March 31,
2010
Dear
Stockholder:
The
Annual Meeting of Stockholders of Home Properties, Inc. will be held on
Tuesday, May 4, 2010, at 9:00 a.m. at Clinton Square, 14th Floor, Rochester, New
York. We have decided to change the time, location and format of our
Annual Meeting. There will be no formal presentation other than a
brief report on the outcome of the stockholder vote.
A Notice
of Annual Meeting and a Proxy Statement are attached. They describe
the matters to be acted upon at the Annual Meeting.
Your vote
on all the matters described in the Proxy Statement is very
important. Please sign, date and return the enclosed proxy card in
the envelope provided. Alternatively, you may choose to vote by
telephone or internet. Voting by any of these methods before the
meeting will insure that your shares are represented at the
meeting.
Thank you
for your continued confidence in Home Properties.
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Sincerely,
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HOME
PROPERTIES, INC.
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Edward
J. Pettinella
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President
and Chief Executive Officer
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HOME
PROPERTIES, INC.
850
Clinton Square
Rochester,
New York 14604
_______________________________________
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE
HELD ON MAY 4, 2010
_______________________________________
NOTICE IS
HEREBY GIVEN that the 2010 Annual Meeting of Stockholders (the “Annual Meeting”)
of Home Properties, Inc. (the "Company") will be held on Tuesday, May 4, 2010 at
9:00 a.m. at Clinton Square, 14th Floor, Rochester, New York. Clinton
Square is located at the northwest corner of Clinton Avenue and Broad Street in
downtown, Rochester, New York. The purpose of the Annual Meeting is
as follows:
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1.
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To
elect 11 Directors of the Company to serve until the 2011 Annual Meeting
of Stockholders and until their respective successors are
elected;
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2.
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To
approve an amendment to the Director Deferred Compensation Plan to
increase the shares available for issuance under that plan by
50,000;
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3.
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To
ratify the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for 2010;
and
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4.
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To
consider and act upon any other matters that are properly brought before
the Annual Meeting and at any adjournments or postponements
thereof.
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The Board
of Directors of the Company (the “Board” or the “Board of Directors”) set the
close of business on March 9, 2010 as the record date for the Annual
Meeting. Only stockholders whose names appear on the stock register
of the Company at the close of business on the record date will be entitled to
notice of and to vote at the Annual Meeting and at any adjournments or
postponements. (If you hold your stock in the name of a brokerage
firm, bank or other nominee, only that entity can vote your
shares. Please give instructions as to how you wish your shares to be
voted to the person responsible for your account.)
There are four ways to
vote:
- by completing the enclosed
proxy card and returning it in the enclosed postage prepaid
envelope;
- by internet at
http://www.proxyvoting.com/hme;
- by toll-free telephone at
1-866-540-5760; or
- by written ballot at the
meeting.
If you
vote by internet or telephone, your vote must be received before 11:59 p.m.
Eastern Standard Time on May 3, 2010, the day before the Annual
Meeting. You may change your vote or revoke your proxy at any time
before the Annual Meeting:
- by returning a later dated
proxy card;
- by sending written notice
to Ann M. McCormick, Secretary of the Company at 850 Clinton
Square,
Rochester, New York
14604;
- by entering a new vote by
internet or telephone; or
- by completing a written
ballot at the Annual Meeting.
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Rochester,
New York
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By
Order of the Board of Directors
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March
31, 2010
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Ann
M. McCormick
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Secretary
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EVEN IF
YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY ONE OF THE ABOVE
METHODS. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN IF YOU HAVE PREVIOUSLY VOTED.
Important
Notice Regarding the Availability of Proxy Materials
for
the Annual Stockholders Meeting to be Held on May 4, 2010
This
Proxy Statement and the 2009 Annual Report are available at
www.homeproperties.com/Investors
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Description of the Director
Deferred Compensation Plan
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Accounting
Firm for 2010
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A-1
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HOME
PROPERTIES, INC.
Suite
850
Clinton
Square
Rochester,
New York 14604
_______________________________________
PROXY
STATEMENT
_______________________________________
FOR 2010
ANNUAL MEETING OF STOCKHOLDERS
to be
Held on May 4, 2010
March 31,
2010
This
Proxy Statement is delivered to you in connection with the solicitation of
proxies by the Board of Directors of Home Properties, Inc. (the "Company") for
use at the 2010 Annual Meeting of Stockholders of the Company (the "Annual
Meeting"). The Annual Meeting will be held on Tuesday, May 4, 2010 at
9:00 a.m. at Clinton Square, 14th
Floor, Rochester, New York. The approximate date on which the
enclosed form of proxy and this Proxy Statement are first being sent to
stockholders is March 31, 2010. The principal executive offices of
the Company are located at 850 Clinton Square, Rochester, New York
14604.
Who
May Vote?
Stockholders
of the Company as of the Company’s record date, March 9, 2010, may
vote. On March 9, 2010, there were 35,157,035 shares of the Company’s
Common Stock outstanding. Each share of Common Stock has one
vote.
How
Do I Vote?
There are
four ways to vote:
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1.
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by
completing the enclosed proxy card and returning it in the enclosed
postage prepaid envelope;
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2.
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by
internet at
http://www.proxyvoting.com/hme;
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3.
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by
toll-free telephone at (866) 540-5760;
or
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4.
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by
written ballot at the Annual
Meeting.
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How
Does a Proxy Work?
The
Company’s Board of Directors is asking for your proxy. By giving us
your proxy, you authorize the proxy holders (Edward J. Pettinella, the Company’s
Chief Executive Officer, and David P. Gardner, the Company’s Chief Financial
Officer) to vote your shares at the Annual Meeting in the manner you
direct.
If you
vote by any of the above methods but do not specify how you wish to vote your
shares, your shares will be voted “for” Proposals 1, 2 and 3 listed in the
Notice of Meeting. The proxy holders will also vote shares according
to their discretion on any other matter properly brought before the
meeting.
What
if a Broker Holds my Shares?
If you
hold shares through someone else, such as a stockbroker, you will get proxy
material from them and it is critical that you cast your vote if you want it to
count in the election of Directors (Proposal 1) or with respect to the amendment
of the Director Deferred Compensation Plan (Proposal 2). Please
Note: In the past, if a broker held your shares and you did not
indicate how you wanted your shares voted in the election of Directors, your
broker was allowed to vote those shares on your behalf in the election of
Directors as they felt appropriate. Recent changes in regulations
were made to take away the ability of your broker to vote your uninstructed
shares in the election of Directors. Thus, if a broker holds your
shares and you do not instruct your broker how to vote in the election of
Directors, or with respect to the amendment of the Director Deferred
Compensation Plan, no votes will be cast on your behalf. Your broker
will, however, continue to have discretion to vote any uninstructed shares on
the ratification of the appointment of the Company’s independent registered
public accounting firm (Proposal 3).
What
Constitutes a Quorum?
The
presence, in person or by proxy, of holders of a majority of all of the shares
of Common Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. Votes withheld,
abstentions and “broker non-votes” will be counted for purposes of determining
whether a quorum is present. A “broker non-vote” refers to a share
represented at the Annual Meeting which is held by a broker or other nominee who
has not received instructions from the beneficial owner or person entitled to
vote such share and with respect to which, on one or more but not all proposals,
such broker or nominee does not have discretionary voting power to vote such
share.
What
Vote is Required to Approve Each Proposal?
Proposal
1: The affirmative vote of a plurality of the votes cast at the
Annual Meeting is required for the election of a Director. For
purposes of the election of Directors, abstentions and broker non-votes, if any,
will not be counted as votes cast and will have no effect on the result of the
vote.
Proposal
2: The affirmative vote of a majority of the votes cast on the
Proposal is required for approval of the amendment to the Director Deferred
Compensation Plan provided that the total vote cast on the Proposal represents
over 50% in interest of all shares entitled to vote on the
Proposal. For purposes of the vote on Proposal 2, abstentions and
broker non-votes will have the same effect as votes against the proposal, unless
holders of more than 50% in interest of all common shares entitled to vote on
the Proposal cast votes, in which event broker non-votes will not have any
effect on the result of the vote.
Proposal
3: The affirmative vote of a majority of all of the votes cast at the
Annual Meeting is required for ratification of the appointment of
PricewaterhouseCoopers LLP as the Company’s independent registered public
accounting firm for 2010. For purposes of the vote on Proposal 3,
abstentions will not be counted as votes cast and will have no effect on the
vote.
Can
I Change My Vote?
You may
revoke your proxy before it is voted at the Annual Meeting by entering a new
vote by internet or telephone, by submitting a new proxy with a later date, by
voting in person at the Annual Meeting or by notifying the Company’s Secretary
in writing prior to the Annual Meeting as follows: Ann M. McCormick,
850 Clinton Square, Rochester, New York 14604.
Can
I Access the Notice of Annual Meeting, Proxy Statement, Annual Report on Form
10-K and the Annual Report on the Internet?
The
Notice of Annual Meeting, Proxy Statement, Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 and 2009 Annual Report are available on the
Company’s website at www.homeproperties.com under the heading
“Investors”.
PROPOSAL
1
At the
Annual Meeting, 11 individuals will be elected to serve as Directors until the
2011 Annual Meeting and until their successors are elected.
The Board
of Directors has nominated Stephen R. Blank, Josh E. Fidler, Alan L. Gosule,
Leonard F. Helbig, III, Charles J. Koch, Nelson B. Leenhouts, Norman P.
Leenhouts, Edward J. Pettinella, Clifford W. Smith, Jr., Paul L. Smith, and Amy
L. Tait to serve as Directors (the "Nominees"). Each of the Nominees
is currently serving as a Director of the Company. The Board of
Directors anticipates that each of the Nominees will serve as a Director if
elected.
The
affirmative vote of a plurality of the votes cast at the Annual Meeting is
required for the election of the Nominees as Directors.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES.
Information
Regarding Nominees for Director
The following paragraphs provide
information as of the date of this proxy statement about each
Nominee. The information presented includes information each Director
has given us about their age, all positions they hold, their principal
occupation and business experience for the past five years, and the names of
other publicly-held companies of which they currently serve as a Director or
have served as a Director during the past five years. In addition to
the information presented below regarding each Nominee’s specific experience,
qualifications, attributes and skills that led our Board to the conclusion that
they should serve as a Director, we also believe that all of
our Nominees have a reputation for integrity, honesty and adherence
to high ethical standards. They each have demonstrated business
acumen and an ability to exercise sound judgment, as well as a commitment of
service to the Company and our Board.
Stephen R. Blank, age 64, has
been a Director of the Company since 2009. Since 1998, Mr. Blank has
been a Senior Resident Fellow, Finance, at the Urban Land Institute (“ULI”), a
non-profit education and research institute which studies land use and real
estate development policy. Prior to joining ULI, Mr. Blank served
from 1993 to 1998 as Managing Director - Real Estate Investment Banking of CIBC
Oppenheimer Corp. From 1989 to 1993, Mr. Blank was Managing Director
of the Real Estate Corporate Finance Department of Cushman & Wakefield,
Inc. From 1979 to 1989, Mr. Blank served as Managing Director - Real
Estate Investment Banking of Kidder, Peabody & Co. From 1973 to
1979, Mr. Blank was employed by Bache & Co., Incorporated as Vice President,
Direct Investment Group. Mr. Blank is Chairman of the Board of
Trustees of Ramco-Gershenson Properties Trust (NYSE: RPT) and a Director of MFA
Financial, Inc. (NYSE: MFA). For both companies, he also serves as
Chairman of the Audit Committee and as a member of the Compensation
Committee. From May 1999 to February 2007, Mr. Blank was a member of
the Board of Directors of BNP Residential Trust, Inc. Mr. Blank is a
graduate of Syracuse University and received a Masters of Business
Administration Degree in Finance from Adelphi University.
Mr. Blank’s knowledge of the real
estate industry as evidenced by his position at ULI, his experience in the
investment banking industry, including his expertise in public and private real
estate finance, and his service on the boards and committees of other public and
private companies led the Board to conclude that he should continue to serve as
a Director.
Josh E. Fidler, age 54, has
been a Director of the Company since 2004. Mr. Fidler is a founding
partner of Boulder Ventures, Ltd., a manager of venture capital funds, which has
been in operation since 1995. Since 1985, he also has been a
principal in a diversified real estate development business known as The Macks
Group. In 1999, the Company acquired 3,297 apartment units from
affiliates of The Macks Group. Mr. Fidler was also a principal of the
entity which owned a 240-unit apartment community which the Company purchased in
2004. He is a graduate of Brown University and received a law degree
from New York University. Mr. Fidler is a member of the Maryland
Region Advisory Board of SunTrust Bank, the Board of Johns Hopkins Medicine and
President of the Board of Trustees of The Park School.
Mr. Fidler’s experience as an acquirer,
developer, owner and manager of multifamily properties, as well as his
background as a venture capitalist experienced in evaluating investment
opportunities, led the Board to conclude that he should continue to serve as a
Director.
Alan L. Gosule, age 69, has
been a Director of the Company since 1996. Mr. Gosule is a partner in
the law firm of Clifford Chance US LLP in New York, New York and has practiced
law with that firm and its predecessor since 1991. From 2002 to
August 2005, he served as the Regional Head of Clifford Chance’s Real Estate
Department for the Americas and, prior to 2002, was the Regional Head of the
firm’s Tax, Pension and Employment Department for the Americas. Prior
to 1991, Mr. Gosule practiced law with the firm of Gaston & Snow, where he
was a member of that firm’s Management Committee and the Chairman of the Tax
Department. Mr. Gosule currently serves on the Boards of MFA
Financial, Inc. (NYSE: MFA), F.L. Putnam Investment Management Company and
Pioneer Natural Resources, GP, LLC, the general partner of Pioneer Southwest
Energy Partners, L.P. He also serves as a member of the Board of
Trustees of the Ursuline Academy. Mr. Gosule is a graduate of Boston
University and received a Juris Doctor Degree from Boston University Law School
and an LLM in Taxation from Georgetown Law School.
Mr. Gosule’s experience as a lawyer and
partner of a major international law firm, his knowledge of tax law and related
matters, including real estate investment trusts, and his experience in advising
and serving on the boards and committees of other public and private companies
led the Board to conclude that he should continue to serve as a
Director.
Leonard F. Helbig, III, age
64, has been a Director of the Company since 1994. Since September
2002 he has served as a Director of Integra Realty Resources in
Philadelphia. He is also an active owner and manager of various self
storage and manufactured housing communities throughout the
northeast. Between 1980 and 2002 he was employed by Cushman &
Wakefield, Inc. where he held various senior management
positions. From 1980 through 1987, he founded and served as National
Director of the firm’s Valuation and Consulting Services. From 1987
until 2002, Mr. Helbig served as President of Financial
Services. Between 1995 and 2000, he also served as Executive Managing
Director of Asset and Property Management Services. He was a member
of Cushman & Wakefield’s Board of Directors and Executive and Management
Committees. He maintains active memberships in various international
industry associations such as the ULI, the International Council of Shopping
Centers and the National Multi Housing Council. He also holds the MAI
professional designation from the Appraisal Institute. Mr. Helbig is
a graduate of LaSalle University in Philadelphia with a Bachelor of Science
Degree in Industrial Management.
Mr. Helbig’s corporate management
experience and his experience in the acquisition, disposition, development,
leasing, management and appraisal of commercial and multifamily real estate led
the Board to conclude that he should continue to serve as a
Director.
Charles J. Koch, age 63,
became a Director of the Company on March 1, 2010. From 1973 to 2004,
Mr. Koch was employed by Charter One Financial, Inc. and its wholly-owned
subsidiary, Charter One Bank, N.A. He was elected President and Chief
Operating Officer in 1980, President and Chief Executive Officer in 1988 and
Chairman, President and Chief Executive Officer in 1995. He served in
those capacities until the sale of Charter One Financial, Inc. to The Royal Bank
of Scotland in 2004. He was a Director of The Royal Bank of Scotland
from 2004 until 2009. He is currently a Director of Assurant, Inc.
(NYSE: AIZ) where he also serves as a member of the Compensation Committee and
as the Chair of the Finance and Investment Committee. In addition, he
is a Director of Citizens Financial Group (an affiliate of The Royal Bank of
Scotland) and The Federal Home Loan Bank of Cincinnati where he also serves as a
member of the Personnel, Governance and Finance and Risk Management
Committees. Mr. Koch is Chairman of the Board of Trustees of Case
Western Reserve University and on the Board of Directors of John Carroll
University. He is a graduate of Lehigh University and holds a Masters
of Business Administration Degree from Loyola College of Maryland.
Mr. Koch’s experience as a Chief
Executive Officer of a public company resulting in his broad understanding of
the operational, financial and strategic issues facing a public company led the
Board to elect Mr. Koch as a Director and to recommend him for election by the
stockholders.
Nelson B. Leenhouts, age 74,
has served as Board Co-Chair since his retirement as Co-Chief Executive Officer
effective January 1, 2004. He had served as Co-Chief Executive
Officer, President and a Director of the Company since its inception in
1993. Since its formation, he has also served as a Director of Home
Properties Resident Services, Inc. (“HPRS”), for which he had also served in
various officer capacities prior to his retirement. Nelson Leenhouts
also served as a Senior Advisor to the Company pursuant to an Employment
Agreement with a term that expired on December 31, 2006. In
addition, he was employed by the Company to fulfill additional responsibilities
with respect to the Company's development activities pursuant to a Development
Agreement, the term of which also expired on December 31,
2006. Nelson Leenhouts subsequently entered into an Employment
Agreement with a term that expired on December 31, 2007. Until
December 31, 2008, he continued as an employee of the Company working as a
liaison to the development team, but he did not have an employment
agreement. Nelson Leenhouts was the founder, and a co-owner, together
with Norman Leenhouts, of Home Leasing Corporation (“Home
Leasing”). Since 2006, he has been the Chief Executive Officer of
Home Leasing, which focuses on the development and management of affordable
housing in the Greater Rochester, New York area. Nelson Leenhouts is
a graduate of the University of Rochester. He is the twin brother of
Norman Leenhouts and the uncle of Amy L. Tait.
