividends payable on shares of Series Y Preferred Stock for any period greater or less than a full Dividend Period, including the Initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
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(3) The Corporation shall not declare or pay or set apart for payment any dividends on any series of preferred shares ranking, as to dividends, on a parity with the shares of Series Y Preferred Stock unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for payment thereof is set apart for payment, for all Dividend Periods terminating on or prior to the date of payment of any such dividends on such other series of preferred shares. When dividends are not paid in full upon the shares of Series Y Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends (including, without limitation, the shares of the Corporation’s 5.20% Cumulative Preferred Stock, Series W (the “Series W Preferred Stock”), 5.25% Cumulative Preferred Stock, Series X (the “Series X Preferred Stock”), and 4.875% Cumulative Preferred Stock, Series Z (the “Series Z Preferred Stock”)), all dividends declared upon shares of Series Y Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends shall be declared pro rata so that the amount of dividends declared per share on the shares of Series Y Preferred Stock and such other series of preferred shares shall in all cases bear to each other that same ratio that the accumulated dividends per share on the shares of Series Y Preferred Stock and such other series of preferred shares bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on the shares of Series Y Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no dividends (other than in shares of the Corporation’s common stock, par value $.01 per share (together with any other shares of capital stock of the Corporation into which such shares shall be reclassified or changed, the “Common Shares”), or another stock ranking junior to the shares of Series Y Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be made upon the Common Shares or on any other stock of the Corporation ranking junior to or on a parity with the shares of Series Y Preferred Stock as to dividends or upon liquidation. Unless full cumulative dividends on the shares of Series Y Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no Common Shares or any other stock of the Corporation ranking junior to or on a parity with the shares of Series Y Preferred Stock as to dividends or upon liquidation shall be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation or any subsidiary, except by conversion into or exchange for stock of the Corporation ranking junior to the shares of Series Y Preferred Stock as to dividends and upon liquidation.
(b) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of Series Y Preferred Stock are entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets is made to holders of Common Shares or any other class or series of shares ranking junior to the shares of Series Y Preferred Stock upon liquidation, liquidating distributions in the amount of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) for the then current and all past Dividend Periods. If, upon any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation the amounts payable with respect to the shares of Series Y Preferred Stock and any other shares of the Corporation ranking as to any such distribution on a parity with the shares of Series Y Preferred Stock are not paid in full, the holders of shares of Series Y Preferred Stock and of such other shares (including the shares of the Series W Preferred Stock, the Series X Preferred Stock and the Series Z Preferred Stock) will share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series Y Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation.
(1) Written notice of any such liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the shares of Series Y Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation.
(2) For purposes of liquidation rights, a reorganization, consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation shall be deemed not to be a liquidation, dissolution or winding up of the Corporation.
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(c) Redemption.
(1) Except as provided in clause (9) below, the shares of Series Y Preferred Stock are not redeemable prior to December 7, 2022. On and after such date, the shares of Series Y Preferred Stock are redeemable at the option of the Corporation, by resolution of the Board of Directors, in whole or in part, from time to time upon not less than 30 nor more than 60 days’ notice, at a cash redemption price of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) to the date of redemption.
(2) If fewer than all the outstanding shares of Series Y Preferred Stock are to be redeemed, the number of shares to be redeemed will be determined by the Board of Directors, and such shares shall be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by the Board of Directors.
(3) Notwithstanding the foregoing, if any dividends, including any accumulation, on the shares of Series Y Preferred Stock are in arrears, no shares of Series Y Preferred Stock shall be redeemed unless all outstanding shares of Series Y Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any shares of Series Y Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Series Y Preferred Stock pursuant to a purchase or exchange offer provided such offer is made on the same terms to all holders of shares of Series Y Preferred Stock.
(4) Immediately prior to any redemption of shares of Series Y Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the redemption date, unless a redemption date falls after a dividend payment record date and prior to the corresponding dividend payment date, in which case each holder of shares of Series Y Preferred Stock at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as expressly provided herein above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series Y Preferred Stock called for redemption.
(5) A notice of redemption (which may be contingent on the occurrence of a future event) will be mailed by the Corporation by first class mail, postage pre-paid, to each record holder of the shares of Series Y Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series Y Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series Y Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series Y Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series Y Preferred Stock to be redeemed from such holder.
(6) In order to facilitate the redemption of shares of Series Y Preferred Stock, the Board of Directors may fix a record date for the determination of the shares to be redeemed, such record date to be not less than 30 nor more than 60 days prior to the date fixed for such redemption.
(7) Notice having been given as provided above, from and after the date fixed for the redemption of shares of Series Y Preferred Stock by the Corporation (unless the Corporation shall fail to make available the money necessary to effect such redemption), the holders of shares selected for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation, less any required tax withholding amount, without interest thereon, upon surrender (and endorsement or assignment of transfer, if required by the Corporation and so stated in the notice) of their certificates, and the shares represented thereby shall no longer
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be deemed to be outstanding. If fewer than all the shares represented by a certificate are redeemed, a new certificate shall be issued, without cost to the holder thereof, representing the unredeemed shares. The Corporation may, at its option, at any time after a notice of redemption has been given, deposit the redemption price for the shares of Series Y Preferred Stock designated for redemption and not yet redeemed, plus any accumulated and unpaid dividends thereon to the date fixed for redemption, with the transfer agent or agents for Series Y Preferred Stock, as a trust fund for the benefit of the holders of the shares of Series Y Preferred Stock designated for redemption, together with irrevocable instructions and authority to such transfer agent or agents that such funds be delivered upon redemption of such shares and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates. From and after the making of such deposit, the holders of the shares designated for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive from such trust fund the moneys payable upon such redemption, without interest thereon, upon surrender (and endorsement, if required by the Corporation) of their certificates, and the shares represented thereby shall no longer be deemed to be outstanding. Any balance of such moneys remaining unclaimed at the end of the five-year period commencing on the date fixed for redemption shall be repaid to the Corporation upon its request expressed in a resolution of its Board of Directors.
(8) Any shares of Series Y Preferred Stock that shall at any time have been redeemed or otherwise reacquired shall, after such redemption, have the status of authorized but unissued preferred shares, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors.
(9) If the Board of Directors of the Corporation shall, at any time and in good faith, be of the opinion that ownership of securities of the Corporation has or may become concentrated to an extent that may prevent the Corporation from qualifying as a real estate investment trust under the REIT Provisions of the Internal Revenue Code (as defined below), then the Board of Directors shall have the power, by lot or other means deemed equitable by them to prevent the transfer of and/or to call for redemption a number of shares of Series Y Preferred Stock sufficient, in the opinion of the Board of Directors, to maintain or bring the direct or indirect ownership thereof into conformity with the requirements of such a real estate investment trust under the REIT Provisions of the Internal Revenue Code. The redemption price to be paid for shares of Series Y Preferred Stock so called for redemption, on the date fixed for redemption, shall be the closing price of the shares on the principal national stock exchange on which the shares are listed on the last business day prior to the redemption date, or if no sales of shares were made on such date, the average of the highest bid and the lowest asked quotations on the last business day prior to the redemption date as reported by the National Quotation Bureau, Incorporated or a similar organization selected from time to time by the Corporation or if there be no such bid and asked quotations, $25,000 per share; provided that if interests in shares of Series Y Preferred Stock are represented by depositary shares, then the redemption price shall be determined in accordance with the foregoing, but with respect to one depositary share, multiplied by the number of depositary shares that together represent an interest in one share of Series Y Preferred Stock. From and after the date fixed for redemption by the Board of Directors, the holder of any shares of Series Y Preferred Stock so called for redemption shall cease to be entitled to any distributions, voting rights and other benefits with respect to such shares of Series Y Preferred Stock, other than the right to payment of the redemption price determined as aforesaid. “REIT Provisions of the Internal Revenue Code” shall mean Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In order to exercise the redemption option set forth in this clause (9), with respect to the shares of Series Y Preferred Stock, the Corporation shall mail a notice of redemption by first class mail, postage pre-paid, to each record holder of the shares of Series Y Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series Y Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series Y Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series Y Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series Y Preferred Stock to be redeemed from such holder.
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(d) Voting Rights. The shares of Series Y Preferred Stock shall not have any voting powers either general or special, except as required by law, except that:
(1) If the Corporation shall fail to pay full cumulative dividends on the shares of Series Y Preferred Stock or any other of its preferred shares for six quarterly dividend payment periods, whether or not consecutive (a “Dividend Default”), the holders of all outstanding preferred shares that are similarly entitled to this right, voting as a single class without regard to series, will be entitled to elect two Directors until full cumulative dividends for all past dividend payment periods on all preferred shares have been paid or declared and funds therefor set apart for payment. Such right to vote separately as a class to elect Directors shall, when vested, be subject, always, to the same provisions for the vesting of such right to elect Directors separately as a class in the case of future Dividend Defaults. At any time when such right to elect Directors separately as a class shall have so vested, the Corporation may call, and, upon the written request of the holders of record of not less than 10% of the total number of preferred shares of the Corporation then outstanding, shall call, a special meeting of stockholders for the election of Directors. In the case of such a written request, such special meeting shall be held within 90 days after the delivery of such request and, in either case, at the place and upon the notice provided by law and in the Bylaws of the Corporation, provided that the Corporation shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next ensuing Annual Meeting of Shareholders of the Corporation and the holders of all classes of outstanding preferred shares are afforded the opportunity to elect such Directors (or fill any vacancy) at such Annual Meeting of Shareholders. Directors elected as aforesaid shall serve until the next Annual Meeting of Shareholders of the Corporation or until their respective successors shall be elected and qualified. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a Dividend Default by reason of death, resignation, or disability, such vacancy shall be filled for the unexpired term by the appointment of a new Director for the unexpired term of such former Director, such appointment to be made by the remaining Director elected as aforesaid.
(2) The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series Y Preferred Stock, voting separately as a class, will be required for any amendment to the Charter that will adversely alter or change the powers, preferences, privileges or rights of the shares of Series Y Preferred Stock, except as set forth below. The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series Y Preferred Stock and any other series of preferred shares similarly entitled to this right and ranking on a parity with Series Y Preferred Stock as to dividends and upon liquidation (including the shares of the Series W Preferred Stock, the Series X Preferred Stock and the Series Z Preferred Stock), voting as a single class without regard to series, will be required to issue, authorize or increase the authorized amount of any class or series of shares ranking prior to Series Y Preferred Stock as to dividends or upon liquidation or to issue or authorize any obligation or security convertible into or evidencing a right to purchase any such security. In addition, the Charter may be amended to increase the number of authorized preferred shares ranking on a parity with or junior to Series Y Preferred Stock or to create another class of preferred shares ranking on a parity with or junior to Series Y Preferred Stock without the vote of the holders of outstanding shares of Series Y Preferred Stock.