Nelson Leenhouts’ role as one of the
Company’s founders and his knowledge about the Company’s operations and culture
along with his experience in all aspects of the real estate industry with a
particular focus on property management and development led the Board to
conclude that he should continue to serve as a Director.
Norman P. Leenhouts, age 74,
has served as Board Co-Chair since his retirement as Co-Chief Executive Officer
effective January 1, 2004. He had served as Board Chair, Co-Chief
Executive Officer and a Director of the Company since its inception in
1993. Since its formation, he also has served as a Director of
HPRS. Norman Leenhouts also served as a Senior Advisor to the
Company pursuant to an Employment Agreement with a term that expired on
December 31, 2006. Prior to January 1, 2006, Norman Leenhouts
was a co-owner, together with Nelson Leenhouts, of Home Leasing, where he had
served as Board Chair since 1971. He is currently the Chairman of
Broadstone Real Estate, LLC, formed to contain the property management business
of Home Leasing, and of Broadstone Net Lease, Inc., which is a private real
estate investment trust that invests in net lease properties, as well as
Broadstone Ventures, LLC and Broadstone Asset Management, LLC. Norman
Leenhouts and his wife are also the sole owners of Knollwood Ventures, Inc., a
spin-off from Home Leasing as of January 1, 2006. He is a member of
the Board of Trustees of the University of Rochester, Roberts Wesleyan College
and The Charles E. Finney School, where he also serves as Board
Chair. Norman Leenhouts is a graduate of the University of
Rochester. He is the twin brother of Nelson Leenhouts and the father
of Amy L. Tait.
Norman
Leenhouts’ role as one of the Company’s founders and his knowledge about the
Company’s operations and culture along with his experience in all aspects of the
real estate industry with a particular focus on acquisitions and finance led the
Board to conclude that he should continue to serve as a Director.
Edward J. Pettinella, age 58,
has served as President and Chief Executive Officer of the Company
since 2004. He is also a Director. He joined
the Company in 2001 as an Executive Vice President and Director. He
is also the President and Chief Executive Officer of HPRS. From 1997
until February 2001, Mr. Pettinella served as President, Charter One Bank of New
York and Executive Vice President of Charter One Financial, Inc. From
1980 through 1997, Mr. Pettinella served in several managerial capacities for
Rochester Community Savings Bank, Rochester, NY, including the positions of
Chief Operating Officer and Chief Financial
Officer. Mr. Pettinella serves on the Board of Directors of
Rochester Business Alliance, United Way of Greater Rochester, The Lifetime
Healthcare Companies, National Multi Housing Council and Syracuse University
School of Business. He is also a member of ULI and serves on the
Board of Governors of the National Association of Real Estate Investment
Trusts. Mr. Pettinella is a graduate of the State University of New
York at Geneseo and holds a Masters of Business Administration Degree in Finance
from Syracuse University.
Mr. Pettinella’s role as Chief
Executive Officer responsible for the Company’s day-to-day operations and
strategic initiatives, as well as his experience in corporate finance and public
company operations, led the Board to conclude that he should continue to serve
as a Director.
Clifford W. Smith, Jr., age
63, has been a Director of the Company since 1994. Mr. Smith is the
Epstein Professor of Finance of the William E. Simon Graduate School of Business
Administration of the University of Rochester, where he has been on the faculty
since 1974. He has written numerous books and articles on a variety
of financial, capital markets and risk management topics and has held editorial
positions for a variety of journals. Mr. Smith is a graduate of Emory
University and has a PhD from the University of North Carolina at Chapel
Hill.
Mr. Smith’s expertise in corporate
finance, strategic planning, executive compensation and corporate governance,
about which he has taught and written for many years, led the Board to conclude
that he should continue to serve as a Director.
Paul L. Smith, age 74, has
been a Director of the Company since 1994. Mr. Smith was a Director,
Senior Vice President and the Chief Financial Officer of the Eastman Kodak
Company from 1983 until he retired in 1993. He was a member of the
Financial Accounting Standards Advisory Council. He is currently a
Director and Audit Committee Chairman of Constellation Brands, Inc. (NYSE: STZ;
ASX: CBR). He is also a member of the Board of Trustees of the George
Eastman House and Ohio Wesleyan University. Mr. Smith is a graduate
of Ohio Wesleyan University and holds a Masters of Business Administration
Degree in Finance from Northwestern University.
Mr. Smith’s background in corporate
finance and accounting as Chief Financial Officer of The Eastman Kodak Company,
and his ability to serve as an audit committee financial expert and to Chair the
Audit Committee led the Board to conclude that he should continue to serve as a
Director.
Amy L. Tait, age 51, has
served as a Director of the Company since its inception in 1993. From
1983 until 2001, Mrs. Tait also held several positions with Home Properties and
its predecessor, Home Leasing Corporation, including Senior and Executive Vice
President and Chief Operating Officer. She resigned her full-time
position as Executive Vice President in 2001 to spend more time with
family. She founded Tait Realty Advisors, LLC in 2001, and is
currently the Chief Executive Officer and a Director of Broadstone Real Estate,
LLC, which she co-founded in 2006. She is also a principal in
Broadstone Ventures, LLC, Broadstone Net Lease, Inc. and Broadstone Asset
Management, LLC, all private commercial real estate management and investment
companies. Mrs. Tait is a Director of IEC Electronics Corp. (AMEX:
IEC), where she also serves on the Audit Committee, and is currently a member of
the M&T Bank Rochester Regional Advisory Board and the Boards of the United
Way of Greater Rochester and the Allendale Columbia School. She also
serves on the Executive Advisory Board of the William E. Simon
Graduate School of Business Administration of the University of
Rochester. Mrs. Tait is a graduate of Princeton University and holds
a Masters of Business Administration Degree from the William E. Simon Graduate
School of Business Administration of the University of Rochester. She
is the daughter of Norman Leenhouts and the niece of Nelson
Leenhouts.
Mrs. Tait’s experience in all aspects
of the real estate industry and her corporate finance background led the Board
to conclude that she should continue to serve as a Director.
The
Company is managed by its Board of Directors. If all of the Nominees
are elected, the Board will have 11 members.
The Board
holds regular meetings on a quarterly basis. Pursuant to the
Company’s By-Laws, the Board Chair, President or a majority of the Board of
Directors may call for a special meeting of the Board. During 2009,
the full Board of Directors met five times, including regular and special
meetings. Each Director attended all of the Board’s
meetings.
Ten of
the Company’s eleven current Board members are not employed by the
Company. The Board of Directors has determined that seven of the ten
non-employee Directors are “independent” within the meaning of the Securities
and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”) current
Director independence standards. The independent Directors are:
Stephen Blank, Josh Fidler, Alan Gosule, Leonard Helbig, Charles Koch, Clifford
Smith and Paul Smith. This represents more than a majority of the
members of the Board of Directors. The Directors determined by the
Board not to be independent under the above standards were Nelson Leenhouts,
Norman Leenhouts, Edward Pettinella and Amy Tait.
In
determining the independence of each Director, the Corporate
Governance/Nominating Committee of the Board considered any relationships
between the Company and the individual Director and the Director’s immediate
family members as required under the applicable standards. The Board,
consistent with the view of the NYSE, determined that the ownership of even a
significant amount of stock in the Company is not a bar to a finding of
independence. Consistent with this view of the NYSE, the Board also
has determined that ownership of limited partnership units in Home Properties,
L.P. (“UPREIT Units”) does not bar the Board from determining that a Director is
independent. Messrs. Blank, Gosule, Helbig, Koch, C. Smith and P.
Smith have no relationship with the Company other than their compensation and
benefits as members of the Board and its Committees and ownership of the
Company’s Common Stock.
In
evaluating the independence of Mr. Fidler, the Corporate Governance/Nominating
Committee and the full Board considered the additional relationships between Mr.
Fidler and the Company and determined that none of them was material and that
Mr. Fidler is independent. Specifically, Mr. Fidler is a principal in
a diversified real estate development business known as The Macks
Group. In 1999, the Company acquired 3,297 apartment units from
affiliates of The Macks Group. As partial consideration for the
purchase, Mr. Fidler and members of his family acquired approximately 800,000
UPREIT Units. Pursuant to the purchase agreement, the Company agreed
for a period of ten years not to sell or refinance the apartments in a
transaction which would require the sellers to recognize taxable income deferred
in connection with the sale. In addition, the Company agreed to
register with the SEC shares of its Common Stock for which the UPREIT Units
could be exchanged, to pay dividends on the UPREIT Units at the same rate and
times as those paid on the Company’s Common Stock, and to provide the holders of
the UPREIT Units certain rights to protect their tax and economic interests in
the event of a “going private” transaction involving the Company. The
Board determined that these rights are not material to the Company and do not
impair Mr. Fidler’s independence from management. In addition, in
2004, the Company acquired a 240-unit apartment community for $29,496,000 in
cash from an entity owned by Mr. Fidler and members of his family. Certain
customary representations and warranties by both the Company and the sellers
continue to survive, including related indemnity obligations for any
breaches. The Board determined that since no breaches have occurred
in the almost six years since the acquisition and since any breaches by either
the Company or the sellers would not be material to the Company, the ongoing
contractual provisions are not material to the Company and do not impair Mr.
Fidler’s independence from management.
Nelson
Leenhouts is not an independent Director because he was employed by the Company
until December 31, 2008. Norman Leenhouts and Amy Tait were
determined not to be independent because of their interests in and control over
Clinton Square, the building in which the Company has its headquarters as
disclosed in “Transactions with Related Persons, Promoters and Certain Control
Persons.” Edward Pettinella is not independent as he is currently
employed by the Company.
In 2009,
each Board member participated in a written self-evaluation of his or her
performance as a Board member as well as an evaluation of the Board as a
whole. The Board and members of senior management also participated
in a written evaluation of the Chief Executive Officer.
The
minimum qualifications for prospective Board members are a successful
professional career as well as the potential to contribute to the effectiveness
of the Board. Beyond those minimum qualifications, the first priority
in selecting members of the Board is to attract a group of individuals that will
maximize shareholder value, which generally means attracting individuals of the
highest capabilities. Another focus is on individuals who demonstrate
the highest ethical standards. Critical Board functions involve
setting the basic strategy of the Company, monitoring senior management and
offering insight/expertise in the selection of tactics and operational policies
drawing on Directors’ experiences outside the Company. In discharging
its responsibilities, diversity of experience and perspectives is considered
valuable. In considering Board composition and nomination for new Board members,
the Corporate Governance/Nominating Committee focuses on several aspects of
prior experience including real estate (especially multifamily real estate)
experience, experience as a Chief Executive Officer of a public company,
accounting/audit experience, legal experience and academic
experience. Continuity also is viewed as a valuable Board asset, thus
some diversity in ages among Board members is beneficial so that the Board does
not face major turnover at any single date.
The
Corporate Governance/Nominating Committee utilizes a variety of methods for
identifying and evaluating nominees for Director. The Committee
develops and updates a list of potential Board candidates that meet the Board
qualifications as described above. Candidates may come to the
attention of the Committee through current Board members, stockholders,
management or other individuals. Mr. Koch, who was elected to the
Board effective March 1, 2010, was brought to the Committee’s attention and
recommended for consideration by Mr. Pettinella who had worked previously with
Mr. Koch. To date, the Committee has not utilized the services of a
professional service firm to identify potential candidates, but it may do so in
the future. If a vacancy on the Board occurs or is anticipated, the
Committee selects candidates to have personal meetings with members of the
Committee, the Co-Chairs of the Board and the Chief Executive
Officer. Selected candidates would then be invited to meet with other
Board members and management. A candidate, if acceptable, would then
be elected by the Board (in the event of a mid-term vacancy) or be nominated to
stand for election at the next annual stockholders’ meeting.
The
Corporate Governance/Nominating Committee will consider Director candidates
proposed by stockholders on the same basis as it considers other potential
candidates for Board membership. Stockholders may submit nominations,
which should include the name and address of the proposed candidate as well as
biographical information evidencing that the proposed candidate meets the
minimum qualifications and possesses the skills and expertise as required by the
Board and as described above under “Director Qualifications.” The
submission must also include the candidate’s written consent to the nomination
and to serve if elected. To be considered for nomination for election
at the 2011 Annual Meeting and inclusion in the Proxy Statement for the 2011
Annual Meeting of the Stockholders, stockholder submissions for nomination must
be received at the office of the Company in care of Secretary, Home Properties,
Inc., 850 Clinton Square, Rochester, New York 14604, on or prior to December 1,
2010.
Stockholders
and other interested parties may communicate with the Board of Directors by
sending written materials to the Board or any of the Directors, including the
non-employee or independent Directors as a group and the Chair of the Corporate
Governance/Nominating Committee, in care of Secretary, Home Properties, Inc.,
850 Clinton Square, Rochester, New York 14604. They may also
communicate confidentially or anonymously through use of the Company’s hotline
at 1-877-888-0002. The Company’s Secretary will relay all relevant
written communications to the Board of Directors or individual members
designated by the stockholder or other interested party.
None of the members of the Compensation
Committee is or has been an officer or employee of the Company or had any
relationship that is required to be disclosed as a transaction with a related
party.
The Board is actively involved in
oversight of risks that could affect the Company. This oversight is
conducted primarily through some of the committees of the Board, as disclosed in
the descriptions of those committees and their charters. The full
Board has retained overall responsibility for the general oversight of
risks. The Board satisfies this responsibility through full reports
by each committee chair regarding the committee’s considerations and actions, as
well as through regular reports directly from officers responsible for oversight
of particular risks within the Company.
The roles
of Chief Executive Officer and Chair of the Board are separated in recognition
of the differences between the two roles. The Chief Executive Officer
is responsible for setting the strategic direction for the Company and the
day-to-day leadership and performance of the Company, while the Chair of the
Board provides guidance to the Chief Executive Officer and presides over
meetings of the full Board. Because Nelson and Norman Leenhouts, our
Co-Chairs, are not independent, the Board has appointed the Chair of the
Corporate Governance/Nominating Committee, Clifford Smith, as lead Director to
preside at all executive sessions of non-management Directors.
The Company has a separately designated
standing Audit Committee. The Audit Committee operates under a
written charter approved by the Committee and the Board. A copy of
the charter is available on the Company’s website at www.homeproperties.com
under the heading “Investors/Governance Documents Highlights.” In
addition, the Company will provide a copy of the charter to anyone, without
charge, upon written request addressed to the Corporate Secretary at Home
Properties, 850 Clinton Square, Rochester, New York 14604.
The Audit
Committee currently consists of Stephen Blank, Alan Gosule, Charles Koch and
Paul Smith. Paul Smith chairs this Committee. Charles Koch
was added as a member of the Audit Committee on March 1, 2010.
The Audit
Committee assists the Board in fulfilling its responsibility for general
oversight of the integrity of the Company’s financial statements, the Company’s
compliance with applicable laws and regulations including the Company’s own Code
of Business Conduct and Ethics, and the Company’s internal and disclosure
controls and procedures. The Audit Committee also selects and
oversees the Company’s independent registered public accounting
firm.
The Audit Committee also oversees the
operation of the Company’s risk management and risk assessment programs,
including the identification of the primary risks to the Company’s business and
interim updates of those risks. The Company’s Vice President –
Internal Audit, who functionally reports directly to the Audit Committee,
assists in identifying, evaluating and implementing risk management controls and
methodologies to address identified risks. In connection with its
risk management role, at each of its meetings the Audit Committee meets
separately with representatives from the Company’s independent registered public
accounting firm, the Company’s Vice President–Internal Audit and the Company’s
senior financial executives and General Counsel. The Audit Committee
provides thorough reports to the Board that describe these
activities.
The Audit Committee has adopted
procedures for the receipt, retention and treatment of concerns and complaints
about accounting, internal controls and auditing matters. The Audit
Committee oversees the existence of a “hot line” (1-877-888-0002) where such
concerns and complaints can be anonymously reported.
The Board of Directors has reviewed the
qualifications of each member of the Audit Committee and has determined that
each member is independent as required by applicable securities laws and by the
listing standards of the NYSE. No Audit Committee member serves on
the audit committee of more than two other public companies. In the
exercise of its business judgment, the Board of Directors has also determined
that each member of the Audit Committee is financially
literate. Finally, the Board has determined that each of Stephen
Blank and Paul Smith qualifies as an “audit committee financial expert” as
defined by applicable SEC rules.
The Audit Committee works closely with
management and the Company’s independent registered public accounting
firm. It meets quarterly to review the Company’s financial
statements, and on other occasions, on an as-needed basis. The Audit
Committee met four times in 2009. Each of the members of the Audit
Committee (except for Mr. Koch who did not become a member of the Audit
Committee until 2010) attended all of the Committee’s meetings. In
2009, the Audit Committee conducted a self-evaluation.
The Company has a separately designated
Compensation Committee. The Compensation Committee operates under a
written charter approved by the Committee and the Board. A copy of
the charter is available on the Company’s website at www.homeproperties.com
under the heading “Investors/Governance Documents Highlights.” In
addition, the Company will provide a copy of the charter to anyone, without
charge, upon written request addressed to the Corporate Secretary at Home
Properties, 850 Clinton Square, Rochester, New York 14604.
The
Compensation Committee currently consists of Stephen Blank, Josh Fidler, Leonard
Helbig and Clifford Smith, each of whom has been determined by the Board to be
an independent Director. Leonard Helbig chairs this
Committee. Stephen Blank was added as a member of the
Compensation Committee in August, 2009.
The
Compensation Committee reviews and approves, at least annually, the Company’s
goals and objectives relevant to compensation of the Company’s Executive
Officers, including the Chief Executive Officer, reviews on an annual basis the
performance of the Chief Executive Officer in light of those goals and
objectives, recommends to the other Directors for approval the Chief Executive
Officer’s annual compensation, approves the compensation levels of the other
Executive Officers, reviews significant employee benefit programs, and
establishes and administers executive compensation programs.
As part
of its oversight of the Company’s executive compensation program, the
Compensation Committee considers the impact of the Company’s executive
compensation program, and the incentives created by the compensation awards that
it administers, on the Company’s risk profile. In addition, the
Committee reviews all of its compensation policies and procedures, including the
incentives that they create and factors that may reduce the likelihood of
excessive risk taking, to determine whether they present a significant risk to
the Company.
The
agenda for meetings of the Compensation Committee is determined by its Chair
with the assistance of the Senior Vice President-Human Resources and the
Company’s General Counsel. Compensation Committee meetings are
regularly attended by the Co-Chairs of the Board, the Chief Executive Officer,
the Senior Vice President-Human Resources, the Chief Financial Officer and the
General Counsel. At each meeting, the Compensation Committee meets in
executive session. The Compensation Committee’s Chair reports the
Committee’s recommendation on executive compensation to the Board.
Independent
advisors and the Company’s human resources department support the Compensation
Committee in its duties and, along with the Chief Executive Officer and Senior
Vice President-Human Resources, may be delegated authority by the Compensation
Committee to fulfill certain administrative duties regarding the compensation
programs. The Compensation Committee has sole authority under its
charter to retain, approve fees for and terminate advisors, consultants and
agents as it deems necessary to assist in the fulfillment of its
responsibilities. It reviews the total fees paid to outside
consultants by the Company to ensure that the consultants maintain their
objectivity and independence when rendering advice to the Compensation
Committee.
In 2009,
the Compensation Committee retained the services of First Niagara Consulting
Group to assist with benchmarking activities as well as with an assessment of
the possible risks associated with the Company’s compensation
programs.
The
Compensation Committee also consults with senior management and, in particular,
the Chief Executive Officer and Senior Vice President-Human Resources in making
determinations about the executive compensation program and the compensation of
individual Executive Officers.
The Compensation Committee met five
times in 2009. Each of the members of the Compensation Committee
attended all of the Committee’s meetings that occurred while he was a member of
the Committee. In 2009, the Compensation Committee conducted a
self-evaluation.
The Company has a separately designated
Corporate Governance/Nominating Committee. The Corporate Governance/Nominating
Committee operates under a written charter approved by the Committee and the
Board. A copy of the charter is available on the Company’s website at
www.homeproperties.com under the heading “Investors/Governance Documents
Highlights.” In addition, the Company will provide a copy of the
charter to anyone, without charge, upon written request addressed to the
Corporate Secretary at Home Properties, 850 Clinton Square, Rochester, New York
14604.
Pursuant
to its charter, the Corporate Governance/Nominating Committee at all times
consists of at least three Directors, all of whom are independent Directors and
two of whom are the Chairs of the Audit and Compensation
Committees. This Committee currently consists of Alan Gosule,
Leonard Helbig, Clifford Smith and Paul Smith, each of whom has been determined
by the Board to be an independent Director. Clifford Smith chairs the
Corporate Governance/Nominating Committee.
The
Corporate Governance/Nominating Committee identifies individuals qualified to
become Board members consistent with criteria approved by the Board, evaluates
the size, composition and organization of the Board, monitors implementation of
specific corporate governance initiatives, reviews any stockholder proposals
submitted to the Company and oversees the evaluation of the Board and the Chief
Executive Officer.
The Corporate Governance/Nominating
Committee met four times in 2009. Each of the members of this
Committee attended all of the Committee’s meetings. In 2009, the
Corporate Governance/Nominating Committee conducted a
self-evaluation.
The Company has a separately designated
Real Estate Investment Committee. The Real Estate Investment
Committee operates under a written charter approved by the Committee and the
Board. A copy of the charter is available on the Company’s website at
www.homeproperties.com under the heading “Investors/Governance Documents
Highlights.” In addition, the Company will provide a copy of the charter to
anyone, without charge, upon written request addressed to the Corporate
Secretary at Home Properties, 850 Clinton Square, Rochester, New York
14604. The charter for the Real Estate Investment Committee requires
that it consist of at least three Directors, at least a majority of whom shall
be non-employee Directors.
Josh
Fidler, Leonard Helbig, Nelson Leenhouts, Edward Pettinella and Amy Tait are the
current members of the Real Estate Investment Committee. Amy Tait
chairs this Committee.
The
purpose of the Real Estate Investment Committee is to review potential
acquisitions, dispositions and developments and to approve, or to recommend to
the full Board for approval, acceptable transactions pursuant to the
authorization parameters established by the Board.
The Real Estate Investment Committee
met four times in 2009. Each of the members of this Committee
attended all the Committee’s meetings. In 2009, the Real Estate
Investment Committee conducted a self-evaluation.
In 2009,
the Company paid its non-employee Directors an annual stipend of
$30,000. An additional stipend in the amount of $10,000 was paid to
the Chair of each of the committees. Nelson and Norman Leenhouts were
each paid an additional annual stipend of $100,000 for their services as
Co-Chairs and for additional services to be rendered in connection with the
Company’s development, acquisition and disposition activities. The Co-Chairs
also receive an additional annual allowance in the amount of $30,000 to
reimburse them for costs associated with offices and administrative support that
were previously provided by the Company. Non-employee Directors were
paid $1,400 for attendance (in person or by telephone) at each Board and
committee meeting. All of the amounts are paid
quarterly. In addition, in 2009, each of the non-employee Directors
was issued 1,641 shares of restricted stock and 6,000 options pursuant to the
Company’s 2008 Stock Benefit Plan. The options were issued at an
exercise price of $33.90 per share, which was the closing price of a share of
the Company’s Common Stock on the date of issuance.
It is
expected that the Board will consider whether to make any changes to Board
compensation at its May 2010 meeting. At that time, it will also
evaluate and approve any additional equity awards for the non-employee
Directors.
Under the
Second Amended and Restated Director Deferred Compensation Plan (the “Director
Deferred Compensation Plan”) approved by the stockholders at the 2005 Annual
Meeting, the non-employee Directors can defer up to 100% of their total annual
cash compensation (including meeting fees) for three, five or ten years and
their compensation in the form of restricted stock for five or ten
years. The Company matches 10% of the deferred cash amount, which
amount vests after three years. A "phantom" stock account is
established for each of the Director and the Company contribution
amounts. Each deferral and the Company contribution is reflected by
crediting those accounts with the phantom equivalent of the number of shares of
the Company's Common Stock that could be purchased with the amounts deferred and
contributed at the Common Stock's fair market value (composite closing price on
the New York Stock Exchange) as of the day before the compensation would
otherwise have been paid, or with the number of shares of restricted stock
deferred. Participants' accounts are also credited with the number of
shares of the Company's Common Stock that could be purchased with hypothetical
dividends that would be paid with respect to shares previously allocated to the
accounts on the same date and at the same price that shares are purchased for
participants in the dividend reinvestment feature of the Company's Dividend
Reinvestment and Direct Stock Purchase Plan (the “DRIP”). Payments
out of the deferred accounts, upon vesting or otherwise, are made by issuance of
Common Stock, except in the event of payment by reason of a change in control in
which event payment may be made in cash or by issuance of Common Stock at the
election of the Compensation Committee. The Director Deferred
Compensation Plan is designed to provide substantially the same benefits to the
non-employee Directors as are provided to eligible employees under the Company's
Deferred Bonus Plan (the “Deferred Bonus Plan”). Proposal 2 in this
Proxy Statement asks for shareholder approval of an amendment to the Director
Deferred Compensation Plan to increase by 50,000 the number of shares available
for issuance.
Directors
of the Company who are employees of the Company do not receive any compensation
for their services as Directors. All Directors are reimbursed for their expenses
incurred in attending Directors' meetings.
The following table summarizes the
compensation paid by the Company to non-employee Directors for the year ended
December 31, 2009. There are no amounts to report in the Non-Equity
Incentive Plan Compensation and the Change in Pension Value and Nonqualified
Deferred Compensation Earnings columns so these have not been included on the
table.
|
Name(1)
|
Fees
Earned or Paid in Cash
($)
|
Stock Awards
($)(2)
|
Option Awards ($)(3)
|
All
Other Compensation
($)(4)
|
Total ($)
|
|||||||||||||||
|
Stephen
R. Blank
|
46,800 | 55,630 | 28,344 | 3,298 | 134,072 | |||||||||||||||
|
Josh
E. Fidler
|
52,400 | 55,630 | 28,344 | 13,785 | 150,159 | |||||||||||||||
|
Alan
L. Gosule
|
51,000 | 55,630 | 28,344 | 15,516 | 150,490 | |||||||||||||||
|
Leonard
F. Helbig, III
|
69,400 | 62,570 | 28,344 | 19,823 | 180,137 | |||||||||||||||
|
Roger
W. Kober
|
21,325 | - | - | 11,497 | 32,822 | |||||||||||||||
|
Nelson
B. Leenhouts(5)(6)
|
188,000 | 55,630 | 28,344 | 3,298 | 275,272 | |||||||||||||||
|
Norman
P. Leenhouts(5)
|
186,600 | 74,290 | 28,344 | 10,704 | 299,938 | |||||||||||||||
|
Clifford
W. Smith, Jr.
|
75,000 | 63,130 | 28,344 | 22,142 | 188,616 | |||||||||||||||
|
Paul
L. Smith
|
66,600 | 55,630 | 28,344 | 14,053 | 164,627 | |||||||||||||||
|
Amy
L. Tait
|
55,400 | 55,630 | 28,344 | 14,053 | 153,427 | |||||||||||||||
(1) Roger
Kober is listed on this table since he served as a Director until the 2009
Annual Stockholders’ Meeting on May 5, 2009. Mr. Kober did not stand
for re-election as a Director at the 2009 Annual Meeting because he had reached
the mandatory retirement age.
(2) Each
of the listed Directors, except for Roger Kober, was granted 1,641 shares of
restricted stock in 2009. This column represents the grant date fair
value on the date of issue in accordance with Accounting Standards Codification
Topic 718 (“ASC Topic 718”). For additional information, refer to
Note 10 of the Company’s financial statements in the Form 10-K for the year
ended December 31, 2009, as filed with the SEC. The Form 10-K is
included within the Annual Report delivered to stockholders with this Proxy
Statement. To the extent that a Director has elected to participate
in the Director Deferred Compensation Plan, this column also includes the value
of the 10% Company match. Of the amounts listed in this column, the
following amounts represent the value of the Company match: Leonard Helbig
$6,940; Norman Leenhouts $18,660; Clifford Smith $7,500.
(3) Each
of the listed Directors, except for Roger Kober, was granted options to purchase
6,000 shares of the Company’s Common Stock in 2009. This column
represents the grant date fair value on the date of issue in accordance with ASC
Topic 718. This value was calculated using the Black-Scholes
formula. For additional information on the valuation assumptions with
respect to the 2009 grants, refer to Note 10 of the Company’s financial
statements in the Form 10-K for the year ended December 31, 2009, as filed with
the SEC.
(4) This
column includes: (a) dividends paid on all shares of restricted stock
held by each of the listed Directors whether receipt of the restricted stock was
deferred or not; plus (b) value of all hypothetical dividends paid in 2009 on
the 10% Company match shares in the listed Director’s deferred compensation
account.
(5) In
addition to the above amounts, Nelson Leenhouts and Norman Leenhouts received
$5,180 and $2,791, respectively, in dividends paid in 2009 on shares of
restricted stock issued to them when they were still employees of the
Company.
(6) In
addition, as a result of his retirement as an employee of the Company, all
amounts ($151,705) deferred by Nelson Leenhouts pursuant to the Deferred Bonus
Plan were issued in stock.
The following table shows the aggregate
number of outstanding shares of restricted stock and options held by each
non-employee Director at December 31, 2009.
|
Name
|
Restricted Shares(1)
|
Unvested Options
|
Vested Options
|
|||||||||
|
Stephen
R. Blank
|
1,641 | 6,000 | 0 | |||||||||
|
Josh
E. Fidler
|
5,554 | 13,813 | 3,091 | |||||||||
|
Alan
L. Gosule
|
5,554 | 13,813 | 21,891 | |||||||||
|
Leonard
F. Helbig III
|
6,254 | 13,813 | 14,891 | |||||||||
|
Roger
W. Kober
|
3,913 | 7,813 | 14,891 | |||||||||
|
Nelson
B. Leenhouts
|
3,297 | 20,831 | 30,791 | |||||||||
|
Norman
P. Leenhouts
|
4,512 | 23,079 | 27,290 | |||||||||
|
Clifford
W. Smith Jr.
|
6,254 | 13,813 | 21,891 | |||||||||
|
Paul
L. Smith
|
5,554 | 13,813 | 7,691 | |||||||||
|
Amy
L. Tait
|
5,554 | 13,813 | 9,291 | |||||||||
(1) Some
of the Directors deferred receipt of their restricted stock pursuant to the
Director Deferred Compensation Plan. This column includes those
shares as follows: Alan Gosule 875 shares; Leonard Helbig 5,314
shares; Norman Leenhouts 2,739 shares and Clifford Smith 5,314
shares.
Charles Koch was elected a Director of
the Company on March 1, 2010 and thus has not yet received any equity grants and
is not included in this table.
A
significant part of the Company’s culture is the focus on “doing the right
thing.” The Company has adopted a Code of Business Conduct and Ethics
(“Code of Ethics”) to embody the Company’s commitment to continue to conduct
business in accordance with the highest ethical standards. The Code
of Ethics applies to all employees and Directors of the Company. The
Code of Ethics covers such topics as conflicts of interest, proper use of
Company property, complete and accurate reporting and disclosure of its business
and financial results and compliance with laws. Each employee and
each member of the Board of Directors is required on an annual basis to
acknowledge that they have received a copy of and reviewed the Code of Ethics
and to disclose any situation that may conflict with the provisions of the Code
of Ethics.
The
Company has also adopted a Code of Ethics for Senior Financial Officers (“Senior
Financial Officer Code of Ethics”) that applies to the Chief Executive Officer,
Chief Financial Officer, Chief Accounting Officer/Treasurer and
Controller. These individuals also are required to comply with the
Code of Ethics.
The Code of Ethics and Senior Financial
Officer Code of Ethics meet the definition of “Code of Ethics” under the rules
and regulations of the SEC and the listing standards of the
NYSE. Both Codes are available on the Company’s website at
www.homeproperties.com under the heading “Investors/Governance Documents
Highlights.” In addition, the Company will provide a copy of the
Codes to anyone, without charge, upon written request addressed to the Corporate
Secretary at Home Properties, Inc., 850 Clinton Square, Rochester, NY
14604. Amendments to the Code of Ethics and Senior Financial Officer
Code of Ethics that apply to the Executive Officers and Directors of the Company
and any waivers granted thereunder to those individuals will be posted on the
Company’s website. The Audit Committee of the Board of Directors
monitors the implementation and enforcement of both Codes.
The Board
of Directors has adopted corporate governance guidelines (the “Guidelines”)
which meet the requirements of the listing standards of the NYSE and cover such
topics as Director qualifications and responsibilities, Director access to
management, and Director orientation and continuing education. Some
specific policies included in the Guidelines follow.
Retirement
Age. The retirement age for Directors is 75.
Change
of Employment. Any Director who changes jobs or employers or
otherwise experiences a significant change in job responsibilities is to submit
a letter to the Board offering to resign as a Board member.
Other
Boards. Without the approval of the Corporate
Governance/Nominating Committee, Directors may not serve on the Boards of more
than two additional public companies.
Stock
Ownership. Within five years of becoming a Director of the
Company, Directors are required to have equity in the Company having a then
current value of not less than $100,000.
Meeting
Attendance. Directors are expected to attend each annual
stockholders’ meeting, all Board meetings and meetings of the Committees on
which they serve. All of the then current Directors attended the 2009
Annual Meeting of Stockholders.
Executive
Sessions. The non-management Directors are to meet at least
quarterly in executive sessions and, at least once per year, without any
Directors who are not independent Directors. The Chair of the
Corporate Governance/ Nominating Committee presides at the executive
sessions.
A copy of
the Guidelines is available on the Company’s website at www.homeproperties.com
under the heading “Investors/Governance Documents Highlights.” In
addition, the Company will provide a copy of the Guidelines to anyone, without
charge, upon written request addressed to the Corporate Secretary at Home
Properties, Inc., 850 Clinton Square, Rochester, NY 14604.
The 2008
Stock Benefit Plan includes some features that are designed to align the
interests of management closely with those of the
stockholders. Options may not be repriced. Options granted
to directors and executive officers do not vest automatically upon retirement
but continue to vest as scheduled. Directors and the executive
officers of the Company may receive cash on an exercise only in an amount
sufficient to pay the exercise price and related taxes and must hold an
equivalent number of shares as were issued on an option exercise for a one-year
period.
The
Company's mission is to maximize long-term stockholder value by acquiring,
repositioning, developing, and managing market-rate apartment communities while
enhancing the quality of life for its residents and providing employees with
opportunities for growth and accomplishment. The Company’s vision is to be a
prominent owner and manager of market-rate apartment communities located in
selected high barrier, high growth East Coast markets.