(3) Nothing herein shall be taken to require a class vote or consent in connection with the authorization, designation, increase or issuance of any shares of any class or series (including additional preferred shares of any series) that rank junior to or on a parity with Series Y Preferred Stock as to dividends or liquidation rights or in connection with the authorization, designation, increase or issuance of any bonds, mortgages, debentures or other debt obligations of the Corporation.
(e) Conversion. The shares of Series Y Preferred Stock are not convertible into shares of any other class or series of the capital stock of the Corporation.
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ANNEX D
4.875% CUMULATIVE PREFERRED STOCK, SERIES Z
The following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the 4.875% Cumulative Preferred Stock, Series Z (the “Series Z Preferred Stock”) as set forth below shall be deemed to be part of Article V of the Articles of Amendment and Restatement (the “Charter”) of PS Business Parks, Inc. (the “Corporation”), with any necessary or appropriate changes to the enumeration or lettering of sections or subsections hereof:
(a) Dividend Rights.
(1) Dividends shall be payable in cash on the shares of Series Z Preferred Stock when, as and if declared by the Board of Directors, out of funds legally available therefor: (i) for the period (the “Initial Dividend Period”) from the Deemed Original Issue Date (as defined below) to but excluding January 1, 2020 (to be paid on December 31, 2019), and (ii) for each quarterly dividend period thereafter (the Initial Dividend Period and each quarterly dividend period being hereinafter individually referred to as a “Dividend Period” and collectively referred to as “Dividend Periods”), which quarterly Dividend Periods shall be in four equal amounts and shall commence on January 1, April 1, July 1 and October 1 in each year (each, a “Dividend Period Commencement Date”), commencing on January 1, 2020, and shall end on and include the day next preceding the next Dividend Period Commencement Date, at a rate per annum equal to 4.875% of the $25,000 per share stated value thereof (the “Dividend Rate”). Dividends on each share of Series Z Preferred Stock shall be cumulative from the Deemed Original Issue Date of such share and shall be payable, without interest thereon, when, as and if declared by the Board of Directors, on or before March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2019 or, in the case of shares of Series Z Preferred Stock with a Deemed Original Issue Date after December 31, 2019, the first such dividend payment date following such Deemed Original Issue Date; provided, that if any such day shall be a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of California are authorized or obligated by law to close, or a day which is or is declared a national or a New York or California state holiday (any of the foregoing a “Non-Business Day”), then the payment date shall be the next succeeding day which is not a Non-Business Day. Each such dividend shall be paid to the holders of record of shares of Series Z Preferred Stock as they appear on the stock register of the Corporation on such record date, not more than 45 days nor less than 15 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not more than 45 days nor less than 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. After full cumulative dividends on Series Z Preferred Stock have been paid or declared and funds therefor set aside for payment, including for the then current Dividend Period, the holders of shares of Series Z Preferred Stock will not be entitled to any further dividends with respect to that Dividend Period.
“Deemed Original Issue Date” means (a) in the case of any share which is part of the first issuance of shares of Series Z Preferred Stock or part of a subsequent issuance of shares of Series Z Preferred Stock prior to January 1, 2020, the date of such first issuance and (b) in the case of any share which is part of a subsequent issuance of shares of Series Z Preferred Stock on or after January 1, 2020, the later of (x) January 1, 2020 and (y) the latest Dividend Period Commencement Date which precedes the date of issuance of such share and which succeeds the last Dividend Period for which full cumulative dividends have been paid; provided that, in the case of any share which is part of a subsequent issuance, the date of issuance of which falls between (i) the record date for dividends payable on the first succeeding dividend payment date and (ii) such dividend payment date, the “Deemed Original Issue Date” means the date of the Dividend Period Commencement Date that immediately follows the date of issuance.
(2) Dividends payable on shares of Series Z Preferred Stock for any period greater or less than a full Dividend Period, including the Initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
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(3) The Corporation shall not declare or pay or set apart for payment any dividends on any series of preferred shares ranking, as to dividends, on a parity with the shares of Series Z Preferred Stock unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for payment thereof is set apart for payment, for all Dividend Periods terminating on or prior to the date of payment of any such dividends on such other series of preferred shares. When dividends are not paid in full upon the shares of Series Z Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends (including, without limitation, the shares of the Corporation’s 5.20% Cumulative Preferred Stock, Series W (the “Series W Preferred Stock”), 5.25% Cumulative Preferred Stock, Series X (the “Series X Preferred Stock”), and 5.20% Cumulative Preferred Stock, Series Y (the “Series Y Preferred Stock”)), all dividends declared upon shares of Series Z Preferred Stock and any other series of preferred shares ranking on a parity therewith as to dividends shall be declared pro rata so that the amount of dividends declared per share on the shares of Series Z Preferred Stock and such other series of preferred shares shall in all cases bear to each other that same ratio that the accumulated dividends per share on the shares of Series Z Preferred Stock and such other series of preferred shares bear to each other. Except as provided in the preceding sentence, unless full cumulative dividends on the shares of Series Z Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no dividends (other than in shares of the Corporation’s common stock, par value $.01 per share (together with any other shares of capital stock of the Corporation into which such shares shall be reclassified or changed, the “Common Shares”), or another stock ranking junior to the shares of Series Z Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be made upon the Common Shares or on any other stock of the Corporation ranking junior to or on a parity with the shares of Series Z Preferred Stock as to dividends or upon liquidation. Unless full cumulative dividends on the shares of Series Z Preferred Stock have been paid or declared and funds therefor set apart for payment for all past Dividend Periods, no Common Shares or any other stock of the Corporation ranking junior to or on a parity with the shares of Series Z Preferred Stock as to dividends or upon liquidation shall be redeemed, purchased, or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation or any subsidiary, except by conversion into or exchange for stock of the Corporation ranking junior to the shares of Series Z Preferred Stock as to dividends and upon liquidation.
(b) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of Series Z Preferred Stock are entitled to receive out of the assets of the Corporation available for distribution to shareholders, before any distribution of assets is made to holders of Common Shares or any other class or series of shares ranking junior to the shares of Series Z Preferred Stock upon liquidation, liquidating distributions in the amount of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) for the then current and all past Dividend Periods. If, upon any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation the amounts payable with respect to the shares of Series Z Preferred Stock and any other shares of the Corporation ranking as to any such distribution on a parity with the shares of Series Z Preferred Stock are not paid in full, the holders of shares of Series Z Preferred Stock and of such other shares (including the shares of the Series W Preferred Stock, the Series X Preferred Stock and the Series Y Preferred Stock) will share ratably in any such distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Series Z Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation.
(1) Written notice of any such liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the shares of Series Z Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation.
(2) For purposes of liquidation rights, a reorganization, consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation shall be deemed not to be a liquidation, dissolution or winding up of the Corporation.
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(c) Redemption.
(1) Except as provided in clause (9) below, the shares of Series Z Preferred Stock are not redeemable prior to November 4, 2024. On and after such date, the shares of Series Z Preferred Stock are redeemable at the option of the Corporation, by resolution of the Board of Directors, in whole or in part, from time to time upon not less than 30 nor more than 60 days’ notice, at a cash redemption price of $25,000 per share plus all accumulated and unpaid dividends (whether or not earned or declared) to the date of redemption.
(2) If fewer than all the outstanding shares of Series Z Preferred Stock are to be redeemed, the number of shares to be redeemed will be determined by the Board of Directors, and such shares shall be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by the Board of Directors.
(3) Notwithstanding the foregoing, if any dividends, including any accumulation, on the shares of Series Z Preferred Stock are in arrears, no shares of Series Z Preferred Stock shall be redeemed unless all outstanding shares of Series Z Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any shares of Series Z Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Series Z Preferred Stock pursuant to a purchase or exchange offer provided such offer is made on the same terms to all holders of shares of Series Z Preferred Stock.
(4) Immediately prior to any redemption of shares of Series Z Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the redemption date, unless a redemption date falls after a dividend payment record date and prior to the corresponding dividend payment date, in which case each holder of shares of Series Z Preferred Stock at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as expressly provided herein above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series Z Preferred Stock called for redemption.
(5) A notice of redemption (which may be contingent on the occurrence of a future event) will be mailed by the Corporation by first class mail, postage pre-paid, to each record holder of the shares of Series Z Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series Z Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series Z Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series Z Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series Z Preferred Stock to be redeemed from such holder.
(6) In order to facilitate the redemption of shares of Series Z Preferred Stock, the Board of Directors may fix a record date for the determination of the shares to be redeemed, such record date to be not less than 30 nor more than 60 days prior to the date fixed for such redemption.
(7) Notice having been given as provided above, from and after the date fixed for the redemption of shares of Series Z Preferred Stock by the Corporation (unless the Corporation shall fail to make available the money necessary to effect such redemption), the holders of shares selected for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive the moneys payable upon such redemption from the Corporation, less any required tax withholding amount, without interest thereon, upon surrender (and endorsement or assignment of transfer, if required by the Corporation and so stated in the notice) of their certificates, and the shares represented thereby shall no longer
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be deemed to be outstanding. If fewer than all the shares represented by a certificate are redeemed, a new certificate shall be issued, without cost to the holder thereof, representing the unredeemed shares. The Corporation may, at its option, at any time after a notice of redemption has been given, deposit the redemption price for the shares of Series Z Preferred Stock designated for redemption and not yet redeemed, plus any accumulated and unpaid dividends thereon to the date fixed for redemption, with the transfer agent or agents for Series Z Preferred Stock, as a trust fund for the benefit of the holders of the shares of Series Z Preferred Stock designated for redemption, together with irrevocable instructions and authority to such transfer agent or agents that such funds be delivered upon redemption of such shares and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates. From and after the making of such deposit, the holders of the shares designated for redemption shall cease to be shareholders with respect to such shares and shall have no interest in or claim against the Corporation by virtue thereof and shall have no voting or other rights with respect to such shares, except the right to receive from such trust fund the moneys payable upon such redemption, without interest thereon, upon surrender (and endorsement, if required by the Corporation) of their certificates, and the shares represented thereby shall no longer be deemed to be outstanding. Any balance of such moneys remaining unclaimed at the end of the five-year period commencing on the date fixed for redemption shall be repaid to the Corporation upon its request expressed in a resolution of its Board of Directors.
(8) Any shares of Series Z Preferred Stock that shall at any time have been redeemed or otherwise reacquired shall, after such redemption, have the status of authorized but unissued preferred shares, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors.
(9) If the Board of Directors of the Corporation shall, at any time and in good faith, be of the opinion that ownership of securities of the Corporation has or may become concentrated to an extent that may prevent the Corporation from qualifying as a real estate investment trust under the REIT Provisions of the Internal Revenue Code (as defined below), then the Board of Directors shall have the power, by lot or other means deemed equitable by them to prevent the transfer of and/or to call for redemption a number of shares of Series Z Preferred Stock sufficient, in the opinion of the Board of Directors, to maintain or bring the direct or indirect ownership thereof into conformity with the requirements of such a real estate investment trust under the REIT Provisions of the Internal Revenue Code. The redemption price to be paid for shares of Series Z Preferred Stock so called for redemption, on the date fixed for redemption, shall be the closing price of the shares on the principal national stock exchange on which the shares are listed on the last business day prior to the redemption date, or if no sales of shares were made on such date, the average of the highest bid and the lowest asked quotations on the last business day prior to the redemption date as reported by the National Quotation Bureau, Incorporated or a similar organization selected from time to time by the Corporation or if there be no such bid and asked quotations, $25,000 per share; provided that if interests in shares of Series Z Preferred Stock are represented by depositary shares, then the redemption price shall be determined in accordance with the foregoing, but with respect to one depositary share, multiplied by the number of depositary shares that together represent an interest in one share of Series Z Preferred Stock. From and after the date fixed for redemption by the Board of Directors, the holder of any shares of Series Z Preferred Stock so called for redemption shall cease to be entitled to any distributions, voting rights and other benefits with respect to such shares of Series Z Preferred Stock, other than the right to payment of the redemption price determined as aforesaid. “REIT Provisions of the Internal Revenue Code” shall mean Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In order to exercise the redemption option set forth in this clause (9), with respect to the shares of Series Z Preferred Stock, the Corporation shall mail a notice of redemption by first class mail, postage pre-paid, to each record holder of the shares of Series Z Preferred Stock to be redeemed, not less than 30 nor more than 60 days prior to such redemption date, to the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. The failure to give such notice or any defect in the notice or in its mailing will not affect the validity of the proceedings for the redemption of any Series Z Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the number of shares of Series Z Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accumulate on such redemption date. If fewer than all the shares of Series Z Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series Z Preferred Stock to be redeemed from such holder.
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(d) Voting Rights. The shares of Series Z Preferred Stock shall not have any voting powers either general or special, except as required by law, except that:
(1) If the Corporation shall fail to pay full cumulative dividends on the shares of Series Z Preferred Stock or any other of its preferred shares for six quarterly dividend payment periods, whether or not consecutive (a “Dividend Default”), the holders of all outstanding preferred shares that are similarly entitled to this right, voting as a single class without regard to series, will be entitled to elect two Directors until full cumulative dividends for all past dividend payment periods on all preferred shares have been paid or declared and funds therefor set apart for payment. Such right to vote separately as a class to elect Directors shall, when vested, be subject, always, to the same provisions for the vesting of such right to elect Directors separately as a class in the case of future Dividend Defaults. At any time when such right to elect Directors separately as a class shall have so vested, the Corporation may call, and, upon the written request of the holders of record of not less than 10% of the total number of preferred shares of the Corporation then outstanding, shall call, a special meeting of stockholders for the election of Directors. In the case of such a written request, such special meeting shall be held within 90 days after the delivery of such request and, in either case, at the place and upon the notice provided by law and in the Bylaws of the Corporation, provided that the Corporation shall not be required to call such a special meeting if such request is received less than 120 days before the date fixed for the next ensuing Annual Meeting of Shareholders of the Corporation and the holders of all classes of outstanding preferred shares are afforded the opportunity to elect such Directors (or fill any vacancy) at such Annual Meeting of Shareholders. Directors elected as aforesaid shall serve until the next Annual Meeting of Shareholders of the Corporation or until their respective successors shall be elected and qualified. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a Dividend Default by reason of death, resignation, or disability, such vacancy shall be filled for the unexpired term by the appointment of a new Director for the unexpired term of such former Director, such appointment to be made by the remaining Director elected as aforesaid.
(2) The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series Z Preferred Stock, voting separately as a class, will be required for any amendment to the Charter that will adversely alter or change the powers, preferences, privileges or rights of the shares of Series Z Preferred Stock, except as set forth below. The affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series Z Preferred Stock and any other series of preferred shares similarly entitled to this right and ranking on a parity with Series Z Preferred Stock as to dividends and upon liquidation (including the shares of the Series W Preferred Stock, the Series X Preferred Stock and the Series Y Preferred Stock), voting as a single class without regard to series, will be required to issue, authorize or increase the authorized amount of any class or series of shares ranking prior to Series Z Preferred Stock as to dividends or upon liquidation or to issue or authorize any obligation or security convertible into or evidencing a right to purchase any such security. In addition, the Charter may be amended to increase the number of authorized preferred shares ranking on a parity with or junior to Series Z Preferred Stock or to create another class of preferred shares ranking on a parity with or junior to Series Z Preferred Stock without the vote of the holders of outstanding shares of Series Z Preferred Stock.
(3) Nothing herein shall be taken to require a class vote or consent in connection with the authorization, designation, increase or issuance of any shares of any class or series (including additional preferred shares of any series) that rank junior to or on a parity with Series Z Preferred Stock as to dividends or liquidation rights or in connection with the authorization, designation, increase or issuance of any bonds, mortgages, debentures or other debt obligations of the Corporation.
(e) Conversion. The shares of Series Z Preferred Stock are not convertible into shares of any other class or series of the capital stock of the Corporation.
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PS Business Parks • 2021 Proxy Statement • C-1
PS BUSINESS PARKS, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of PS Business Parks, Inc. (the “Corporation”) shall be located at such place or places as the board of directors (the “Board of Directors”) may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the principal office of the Corporation or at such other place within the United States as shall be set by the Board of Directors and stated in the notice of the meeting. If authorized by the Board of Directors, and subject to applicable provisions of Maryland law and any guidelines and procedures that the Board of Directors may adopt, stockholders not physically present in person or by proxy at a meeting of stockholders may, by electronic transmission by and to the Corporation including by electronic video screen stockholders, participate in a meeting of stockholders, be deemed present in person or by proxy, and vote at a meeting of stockholders whether that meeting is to be held at a designated place or in whole or in part by means of electronic transmission by and to the Corporation or by electronic video screen communication.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the election of directors (the “Directors”) and the transaction of any business within the powers of the Corporation shall be held each year on a date and at the time and place set by the Board of Directors. Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid acts of the Corporation.
Section 3. SPECIAL MEETINGS.
(a) General. Each of the chairman of the board, chief executive officer, president and Board of Directors may call a special meeting of stockholders. Except as provided in subsection (b)(4) of this Section 3, a special meeting of stockholders shall be held on the date and at the time and place set by the person or persons calling the meeting. Subject to subsection (b) of this Section 3, a special meeting of stockholders shall also be called by the secretary of the Corporation to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than 10% of all the votes entitled to be cast on such matter at such meeting.
(b) Stockholder-Requested Special Meetings.
(1) Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more stockholders of record as of the date of signature (or their agents duly authorized in a writing accompanying the Record Date Request Notice), shall bear the date of signature of each such stockholder (or such agent) and shall set forth all information relating to each such stockholder and each matter proposed to be acted on at the meeting that
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would be required to be disclosed in connection with the solicitation of proxies for the election of directors in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”). Upon receiving the Record Date Request Notice, the Board of Directors may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which a Record Date Request Notice is received by the secretary.
(2) In order for any stockholder to request a special meeting to act on any matter that may properly be considered at a meeting of stockholders, one or more written requests for a special meeting (collectively, the “Special Meeting Request”) signed by stockholders of record (or their agents duly authorized in a writing accompanying the request) as of the Request Record Date entitled to cast not less than 10% of all of the votes entitled to be cast on such matter at such meeting (the “Special Meeting Percentage”) shall be delivered to the secretary. In addition, the Special Meeting Request shall (a) set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to those lawful matters set forth in the Record Date Request Notice received by the secretary), (b) bear the date of signature of each such stockholder (or such agent) signing the Special Meeting Request, (c) set forth (i) the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed), (ii) the class, series and number of all shares of stock of the Corporation which are owned (beneficially or of record) by each such stockholder and (iii) the nominee holder for, and number of, shares of stock of the Corporation owned beneficially but not of record by such stockholder, (d) be sent to the secretary by registered mail, return receipt requested, and (e) be received by the secretary within 60 days after the Request Record Date. Any requesting stockholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.
(3) The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and mailing or delivering the notice of the meeting (including the Corporation’s proxy materials). The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the secretary receives payment of such reasonably estimated cost prior to the preparation and mailing or delivery of such notice of the meeting.
(4) In the case of any special meeting called by the secretary upon the request of stockholders (a “Stockholder-Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder-Requested Meeting shall be not more than 90 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board of Directors fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for a Stockholder-Requested Meeting, then such meeting shall be held at 2:00 p.m., local time, on the 90th day after the Meeting Record Date or, if such 90th day is not a business day on the first preceding business day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder-Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation. In fixing a date for a Stockholder-Requested Meeting, the Board of Directors may consider such factors as it deems relevant, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for the meeting and any plan of the Board of Directors to call an annual meeting or a special meeting. In the case of any Stockholder-Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. The Board of Directors may revoke the notice for any Stockholder-Requested Meeting in the event that the requesting stockholders fail to comply with the provisions of paragraph (3) of this Section 3(b). Notwithstanding anything to the contrary in these Bylaws, the Board of Directors may submit its own proposal or proposals for consideration at any such Stockholder-Requested Meeting.
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(5) If written revocations of the Special Meeting Request have been delivered to the secretary and the result is that stockholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting on the matter to the secretary: (i) if the notice of meeting has not already been delivered, the secretary shall refrain from delivering the notice of the meeting and send to all requesting stockholders who have not revoked such requests written notice of any revocation of a request for a special meeting on the matter, or (ii) if the notice of meeting has been delivered and if the secretary first sends to all requesting stockholders who have not revoked requests for a special meeting on the matter written notice of any revocation of a request for the special meeting and written notice of the Corporation’s intention to revoke the notice of the meeting or for the chairman of the meeting to adjourn the meeting without action on the matter, (A) the secretary may revoke the notice of the meeting at any time before ten days before the commencement of the meeting or (B) the chairman of the meeting may call the meeting to order and adjourn the meeting without acting on the matter. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.