The
Company's long-term business strategies include: (i) aggressively managing and
improving its communities to achieve increased net operating income; (ii)
acquiring additional apartment communities with attractive returns at prices
that provide a positive spread over the Company's long-term cost of capital;
(iii) developing new apartment communities on entitled land, on land adjacent to
existing owned communities and where there are density opportunities to replace
existing garden apartments with mid- or high-rise structures; (iv) disposing of
properties that have reached their potential, are less efficient to operate, or
are located in markets where growth has slowed to a pace below the markets
targeted for acquisition; and (v) maintaining a strong and flexible capital
structure with cost-effective access to the capital markets.
The
Company's executive compensation philosophy supports its mission of creating
long-term value for stockholders and rewards successful execution of its vision
and business strategies outlined above. The Company believes that its
success in achieving these goals, in large part, is attributable to the
performance and dedication of its employees and, in particular, to the
leadership efforts of its executive officers. It is therefore
important that the interests of executives be aligned closely with the interests
of stockholders.
The
Company’s executive compensation program for its Chief Executive Officer, Chief
Financial Officer and the three other most highly compensated Executive Officers
(our “Named Executive Officers”) has the following key objectives:
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Attraction
and Retention: The Company seeks to
attract and retain highly capable executives both from within and outside
the multifamily REIT industry by offering competitive total
compensation.
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Motivation: The Company endeavors
to motivate its executives to maximize the long-term value of the Company
by achieving certain operational and financial
goals.
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Linkage: The Company’s
executive compensation program is tied directly to the operating,
financial and stock performance of the Company since the payout under the
bonus plan and the value of equity awards are directly impacted by that
performance. By so ensuring that executives are rewarded in
step with the Company’s performance, their interests are aligned with the
interests of the Company’s
stockholders.
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Oversight
of the Executive Compensation Program
The
Compensation Committee (the “Committee”) is responsible for, among other things,
establishing, administering and reviewing compensation plans and policies for
executive officers and ensuring that these executive officers are compensated in
a manner consistent with the philosophy and objectives outlined
above. The Committee also reviews and approves the Company's goals
and objectives relevant to compensation of the executive officers, considers the
structure of the Company's compensation program as it applies to all employees
and administers the Company’s stock option plans (including awards to the
executive officers). When appropriate, the Committee recommends to
the full Board changes to the executive and the general compensation
plans. In addition, on an annual basis, the Committee makes specific
compensation recommendations to the Board relating to the Company's Chief
Executive Officer and approves the compensation for the other executive
officers.
For
additional information on the members of the Committee and on the structure,
scope of authority, and operation of the Committee, see “Compensation Committee”
on page 10.
Setting
Executive Compensation
Guiding
Principles
It is the
Committee's practice to provide a balanced mix of fixed compensation, in the
form of salary and 401(k) savings plan match, and incentive compensation both
short term, in the form of the annual incentive (bonus), and long term, in the
form of options and restricted stock in order to align the current and long-term
interests of executives with that of stockholders and to encourage executives to
act in the interest of stockholders. The Committee takes into account the
aggregate amount and mix of all components of compensation when considering
compensation decisions affecting the Chief Executive Officer and the other
executive officers. In addition, when reviewing executive
compensation, the Committee also takes into account the appreciation or loss
relating to options and restricted stock granted by the
Company. Although the Committee does not target a specific level of
compensation relative to industry peers, for a typical year it generally seeks
to provide total compensation (consisting of base salary,
annual incentives and equity incentives) between the 50th and
75th
percentile of the market with factors such as market capitalization of the
peers, an individual’s job performance and length of service, the current
recruiting or retention market for the position and the value of the position
impacting where the compensation for a particular executive falls within that
range. The Company’s financial and relative performance in a
particular year might cause the Committee to make decisions that cause
compensation to fall outside of that range for all or some of the executive
officers.
The
Committee believes it is necessary to assess the components of compensation to
ensure that each component contributes appropriately to the achievement of the
objectives of the executive compensation program in order to provide a
market-competitive level of compensation and benefits, as well as to ensure the
health of the Company, which benefits employees and stockholders
alike. The Committee considers whether any components of executive
compensation might lead to excessive risk taking by management and has designed
the executive compensation program to mitigate this possibility and ensure that
compensation practices and decisions are consistent with the Company’s general
risk profile. It is the Committee's practice to discuss and evaluate
data and make the most significant compensation decisions in a multi-step
process over more than one meeting, so that Committee members have the ability
to consider and discuss alternative courses of action, to request additional
information as necessary and to raise and discuss related
questions.
As part
of its annual review process, the Committee reviews three tally sheets outlining
the Chief Executive Officer’s compensation: (1) a three-year computation of
total compensation broken down by each individual compensation component; (2)
equity grants and stock ownership; and (3) compensation payable as a result of
the CEO’s termination under various scenarios. Each component of
compensation is evaluated, first separately, and then as a whole, against
achievement of established financial performance measures, corporate objectives
and peer group market data described below (see “Competitive
Benchmarking”). All tally sheets are considered and influence the
final recommendation regarding CEO compensation made by the Compensation
Committee to the full Board for approval. The full Board also
considers written evaluations of the Chief Executive Officer’s performance
completed by each member of the Board as well as each of the executive officers
who report directly to the CEO. The Board meets in executive session
to approve each component of compensation for the Chief Executive
Officer.
Role
and Responsibilities
The
Compensation Committee has sole authority under its charter to retain advisors
and consultants as it deems appropriate. In 2009, the Committee
retained First Niagara Consulting to assist it with its benchmarking activities
as well as with an assessment of the possible risks associated with the
Company’s compensation programs.
In
addition to considering input provided by its outside consultant, the Committee
also considers input from the Chief Executive Officer and the Senior Vice
President-Human Resources in making determinations regarding the overall
executive compensation program and the individual compensation of the executive
officers. In particular, the Chief Executive Officer annually reviews
the performance of each of the executive officers. He also works with
the Company’s human resources department to evaluate each component of
compensation paid to the other executive officers separately and then as a whole
against industry data, peer data, achievement of corporate and personal
objectives and financial performance. The conclusions reached and
recommendations for each compensation component for each of the executive
officers are presented to the Committee. The Committee can exercise
its discretion in modifying any recommended component of the executives’
compensation.
Members
of the Company's human resources department support the Committee and its work
and, in some cases, act pursuant to delegated authority to fulfill various
functions in administering the Company's compensation programs.
Competitive
Benchmarking
As part
of its consideration as to the appropriateness of the executive officers'
compensation, the Committee reviews market data for executives in the
multifamily sector classification of real estate companies and for executives in
comparably-sized companies in other sectors of the real estate
industry. The primary benchmark used in 2009 by the Committee for the
Chief Executive Officer's compensation, as well as the compensation of the other
Named Executive Officers, was the peer group in the multifamily REIT industry
(the “Multifamily Peer Group”). This is substantially the same peer
group that is used to calculate the Net Operating Income component of the bonus
payable pursuant to the Company's Incentive Compensation Plan. See
“Annual Incentive Awards” beginning on page 20. The Multifamily Peer
Group consists of companies against which the Committee believes it competes for
talent and for stockholder investment. The Committee recognizes that the members
of the Multifamily Peer Group vary in terms of the size of their market
capitalization and takes this variation into account in its use of related
data. In using the data, the Committee also takes into account the
Company’s financial performance as compared to that of the Multifamily Peer
Group. In connection with compensation decisions made in 2009, the Multifamily
Peer Group consisted of the following companies:
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Apartment
Investment & Management Company
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AvalonBay
Communities, Inc.
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BRE
Properties, Inc.
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Camden
Property Trust
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Colonial
Properties Trust
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Equity
Residential
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Essex
Property Trust, Inc.
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Mid-America
Apartment Communities, Inc.
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UDR,
Inc.
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The
Committee also considers market data from a broader more robust peer group
consisting of 13 additional non-multifamily REITs considered reasonably
comparable in size and business scope (the “Size-Comparable REIT Peer
Group”). The companies selected represented a cross-section of
business strategies, management structures, asset class and geographic
footprints. These additional companies are:
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Brandywine
Realty Trust
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CBL
& Associates & Properties
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Corporate
Office Properties Trust
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Cousins
Properties
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Duke
Realty Corp.
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Federal
Realty Investment Trust
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First
Industrial Realty Trust
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Highwoods
Properties
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Liberty
Property Trust
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MACK-CALI
Realty Corporation
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Regency
Centers Corp.
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Taubman
Centers
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Weingarten
Realty Investors
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The
Compensation Committee will periodically review and update the companies that
compose its benchmarking group.
Compensation
data for both peer groups is taken from their most recently available proxy
statements and analyzed by members of the Company’s human resources department
under the direction of the Committee with the assistance of First Niagara
Consulting. In order to have available more current data, the
Compensation Committee decided that for 2009 and beyond it would delay all
compensation decisions, except for the amount of the bonus payable with respect
to service the prior year, for the Company’s executive officers and the
directors from its February meeting, when those decisions had historically been
made, until its May meeting. By May, both peer groups should have
issued their annual proxy statements. The amount of the bonus for the
prior year’s service will continue to be determined at the Committee’s February
meeting when actual results for the prior year are available.
Multifamily
Peer Group and Size-Comparable REIT Peer Group compensation data is supplemented
by survey data (collectively, the “Survey Data”) obtained from the National
Association of Real Estate Investment Trusts (“NAREIT”), which is the trade
association for REITs and publicly traded real estate companies with an interest
in U.S. property and investment markets, and from Watson Wyatt and Mercer,
global human resource consulting and survey firms. The compensation
data from NAREIT reflects the real property sector classification (including
multifamily and other real estate sectors) and the compensation data from Watson
Wyatt and Mercer reflects services industry companies with comparable revenue
within the New York/Northeast and Mid-Atlantic regions.
In 2009,
for the Chief Executive Officer and the Chief Financial Officer, the Committee
reviewed the Multifamily Peer Group data, the Size-Comparable REIT Peers and the
aggregated data of the entire peer group to determine the appropriate level of
compensation. For the other Named Executive Officers, peer group data
is not as readily available as titles and the responsibilities associated with
the positions vary from company to company. Therefore, with respect
to other Named Executive Officers, the Committee and the Chief Executive Officer
relied more heavily on the Survey Data in their compensation
deliberations. In certain instances, some interpolation between
market data points was made as the responsibilities associated with a Named
Executive Officer’s position did not match the responsibilities described as
being associated with the data point.
Based on
the data reviewed by the Committee, the Chief Executive Officer’s total
compensation for 2009 was set at approximately the 50th
percentile of the amount paid to the CEOs of the combined Multifamily Peer Group
and Size-Comparable REIT Peers in 2008. Also, the Chief Financial
Officer’s 2009 compensation was set at approximately the 50th
percentile of the amount paid to CFOs of the combined peer group in
2008. The Committee set the remaining Named Executive Officers’ 2009
total compensation ranging approximately between the 50th and
the 60th
percentile of the amount paid to similar executives (after some assessment of
the comparability of responsibilities as described above.) Based on
the positive relative financial and operational performance of the Company in
2008 and 2009 during a very unsettled economic environment, the Committee was
and remains comfortable with the amount, balance and structure of the
compensation provided to the Named Executive Officers in 2009.
2009
Executive Compensation Components
For 2009,
the primary elements of compensation for the Named Executive Officers
were:
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base
salary,
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annual
incentive awards,
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long-term
equity incentive awards,
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deferred
compensation, and
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retirement
and other benefits.
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The
amount of cash compensation earned in 2009 in the form of salary and bonus in
proportion to total compensation for the Named Executive Officers ranges from
39% to 52%, with the Chief Executive Officer receiving the lowest percentage of
his total compensation in the form of cash. The Chief Executive
Officer also received the highest percentage of his cash compensation in the
form of bonus rather than salary. This is consistent with the
Committee’s philosophy that the proportion of an individual’s total compensation
that varies with Company performance should increase as the individual’s total
compensation and business responsibilities increase.
Base
Salary
The
Company provides Named Executive Officers and other employees with base salary
to compensate them for services rendered during the fiscal year. Base
salaries for the executive officers, including the Named Executive Officers, are
established based on the individual’s job responsibilities, performance and
experience, including specific experience in the position, the Company’s overall
budget for merit increases and the competitive environment. On an
annual basis, the Committee reviews and approves salary adjustments for the
executive officers, other than the Chief Executive Officer, based on a review of
competitive market data, an assessment of Company performance, as well as
recommendations of the Chief Executive Officer. With respect to salary
adjustments for the Chief Executive Officer, the Committee reviews competitive
market data, assesses the annual performance reviews for the Chief Executive
Officer completed by each member of the Board of Directors and his direct
reports, assesses Company performance, and, after extensive discussion at a
Committee executive session, makes a recommendation to the full Board for
approval during a Board executive session. Based on the unsettled
economic environment, the Committee recommended and the Board approved no base
salary adjustment for the Chief Executive Officer in 2009. As noted
later, the Committee recommended and the Board approved an increase in Mr.
Pettinella’s equity grant.
The
approved annual base salaries for the Named Executive Officers for 2009 are
listed on the “Summary Compensation Table” on page 27.
Annual
Incentive Awards
The
Company’s Amended and Restated Annual Incentive Plan (the “Bonus Plan”) was
approved by the Board in February 2005 and is an annual cash incentive program
that motivates executive officers and certain other full-time employees to
maximize the Company's annual operating and financial performance and reward
participants based on the Company’s annual performance. The Committee annually
reviews the Bonus Plan to ensure it continues to provide the appropriate level
and type of motivation consistent with the Company’s strategic, operational and
financial objectives.
Bonus
Plan participants are eligible to earn a cash incentive award based upon the
Company’s performance on two measures: (1) growth in the Company’s funds from
operations (“FFO”) on a per share diluted basis from the previous year, and (2)
growth in “same store” (for 2009, this was properties owned since January 1,
2008) net operating income (“NOI”) from the previous year as compared to the NOI
growth for the companies in the Multifamily Peer Group. When
evaluating the appropriate metrics to use in the Bonus Plan, the Committee
considered the Company’s strategic, operational and financial objectives, as
well as industry-specific metrics typically used by peers, investors and
analysts for measuring financial success. FFO is considered by the
Committee to be an important indicator of the Company’s overall financial
performance. In prior years, the FFO component was given a 75%
weighting in determining incentive payments. Same store NOI relative
to the Multifamily Peer Group, which is considered by the Committee to be an
important driver of real estate property values and thus stockholder value,
received a 25% weighting in prior years. The Committee periodically
reviews the Bonus Plan metrics and their respective weightings to ensure
consistency with the Company’s business objectives.
As part
of that review, in 2009, the Committee considered the unprecedented economic
situation which began in 2008 and continued through 2009. It
acknowledged that the FFO growth component of the bonus formula is very
sensitive to the overall economic environment, which is outside of management’s
control. With the capital constraints that existed during 2008 and
2009, the Committee recognized that it was not possible or advisable for the
Company to purchase new properties which could fuel FFO growth. In
addition, during times of high unemployment and job losses, opportunities to
increase rents to fuel FFO growth are quite limited. The Committee
appreciated management’s focus on expense reduction during such difficult
times. It expected that those efforts would result in NOI performance
superior to that of the Company’s peers. (In fact, those efforts
actually resulted in the Company achieving first place among its peers in terms
of 2009 same-store NOI growth.) The Committee concluded that the NOI
component was a better measure of success during difficult times because it
measures performance relative to the Company’s peers. Leaving the FFO
component at 75% weighting also would result in a bonus payout that is more
unpredictable. In order to provide the type of incentive to employees
that the Board had historically tried to provide, the Committee used its
discretion to decrease the FFO weighting to 50% and increase the NOI weighting
to 50%.
Unlike
bonus plans adopted by many in the Multifamily Peer Group, the Company’s Bonus
Plan includes a range of possible outcomes rather than performance
targets. The Committee established a floor and a ceiling of expected
financial performance for both the FFO and NOI metrics. Between 4.0
and 12.0 bonus units can be earned depending on where performance falls between
the ceiling and the floor. At the beginning of each year, the
Committee reviews the ceiling and the floor of the Bonus Plan. If
industry conditions merit, the Committee recommends to the Board that the
ceiling or floor be revised. The ceiling is intended to represent a
difficult to achieve level of performance and the floor to represent a modest
(but not poor) level of performance. In the event the Company
experiences financial performance in either FFO or NOI below the floor or above
the ceiling, the Committee has complete discretion in determining bonus unit
award levels that it will recommend for the Board’s approval. In such
an event, the issues the Committee considers, among others, are economic
conditions, the Company’s performance relative to the Multifamily Peer Group and
extraordinary events. In light of the fact that the Committee
approved a change in the FFO/NOI weighting as described above, the Committee did
not make any adjustment to the ceiling or floor in 2009.
At the
beginning of each year, the Committee assigns a bonus factor to the Chief
Executive Officer and, with input from the Chief Executive Officer, assigns a
bonus factor to each of the other Named Executive Officers. It is the
Committee's philosophy that the proportion of an individual's total compensation
that varies with individual and Company performance should increase as the
individual's business responsibilities increase. Bonus factors
therefore range from 1% to 13%, depending on an individual’s role and
responsibility. The bonus factor assigned to each of the Named
Executive Officers for 2009 can be found on page 27 in footnote 4 to the
“Summary Compensation Table”. The annual bonus earned is equal
to a participant’s salary times the participant’s bonus factor times bonus units
earned, plus or minus discretionary performance factors as described
below. The Committee expects that, under normal economic conditions,
the Named Executive Officers will earn bonus payments equal to approximately 50%
to 75% of their base salaries and the Chief Executive Officer will earn bonus
payments approximately equal to 100% of his base salary. There is no
target bonus for any executive. For 2009, the Chief Executive
Officer’s bonus was 63% of his base salary. For the other Named
Executive Officers, bonuses ranged from 34% to 44% of their base
salaries.
20
The
Committee has discretion for determining and recommending to the Board what
portion of the annual cash bonus otherwise earned should be paid to the Chief
Executive Officer. In making its determination as to what portion of
the 2009 annual incentive (payable in 2010) should be paid to the Chief
Executive Officer, the Committee considered a variety of factors including
leadership and managerial competencies, execution of the Company’s business plan
and overall business strategy, the Company’s absolute and relative financial
performance, as well as results from the performance appraisals completed by
directors and the Chief Executive Officer’s direct
reports. Specifically for 2009, the Committee considered the
following:
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The
Company ranked number one among the Multifamily Peer Group in terms of
relative NOI growth.
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During
2009, the Company was able to maintain occupancy at its properties at
approximately 95% without any significant rental rate
reduction.
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The
Company achieved 24.1% total return to shareholders and ranked third among
the Multifamily Peer Group for the three- and five-year periods ended on
December 31, 2009.
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At
the beginning of 2009, the Company’s multiple of stock price to FFO
exceeded the average for the Multifamily Peer Group by 0.5
times. By December 31, 2009, the Company’s multiple was higher
by 1.4 times.
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Management
led several successful initiatives to improve the Company’s liquidity
including:
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negotiation
of a new line of credit increasing availability from $140 million to $175
million,
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refinancing
$183 million of mortgages that were to mature in 2010 without payment of
any prepayment penalties,
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implementing
an “at the market” equity program for $150 million with approximately $50
million sold prior to 2010 at levels above the Company’s internally
calculated net asset value.
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The
Committee considered the above factors, along with the extremely favorable
evaluation of Mr. Pettinella by senior management and the Board, and in February
2010 recommended, and the Board approved, payment to the Chief Executive Officer
of 100% of his 2009 annual incentive. With respect to determination
of final annual incentive awards to other executive officers, including the
Named Executive Officers other than the Chief Executive Officer, up to 50% of
the award payment is discretionary. The Chief Executive Officer
determines what portion of the annual incentive otherwise earned should be paid
to the executive officers through the evaluation of three performance criteria:
(1) results of the participant’s department, (2) the participant’s performance,
and (3) the participant’s relative influence on the Company’s
performance. Based on the Chief Executive Officer’s consideration of
all of these criteria, each of the other Named Executive Officers received 100%
of their 2009 annual incentive. From time to time, the Committee may
decide to provide in excess of 100% of the incentive award calculated under the
Bonus Plan in recognition of extraordinary efforts. Reasons for this
extra payment could include successful completion of a special project, singular
leadership on an important initiative and a temporary or short-term significant
increase in job responsibilities. No amounts in excess of 100% were
awarded to the Named Executive Officers with respect to their 2009 annual
incentive.
On an
annual basis, the Company enters into a Bonus Repayment Agreement with each of
the Named Executive Officers and all other executive officers as well as the
Controller. The Agreement states that the Company may recover cash
incentive compensation in the event of a restatement of financial
results. Under the Agreement, each individual is required to return
to the Company so much of the cash bonus paid to them for services rendered
during the restated period that would not have been paid if the restated
financial results had been originally stated correctly.
Awards
made to the Named Executive Officers under the Bonus Plan in 2010 for
performance in 2009 are reflected in the Summary Compensation Table on page
27.
Long-Term
Equity Incentive Awards
Equity
incentive awards are provided to the Company’s Named Executive Officers, as well
as other key employees, in order to increase their personal stake in the
Company’s success and motivate them to enhance the long-term value of the
Company. Although the Committee does not target a specific mix of equity versus
cash compensation when setting awards each year, it does strive to deliver a
relatively large portion of the Named Executive Officers’ overall compensation
in the form of equity. The “Summary Compensation Table” demonstrates
that most of the increase in total compensation paid to the Named Executive
Officers over the prior three years has been in the form of increased equity
grants.
By using
a mix of stock options and restricted stock, the Company is able to encourage
employees to seek long-term appreciation in the value of the Company's Common
Stock and retain key employees. On an annual basis, the Committee
reviews and approves the equity incentives to be issued to each of the Named
Executive Officers for that year. At the same time, it makes a
recommendation relating to the Chief Executive Officer to the full Board for
approval at an executive session.
In
determining equity incentive awards for 2009, the Committee reviewed stock
compensation of the Chief Executive Officer and each of the other executive
officers in light of various factors, including both Company and individual
performance for the prior year, the other elements of their compensation, their
overall equity interest in the Company, a comparison to the Multifamily Peer
Group and the value of long-term compensation paid to other executive officers
of the Company. For 2009, the Committee determined that a mix of 55%
restricted stock and 45% options was appropriate for the senior
executives.
The level
of stock awards to be granted is based on the dollar value of the grant when
made rather than a fixed number of shares. The Committee adjusts the
value and the mix on an annual basis depending on various factors including the
competitiveness of the executive’s overall total compensation and the
executive’s performance. There is no established target for long-term
equity incentive awards for any of the Named Executive Officers either as a
dollar value or as a percentage of their total compensation. Rather,
the Compensation Committee reviews this component of each Named Executive
Officer’s total compensation on an annual basis.
The
Committee recommended an increase in the equity value to be awarded to the CEO
in 2009 to demonstrate confidence in the CEO’s leadership and to continue to
focus the CEO on increasing shareholder value. The Committee
recommended and the Board approved an increase in equity value of
$250,000.
Equity
incentive awards made to the Named Executive Officers in 2009 are described in
the 2009 Grants of Plan-Based Awards Table on page 29.
In 2009,
the Committee formalized its grant practice policy. As has always
been the case, the value of restricted shares awarded and the exercise price of
options granted is the price of a share of the Company’s Common Stock as of the
close of business on the grant date. With respect to the annual
issuance of options and restricted stock, the grant date will be set by the
Compensation Committee at its first meeting each year and must: (1) be a
business day on or after the date that the grant is approved by the Compensation
Committee or the Board of Directors, as applicable; and (2) must occur during
the trading window (pursuant to the Company’s Procedures and Guidelines
Governing Insider Trading and Tipping) next following the approval
date. With respect to equity issuances to new employees, the grant
date will be the first day of the trading window following the date of the next
regularly scheduled Compensation Committee meeting to occur following the hire
date. This policy ensures that grants are made shortly after earnings
announcements so that the market has fully adjusted for the results before the
grants are made.
Deferred
Compensation
The
Company also has a Deferred Bonus Plan which permits certain employees,
including the Named Executive Officers, to defer up to 100% of their annual cash
bonus awarded under the Bonus Plan for three, five or ten years. As
additional incentive for deferring the receipt of annual cash bonuses, the
Company matches 10% of the amount deferred. The Company match vests
after three years. The purpose of the Deferred Bonus Plan is to
assist key employees with their individual tax and financial planning and to
permit the Company to remain competitive in attracting, retaining, motivating
and rewarding key employees who can directly influence the Company’s operating
results.
Further
details with respect to the Deferred Bonus Plan and voluntary deferrals under
that Plan are provided in the “2009 Summary Compensation Information” beginning
on page 25 and in the 2009 Nonqualified Deferred Compensation Table on page
33.
Retirement
and Other Benefits
All
employees of the Company are eligible to participate in the Company’s 401(k)
Savings Plan and the Company’s disability plan. In addition, the
Named Executive Officers, and certain other employees, are eligible to
participate in the Company’s Supplemental Income Protection Plan.
401(k) Savings
Plan
Under the
401(k) Savings Plan, all Company employees, including the Named Executive
Officers, earn the right to receive certain benefits upon
retirement. The Company will match 75% of the first 4% of each
participant’s contribution not to exceed up to 3% of that participant’s eligible
wages.
The
Company believes that it is has an appropriately competitive 401(k) Savings Plan
for all of its employees and therefore does not provide any additional
retirement benefits to executives.
Supplemental Income
Protection Plan
The
Supplemental Income Protection Plan is a long-term disability plan that
provides, among other things, 75% income replacement for total disability and
return-to-work benefits such as rehabilitation services and recovery benefits to
employees who earn over $60,000, and who have been assigned a bonus factor under
the Bonus Plan of 3% or higher. The Company affords this benefit to
its key employees, including the Named Executive Officers, in order to provide
competitive employee benefit programs and to help mitigate any loss of income by
a key employee due to a long-term disability.
Health and Life
Insurance
Health and life insurance benefits are
provided to the Named Executive Officers on the same basis as they are provided
to other employees of the Company.
Perquisites and Other
Personal Benefits
The
Committee has adopted and the Board has approved a policy of not providing
perquisites to its executives unless they also are available to all other
full-time employees of the Company. For example, the Company does not
provide payment or reimbursement for costs associated with the use of Company
vehicles, aircraft, country club memberships, tax preparation and financial
consulting fees or similar benefits frequently provided by other
companies. The Company believes that other elements of its
compensation program sufficiently attract and retain superior employees for key
positions and there is no present need to provide perquisites and other personal
benefits frequently provided by other companies.
Employment
Agreements
In
general, it is the Company’s policy not to enter into employment agreements
with, or provide executive severance benefits (other than change in control
arrangements described below) to its executive officers. As a result,
the Named Executive Officers serve at the will of the Board of
Directors. The only exception to this policy is the individual
employment agreement with Mr. Pettinella, which was originally entered into on
May 17, 2004 and which was amended and restated effective January 1,
2007. The amended and restated agreement provided that Mr. Pettinella
would continue to serve as President and Chief Executive Officer of the Company
until December 31, 2008. Since neither party exercised their
termination right, the agreement automatically renewed for an additional
one-year term that ended on December 31, 2009. In 2009, the term of
the employment agreement was extended to December 31, 2010, with no other
changes. While Mr. Pettinella participates in the Company’s salary,
annual and long-term incentive compensation programs under his agreement, the
level of compensation, including stock option grants and restricted stock
awards, are at the discretion of the Compensation Committee of the Board of
Directors.
Mr.
Pettinella, therefore, is not guaranteed any specific level of compensation
during the term of his agreement. However, he is assured of the
payment of a 2.9 multiple of his salary and bonus in the event that the
agreement is terminated by the Company without cause or by Mr. Pettinella with
good reason. He also is to receive additional benefits under the
Company’s Executive Retention Plan (described below) in the event his employment
is terminated following a change in control. The Committee and the
full Board believe that Mr. Pettinella’s agreement is in the best interest of
the Company and its stockholders in order to provide stability to the Company
and that it is an appropriate expression of their confidence in Mr. Pettinella
and represents a level of commitment to Mr. Pettinella that is necessary in
order to retain the services of a talented executive in a competitive
market. Mr. Pettinella’s agreement also includes non-compete and
confidentiality provisions, and the Committee and the full Board also believe
that these commitments are of significant value to the Company and its
stockholders.
Change
in Control Arrangements
In 1999,
the Committee and the full Board determined that it was in the best interest of
the Company and its stockholders to assure that the Company will have the
continued dedication of its key executives and employees in the event of a
threat or occurrence of a change in control. They continue to believe
that it is in the best interests of the stockholders to diminish the inevitable
distraction of these individuals because of personal uncertainties and risks
created by the ongoing consolidation in the REIT industry and to encourage the
executives’ full attention and dedication to the Company’s business currently
and in the event of any threatened or pending change in control. As a
result, the Company adopted an Executive Retention Plan that provides for
severance benefits to the Company’s officers, including the Named Executive
Officers, and certain employees, upon a change in control. The
Committee and the full Board believe that the triggering events stipulated in
the Executive Retention Plan for equity acceleration are appropriate so that key
executives and employees remain with the Company despite a climate of industry
consolidation. The Committee and the full Board also have reviewed
the change in control plans of the Multifamily Peer Group described above and
determined that the arrangements under the Executive Retention Plan are
competitive with those of other companies in the REIT industry. This
Plan provides the executives and other employees with compensation and benefits
arrangements upon a change in control that are designed to assure that such
attention and dedication are likely. Severance benefits for the Named
Executive Officers under the Executive Retention Plan provide that if, within
two years following a change in control, an executive’s employment is terminated
by the Company other than for cause, or by the executive with good reason, or by
the executive for any reason during a 30-day window following the one-year
anniversary of the change in control, the executive is eligible to
receive: (1) two times base salary and two times the last bonus paid
to the executive, (2) payment of accrued/deferred bonus amounts, and (3) a
gross-up payment if the executive is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code, but only in the amount necessary to
pay any excise tax due on the severance payment. In addition, all
stock options and restricted stock outstanding become fully vested.
Pursuant
to his employment agreement, the benefits to be paid to the Chief Executive
Officer under the Executive Retention Plan are the same as those provided in the
Executive Retention Plan to other Named Executive Officers, except that the
Chief Executive Officer is paid three times his base salary and three times his
last bonus. The Committee believes that this level of change in
control severance benefit is appropriate to ensure Mr. Pettinella’s full
attention to the Company’s business and the stockholders’ best interests in
light of the active consolidation environment in the REIT industry and in order
to be competitive with the benefits provided by other companies in the REIT
industry.
A more
detailed description of the Executive Retention Plan and a schedule showing the
amount of estimated payments and benefits payable to the Named Executive
Officers upon various termination scenarios and a change in control are
disclosed under “Potential Payments upon Termination or Change in Control”
beginning on page 33.
Tax
Implications - Deductibility of Executive Compensation
Section
162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility on the Company’s tax return of compensation over $1 million to any
of the Named Executive Officers of the Company unless, in general, the
compensation is paid pursuant to a plan which is performance related,
non-discretionary and has been approved by the Company’s
stockholders. The Company believes that, because it qualifies as a
REIT under the Code and pays dividends sufficient to minimize federal income
taxes, the payment of compensation that does not satisfy the requirements of
Section 162(m) will generally not affect the Company’s net
income. The Compensation Committee’s compensation policy and
practices therefore are not directly guided by considerations relating to
Section 162(m).
The
Compensation Committee of the Company has reviewed and discussed the above
Compensation Discussion and Analysis with management and based on such review
and discussions, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
|
Submitted
by the Compensation Committee,
|
|
|
Leonard
F. Helbig, III, Chair
|
|
|
Stephen
R. Blank
|
|
|
Josh
E. Fidler
|
|
|
Clifford
W. Smith, Jr.
|
As described in the Compensation
Discussion and Analysis, the Named Executive Officers are compensated with a
combination of salary, bonus, stock, non-equity incentive compensation and
certain other benefits. Perquisites are not provided to executives
unless they are also available to all other full-time employees of the
Company.
Of the
Named Executive Officers, only Edward Pettinella has an Employment
Agreement. The level of salary, incentive compensation and equity
grants are, pursuant to the terms of his Employment Agreement, to be determined
by the Compensation Committee and approved by the Board. There are no
minimum or maximum levels provided in the Agreement.
Prior to 2009, the Compensation
Committee (and, in the case of the Chief Executive Officer, the Board of
Directors) approved salary adjustments at their February
meetings. The adjustments were effective in mid-March of each
year. The salaries listed therefore reflect the salary level approved
the prior February for the period from January 1 to March 15 of the following
year and the salary level approved in February of the relevant year for the
period from March 16 to December 31 of that year.
Beginning in 2009, the Compensation
Committee (and in the case of the Chief Executive Officer, the Board of
Directors) approve salary adjustments at their May meetings. This
gives the Compensation Committee the opportunity to review more current data for
the peer companies. It also results in salary adjustments and equity
grants being considered and approved at the same time. Salary
adjustments are retroactive to March 15.
Amounts
listed in the table under Non-Equity Incentive Plan Compensation represent
payments received by the Named Executive Officers under the Bonus Plan for
services rendered in 2007, 2008 and 2009. Payment of the 2009 amount
was approved by the Compensation Committee (and, in the case of the Chief
Executive Officer, the Board of Directors) at their February 2010 meetings and
payment was made in February 2010. The Bonus Plan is described in
more detail in the Compensation Discussion and Analysis. The
Committee has discretion in determining the calculation of FFO for purposes of
the Bonus plan and may approve the exclusion, (in whole or in part) of certain
non-recurring items from the Company’s published FFO results based on
extraordinary events such as catastrophic natural disasters or other adverse
events outside of the control of management as well as the receipt of income not
related to the operations of the Company’s business. The Bonus Plan
specifically provides that gains and losses on sale and impairment charges are
not to be included in the calculation of FFO. Any item excluded from
the calculation of FFO in any year is also excluded from the base for purposes
of calculating FFO growth the following year. The Bonus Plan also
provides that, in its discretion, the Committee can adjust the weighting of the
FFO and NOI components, which it elected to do in 2009 as described in the
Compensation Discussion and Analysis.
For 2009, the Company reported FFO
growth (calculated as provided for in the Bonus Plan) below the bottom range of
the bonus plan formula resulting in a zero bonus factor relating to the FFO
component. For 2009, the Company reported same store NOI growth of
0.02%. This exceeded the Multifamily Peer Group’s reported results of
negative 4.68% and, pursuant to the formula included in the Bonus Plan, resulted
in the award of 4.84 bonus units relating to the NOI growth metric.
Pursuant
to the Deferred Bonus Plan, eligible employees, including the Named Executive
Officers, can elect to defer up to 100% of their bonus under the Bonus Plan for
three, five or ten years. The Company matches 10% of the amount
deferred (referred to as the “10% Company Match”), which amount vests after
three years. A "phantom" stock account is established for both
amounts. Each deferral and 10% Company Match is reflected by
crediting those accounts with the number of shares of the Company's Common Stock
that could be purchased with the amounts deferred and contributed at the Common
Stock's fair market value as of the day before the bonus would otherwise have
been paid. The equivalent of dividends on those shares is also
credited to the accounts at the time dividends are paid on the Company's Common
Stock. Shares that could be purchased with the hypothetical dividends
are credited to accounts at the same price that shares are purchased for
participants under the dividend reinvestment feature of the Company's
DRIP. Payments out of deferred accounts, upon vesting or otherwise,
are made by issuance of Common Stock, except in the event of payment by reason
of a change in control in which event payment may be made in cash or by issuance
of Common Stock at the election of the Compensation Committee.