(6) The chairman of the board, chief executive officer, president or Board of Directors may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported Special Meeting Request shall be deemed to have been received by the secretary until the earlier of (i) five business days after actual receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the secretary represent, as of the Request Record Date, stockholders of record entitled to cast not less than the Special Meeting Percentage. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five business day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
Section 4. NOTICE. Not less than ten nor more than 90 days before each meeting of stockholders, the secretary shall give notice to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting. Such notice shall state the time and place (if any) of the meeting, the means of remote communication (if any) by which the stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called. Such notice shall be written and may be delivered either by mail or nationally recognized private delivery service, by presenting it to such stockholder personally, by leaving it at his or her residence or usual place of business, or by any other means permitted under Maryland law, including by transmitting it to such stockholder by electronic mail to any electronic mail address of such stockholder or through any other electronic transmission by the Corporation. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his or her post office address as it appears on the records of the Corporation, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. The Corporation may give a single notice to all stockholders who share an address, which single notice shall be effective as to any stockholder at such address, unless a stockholder objects to receiving such single notice or revokes a prior consent to receiving such single notice. Failure to give notice of any meeting to one or more stockholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article II or the validity of any proceedings at any such meeting.
Section 5. SCOPE OF NOTICE. Subject to Section 12(a) of this Article II, any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice. The Corporation may postpone or cancel a meeting of stockholders by making a public announcement (as defined in Section 12(c)(3) of this Article II) of such postponement or cancellation prior to the meeting. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this section.
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Section 6. ORGANIZATION AND CONDUCT. At every meeting of the stockholders, the chairman of the Board of Directors, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the chairman of the Board of Directors, one of the following officers present shall conduct the meeting in the order stated: the chief executive officer, the president, the chief operating officers, if there be any, in their order of rank and seniority, the vice presidents in their order of rank and seniority, or, if no such officer is present, a chairman chosen by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast. The secretary, or, in his or her absence, an assistant secretary, or in the absence of both the secretary and assistant secretaries, a person appointed by the chairman, shall act as secretary.
The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairman and without any action by the stockholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies or other such persons as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies or other such persons as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any stockholder or any other person who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (g) determining when and for how long the polls should be open and closed; (h) recessing or adjourning the meeting to a later date and time and place announced at the meeting; (i) concluding a meeting; and (j) complying with any state and local laws and regulations concerning health, safety or security. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Section 7. QUORUM. At any meeting of stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum, but this section shall not affect any requirement under any statute or under the charter of the Corporation (the “Charter”) for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without a new record date and without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.
The stockholders present either in person or by proxy at a meeting which has been duly called and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than would be required to establish a quorum.
Section 8. VOTING. Except as provided in these Bylaws or otherwise required by law or the Charter, a majority of all the votes cast for and against a nominee at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a Director; provided, that if the number of persons lawfully nominated exceeds the number of Directors to be elected, the Directors shall be elected by the vote of a plurality of the votes cast at the meeting at which a quorum is present. Each share of stock may be voted for as many individuals as there are Directors to be elected and for whose election the share of stock is entitled to be voted, without any right to cumulate votes. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless a different proportion of the votes cast or entitled to be cast is required herein or by rule or regulation or by statute or by the Charter. Unless otherwise provided in the Charter, each outstanding share of stock, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. Voting on any question or in any election may be by voice unless the presiding officer shall order that voting be by ballot.
Section 9. PROXIES. A stockholder may cast the votes entitled to be cast by the shares of stock owned of record by the stockholder in person or by proxy executed by the stockholder or by the stockholder’s duly authorized agent in any manner permitted by law. Such proxy or evidence of authorization of such proxy shall be filed with
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the secretary of the Corporation before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Shares of stock of the Corporation registered in the name of a corporation, partnership, limited liability company, corporation or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner, manager or director thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person (1) has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing board of such corporation or other entity or pursuant to an agreement of the partners of the partnership or of the members of the limited liability company, and (2) presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares. Any director or other fiduciary may vote shares of stock registered in his or her name as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified shares in place of the stockholder who makes the certification.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of the meeting may, or upon the request of any stockholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares of stock represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results, hear and determine all challenges and questions arising in connection with the right to vote and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the chairman of the meeting.
Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 12. ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER PROPOSALS BY STOCKHOLDERS.
(a) Annual Meetings of Stockholders.
(1) Nominations of individuals for election to the Board of Directors and the proposal of business other than nominations of Directors to be considered by the stockholders at an annual meeting of stockholders shall be made: (i) pursuant to the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise by or at the direction of the Board of Directors or (iii) by a stockholder of the Corporation who was a stockholder of record both at the time of giving of notice of the meeting and at the time of the annual meeting, who is entitled to vote at the meeting in the election of directors or on the proposal of other business, as the case may be, and who complied with the notice procedures set forth in Sections 12(a)(2), (4) and (5), in the case of nominations of Directors, and Sections 12(a)(3) and (4), in the case of business other than the nomination of Directors.
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(2) For nominations to be properly brought before an annual meeting by a stockholder pursuant to Section 12(a)(1)(iii), the stockholder must have given timely notice thereof in writing to the secretary of the Corporation (the “Stockholder Notice”) containing the information specified in this Section 12(a)(2). To be timely, such Stockholder Notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m., Eastern Time, on the 90th day prior to the first anniversary of the preceding year’s annual meeting nor earlier than the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting or delayed by more than 60 days after such anniversary date, or if no annual meeting was held in the preceding year, such Stockholder Notice to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such Stockholder Notice shall set forth: (i) as to each person whom the stockholder proposes to nominate for election or reelection as a Director, (A) a description of all agreements, arrangements or understandings between such stockholder and such beneficial owner (if any) on whose behalf the nomination is made, on the one hand, and such potential nominee and any other person or persons (naming such person or persons), on the other hand, pursuant to which the nomination is to be made by such stockholder, and (B) all other information relating to such potential nominee that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected; and (ii) as to the stockholder giving such Stockholder Notice and the beneficial owner (if any) on whose behalf the nomination is made, the additional information specified in Section 12(a)(4) below.
(3) For business other than the nomination of Directors to be properly brought before an annual meeting by a stockholder pursuant to Section 12(a)(1)(iii), the stockholder must have given a timely Stockholder Notice in writing to the secretary of the Corporation containing the information specified in this Section 12(a)(3). To be timely, such Stockholder Notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m., Eastern Time, on the 90th day prior to the first anniversary of the preceding year’s annual meeting nor earlier than the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting or delayed by more than 60 days after such anniversary date, or if no annual meeting was held in the preceding year, such Stockholder Notice to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such Stockholder Notice shall set forth: (i) a brief description of the business desired to be brought before the meeting (including the complete text of any proposed resolutions or proposed amendments to these Bylaws or other governing documents of the Corporation), the reasons for conducting such business at the meeting, a brief written statement of the reasons why the stockholder and the beneficial owner (if any) on whose behalf the proposal is made support such business, and any material interest in such business of such stockholder and of such beneficial owner (if any); (ii) a description of any agreement, arrangement or understanding with respect to such business between or among the stockholder and the beneficial owner (if any) on whose behalf the proposal is made, on the one hand, and any of their respective affiliates or associates and any others (including their names) acting in concert with any of the foregoing, on the other hand, and a representation that such stockholder and such beneficial owner (if any) will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting promptly following the later of the record date or the date on which public announcement of the record date is first made; and (iii) as to the stockholder giving such Stockholder Notice and the beneficial owner (if any) on whose behalf the proposal is made, the additional information specified in Section 12(a)(4) below.
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(4) Each Stockholder Notice delivered pursuant to Section 12(a)(2) or Section 12(a)(3) also must contain the following information as to the stockholder giving the Stockholder Notice and the beneficial owner (if any) on whose behalf the nomination is made (in the case of Section 12(a)(2)) or the business other than the nomination of Directors is desired to be brought (in the case of Section 12(a)(3)):
(A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner (if any);
(B) the class or series and number of shares of stock of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner (if any), including the proportionate interest in the shares of stock of the Corporation held, directly or indirectly, by a general or limited partnership in which such stockholder or such beneficial owner (if any) is a general partner or a direct or indirect beneficial owner of an interest in a general partner, as of the date of the Stockholder Notice, and the date(s) on which such shares were acquired and the investment intent of each such acquisition, and a representation that such stockholder and such beneficial owner (if any) will notify the Corporation in writing of the class or series and number of such shares (including the proportionate interest in the shares held through a general or limited partnership) owned of record and beneficially as of the record date for the meeting promptly following the later of the record date or the date on which public announcement of the record date is first made;
(C) a description of any agreement, arrangement or understanding (including, without limitation, any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into by such stockholder and/or such beneficial owner (if any) as of the date of the Stockholder Notice, the effect or intent of which is to mitigate loss to, manage the risk or benefit of share price changes for, or increase or decrease the voting power of such stockholder or beneficial owner or any of their respective affiliates, and a representation that such stockholder and such beneficial owner (if any) will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting promptly following the later of the record date or the date on which public announcement of the record date is first made;
(D) a representation that such stockholder intends to appear at the meeting in person or by proxy to make the nomination or propose the other business specified in such Stockholder Notice, as the case may be;
(E) a representation as to whether such stockholder or such beneficial owner (if any) intends, or is intended to be part of a group (within the meaning ascribed to such term under Section 13(d)(3) of the Exchange Act) that intends, (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding shares of stock required to elect the proposed Director nominee or to approve or adopt the other business proposal, as the case may be, and/or (ii) otherwise to solicit proxies from stockholders in support of such nominee or other business proposal, as the case may be;
(F) the name and address of any person who contacted or was contacted by the stockholder giving the notice about the proposed nominee(s) or other business proposal prior to the date of such stockholder’s notice; and
(G) to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.
(5) Notwithstanding anything to the contrary in this Section 12(a), in the event that the number of Directors to be elected to the Board of Directors is increased and there is no public announcement by the Corporation of such action or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by Section 12(a)(2) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if the notice is delivered to the secretary at the principal executive offices of the Corporation not later than 5:00 p.m., Eastern Time, on the tenth day immediately following the day on which such public announcement is first made by the Corporation.
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(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which Directors are to be elected only (i) pursuant to the Corporation’s notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) provided that the Board of Directors has determined that Directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 12(b) and at the time of the special meeting, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 12(b). In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more Directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election as a Director as specified in the Corporation’s notice of meeting, if the stockholder’s notice containing the information required by paragraph (a)(2) of this Section 12 shall be delivered to the secretary at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of a postponement or adjournment of a special meeting to a later date or time commence a new time period for the giving of a stockholder’s notice as described above.
(c) General.
(1) Upon written request by the secretary or the Board of Directors or any committee thereof, any stockholder proposing a nominee for election as a Director or any proposal for other business at a meeting of stockholders shall provide, within five business days of delivery of such request (or such other period as may be specified in such request), written verification, satisfactory to the secretary or the Board of Directors or any committee thereof, in his, her or its sole discretion, of the accuracy of any information submitted by the stockholder pursuant to this Section 12. If a stockholder fails to provide such written verification within such period, the secretary or the Board of Directors or any committee thereof may treat the information as to which written verification was requested as not having been provided in accordance with the procedures set forth in this Section 12.
(2) Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible for election by stockholders as Directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12, except as may be required pursuant to Rule 14a-8, or any successor provision, under the Exchange Act or such similar rule promulgated by the Securities and Exchange Commission that governs the inclusion of stockholder proposals in proxy materials for consideration at a stockholders meeting. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or other business is not in compliance with this Section 12, to declare that such defective nomination or proposal be disregarded.
(3) For purposes of this Section 12, “public announcement” shall mean disclosure (i) in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or (ii) in a document publicly filed by the Corporation with the United States Securities and Exchange Commission pursuant to the Exchange Act.
(4) Except as set forth in Section 15 of this Article II, Sections 12(a) and (b) shall be the exclusive means for a stockholder to make nominations or submit business before an annual meeting of the stockholders. Notwithstanding the foregoing provisions of this Section 12, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Sections 12(a) and (b). Nothing in this Section 12 shall be deemed to affect any right of a stockholder to request inclusion of a proposal
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in, nor the right of the Corporation to omit a proposal from, the Corporation’s proxy statement pursuant to Rule 14a-8, or any successor provision, under the Exchange Act.
(5) Nothing in this Section 12 shall require disclosure of revocable proxies received by a stockholder pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such stockholders under Section 14(a) of the Exchange Act.
Section 13. TELEPHONE MEETINGS. The Board of Directors or the chairman of the meeting may permit stockholders to participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Nothing in this Section 13 shall limit the ability of the Corporation to conduct a meeting via remote communication as contemplated by Maryland law.
Section 14. INFORMAL ACTION BY STOCKHOLDERS. Any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if a consent which sets forth the action is given in writing or by electronic transmission and is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of Directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of Directors; provided, however, that a Director may be elected at any time to fill a vacancy on the Board of Directors that has not been filled by the Directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of Directors. All such consents shall be filed with the secretary of the Corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder’s proxy holders, or a transferee of the shares, or a personal representative of the stockholder or their respective proxy holders may revoke the consent by a writing received by the secretary of the Corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary.
If the consents of all stockholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such stockholders shall not have been received, the secretary shall give prompt notice of the corporate action approved by the stockholders without a meeting at least ten days before the consummation of any action authorized by that approval.
Section 15. PROXY ACCESS.
(a) Inclusion of Director Nominees in Proxy Materials. Notwithstanding anything to the contrary in these Bylaws, whenever the Board of Directors solicits proxies with respect to the election of Directors at an annual meeting of stockholders, subject to the provisions of this Section 15, the Corporation shall include in the proxy materials, in addition to any individuals nominated for election by or at the direction of the Board of Directors, the name, together with the Required Information (as defined below), of any individual nominated for election to the Board of Directors (each such individual being hereinafter referred to as a “Stockholder Nominee”) by a stockholder or group of no more than 20 stockholders that satisfies the requirements of this Section 15 (such individual or group, including as the context requires each member thereof, being hereinafter referred to as the “Eligible Stockholder”). For purposes of this Section 15, the “Required Information” that the Corporation shall include in the proxy materials is (A) the information provided to the secretary of the Corporation concerning the Stockholder Nominee and the Eligible Stockholder that is required to be disclosed in the proxy materials by the rules and regulations promulgated under the Exchange Act and (B) if the Eligible Stockholder so elects, a written statement in support of the Stockholder Nominee’s candidacy, not to exceed 500 words, delivered to the secretary of the Corporation at the time the Notice of Proxy Access Nomination (as defined below) required by this Section 15 is provided (the “Statement”). Notwithstanding anything to the contrary contained in this Section 15, the Corporation may omit from the proxy materials any information or Statement (or portion thereof) that the Board of Directors, in its sole discretion, determines is materially false or misleading, omits to state any material fact necessary in order to make such information or Statement, in light of the circumstances under which it was provided or made, not misleading, or would violate any applicable law or regulation. The Board of Directors may also, in its sole discretion, include any statement in opposition to the Stockholder Nominee.
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(b) Stockholder Eligibility. To be eligible to require the Corporation to include a Stockholder Nominee in the proxy materials pursuant to this Section 15, an Eligible Stockholder must have Owned (as defined below) at least three percent or more of the Corporation’s common stock outstanding from time to time (the “Required Shares”) continuously for at least three years (the “Minimum Holding Period”) as of both (i) the date the Notice of Proxy Access Nomination is delivered or mailed to the secretary of the Corporation in accordance with this Section 15 and (ii) the close of business on the record date for determining the stockholders entitled to vote at the annual meeting of stockholders, and must continuously Own the Required Shares through the date of such annual meeting (and any postponement or adjournment thereof). For purposes of this Section 15, an Eligible Stockholder shall be deemed to “Own” only those outstanding shares of common stock as to which the Eligible Stockholder possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares (A) sold by such Eligible Stockholder or any of its Affiliates (as defined below) in any transaction that has not been settled or closed, including short sales, (B) borrowed by such Eligible Stockholder or any of its Affiliates for any purpose or purchased by such Eligible Stockholder or any of its Affiliates pursuant to an agreement to resell, (C) that are subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar instrument, agreement, arrangement or understanding entered into by such stockholder or any of its Affiliates, whether any such instrument, agreement, arrangement or understanding is to be settled with shares or with cash based on the notional amount or value of outstanding common stock, in any such case which instrument, agreement, arrangement or understanding has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder’s or its Affiliate’s full right to vote or direct the voting of any such shares and/or (2) hedging, offsetting or altering to any degree any gain or loss arising from the full economic ownership of such shares by such stockholder or its Affiliate or (D) for which the stockholder has transferred the right to vote the shares other than by means of a proxy, power of attorney or other instrument or arrangement that is unconditionally revocable at any time by the stockholder and that expressly directs the proxy holder to vote at the direction of the stockholder. In addition, an Eligible Stockholder shall be deemed to “Own” common stock held in the name of a nominee or other intermediary so long as the stockholder retains the full right to instruct how the shares are voted with respect to the election of Directors and possesses the full economic interest in the common stock. An Eligible Stockholder’s Ownership of common stock shall be deemed to continue during any period in which the stockholder has loaned such common stock, provided that the Eligible Stockholder has the power to recall such loaned shares on five business days’ notice and has in fact recalled such loaned shares as of the time the Notice of Proxy Access Nomination is provided and through the date of the annual meeting of stockholders. For purposes of this Section 15, the terms “Owned,” “Owning” and other variations of the word “Own” shall have correlative meanings. Whether outstanding common stock are “Owned” for these purposes shall be determined by the Board of Directors, in its sole discretion, which determination shall be conclusive and binding on the Corporation and its stockholders. In addition, the term “Affiliate” or “Affiliates” shall have the meaning ascribed thereto under the Exchange Act.
(c) Notice. To be eligible to require the Corporation to include a Stockholder Nominee in the proxy materials pursuant to this Section 15, an Eligible Stockholder must provide to the secretary of the Corporation, in proper form and within the times specified below, (i) a written notice expressly electing to have such Stockholder Nominee included in the proxy materials pursuant to this Section 15 (a “Notice of Proxy Access Nomination”) and (ii) any updates or supplements to such Notice of Proxy Access Nomination. To be timely, a stockholder’s Notice of Proxy Access Nomination must be delivered to or mailed and received by the secretary at the principal executive office of the Corporation by not later than the close of business on the 90th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting nor earlier than the close of business on the 120th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting; provided, however, that in the event that the date of the mailing of the notice for the annual meeting is advanced by more than 30 days from the first anniversary of the date of the mailing of the notice for the preceding year’s annual meeting or delayed by more than 60 days after such anniversary date, or if no annual meeting was held in the precedent year, the Notice of Proxy Access Nomination by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of mailing of the notice for such annual meeting and not later than the close of business on the later of the 90th day prior to the date of mailing of the notice for such annual meeting or the tenth day following the day on which public announcement of the date of mailing of the notice for such meeting is first made by the Corporation. In no event
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shall the public announcement of a postponement of an annual meeting to a later date or time commence a new time period for the giving of a stockholder’s notice as described above.
(d) Notice Requirements. To be in proper form for purposes of this Section 15, the Notice of Proxy Access Nomination delivered or mailed to and received by the secretary shall include the following information:
(1) One or more written statements from the record holder of the Required Shares (or from each intermediary through which the Required Shares are or have been held during the Minimum Holding Period and, if applicable, each participant in the Depository Trust Company (“DTC”) or affiliate of a DTC participant through which the Required Shares are or have been held by such intermediary during the Minimum Holding Period if the intermediary is not a DTC participant or affiliate of a DTC participant) verifying that, as of a date within seven business days prior to the date the Notice of Proxy Access Nomination is delivered or mailed to the secretary of the Corporation, the Eligible Stockholder Owns, and has Owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder’s agreement to provide (A) within five business days after the record date for the annual meeting of stockholders, written statements from the record holder or intermediaries between the record holder and the Eligible Stockholder verifying the Eligible Stockholder’s continuous Ownership of the Required Shares through the close of business on the record date, together with a written statement by the Eligible Stockholder that such Eligible Stockholder will continue to Own the Required Shares through the date of such annual meeting (and any postponement or adjournment thereof), and (B) the updates and supplements to the Notice of Proxy Access Nomination at the times and in the forms required by this Section 15;
(2) A copy of the Schedule 14N filed or to be filed with the Securities and Exchange Commission as required by Rule 14a-18 under the Exchange Act;
(3) Information that is the same as would be required to be set forth in a stockholder’s notice of nomination pursuant to Section 12(a)(2)(i) of this Article II, including the written consent of the Stockholder Nominee to being named in the proxy materials as a nominee and to serving as a Director if elected;
(4) A copy (or if oral a written summary) of any agreement, arrangement or understanding to which the Stockholder Nominee is a party with any person or entity other than the Corporation in connection in connection with service or action as a Director, including with respect to any direct or indirect compensation, reimbursement or indemnification;
(5) The written agreement of the Stockholder Nominee, upon such Stockholder Nominee’s election, to be bound by the Corporation’s Code of Ethics, Business Conduct Standards, Corporate Governance Guidelines and other similar policies and procedures and to make such acknowledgments, enter into such agreements and provide such information as the Board of Directors requires of all Directors at such time;
(6) A representation that the Eligible Stockholder (A) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and that neither the Eligible Stockholder nor any Stockholder Nominee being nominated thereby presently has such intent, (B) has not nominated and will not nominate for election to the Board of Directors at the annual meeting of stockholders (or any postponement or adjournment thereof) any individual other than the Stockholder Nominee(s) included in the proxy materials pursuant to this Section 15, (C) has not engaged and will not engage in, and has not been and will not be a “participant” in another person’s “solicitation,” each within the meaning of Rule 14a-1(l) under the Exchange Act, in support of the election of any individual as a Director at the annual meeting (or any postponement or adjournment thereof) other than such Stockholder Nominee(s) or a nominee of the Board of Directors, (D) has complied, and will comply, with all applicable laws and regulations applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting, including, without limitation, Rule 14a-9 under the Exchange Act, (E) will not distribute to any stockholder any form of proxy for the annual meeting other than the form distributed by the Corporation, (F) has not provided and will not provide facts, statements or information in its communications with the Corporation and the stockholders that were not or will not be true, correct and complete in all material respects or which omitted or will omit to state a material fact necessary in order to make such facts, statements or information, in light of the circumstances under which they were or will be provided, not misleading, and (G) in the case of a nomination by a group of stockholders
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that together is an Eligible Stockholder, the designation by all group members of one group member that is authorized to act on behalf of all such members with respect to the nomination and matters related thereto, including any withdrawal of the nomination; and
(7) A written undertaking that the Eligible Stockholder (A) assumes all liability stemming from any legal or regulatory violation arising out of communications with the stockholders by the Eligible Stockholder, its Affiliates and associates or their respective agents or representatives, either before or after providing a Notice of Proxy Access Nomination pursuant to this Section 15, or out of the facts, statements or information that the Eligible Stockholder or its Stockholder Nominee(s) provided to the Corporation pursuant to this Section 15 or otherwise in connection with the inclusion of such Stockholder Nominee(s) in the proxy materials pursuant to this Section 15, (B) indemnifies and holds harmless the Corporation and each of its Directors, officers and employees against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its Directors, officers or employees arising out of such Eligible Stockholder’s nomination of a Stockholder Nominee or the Corporation’s inclusion of such Stockholder Nominee in the proxy materials pursuant to this Section 15, and (C) will comply with all other laws and regulations applicable to any solicitation in connection with the annual meeting.