The
following table sets forth the compensation paid to or earned by the Named
Executive Officers during 2007, 2008 and 2009. There are
no amounts to report in the Bonus and Change in Pension Value and Nonqualified
Deferred Compensation Earnings columns so they have not been
included. Annual cash incentives under the Company’s Bonus Plan are
listed below under the Non-Equity Incentive Plan Compensation
column.
|
Name
and Principal
Position
|
Year
|
Salary
($)(1)
|
Stock
Awards
($)(2)
|
Option
Awards ($)(3)
|
Non-Equity
Incentive Plan Compensation
($)(4)
|
All
Other Compensation
($)(5)
|
Total ($)
|
||||||||||||||||||
|
Edward
J. Pettinella,
|
2009
|
550,000 | 725,969 | 593,996 | 346,071 | 100,124 | 2,316,160 | ||||||||||||||||||
|
President
and Chief
|
2008
|
550,000 | 588,457 | 481,497 | 737,187 | 83,201 | 2,440,342 | ||||||||||||||||||
|
Executive
Officer
|
2007
|
544,792 | 549,950 | 443,410 | 640,947 | 105,085 | 2,284,184 | ||||||||||||||||||
|
David
P. Gardner,
|
2009
|
334,970 | 276,624 | 226,348 | 145,913 | 48,328 | 1,032,183 | ||||||||||||||||||
|
Executive
Vice President
|
2008
|
320,000 | 276,647 | 226,347 | 296,943 | 43,018 | 1,162,955 | ||||||||||||||||||
|
and
Chief Financial Officer
|
2007
|
315,833 | 258,464 | 208,402 | 281,246 | 48,293 | 1,112,238 | ||||||||||||||||||
|
Ann
M. McCormick,
|
2009
|
282,308 | 226,588 | 185,397 | 122,974 | 41,711 | 858,978 | ||||||||||||||||||
|
Executive
Vice President
|
2008
|
272,000 | 226,557 | 185,396 | 252,404 | 37,356 | 973,713 | ||||||||||||||||||
|
and
General Counsel
|
2007
|
269,583 | 211,733 | 170,709 | 240,576 | 41,539 | 934,140 | ||||||||||||||||||
|
Scott
A. Doyle,
|
2009
|
257,933 | 157,258 | 125,098 | 87,388 | 30,893 | 658,570 | ||||||||||||||||||
|
Senior
Vice President
|
2008
|
250,000 | 156,387 | 120,596 | 180,437 | 26,015 | 733,435 | ||||||||||||||||||
|
2007
|
247,917 | 137,474 | 110,853 | 157,055 | 27,136 | 680,435 | |||||||||||||||||||
|
John
E. Smith,
|
2009
|
240,000 | 156,720 | 128,249 | 81,312 | 30,103 | 636,384 | ||||||||||||||||||
|
Senior
Vice President
|
2008
|
240,000 | 151,222 | 123,746 | 173,220 | 25,971 | 714,159 | ||||||||||||||||||
|
2007
|
236,875 | 151,238 | 121,934 | 150,060 | 25,775 | 685,882 | |||||||||||||||||||
(1) Each
of the Named Executive Officers contributed a portion of their salary to the
Company’s 401(k) Savings Plan.
(2) This
column represents the grant date fair value of restricted stock granted in the
year indicated in accordance with ASC Topic 718 except, pursuant to SEC rules,
the amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. Fair value for restricted stock is
calculated using the closing price of the Company’s Common Stock on the date of
issuance. For additional information, refer to Note 10 of the
Company’s financial statements in the Form 10-K for the year ended December 31,
2009, as filed with the SEC. To the extent that a Named Executive
Officer has elected to participate in the Deferred Bonus Plan, this column also
includes the value of the 10% Company Match. Of the amounts listed in
this column, the following amounts represent that Match for 2007, 2008 and 2009
respectively: Mr. Doyle $0, $9,022 and
$4,369.
(3) This
column represents the grant date fair value on the date of issue of options
granted in the year indicated in accordance with ASC Topic 718. This
value was calculated using the Black-Scholes formula. For additional
information on the valuation assumptions with respect to the 2009 grants, refer
to Note 10 of the Company’s financial statements in the Form 10-K for the year
ended December 31, 2009, as filed with the SEC.
(4) This
column represents the payments received by the Named Executive Officers for
services rendered in the year indicated pursuant to the Company’s Bonus
Plan. The bonus factors assigned to the Named Executive Officers for
each year are as follows: Mr. Pettinella – 13%; Mr. Gardner – 9%; Mrs. McCormick
– 9%; Mr. Doyle – 7% and Mr. Smith – 7%. The following Named
Executive Officer deferred a portion of the 2007, 2008 and 2009 payment pursuant
to the Company’s Deferred Bonus Plan as follows: Mr. Doyle $0, $90,219 and
$43,694. The gross payment (before deferral) is listed in this
column.
(5) This
column represents (a) $6,750, $6,900 and $7,350 for 2007, 2008 and 2009,
respectively for each of the Named Executive Officers as the Company’s
contribution under the Company’s 401(k) Savings Plan plus (b) dividends paid in
2007, 2008 and 2009, respectively on all shares of restricted stock held by each
of the Named Executive Officers as follows: Mr. Pettinella $98,335,
$76,301 and $92,774; Mr. Gardner $40,770, $35,577 and $40,471; Mrs. McCormick
$33,737, $29,293 and $33,221; Mr. Doyle $19,697, $18,302 and $21,715; and Mr.
Smith $19,025, $19,071 and $22,903 plus (c) the value of all hypothetical
dividends paid in 2007, 2008 and 2009, respectively on the 10% Company Match
shares in the accounts of the following Named Executive Officers pursuant to the
Company’s Deferred Bonus Plan: Mr. Gardner $773, $541 and $507; Mrs.
McCormick $1,052, $1,163 and $1,140; and Mr. Doyle $689, $813 and
$1,828.
All stock
options and shares of restricted stock were issued pursuant to the Company’s
2008 Stock Benefit
Plan.
Prior to
the exercise of an option, the holder has no rights as a stockholder with
respect to the shares subject to such option, including voting rights and the
right to receive dividends or dividend equivalents. Individuals
receiving restricted stock awards have voting rights and are entitled to receive
dividends or dividend equivalents prior to vesting.
To
further enforce the Company’s focus on long-term stock appreciation and support
retention of key executive talent, stock options generally vest 20% per year
over the first five years of the ten-year option term and restricted stock
grants generally vest 25% per year over a four-year period. However,
in the event of termination of employment due to total disability, death, or
retirement, stock options vest immediately and are exercisable for the lesser of
one year or the remaining option term, except that for Executive Officers, stock
options do not vest automatically upon retirement but continue to vest as
scheduled. Additionally, in the event the Company terminates the
employment of an option holder for any reason except “good cause,” stock options
held for more than one year prior to the termination date vest immediately and
are exercisable for the lesser of one year or the remaining option term.
Restricted stock vests upon termination of employment due to total disability or
death. In the event of retirement, restricted stock awards continue
to vest as scheduled. Upon a change in control, stock options and
restricted stock outstanding as of the change in control date vest
immediately.
The
following table provides information about plan-based awards granted to the
Named Executive Officers in 2009. These awards consist of stock
options, restricted stock, cash paid pursuant to the Bonus Plan and, if
applicable, the value of the 10% Company Match made pursuant to the Deferred
Bonus Plan. There are no amounts to be reported in the Estimated
Future Payouts Under Equity Incentive Plan Awards column so it has not been
included.
The stock
options granted to the Named Executive Officers have the same term (ten years)
and vesting (20% per year) as the options granted to other employees in
2009. Restricted shares granted to the Named Executive Officers vest
on the same terms as the restricted shares granted to other employees in 2009
(25% per year).
The
phantom shares issued in connection with the 10% Company Match vest after three
years. The only criteria for vesting is continued
employment.
2009
GRANTS OF PLAN-BASED AWARDS TABLE
|
All
Other
|
All
Other
|
||||||||||
|
Stock
|
Option
|
||||||||||
|
Awards:
|
Awards:
|
||||||||||
|
Estimated
Future
|
Number
of
|
Number
of
|
Exercise
or
|
Grant
Date Fair
|
|||||||
|
Payouts
Under Non-Equity
|
Shares
of
|
Securities
|
Base
Price
|
Value
of Stock
|
|||||||
|
Incentive Plan Awards(2)
|
Stock
or
|
Underlying
|
of
Option
|
and
Option
|
|||||||
|
Grant
|
Threshold
|
Target
|
Maximum
|
Units
|
Options
|
Awards
|
Awards
|
||||
|
Name
|
Plan Name
|
Date(1)
|
($)
|
($)
|
($)
|
(#)(3)
|
(#)(4)
|
($/Sh)(5)
|
($)(6)
|
||
|
Edward
J. Pettinella
|
Bonus
Plan
|
286,009
|
572,018
|
858,027
|
|||||||
|
Stock
Plan-
Options
|
5/11/09
|
124,789
|
33.90
|
593,996
|
|||||||
|
Restricted
|
5/11/09
|
21,415
|
725,969
|
||||||||
|
David
P. Gardner
|
Bonus
Plan
|
120,589
|
241,178
|
361,767
|
|||||||
|
Stock
Plan-
Options
|
5/11/09
|
47,552
|
33.90
|
226,348
|
|||||||
|
Restricted
|
5/11/09
|
8,160
|
276,624
|
||||||||
|
Ann
M. McCormick
|
Bonus
Plan
|
101,631
|
203,262
|
304,893
|
|||||||
|
Stock
Plan-
Options
|
5/11/09
|
38,949
|
33.90
|
185,397
|
|||||||
|
Restricted
|
5/11/09
|
6,684
|
226,588
|
||||||||
|
Scott
A. Doyle
|
Bonus
Plan
|
72,221
|
144,442
|
216,663
|
|||||||
|
Stock
Plan-
Options
|
5/11/09
|
26,281
|
33.90
|
125,098
|
|||||||
|
Restricted
|
5/11/09
|
4,510
|
152,889
|
||||||||
|
Deferred
Bonus Plan
|
2/24/10
|
94
|
4,329
|
||||||||
|
John
E. Smith
|
Bonus
Plan
|
67,200
|
134,400
|
201,600
|
|||||||
|
Stock
Plan-
Options
|
5/11/09
|
26,943
|
33.90
|
128,249
|
|||||||
|
Restricted
|
5/11/09
|
4,623
|
156,720
|
||||||||
(1) In
2009, the Board of Directors formalized its grant practice policy. As
has always been the case, the value of restricted shares awarded and the
exercise price of options granted is the price of a share of the Company’s
Common Stock as of the close of business on the grant date. With
respect to the annual issuance of options and restricted stock, the grant date
is set by the Compensation Committee at its first meeting each year and
must: (1) be a business day on or after the date that the grant is
approved by the Compensation Committee or the Board of Directors, as applicable;
and (2) must occur during the trading window (pursuant to the Company’s
Procedures and Guidelines Governing Insider Trading and Tipping) next following
the approval date. In 2009, the Compensation Committee approved the
equity awards to the Named Executive Officers, other than Mr. Pettinella, on May
3, 2009 and the Board approved equity awards to Mr. Pettinella on May 4,
2009. The Compensation Committee selected May 11, 2009, the first day
of the first trading window following the approval date, as the grant
date. The restricted stock is valued and the option exercise price
for the 2009 grants is based on the closing price of the Company’s Common Stock
on May 11, 2009.
(2) These
columns represent amounts that could have been paid to the Named Executive
Officers under the Company’s Bonus Plan for services rendered in 2009 if the
Company’s financial performance fell within the specified ceiling and floor of
expected performance. That Plan is described in more detail in the
“Compensation Discussion and Analysis.” The Bonus Plan does not provide for a
“target” payout. The median between the threshold and maximum is
therefore included as the target. The actual amounts paid in February
2010 for services rendered in 2009 are listed under 2009 in the Summary
Compensation Table on page 27.
(3) This
column represents restricted stock awarded to each of the Named Executive
Officers in 2009 and phantom shares credited to the deferred bonus account of
Mr. Doyle, in connection with the 2009 10% Company Match under the Deferred
Bonus Plan. While Mr. Doyle’s phantom shares were credited in 2010
when the bonus relating to the 2009 service was paid, they are included in the
table since they relate to 2009 compensation. Only Mr. Doyle deferred
any portion of his 2009 bonus.
(4) This
column represents options granted to the Named Executive Officers in
2009.
(5) The
exercise price is the closing price ($33.90) on the grant date (May 11, 2009) as
provided in the 2008 Stock Benefit Plan.
(6) For
stock options, grant date fair value is calculated using the Black-Scholes
formula. For additional information on the valuation assumptions,
refer to Note 10 of the Company’s financial statements in the Form 10-K for the
year ended December 31, 2009. For restricted stock, the grant date
fair value is calculated using the closing price ($33.90) of a share of the
Company’s Common Stock on the award date (May 11, 2009). The grant
date fair value for both the option grants and restricted stock awards are
computed in accordance with ASC Topic 718. For Mr. Doyle, the value
of the phantom shares is equal to the actual amount of 10% Company
Match.
The following table provides
information about unexercised options and restricted stock that has not vested,
both of which were issued under the 2008 Stock Benefit Plan or previous stock
benefit plans. It also includes all phantom shares in the Named
Executive Officers’ accounts under the Deferred Bonus Plan that were credited to
the accounts as a result of the 10% Company Match but only to the extent that
the phantom shares have not vested. There are no unearned options or
shares under the Company’s equity incentive plans so related columns are not
included.
|
Option
Awards(1)
|
Stock
Awards
|
||||||||||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options (Exercisable)
(#)
|
Number
of Securities Underlying Unexercised Options
(Unexercisable)
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|||||||||||||||||||
|
Edward
J. Pettinella
|
100,000 | - | 27.010 |
02/07/11
|
37,930 | (2 | ) | 1,809,640 | |||||||||||||||||
| 50,000 | - | 30.150 |
07/31/11
|
||||||||||||||||||||||
| 50,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||||||
| 50,000 | - | 36.850 |
08/05/13
|
||||||||||||||||||||||
| 55,000 | - | 38.830 |
08/03/14
|
||||||||||||||||||||||
| 52,000 | 13,000 | 41.950 |
05/06/15
|
||||||||||||||||||||||
| 39,000 | 26,000 | 51.060 |
05/04/16
|
||||||||||||||||||||||
| 25,946 | 38,918 | 55.500 |
05/01/17
|
||||||||||||||||||||||
| 16,386 | 65,543 | 52.560 |
05/01/18
|
||||||||||||||||||||||
| - | 124,789 | 33.900 |
05/11/19
|
||||||||||||||||||||||
|
David
P. Gardner
|
15,000 | - | 30.150 |
07/31/11
|
16,130 | (3 | ) | 769,562 | |||||||||||||||||
| 15,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||||||
| 15,000 | - | 36.850 |
08/05/13
|
||||||||||||||||||||||
| 15,000 | - | 38.830 |
08/03/14
|
||||||||||||||||||||||
| 20,000 | 5,000 | 41.950 |
05/06/15
|
||||||||||||||||||||||
| 15,000 | 10,000 | 51.060 |
05/04/16
|
||||||||||||||||||||||
| 12,195 | 18,291 | 55.500 |
05/01/17
|
||||||||||||||||||||||
| 7,703 | 30,811 | 52.560 |
05/01/18
|
||||||||||||||||||||||
| - | 47,552 | 33.900 |
05/11/19
|
||||||||||||||||||||||
|
Ann
M. McCormick
|
12,599 | - | 31.375 |
08/01/10
|
13,323 | (4 | ) | 635,640 | |||||||||||||||||
| 15,000 | - | 30.150 |
07/31/11
|
||||||||||||||||||||||
| 15,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||||||
| 15,000 | - | 36.850 |
08/05/13
|
||||||||||||||||||||||
| 15,000 | - | 38.830 |
08/03/14
|
||||||||||||||||||||||
| 16,000 | 4,000 | 41.950 |
05/06/15
|
||||||||||||||||||||||
| 12,000 | 8,000 | 51.060 |
05/04/16
|
||||||||||||||||||||||
| 9,989 | 14,983 | 55.500 |
05/01/17
|
||||||||||||||||||||||
| 6,310 | 25,236 | 52.560 |
05/01/18
|
||||||||||||||||||||||
| - | 38,949 | 33.900 |
05/11/19
|
||||||||||||||||||||||
|
Scott
A. Doyle
|
920 | - | 31.375 |
08/01/10
|
9,201 | (5 | ) | 438,980 | |||||||||||||||||
| 9,080 | - | 30.150 |
07/31/11
|
||||||||||||||||||||||
| 10,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||||||
| 10,000 | - | 36.850 |
08/05/13
|
||||||||||||||||||||||
| 12,500 | - | 38.830 |
08/03/14
|
||||||||||||||||||||||
| 12,000 | 3,000 | 41.950 |
05/06/15
|
||||||||||||||||||||||
| 9,000 | 6,000 | 51.060 |
05/04/16
|
||||||||||||||||||||||
| 6,487 | 9,729 | 55.500 |
05/01/17
|
||||||||||||||||||||||
| 4,104 | 16,416 | 52.560 |
05/01/18
|
||||||||||||||||||||||
| - | 26,281 | 33.900 |
05/11/19
|
||||||||||||||||||||||
|
John
E. Smith
|
855 | - | 34.650 |
08/05/12
|
9,124 | (6 | ) | 435,306 | |||||||||||||||||
| 10,000 | - | 36.850 |
08/05/13
|
||||||||||||||||||||||
| 10,000 | - | 38.830 |
08/03/14
|
||||||||||||||||||||||
| 12,000 | 3,000 | 41.950 |
05/06/15
|
||||||||||||||||||||||
| 9,000 | 6,000 | 51.060 |
05/04/16
|
||||||||||||||||||||||
| 7,135 | 10,702 | 55.500 |
05/01/17
|
||||||||||||||||||||||
| 4,212 | 16,844 | 52.560 |
05/01/18
|
||||||||||||||||||||||
| - | 26,943 | 33.900 |
05/11/19
|
||||||||||||||||||||||
(1) All
option grants have a ten-year term. With the exception of Edward Pettinella's
grant issued 2/7/01, which vested immediately, all option grants vest pro rata
as to 20% of the option grant beginning on the first anniversary of grant date,
thus the vesting dates for each of the option awards in this table can be
calculated accordingly.