At the request of the Corporation, the Stockholder Nominee must promptly, but in any event within five business days after such request, submit all completed and signed questionnaires required of the Corporation’s Directors. The Corporation may also require each Stockholder Nominee and the Eligible Stockholder to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such Stockholder Nominee to serve as an independent Director (as determined under the rules and listing standards of any national securities exchange on which any securities of the Corporation are listed), (B) that could be material to a stockholder’s understanding of the independence or lack of independence of such Stockholder Nominee or (C) as may reasonably be required by the Corporation to determine whether the Eligible Stockholder meets the criteria for qualification as an Eligible Stockholder.
(e) Supplemental Information. To be eligible to require the Corporation to include a Stockholder Nominee in the proxy materials pursuant to this Section 15, an Eligible Stockholder must further update and supplement the Notice of Proxy Access Nomination, if necessary, so that the information provided or required to be provided in such Notice of Proxy Access Information pursuant to this Section 15 shall be true, correct and complete as of the record date for the annual meeting of stockholders and as of the date that is ten business days prior to such annual meeting or any postponement or adjournment thereof, and such update and supplement (or a written notice stating that there is no such update or supplement) shall be delivered or mailed to and received by the secretary at the principal executive office of the Corporation not later than close of business on the fifth business day after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than close of business on the eighth business day prior to the date of the meeting, if practicable, or, if not practicable, on the first practicable date prior to the meeting or any postponement or adjournment thereof (in the case of the update and supplement required to be made as of ten business days prior to the meeting or any postponement or adjournment thereof).
(f) Stockholder Nominee Undertaking. In the event that any facts, statements or information provided by the Eligible Stockholder or a Stockholder Nominee to the Corporation or the stockholders ceases to be true, correct and complete in all material respects or omits a material fact necessary to make such facts, statements or information, in light of the circumstances under which they were provided, not misleading, the Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the secretary of the Corporation of any defect in such previously provided facts, statements or information and of the facts, statements or information required to correct any such defect.
(g) Stockholder Groups. Whenever an Eligible Stockholder consists of a group of more than one stockholder, each provision in this Section 15 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to comply with any other conditions shall be deemed to require each stockholder that is a member of such group to provide such statements, representations, undertakings, agreements or other instruments and to comply with such other conditions (which, if applicable, shall apply with respect to the portion of the Required Shares Owned by such stockholder). When an Eligible
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Stockholder is comprised of a group, a violation of any provision of these Bylaws by any member of the group shall constitute a violation by the entire group. No person may be a member of more than one group of persons constituting an Eligible Stockholder with respect to any annual meeting of stockholders. In determining the aggregate number of stockholders in a group, two or more funds that are part of the same family of funds under common management and investment control (a “Qualifying Fund Family”) shall be treated as one stockholder. Not later than the deadline for delivery of the Notice of Proxy Access Nomination pursuant to this Section 15, a Qualifying Fund Family whose share Ownership is counted for purposes of determining whether a stockholder or group of stockholders qualifies as an Eligible Stockholder shall provide to the secretary of the Corporation such documentation as is reasonably satisfactory to the Board of Directors, in its sole discretion, to demonstrate that the funds comprising the Qualifying Fund Family satisfy the definition thereof.
(h) Permitted Number of Stockholder Nominees. The maximum number of Stockholder Nominees nominated by all Eligible Stockholders and entitled to be included in the proxy materials with respect to an annual meeting of stockholders shall not exceed the greater of (A) two or (B) 20% of the number of Directors up for election as of the last day on which a Notice of Proxy Access Nomination may be timely delivered pursuant to and in accordance with this Section 15 (the “Final Proxy Access Nomination Date”) or, if such percentage is not a whole number (but higher than two), the closest whole number below 20%; provided that the maximum number of Stockholder Nominees entitled to be included in the proxy materials with respect to a forthcoming annual meeting of stockholders shall be reduced by the number of individuals who were elected as Directors at the immediately preceding or second preceding annual meeting of stockholders after inclusion in the proxy materials pursuant to this Section 15 and whom the Board of Directors nominates for re-election at such forthcoming annual meeting of stockholders. In the event that one or more vacancies for any reason occur on the Board of Directors after the Final Proxy Access Nomination Date but before the election of Directors at the forthcoming annual meeting of stockholders and the Board of Directors elects to reduce the size of the Board of Directors in connection therewith, the maximum number of Stockholder Nominees eligible for inclusion in the proxy materials pursuant to this Section 15 shall be calculated based on the number of Directors serving as so reduced. Any individual nominated by an Eligible Stockholder for inclusion in the proxy materials pursuant to this Section 15 whose nomination is subsequently withdrawn or whom the Board of Directors decides to nominate for election to the Board of Directors shall be counted as one of the Stockholder Nominees for purposes of determining when the maximum number of Stockholder Nominees eligible for inclusion in the proxy materials pursuant to this Section 15 has been reached. Any Eligible Stockholder submitting more than one Stockholder Nominee for inclusion in the proxy materials pursuant to this Section 15 shall rank such Stockholder Nominees based on the order that the Eligible Stockholder desires such Stockholder Nominees be selected for inclusion in the proxy materials in the event that the total number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 15 exceeds the maximum number of Stockholder Nominees eligible for inclusion in the proxy materials pursuant to this Section 15(h). In the event the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 15 exceeds the maximum number of nominees eligible for inclusion in the proxy materials pursuant to this Section 15(h), the highest-ranking Stockholder Nominee from each Eligible Stockholder pursuant to the preceding sentence shall be selected for inclusion in the proxy materials until the maximum number is reached, proceeding in order of the number of common stock (largest to smallest) disclosed as Owned by each Eligible Stockholder in the Notice of Proxy Access Nomination submitted to the secretary of the Corporation. If the maximum number is not reached after the highest-ranking Stockholder Nominee from each Eligible Stockholder has been selected, this selection process shall continue as many times as necessary, following the same order each time, until the maximum number is reached. The Stockholder Nominees so selected in accordance with this Section 15(h) shall be the only Stockholder Nominees entitled to be included in the proxy materials and, following such selection, if the Stockholder Nominees so selected are not included in the proxy materials or are not submitted for election for any reason (other than the failure of the Corporation to comply with this Section 15), no other Stockholder Nominees shall be included in the proxy materials pursuant to this Section 15.
(i) Exceptions. The Corporation shall not be required to include, pursuant to this Section 15, a Stockholder Nominee in the proxy materials for any annual meeting of stockholders (A) for which meeting the secretary of the Corporation receives a notice that the Eligible Stockholder or any other stockholder has nominated one or more individuals for election to the Board of Directors pursuant to the advance notice requirements for stockholder nominees for Director set forth in Section 12 of this Article II and such stockholder does not expressly elect at the time of providing the notice to have its nominee included in the Corporation’s proxy materials pursuant to this
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Section 15, (B) if the Eligible Stockholder who has nominated such Stockholder Nominee has engaged in or is currently engaged in or has been or is a “participant” in another person’s “solicitation,” each within the meaning of Rule 14a-1(l) under the Exchange Act, in support of the election of any individual as a Director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors, (C) if such Stockholder Nominee would not qualify as independent (as determined under the rules and listing standards of any national securities exchange on which any securities of the Corporation are listed), (D) if such Stockholder Nominee is or becomes a party to any agreement, arrangement or understanding that the Stockholder Nominee is a party to with any person or entity other than the Corporation as to how such person, if elected as a Director, will act or vote on any issue or question, (E) if such Stockholder Nominee is or becomes a party to any agreement, arrangement or understanding that the Stockholder Nominee is a party to with any person or entity other than the Corporation in connection with any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director which is not promptly disclosed to the Corporation, (F) if the election of such Stockholder Nominee as a Director would cause the Corporation to fail to comply with these Bylaws, the Charter, the rules and listing standards of any national securities exchange on which any securities of the Corporation are listed or over-the-counter market on which any securities of the Corporation are traded, or any applicable state or federal law, rule or regulation, (G) if such Stockholder Nominee is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (H) if such Stockholder Nominee is a defendant in or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted or has pleaded nolo contendere in such a criminal proceeding within the past ten years, (I) if such Stockholder Nominee is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended, (J) if the Eligible Stockholder who has nominated such Stockholder Nominee or such Stockholder Nominee provides any facts, statements or information to the Corporation or the stockholders required or requested pursuant to this Section 15 that are not true, correct and complete in all material respects or that omits a material fact necessary to make such facts, statements or information, in light of the circumstances in which they were provided, not misleading, or that otherwise contravenes any of the agreements, representations or undertakings made by such Eligible Stockholder or Stockholder Nominee pursuant to this Section 15 or (K) if the Eligible Stockholder who has nominated such Stockholder Nominee or such Stockholder Nominee fails to comply with any of its obligations pursuant to this Section 15, in each instance as determined by the Board of Directors, in its sole discretion.
(j) Invalid Nominations. Notwithstanding anything to the contrary set forth herein, the Board of Directors or the chairman of the meeting shall declare a nomination by an Eligible Stockholder to be invalid, and such nomination shall be disregarded notwithstanding that proxies in respect of such vote may have been received by the Corporation, if (i) the Stockholder Nominee(s) and/or the applicable Eligible Stockholder shall have failed to comply with its or their obligations, agreements or representations under this Section 15, as determined by the Board of Directors or the chairman of the meeting, or (ii) the Eligible Stockholder, or a qualified representative thereof, does not appear at the annual meeting of stockholders to present any nomination of the Stockholder Nominee(s) included in the proxy materials pursuant to this Section 15. For purposes of this Section 15(j), to be considered a qualified representative of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as its proxy at the annual meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction thereof, at such annual meeting.
(k) Restrictions on Re-Nominations. Any Stockholder Nominee who is included in the proxy materials for an annual meeting of stockholders but withdraws from or becomes ineligible or unavailable for election to the Board of Directors at such annual meeting, shall be ineligible for inclusion in the proxy materials as a Stockholder Nominee pursuant to this Section 15 for the next two annual meeting of stockholders. For the avoidance of doubt, this Section 15(k) shall not prevent any stockholder from nominating any individual to the Board of Directors pursuant to and in accordance with Section 13 of this Article III.
(l) Securities and Exchange Commission Filings. The Eligible Stockholder (including any person who owns shares of capital stock of the Corporation that constitute part of the Eligible Stockholder’s ownership for purposes of satisfying Section 15(b) hereof) shall file with the Securities and Exchange Commission any solicitation or other communication with the Corporation’s stockholders relating to the meeting at which the Stockholder Nominee will be nominated, regardless of whether any such filing is required under Regulation 14A of the Exchange Act or
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whether any exemption from filing is available for such solicitation or other communication under Regulation 14A of the Exchange Act.
(m) Exclusive Method. This Section 15 provides the exclusive method for a stockholder to require the Corporation to include nominee(s) for election to the Board of Directors in the proxy materials.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. In the case of failure to elect Directors at an annual meeting of the stockholders, the Directors holding over shall continue to direct the management of the business and affairs of the Corporation until their successors are elected and qualify.
Section 2. NUMBER, ELECTION, AND QUALIFICATIONS. The stockholders or a majority of the entire Board of Directors, at any regular or special meeting called for such purpose, may establish, increase or decrease the number of Directors; provided, that the number thereof shall not be fewer than seven, nor more than 13; and further provided, that the tenure of office of a Director shall not be affected by any decrease in the number of Directors. Unless otherwise provided in the Charter or these Bylaws, the Directors shall be elected at the annual meeting of the stockholders, and each Director shall be elected to serve until the next annual meeting of the stockholders and until his or her successor is elected and qualifies or until his or her earlier death, resignation or removal. Any Director may resign at any time by delivering written notice to the Board of Directors, effective upon execution and delivery of such written notice or upon any future date specified in the notice. The acceptance of the resignation shall not be necessary to make it effective unless otherwise stated in the resignation. At least a majority of the Board of Directors shall be directors whom the Board of Directors has determined are independent under the standards established by the Board of Directors and in accordance with the then applicable listing requirements of the New York Stock Exchange. A Director shall be an individual at least 21 years of age who is not under legal disability.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the chairman of the Board of Directors, the chief executive officer or the president or by a majority of the Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board of Directors called by them. The Board of Directors may provide, by resolution, the time and place for the holding of special meetings of the Board of Directors without other notice than such resolution.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors shall be delivered personally or by telephone, electronic mail, facsimile transmission, U.S. mail or courier to each Director at his or her business or residence address or by any other means permitted under Maryland law. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by U.S. mail shall be given at least five days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the Director or his or her agent is personally given such notice in a telephone call to which the Director or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the Director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the Director and receipt of a completed answer-back indicating receipt. Notice by U.S. mail shall be deemed to be given when deposited in the U.S. mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or
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delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the Board of Directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such Directors are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to applicable law, the Charter or these Bylaws, the vote of a majority or other proportion of a particular group of Directors is required for action, a quorum must also include a majority of such group.
The Directors present at a meeting which has been duly called and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough Directors to leave less than would be required to establish a quorum.
Section 7. VOTING. The action of a majority of the Directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws. If enough Directors have withdrawn from a meeting to leave less than a quorum but the meeting is not adjourned, the action of the majority of that number of Directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed or submitted by electronic transmission to the Corporation by each Director and such written consent is filed with the minutes of proceedings of the Board of Directors.
Section 10. ORGANIZATION. At each meeting of the Board of Directors, the chairman of the Board of Directors or, in the absence of the chairman of the Board of Directors, the vice chairman, if any, of the Board of Directors, or, in the absence of both the chairman and the vice chairman, if any, the chief executive officer or, in the absence of the chief executive officer, the president or, in the absence of the president, a Director chosen by a majority of the remaining Directors present, shall act as chairman of the meeting. The secretary or, in his or her absence, an assistant secretary of the Corporation, or in the absence of the secretary and all assistant secretaries, a person appointed by the chairman, shall act as secretary of the meeting.
Section 11. VACANCIES. If for any reason any or all the Directors cease to be Directors, such event shall not terminate the Corporation, or affect these Bylaws or the powers of the remaining Directors hereunder (even if fewer than a quorum of Directors remain). Any vacancy (including a vacancy created by an increase in the number of Directors) may be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the Directors, even if the remaining Directors do not constitute a quorum, except that a vacancy created by the removal of a Director by the vote or written consent of the stockholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting of stockholders at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. The stockholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any individual so elected as Director shall hold office for the unexpired term of the Director he or she is replacing and until a successor is elected and qualifies.
Section 12. COMPENSATION. Directors shall not receive any stated salary for their services as Directors but, by resolution of the Board of Directors or a duly authorized committee thereof, may receive compensation per year and/or per meeting and for any service or activity they performed or engaged in as Directors. Directors may be
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reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof; and for their expenses, if any, in connection with any service or activity performed or engaged in as Directors; but nothing herein contained shall be construed to preclude any Directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 13. LOSS OF DEPOSITS. No Director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association or other institution with whom moneys or stock have been deposited.
Section 14. SURETY BONDS. Unless required by law, no Director shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.
Section 15. REMOVAL OF DIRECTORS. The stockholders may remove any Director in the manner provided in the Charter or the MGCL.
Section 16. RELIANCE. Each Director, officer, employee and agent of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Corporation, upon an opinion of counsel or upon reports made to the Corporation by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Directors or officers of the Corporation, as to matters which the Director, officer, employee or agent reasonably believes to be within the person’s professional or expert competence, regardless of whether such counsel or expert may also be a Director.
Section 17. RATIFICATION. The Board of Directors or the stockholders may ratify and make binding on the Corporation any action or inaction by the Corporation or its officers to the extent that the Board of Directors or the stockholders could have originally authorized the matter. Moreover, any action or inaction questioned in any stockholders’ derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a Director, officer or stockholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders, and if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.
Section 18. CERTAIN RIGHTS OF DIRECTORS AND OFFICERS. A Director who is not also an officer of the Corporation shall have no responsibility to devote his or her full time to the affairs of the Corporation. Any Director or officer, in his or her personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to, in addition to or in competition with those of or relating to the Corporation.
Section 19. EMERGENCY PROVISIONS. Notwithstanding any other provision in the Charter or these Bylaws, this Section 19 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under Article III of these Bylaws cannot readily be obtained (an “Emergency”). During any Emergency, unless otherwise provided by the Board of Directors, (a) a meeting of the Board of Directors may be called by any director or officer by any means feasible under the circumstances, (b) notice of any meeting of the Board of Directors during such an emergency may be given less than 72 hours prior to the meeting to as many directors and by such means as may be feasible at the time, including publication, television or radio, and (c) the number of directors necessary to constitute a quorum shall be one-third of the entire Board of Directors.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint from among its members a Nominating and Corporate Governance Committee, an Audit Committee and a Compensation
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Committee and may appoint other committees, composed of one or more Directors, to serve at the pleasure of the Board of Directors; provided, however, that the membership of each of the Nominating and Corporate Governance Committee, the Audit Committee and the Compensation Committee at all times shall comply with the independence and other listing requirements and rules and regulations of the New York Stock Exchange and the rules and regulations promulgated under the federal securities laws, and any other independence and other requirements set forth in the Corporation’s corporate governance guidelines and applicable committee charters.
Section 2. POWERS. The Board of Directors may delegate to committees appointed under Section 1 of this Article IV any of the powers of the Directors, except as prohibited by law.
Section 3. MEETINGS. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Director to act in the place of such absent member provided that such Director meets the requirements of such committee. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. Each committee shall keep minutes of its proceedings and shall report the same to the Board of Directors at the next succeeding meeting, and any action by the committee shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration.
Section 4. QUORUM. A majority of the members of any committee shall constitute a quorum for the transaction of business at a committee meeting, and the act of a majority present shall be the act of such committee. The Board of Directors, or the members of a committee to which such power has been duly delegated by the Board of Directors, may designate a chairman of any committee, and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board of Directors shall otherwise provide.
Section 5. TELEPHONE MEETINGS. Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 6. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed or submitted by electronic transmission to the Corporation by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.
Section 7. VACANCIES, REMOVAL AND DISSOLUTION. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chairman of the Board of Directors, a vice chairman of the Board of Directors, a chief executive officer, one or more chief operating officers, a chief financial officer, one or more vice presidents, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Directors may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of stockholders, except that the chief executive officer or president may appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner hereinafter provided. Any two or more offices except (1) president and vice president and (2) chief executive officer and vice president may be held by the same person. In its discretion, the Board of Directors may leave any office unfilled. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.
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Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed by the Board of Directors, with or without cause, if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board of Directors, the chairman of the Board of Directors, the chief executive officer, the president or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the notice of resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a chief executive officer. The chief executive officer shall have responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, for the general management and administration of the business and affairs of the Corporation, and for the supervision of other officers. The chief executive officer may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time. In the absence of the chairman of the Board of Directors or the vice chairman of the Board of Directors, if there be one, the chief executive officer shall preside over the meetings of the Board of Directors and of the stockholders at which he or she shall be present.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate one or more chief operating officers. Each chief operating officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors may designate a chairman of the Board of Directors and shall provide whether the chairman of the Board of Directors shall also be an officer of the Corporation. The chairman of the Board of Directors shall preside over the meetings of the Board of Directors and of the stockholders at which he or she shall be present and shall in general oversee all of the business and affairs of the Corporation. The chairman of the Board of Directors, if designated as an officer of the Corporation, may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed. The chairman of the Board of Directors shall perform such other duties as may be assigned to him or her by the Board of Directors.