(2) Mr.
Pettinella's restricted stock will vest as follows: 2,477 shares on
each 5/1/2010 and 5/1/2011; 2,750 shares on 5/4/2010; 2,937 shares on each of
5/9/2010, 5/9/2011 and 5/9/2012; 5,354 shares on each of 5/11/10, 5/11/11 and
5/11/12 and 5,353 shares on 5/11/13.
(3) Mr.
Gardner's restricted stock will vest as follows: 1,164 shares on each of
5/1/2010 and 5/1/2011; 1,500 shares on 5/4/2010; 1,381 shares on each of
5/9/2010 and 5/9/2011; 1,380 shares on 5/9/2012 and 2,040 shares on each of
5/11/10, 5/11/11, 5/11/12 and 5/11/13.
(4) Mrs.
McCormick's restricted stock will vest as follows: 954 shares on
5/1/2010; 1,250 shares on 5/4/2010; 953 on 5/1/2011; 1,131 shares on
each of 5/9/2010 and 5/9/2011; 1,130 shares on 5/9/2012 and 1,671
shares on each of 5/11/10, 5/11/11, 5/11/12 and 5/11/13. Since the date of the
table, December 31, 2009, 90 shares in Mrs. McCormick's deferred bonus account
representing the 10% Company Contribution and hypothetical dividends on those
shares vested on 2/22/2010.
(5) Mr.
Doyle's restricted stock will vest as follows: 619 shares each on
5/1/2010 and 5/1/2011; 750 shares on 5/4/2010; 735 shares on each of 5/9/2010
and 5/9/2012; 736 shares on 5/9/2011; 1,128 shares on each of 5/11/10 and
5/11/12 and 1,127 shares on each of 5/11/11 and 5/11/13. Since the date of the
table, December 31, 2009 shares in Mr. Doyle's deferred bonus account
representing the 10% Company Contribution and hypothetical dividends on those
shares have/will vest as follows: 129 shares on 2/22/2010 and 368
shares on 2/19/12.
(6) Mr.
Smith's restricted stock will vest as follows: 681 shares on each of
5/1/2010 and 5/1/2011; 875 shares on 5/4/2010; 755 shares on each of 5/9/2010
and 5/9/2011; 754 shares on 5/9/2012; 1,156 shares on each of 5/11/10, 5/11/11
and 5/11/12 and 1,155 shares on 5/11/13.
The following table provides
information for each of the Named Executive Officers concerning the following
events that occurred during 2009: exercises of stock options, vesting
of restricted stock and vesting of the phantom shares deposited in certain of
the Named Executive Officer’s deferred bonus accounts as the 10% Company Match
and dividends on the 10% Company Match. The table reports the number
of securities for which the options were exercised, the aggregate dollar value
realized upon exercise of options, the number of shares of stock (including
phantom shares) that have vested and the aggregate dollar value realized upon
vesting of stock (including phantom shares).
|
Option Awards
|
Stock Awards
|
|||||||||||||||
|
Name
|
Number
of Shares Acquired on Exercise
(#)
|
Value
Realized on Exercise ($)(1)
|
Number
of Shares Acquired on Vesting
(#)
|
Value
Realized on Vesting ($)(2)
|
||||||||||||
|
Edward
J. Pettinella
|
- | - | 10,664 | 370,313 | ||||||||||||
|
David
P. Gardner
|
15,000 | 241,059 | 5,420 | 187,830 | ||||||||||||
|
Ann
M. McCormick
|
- | - | 4,511 | 156,032 | ||||||||||||
|
Scott
A. Doyle
|
- | - | 2,855 | 98,629 | ||||||||||||
|
John
E. Smith
|
- | - | 2,811 | 99,194 | ||||||||||||
(1) The
dollar amount realized upon exercise was computed by multiplying the number of
shares times the difference between the market price of the underlying
securities and the exercise price of the options.
(2) The
aggregate dollar amount realized upon vesting was computed by multiplying the
number of shares of stock by the market value of the underlying shares on the
vesting date.
The Company does not maintain a defined
benefit pension plan or supplemental pension plan.
A description of the Company’s Deferred
Bonus Plan is included in “2009 Summary Compensation Information” beginning on
page 25.
|
Name
|
Executive
Contributions in 2009($)(1)
|
Registrant
Contributions in 2009($)(2)
|
Aggregate
Earnings in
2009($)(3)
|
Aggregate
Withdrawals/ Distributions in 2009($)(4)
|
Aggregate
Balance at 12/31/09($)(5)
|
|||||||||||||||
|
Edward
J. Pettinella
|
- | - | - | - | - | |||||||||||||||
|
David
P. Gardner
|
- | 507 | 5,067 | - | 103,677 | |||||||||||||||
|
Ann
M. McCormick
|
- | 1,140 | 11,404 | 17,541 | 225,377 | |||||||||||||||
|
Scott
A. Doyle
|
43,694 | 6,197 | 18,277 | - | 373,997 | |||||||||||||||
|
John
E. Smith
|
- | - | - | - | - | |||||||||||||||
(1) This
column represents deferral of a portion of the bonus paid under the Bonus Plan
in February 2010 for services rendered in 2009. The amount deferred
was also reported in the Summary Compensation Table as a portion of the amount
in the “Non-Equity Incentive Plan Compensation” column.
(2) This
column represents the amount of the 10% Company Match made in February 2010
relating to the amounts deferred as described in footnote (1) above (Mr. Doyle
only) and the value of all hypothetical dividends paid in 2009 on all shares in
the Named Executive Officer’s deferred bonus account as a result of a 10%
Company Match. Of the amounts listed above, the following amounts
were also reported in the Summary Compensation Table for 2009: Mr.
Gardner $507; Mrs. McCormick $1,140 and Mr. Doyle $1,828.
(3) This
column represents the value of all hypothetical dividends on all shares in the
Named Executive Officer’s deferred bonus accounts except for the shares related
to the 10% Company Match which are already included as described in footnote (2)
above.
(4) The
amounts listed in this column represent the value of the phantom stock on the
issue date, which includes the value of the deferred amount, the 10% Company
Match, hypothetical dividends reinvested and appreciation.
(5) The
total includes the following amounts also reported on the Summary Compensation
Table for 2009: Mr. Gardner $507; Mrs. McCormick $1,140; and Mr.
Doyle $6,197. It also includes the following amounts that were listed
as “bonus” in prior years’ proxy statements: Mr. Gardner $60,086;
Mrs. McCormick $130,150; and Mr. Doyle $226,652.
Other than Mr. Pettinella, none of the
Named Executive Officers have employment agreements which provide for any cash
payment or other benefits in the event of the termination of
employment. Any rights that any of the Named Executive Officers have
to such payments and benefits are the result of provisions in the various
compensation plans that are available to certain other salaried employees of the
Company. Those compensation plans and the Named Executive Officers’
rights thereunder are described below.
In addition to the rights available
under those plans, Mr. Pettinella has contractual rights pursuant to the terms
of his employment agreement. Mr. Pettinella’s employment agreement
provides that, if his employment is terminated by the Company without cause or
by Mr. Pettinella for good reason, he is entitled to receive a lump sum amount
equal to 2.9 times his base salary and incentive compensation for the year
preceding the termination plus, in the year following termination, the amount of
incentive compensation that he would have earned if he had been an employee on
December 31 of the year of termination. In addition, all options
become exercisable and remain so for one year and all restricted shares held by
Mr. Pettinella vest. He also is entitled to the continuation of his
fringe benefits until the earlier of: (1) December 31, 2010, or (2)
the date he receives equivalent benefits from a new employer. In the
event of a change in control, Mr. Pettinella is entitled to receive the benefits
provided under the Executive Retention Plan (described below), except he would
receive three times his base salary and bonus instead of two times as provided
to certain other beneficiaries of that plan. In the case of
disability, death or retirement, Mr. Pettinella is only entitled to benefits
generally provided to other salaried employees as described below.
Change
in Control
The Company’s Executive Retention Plan
provides for severance benefits and other compensation to virtually all of the
corporate staff of the Company in the event of a change in control of the
Company and a subsequent termination of their employment, either by the Company
without cause or by the employee with good reason. Certain officers
of the Company, including the Named Executive Officers, have the right to
receive benefits under the Executive Retention Plan if they elect to terminate
their employment for any reason during a 30-day window following the one-year
anniversary of the change in control.
The level of benefits to be received
under the Executive Retention Plan varies depending on the bonus factor applied
to the individual pursuant to the Company’s Bonus Plan. In all cases,
regardless of bonus factor, upon a change in control with termination of
employment, either by the Company without cause or by the employee with good
reason, or by certain officers during the 30-day window, all stock options and
restricted stock vest. In addition, in all cases, regardless of bonus
factor, employees are entitled to receive in a lump sum their base
salary accrued through the termination date and to be paid in a lump sum all
other amounts earned, accrued or deferred under the Bonus Plan and other
compensation plans.
In addition to the above, upon a
termination following a change in control, employees are entitled to receive in
a lump sum a multiple of their current cash compensation ranging from a minimum
of one month’s salary for every year employed (with a minimum of two months and
a maximum of 24 months) up to a maximum of two times their current annual
salary. In addition, certain employees are entitled to receive two
times the amount of the last paid bonus under the Bonus Plan. The
Named Executive Officers, along with approximately 40 other employees, are
entitled to the maximum cash benefits. Mr. Pettinella is entitled to
three times salary and bonus pursuant to his employment agreement as described
above. In addition, the Named Executive Officers and other members of
senior management are entitled to a gross-up payment, but only in the amount
necessary to pay any excise tax due on the severance payment.
Stock
Benefit Plans
Under the terms of the 2008 Stock
Benefit Plan, in the event of the termination of employment by the Company
without good cause, any options held for more than one year become fully
exercisable and remain so for one year. Upon disability, death or
retirement, all options become fully exercisable and remain so for one year,
except that options held by the Executive Officers, including the Named
Executive Officers, do not vest upon retirement but continue to vest on their
original terms. Restricted shares, including those held by the Named
Executive Officers, vest upon disability or death but remain in place on their
original terms upon retirement.
No additional grants are being made
under the Company’s prior three stock benefit plans, but there are awards still
outstanding under those plans. Under those plans, options held for
more than six months by the Named Executive Officers become fully exercisable
and remain so for three months (one year with respect to the 2003 Stock Benefit
Plan) following a termination by the Company without good cause. Upon
death, disability or retirement, all options become fully exercisable and remain
so for a period of one year in the case of disability and death and three months
in the case of retirement. Options and restricted stock issued under
the 2003 Stock Benefit Plan and held upon retirement by Executive Officers,
including the Named Executive Officers, receive the same treatment as under the
2008 Stock Benefit Plan.
Miscellaneous
Benefits
The termination of employment for any
reason also triggers certain events under the Company’s Deferred Bonus Plan and
401(k) Savings Plan. In addition, the termination of employment, by
reason of disability or death, triggers benefits under disability and life
insurance plans provided by the Company. The benefits payable to the
Named Executive Officers under those plans are the same as those available to
other salaried employees, so no amount in respect to those plans is reported on
the table below.
The following table provides
information about the estimated amounts to be paid to the Named Executive
Officers under various scenarios if they had occurred on December 31,
2009. The Named Executive Officers would not receive any payment in
the event of a voluntary termination on their part or a termination for cause by
the Company.
|
Executive
Benefits and Payments
Upon Termination
|
Voluntary
Termination
($)
|
Involuntary
Not for Cause Termination
($)
|
For
Cause Termination
($)
|
Involuntary
or Good Reason Termination (CIC)
($)
|
Retirement
($)
|
Death
or Disability
($)
|
||||||||||||||||||
|
Edward
J. Pettinella
|
||||||||||||||||||||||||
|
Severance
|
- | 2,598,606 | (1) | - | 2,688,213 | - | - | |||||||||||||||||
|
Accelerated Vesting of
Long-Term
Incentives(2)
|
- | 74,880 | - | 3,607,856 | - | 3,607,856 | ||||||||||||||||||
|
Other Benefits and Tax
Gross-Up
|
- | 15,700 | (3) | - | - | - | - | |||||||||||||||||
|
Total
|
- | 2,689,186 | - | 6,296,069 | - | 3,607,856 | ||||||||||||||||||
|
David
P. Gardner
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 969,602 | - | - | ||||||||||||||||||
|
Accelerated Vesting of
Long-Term
Incentives(2)
|
- | 28,800 | - | 1,455,055 | - | 1,455,055 | ||||||||||||||||||
|
Other Benefits and Tax
Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
- | 28,800 | - | 2,424,657 | - | 1,455,055 | ||||||||||||||||||
|
Ann
M. McCormick
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 815,948 | - | - | ||||||||||||||||||
|
Accelerated Vesting of
Long-Term
Incentives(2)
|
- | 23,040 | - | 1,192,272 | - | 1,192,272 | ||||||||||||||||||
|
Other Benefits and Tax
Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
- | 23,040 | - | 2,008,220 | - | 1,192,272 | ||||||||||||||||||
|
Scott
A. Doyle
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 694,776 | - | - | ||||||||||||||||||
|
Accelerated Vesting of
Long-Term
Incentives(2)
|
- | 17,280 | - | 795,488 | - | 795,488 | ||||||||||||||||||
|
Other Benefits and Tax
Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
- | 17,280 | - | 1,490,264 | - | 795,488 | ||||||||||||||||||
|
John
E. Smith
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 642,624 | - | - | ||||||||||||||||||
|
Accelerated Vesting of
Long-Term
Incentives(2)
|
- | 17,280 | - | 824,669 | - | 824,669 | ||||||||||||||||||
|
Other Benefits and Tax
Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
Total
|
- | 17,280 | - | 1,467,293 | - | 824,669 | ||||||||||||||||||
(1) This
payment would be made pursuant to Mr. Pettinella’s employment agreement and is
based on his 2009 salary and 2009 bonus paid in 2010. This does not
include the amount Mr. Pettinella would receive in the year following
termination, which would equal the amount of incentive compensation that he
would have earned if he had been employed on December 31 of the year of
termination.
(2) The
vesting of options and restricted stock upon the occurrence of certain
termination triggers is made in accordance with the terms of the 2008 Stock
Benefit Plan, the Company’s prior stock benefit plans, or the Executive
Retention Plan, as applicable. For options, the amount listed
represents the gain realized for unvested stock option grants as of December 31,
2009, using a year-end closing stock price of $47.71. For restricted
stock, the amount listed represents the number of unvested restricted shares as
of December 31, 2009 multiplied by $47.71.
(3) Under
his employment agreement, Mr. Pettinella is entitled to a continuation of his
fringe benefits until the earlier of: (a) December 31, 2010; or (b)
the date he receives equivalent benefits from a new employer. This
amount represents the estimated cost to the Company for continuing health,
dental, executive long-term disability, standard long-term disability, life
insurance and accidental death and dismemberment coverage for Mr. Pettinella
from December 31, 2009 until December 31, 2010.
The
Compensation Committee, with the assistance of its independent compensation
consultant, undertook a thorough review of all of the components of executive
and non-executive compensation to determine whether any of those components were
likely to encourage excessive risk taking that was not in the best interests of
the Company and the stockholders. The Committee considered mitigating
features of the various components including:
|
·
|
the
Bonus Plan includes two performance metrics, both of which represent a
significant contribution to shareholder
value;
|
|
·
|
100%
of the CEO’s payment under the Bonus Plan is in the Board’s discretion and
50% of the payment to the senior executives of the Company is in the
discretion of the CEO;
|
|
·
|
each
of the senior executives executes a Bonus Repayment Agreement every year
as described in the Compensation Discussion and Analysis on page 15;
and
|
|
·
|
vesting
schedules for restricted stock and options cause management to have a
significant amount of unvested equity at all
times.
|
After its
comprehensive review, the Compensation Committee concluded that the risks
arising from the Company’s compensation policies and practices are not
reasonably likely to have a material adverse effect on the Company.
|
Plan Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options
|
Weighted
Average Exercise Price of Outstanding Options($)(2)
|
Number
of Securities Remaining Available for Future
Issuance
|
|||||||||
|
Options:
|
||||||||||||
|
Equity
compensation plans approved by security holders
|
3,147,645 | 44.20 | 1,238,321 | (3) | ||||||||
|
Equity
compensation plans not approved by security holders(1)
|
156,225 | 32.53 | - | |||||||||
|
Total
Options
|
3,303,870 | 43.64 | 1,238,321 | |||||||||
|
Restricted
Stock Awards:
|
||||||||||||
|
Equity
compensation plans approved by security holders
|
- | N/A | 374,582 | (4) | ||||||||
|
Equity
compensation plans not approved by security holders
|
- | N/A | - | |||||||||
|
Total
Restricted Stock Awards
|
- | N/A | 374,582 | |||||||||
(1) These
option awards were made under the Company's 2000 Stock Benefit Plan, the
material features of which are described in Note 10 of the Company's
10-K. The 2000 Stock Benefit Plan was approved by the stockholders in
2000 and was amended in 2001 to increase the options available for issuance by
500,000. This increase was not required to be approved by the
stockholders.