Section 8. PRESIDENT. In the absence of the chairman of the Board of Directors and the chief executive officer, the president shall preside over the meetings of the Board of Directors and of the stockholders at which he or she shall be present. In the absence of a designation of a chief executive officer by the Board of Directors, the president shall be the chief executive officer. The president may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors or the chief executive officer from time to time.
Section 9. VICE PRESIDENTS. In the absence of each of the chairman of the board, chief executive officer and the president or in the event of a vacancy in all three offices, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other
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duties as from time to time may be assigned to him or her by the chief executive officer or by the Board of Directors. The Board of Directors may designate one or more vice presidents as executive vice president, as senior vice president or as vice president for particular areas of responsibility. The chief executive officer or, in the event there is no chief executive officer, the president may designate one or more vice presidents as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the stock transfer books of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Directors.
The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer and Board of Directors, at the regular meetings of the Board of Directors or whenever they may require it, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president, the chief executive officer or the Board of Directors. The assistant treasurers shall, if required by the Board of Directors, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Board of Directors.
Section 13. COMPENSATION. The compensation of the officers shall be fixed from time to time by the Board of Directors or a committee thereof and no officer shall be prevented from receiving such compensation by reason of the fact that he or she is also a Director.
ARTICLE VI
CONTRACTS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Directors or by an authorized person shall be valid and binding upon the Board of Directors and upon the Corporation.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited or invested from time to time to the credit of the Corporation as the Board of Directors, the chief executive officer, the chief financial officer or any other officer designated by the Board of Directors may determine.
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ARTICLE VII
STOCK
Section 1. CERTIFICATES. Except as may be otherwise provided by the Board of Directors, stockholders of the Corporation are not entitled to certificates representing the shares of stock held by them. In the event that the Corporation issues shares of stock represented by certificates, such certificates shall be in such form as prescribed by the Board of Directors or a duly authorized officer, shall contain the statements and information required by the MGCL and shall be signed by the officers of the Corporation in the manner permitted by the MGCL. In the event that the Corporation issues shares of stock without certificates, to the extent then required by the MGCL, the Corporation shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates. There shall be no differences in the rights and obligations of stockholders based on whether or not their shares are represented by certificates.
Section 2. TRANSFERS. All transfers of shares of stock shall be made on the books of the Corporation, by the holder of the shares of stock, in person or by his or her attorney, in such manner as the Board of Directors or any officer of the Corporation may prescribe and, if such shares of stock are certificated, upon surrender of certificates duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. The issuance of a new certificate upon the transfer of certificated shares is subject to the determination of the Board of Directors that such shares shall no longer be represented by certificates. Upon the transfer of uncertificated shares of stock, to the extent then required by the MGCL, the Corporation shall provide to record holders of such shares of stock a written statement of the information required by the MGCL to be included on share certificates.
The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.
Notwithstanding the foregoing, transfers of shares of any class or series of stock of the Corporation will be subject in all respects to the Charter and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen, destroyed or mutilated upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, destroyed or mutilated; provided, however, if such shares of stock have ceased to be certificated, no new certificate shall be issued unless requested in writing by such stockholder and the Board of Directors has determined such certificates may be issued. When authorizing the issuance of a new certificate, an officer designated by the Board of Directors may, in his or her discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, destroyed or mutilated certificate or the owner’s legal representative to advertise the same in such manner as he or she shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall not be prior to 5:00 p.m., Eastern Time, on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than 20 days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days before the date of such meeting.
PS Business Parks • 2021 Proxy Statement • C-22
If no record date is fixed and the stock transfer books are not closed for the determination of stockholders, (a) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at 5:00 p.m., Eastern Time, on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board of Directors declaring the dividend or allotment of rights is adopted.
When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate stock ledger containing the name and address of each stockholder and the number of shares of each class of stock held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Charter or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred to the books of the Corporation only in such unit.
Section 7. REPURCHASES OF STOCK. The Corporation may purchase or reacquire its stock and invest its assets in its own stock to the extent permitted by the MGCL, provided that in each case the approval of the Board of Directors shall have been obtained.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized and declared by the Board of Directors, subject to the applicable provisions of law and the Charter. Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the applicable provisions of law and the Charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine to be in the best interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
PS Business Parks • 2021 Proxy Statement • C-23
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the Charter, the Board of Directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the Corporation and the year and state of its incorporation. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to time, and in accordance with applicable provisions of the charter, these Bylaws and any indemnification agreement or resolution of the Board of Directors in effect from time to time, the Corporation shall indemnify, and pay or reimburse the reasonable expenses in advance of final disposition of a proceeding to, (a) any present or former director or officer of the Corporation against any claim or liability to which he or she may become subject by reason of service in such capacity, and (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan, limited liability company or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity. In addition, the Corporation may, with the approval of the Board of Directors, provide such indemnification and advancement of expenses to any individual who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Charter or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of this Article with respect to any act or failure to act that occurred prior to such amendment, repeal or adoption.
The Corporation may, to the fullest extent permitted by law, purchase and maintain insurance on behalf of any person described in the preceding paragraph against any liability which may be asserted against such person.
The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after
PS Business Parks • 2021 Proxy Statement • C-24
the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
These Bylaws may be amended, altered or repealed, and new Bylaws adopted, by the Board of Directors or by the affirmative vote of holders of shares of the Corporation representing not less than a majority of all the votes entitled to be cast on the matter; provided, however, the Board of Directors may adopt a Bylaw or amendment of a Bylaw changing the authorized number of directors only for the purpose of fixing the exact number of directors within the limits specified in the Charter, and provided further that the Bylaw relating to restrictions on the repurchase by the Corporation of its stock (Section 7 of Article VII) may not be amended or repealed without the vote or written consent of holders of a majority of the outstanding shares entitled to vote.
ARTICLE XV
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of an executive or other committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction.
ARTICLE XVI
EXCLUSIVE FORUM FOR CERTAIN LITIGATION
Unless the Corporation consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland (or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division) shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Corporation to the Corporation or its stockholders, (c) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the MGCL, the Charter or these Bylaws, or (d) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation that is governed by the internal affairs doctrine.
ARTICLE XVII
SEVERABILITY
If any provision of the Bylaws shall be held invalid or unenforceable in any respect, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable any other provision of the Bylaws in any jurisdiction.
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PRELIMINARY COPY SUBJECT TO COMPLETION
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
D68478-P67616 KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY | ||||
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
PS BUSINESS PARKS, INC. | ||||||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following: | ||||||||||||||||||||||||||||||||||
1. | Election of Directors | For | Against | Abstain | ||||||||||||||||||||||||||||||
Nominees: | The Board of Directors recommends you vote FOR proposals 2, 3 and 4. | For | Against | Abstain | ||||||||||||||||||||||||||||||
1a. Ronald L. Havner, Jr. 1b. Maria R. Hawthorne 1c. Jennifer Holden Dunbar | ☐ ☐ ☐ | ☐ ☐ ☐ | ☐ ☐ ☐ | 2. 3. 4. | Advisory vote to approve the compensation of PS Business Parks, Inc.’s Named Executive Officers. Approval of the 2022 Equity and Performance-Based Incentive Compensation Plan. Ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm for PS Business Parks, Inc. for the fiscal year ending December 31, 2022. | ☐ ☐ ☐ | ☐ ☐ ☐ | ☐ ☐ ☐ | ||||||||||||||||||||||||||
1d. M. Christian Mitchell 1e. Irene H. Oh | ☐ ☐ | ☐ ☐ | ☐ ☐ | |||||||||||||||||||||||||||||||
1f. Kristy M. Pipes | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||||
1g. Gary E. Pruitt | ☐ | ☐ | ☐ | NOTE: Other matters: In their discretion, the Proxies and/or the Trustee are authorized to vote upon such other business as may properly come before the meeting or any adjournment or postponement thereof. | ||||||||||||||||||||||||||||||
1h. Robert S. Rollo | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||||
1i. Joseph D. Russell, Jr. | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||||
1j. Peter Schultz | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||||
1k. Stephen W. Wilson | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be
Held on April 29, 2022:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
D68479-P67616
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PS BUSINESS PARKS, 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 PS Business Parks, Inc. (“Common Stock”) and/or a participant in the PS 401(k)/Profit Sharing Plan (the “401(k) Plan”), hereby (i) appoints Adeel Khan and Nathaniel A. Vitan, or either of them, with power of substitution, as Proxies, to appear and vote, as designated on the reverse side, all the shares of Common Stock held of record by the undersigned on February 25, 2022, at the Annual Meeting of Stockholders to be held on April 29, 2022 (the “Annual Meeting”)and any adjournments thereof, and/or (ii) authorizes and directs the trustee of the 401(k) Plan (the “Trustee”) to vote or execute proxies to vote, as instructed on the reverse side, all the shares of Common Stock credited to the undersigned’s account under the 401(k) Plan on February 25, 2022, at the Annual Meeting and any adjournments thereof. In their discretion, the Proxies and/or the Trustee are authorized to vote upon such other business as may properly come before the meeting. THE PROXIES AND/OR THE TRUSTEE WILL VOTE ALL SHARES OF COMMON STOCK TO WHICH THIS PROXY/INSTRUCTION CARD RELATES IN THE MANNER DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO COMMON STOCK HELD OF RECORD BY THE UNDERSIGNED, THE PROXIES WILL VOTE SUCH COMMON STOCK FOR THE ELECTION OF ALL NOMINEES LISTED ON THE REVERSE SIDE AND IN FAVOR OF PROPOSALS 2, 3 AND 4.IF NO DIRECTION IS GIVEN WITH RESPECT TO COMMON STOCK CREDITED TO THE UNDERSIGNED’S ACCOUNT UNDER THE 401(k) PLAN, THE TRUSTEE WILL VOTE SUCH COMMON STOCK IN THE SAME PROPORTION AS SHARES FOR WHICH VOTING INSTRUCTIONS HAVE BEEN RECEIVED, UNLESS REQUIRED BY LAW TO EXERCISE DISCRETION IN VOTING SUCH SHARES. 401(k) Plan Participants—The undersigned, if a participant in the 401(k) Plan, hereby directs Principal Financial Group as Trustee for the 401(k) Plan to vote all shares of Common Stock allocated to my account as of February 25, 2022. I understand that I am to mail this confidential voting instruction card to Broadridge, acting as tabulation agent or vote by PHONE OR INTERNET,as described on the reverse side of this card, and that my instructions must be received by Broadridge no later than11:59 p.m., Eastern Time, on April 26, 2022. If my instructions are not received by that time and date, or if the voting instructions are invalid because this form is not properly signed and dated, the shares in my account will be voted in accordance with the terms of the 401(k) Plan document. Continued and to be signed on reverse side
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PRELIMINARY COPY SUBJECT TO COMPLETION
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
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D33905-P50047
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