(2) Number
of securities to be issued upon exercise of outstanding options include 21,316
phantom shares deferred by officers under the Company's Deferred Bonus Plan and
60,104 phantom shares deferred by directors under the Director Deferred
Compensation Plan. The weighted average exercise price of outstanding
options does not take these 81,420 deferred shares into account.
(3) This
assumes that all 1,185,045 equity awards that are available under the 2008 Stock
Benefit Plan are issued in the form of options. In that case, there
would be no awards available for the issuance of restricted
stock. There were 50,122 and 3,154 shares available for issuance
under the Company's Deferred Bonus Plan and Director Deferred Compensation Plan,
respectively, as of December 31, 2009.
(4) This
assumes that all 1,185,045 equity awards that are available under the 2008 Stock
Benefit Plan are issued in the form of restricted stock. In that
case, there would be no awards available for the issuance of
options. Under the Plan, awards of restricted stock reduce the number
of shares available for award by one share for every one share awarded, up to
250,000 shares. Beyond that, restricted stock reduces the shares
available for award by 3.5 shares for every one share awarded.
The
following table sets forth information as of March 15, 2010 regarding the
beneficial ownership of shares of Common Stock by: (i) Directors and Named
Executive Officers of the Company; and (ii) Directors and Executive Officers of
the Company as a group. The table also includes information relating
to the number and percentage of shares of Common Stock and UPREIT Units
beneficially owned by the persons included in (i) and (ii) above (such UPREIT
Units are exchangeable into shares of Common Stock or cash at the election of
the Company). In preparing this table, the Company has relied on
information supplied by its officers and Directors and upon information
contained in filings with the SEC. The business address of each of
the following Directors and Executive Officers is 850 Clinton Square, Rochester,
New York 14604.
|
Name of Owner
|
#
of Shares
Beneficially
Owned(1)
|
%
of
Shares
Outstanding(1)
|
#of
Shares/
UPREIT
Units
Owned(2)
|
%
of Shares/
UPREIT
Units
Outstanding(2)
|
||||||||||||
|
Edward
J. Pettinella(3)
|
745,925 | 2.069 | % | 745,925 | 1.567 | % | ||||||||||
|
Stephen
R. Blank(4)
|
2,841 | * | 2,841 | * | ||||||||||||
|
Josh
E. Fidler(5)
|
17,786 | * | 534,893 | 1.136 | % | |||||||||||
|
Alan
L. Gosule(6)
|
49,102 | * | 49,102 | * | ||||||||||||
|
Leonard
F. Helbig, III(7)
|
87,220 | * | 87,220 | * | ||||||||||||
|
Charles
J. Koch(8)
|
8,800 | * | 8,800 | * | ||||||||||||
|
Nelson
B. Leenhouts(9)
|
45,204 | * | 249,428 | * | ||||||||||||
|
Norman
P. Leenhouts(10)
|
54,468 | * | 258,940 | * | ||||||||||||
|
Clifford
W. Smith, Jr.(11)
|
87,190 | * | 87,190 | * | ||||||||||||
|
Paul
L. Smith(12)
|
21,369 | * | 21,369 | * | ||||||||||||
|
Amy
L. Tait(13)
|
65,890 | * | 79,703 | * | ||||||||||||
|
David
P. Gardner(14)
|
228,096 | * | 231,602 | * | ||||||||||||
|
Ann
M. McCormick(15)
|
216,108 | * | 217,910 | * | ||||||||||||
|
Scott
A. Doyle(16)
|
136,139 | * | 136,139 | * | ||||||||||||
|
John
E. Smith(17)
|
105,402 | * | 105,402 | * | ||||||||||||
|
All
Executive Officers and
|
||||||||||||||||
|
Directors
as a group (19
persons)
|
2,068,558 | (18) | 5.616 | %(19) | 3,013,482 | 6.227 | %(20) | |||||||||
*Less
than 1%
(1) Assumes
that all currently exercisable options or options exercisable within 60 days
(“Currently Exercisable Options”) issued to the person have been exercised, that
all shares of restricted stock issued to the person have vested and that all
shares in the person’s account pursuant to the Company’s Deferred Bonus Plan or
Director Deferred Compensation Plan (the “Phantom Shares”) that would be issued
upon termination of service of the individual have been issued. The
total number of shares outstanding used in calculating the percentage assumes
that none of the options held by any other person have been exercised and that
all of the shares of restricted stock issued to any other person have vested and
that all of the Phantom Shares that would be issued upon termination of service
of the listed persons have been issued.
(2) Same
assumptions as footnote (1) plus assumes that UPREIT Units issued to the person
have been exchanged for shares of Common Stock (on a one-for-one basis) and that
for purposes of calculating the percentage the total number of shares assumes
that all of the UPREIT Units issued to any other person have been exchanged for
shares of Common Stock.
(3) Includes
518,649 shares which may be acquired upon the exercise of Currently Exercisable
Options and 37,930 shares of restricted stock. Of the scheduled
shares owned by Mr. Pettinella, 141,000 have been pledged as
collateral.
(4) Includes
1,200 shares which may be acquired upon the exercise of Currently Exercisable
Options and 1,641 shares of restricted stock.
(5) Includes
7,432 shares which may be acquired upon the exercise of Currently Exercisable
Options and 4,679 shares of restricted stock. The Shares/UPREIT Units
owned include 72,539 UPREIT Units owned directly by Mr. Fidler, 101,126 UPREIT
Units owned by Mr. Fidler’s wife and 343,442 UPREIT Units owned by Morton J.
Macks Family Limited Partnership (the “FLP”). Mr. Fidler is the
president of the corporate general partner of the FLP and has the authority in
this capacity to buy and sell securities on behalf of the FLP. Mr.
Fidler’s proportionate interest in the FLP is 687 UPREIT Units. He
disclaims beneficial ownership of the balance of the UPREIT Units owed by
FLP. The UPREIT Units owned by Mr. Fidler’s wife have been pledged as
collateral.
(6) Includes
26,232 shares which may be acquired upon the exercise of Currently Exercisable
Options and 4,679 shares of restricted stock.
(7) Includes
19,232 shares which may be acquired upon the exercise of Currently Exercisable
Options and 940 shares of restricted stock. There are 441 additional
shares in Mr. Helbig’s account pursuant to the Director Deferred Compensation
Plan that represent the 10% Company Match and which will not vest within 60
days. Mr. Helbig shares voting and dispositive power with his wife
with respect to 4,532 shares. Of the shares owned by Mr. Helbig,
18,000 have been pledged as collateral.
(8) Mr.
Koch became a Director of the Company on March 1, 2010.
(9) Includes
41,115 shares which may be acquired upon the exercise of Currently Exercisable
Options and 3,297 shares of restricted stock. The fourth column also
includes 4,224 UPREIT Units owned directly by Nelson Leenhouts and 150,000
UPREIT Units owned by Home Leasing. Nelson Leenhouts is a Director,
officer and sole stockholder of Home Leasing. The fourth column also
includes 50,000 UPREIT Units owned by Nelson Leenhouts’ spouse as to which he
disclaims beneficial ownership.
(10) Includes
38,364 shares which may be acquired upon the exercise of Currently Exercisable
Options, 600 shares in custodial accounts for the benefit of Mr. Norman
Leenhouts' grandchildren (as to which he disclaims beneficial ownership) and
1,773 shares of restricted stock. There are 1,072 additional shares
in Mr. Leenhouts’ account pursuant to the Director Deferred Compensation Plan
that represent the 10% Company Match and which will not vest within 60
days. The fourth column also includes 4,472 UPREIT Units owned
directly by Norman Leenhouts and 150,000 UPREIT Units owned by Knollwood
Ventures, Inc. Norman Leenhouts is a Director, officer and
stockholder of Knollwood Ventures, Inc. Of the UPREIT Units owned by
Knollwood Ventures, Inc., 130,000 have been pledged as
collateral. The fourth column also includes 50,000 UPREIT Units owned
by Norman Leenhouts’ spouse as to which he disclaims beneficial
ownership.
(11) Includes
26,232 shares which may be acquired upon the exercise of Currently Exercisable
Options and 940 shares of restricted stock. There are 447 additional
shares in Mr. Smith’s account pursuant to the Director Deferred Compensation
Plan that represent the 10% Company Match and which will not vest within 60
days.
(12) Includes
10,632 shares which may be acquired upon the exercise of Currently Exercisable
Options and 4,679 shares of restricted stock Of the shares owned,
4,896 have been pledged as collateral.
(13) Includes
12,232 shares which may be acquired by Mrs. Tait upon the exercise of Currently
Exercisable Options and 4,679 shares of restricted stock. Also
includes 5,036 shares held in a custodial account for Mrs. Tait’s minor children
and 2,115 shares owned by Mrs. Tait's spouse as to which she disclaims
beneficial ownership. Mrs. Tait shares voting and dispositive power
with respect to 15,000 shares with her spouse. The fourth column also
includes 11,195 UPREIT Units that Mrs. Tait owns individually, 2,548 UPREIT
Units with respect to which she shares voting and dispositive power with her
spouse and 70 UPREIT Units that her spouse owns and as to which Mrs. Tait
disclaims beneficial ownership. All of the jointly held
shares and UPREIT Units have been pledged as collateral, as have 1,400 shares
and 70 UPREIT Units owned by Mrs. Tait’s spouse and 26,821 shares and 11,195
UPREIT Units that Mrs. Tait owns individually.
(14) Includes
148,209 shares which may be acquired upon the exercise of Currently Exercisable
Options and 16,130 shares of restricted stock. Mr. Gardner shares
voting and dispositive power with his spouse with respect to 61,552 shares, of
which 17,000 have been pledged as collateral. The fourth column also
includes 3,506 UPREIT Units owned by Mr. Gardner.
(15) Includes
143,992 shares which may be acquired upon the exercise of Currently Exercisable
Options and 13,233 shares of restricted stock. Mrs. McCormick shares
voting and dispositive power with her spouse with respect to 54,890 shares, of
which 25,000 have been pledged as collateral. The fourth column also
includes 1,802 UPREIT Units with respect to which she shares voting and
dispositive power with her spouse.
(16) Includes
92,695 shares which may be acquired upon exercise of Currently Exercisable
Options, 8,704 shares of restricted stock and 1,986 shares held in Mr. Doyle’s
account under the Company’s 401(k) Savings Plan. Of the shares owned
by Mr. Doyle, 16,181 have been pledged as collateral. There are 469
additional shares in Mr. Doyle’s account pursuant to the Deferred Bonus Plan
that represent the 10% Company Match and which will not vest within 60
days.
(17) Includes
72,370 shares which may be acquired upon exercise of Currently Exercisable
Options, 9,124 shares of restricted stock and 1,069 shares held in Mr. John
Smith’s account under the Company’s 401(k) Savings Plan.
(18) Includes
1,300,864 shares which may be acquired upon the exercise of Currently
Exercisable Options and 131,875 shares of restricted stock. In
addition to the shares pledged as collateral as indicated in the footnotes
above, 26,255 shares have been pledged as collateral by other Executive Officers
of the Company.
(19) Assumes
that all Currently Exercisable Options issued to all listed persons have been
exercised, that all shares of restricted stock issued to such persons have
vested and that all Phantom Shares that would be issued upon the termination of
services of such person have been issued.
(20) Same
assumptions as footnote (19) plus assumes that all UPREIT Units issued to all
listed persons have been exchanged for shares of Common Stock.
The following table sets forth
information regarding the beneficial ownership of Common Stock by each person or
entity known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock as of December 31, 2009. In preparing this
table, the Company has relied on information contained in filings with the
Securities and Exchange Commission.
|
Name and Address of Beneficial
Owner
|
Amount
and Nature of
Beneficial Ownership
|
Percentage
of Outstanding
Common Stock(1)
|
||||||
|
BlackRock,
Inc.
40
East 52nd
Street
New
York, NY 10022
|
3,257,374 | (2) | 9.40 | % | ||||
|
FMR
LLC
82
Devonshire Street
Boston,
MA 02109
|
3,213,342 | (3) | 9.27 | % | ||||
|
The
Vanguard Group, Inc.
100
Vanguard Blvd.
Malvern,
PA 19355
|
3,120,132 | (4) | 9.00 | % | ||||
|
Nomura
Asset Management Co., Ltd.
1-12-1
Nihonbashi,
Chuo-ku
Tokyo,
Japan 103-8260
|
2,461,082 | (5) | 7.10 | % | ||||
|
Heitman
Real Estate Securities LLC
191
North Wacker Drive
Suite
2500
Chicago,
IL 60606
|
2,255,570 | (6) | 6.51 | % | ||||
(1) Percentage
is based on actual number of shares outstanding as of December 31, 2009 and may
be different than the percentage referenced in the reports described
below.
(2) Based
on a report on Schedule 13G filed by BlackRock, Inc. on January 29, 2010,
reflecting that it beneficially owns and has sole voting and dispositive power
with respect to 3,257,374 shares.
(3) Based
on a report on Schedule 13G (Amendment No. 3) filed by FMR LLC on February 16,
2010 reflecting that it beneficially owns and has sole dispositive power with
respect to 3,213,342 shares, of which it has sole voting power with respect to
946,152 shares.
(4) Based
on a report on Schedule 13G (Amendment No. 5) filed by The Vanguard Group, Inc.
on February 4, 2010, reflecting that it beneficially owns 3,120,132 shares, of
which it has sole dispositive power with respect to 3,070,436 shares and shared
dispositive and sole voting power with respect to 49,696 shares.
(5) Based
on a Schedule 13G filed by Nomura Asset Management Co., Ltd. on February 16,
2010, as investment manager for various funds, reflecting that it beneficially
owns and has sole voting power with respect to 2,461,082 shares, of which it has
shared dispositive power with respect to 2,436,492 shares and sole dispositive
power with respect to 24,590 shares.
(6) Based
on a Schedule 13G filed by Heitman Real Estate Securities LLC on February 12,
2010 reflecting that it beneficially owns and has sole dispositive power with
respect to 2,255,570 shares, of which it has sole voting power with respect to
1,678,888 shares.
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
Executive Officers and Directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and the
NYSE. Officers, Directors and greater than 10% stockholders are
required to furnish the Company with copies of all Section 16(a) forms
they file.
To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required during the fiscal year ended December 31, 2009, all Section 16(a)
filing requirements applicable to its Executive Officers, Directors and greater
than 10% beneficial owners were satisfied.
On July
6, 2009, Home Properties, L.P. entered into an Amended and Restated Lease
Agreement (the “Lease”) with Clinton Asset Holding Associates, L.P. (“CAHA”) for
62,213 rentable square feet of office space in the Clinton Square building
located in Rochester, New York. The office space will continue to be
used by the Company as its corporate headquarters. The Lease amends
and restates existing Leases that the Company had for 75,296 rentable square
feet in the same building. The term commenced on October 1, 2009 and
extends to September 30, 2019 with two five-year renewal options, unless
terminated earlier in accordance with the Lease’s terms. The base
rent payable under the prior leases and the new Lease in 2009 was approximately
$1.0 million. The Lease contains customary commercial terms for
office leases. Amy Tait, Nelson Leenhouts and Norman Leenhouts, each
of whom is a Director of the Company, and members of their immediate family
collectively have an approximate 75% interest in CAHA. In addition,
the Clinton Square building is managed by Broadstone Real Estate, LLC, which
receives a management fee from the building owner. Norman Leenhouts
is an owner and Chairman of Broadstone Real Estate, LLC. Amy Tait and
her husband, Robert Tait, are both owners and Directors of Broadstone Real
Estate, LLC as well as the Chief Executive Officer and President, respectively,
of that entity. The Lease was approved by the Corporate
Governance/Nominating Committee and non-interested members of the Board of
Directors.
The Board
of Directors, in February 2007, approved the terms of an Employment Agreement
with Nelson Leenhouts in which he agreed to continue in his leadership role in
connection with the development activities of the Company. During
2008, Mr. Leenhouts continued as an employee of the Company working as a liaison
to the development team, but he did not have an employment
agreement. The base salary paid to Mr. Leenhouts for the period from
January 1, 2008 to December 31, 2008 was $292,000. In addition, Mr.
Leenhouts was paid a bonus in the amount of $360,871 in February 2009 for
services performed in 2008. His salary and the amount of his bonus
were approved by the Corporate Governance/Nominating Committee and the Board of
Directors. Mr. Leenhouts retains the right to receive a bonus in the
amount of $61,250 in the event that certain municipal approvals are received in
connection with one of the development projects.
On an annual basis, each employee of
the Company and each of the Directors is required to provide a written
acknowledgement that he or she has reviewed the Company’s Code of Business
Conduct and Ethics. If an employee or Director, or member of their
immediate family, is involved in any transaction or arrangement in which the
Company is a participant, that individual is to provide a written disclosure of
that transaction or arrangement. Pursuant to the Company’s Related
Party Transaction Policies and Procedures, any such disclosure provided by an
Executive Officer or Director is reviewed by the Corporate Governance/Nominating
Committee of the Board and approved or disapproved. In determining
whether to approve such a transaction, the Committee takes into account, among
other factors, whether the transaction was on terms no less favorable to the
Company than terms generally available to third parties and the extent of the
Executive Officer’s or Director’s involvement.
All related party transactions which
are required to be reported in this Proxy Statement were approved by the
Corporate Governance/Nominating Committee pursuant to that policy.
APPROVAL
OF AN AMENDMENT TO THE
COMPANY’S
DIRECTOR DEFERRED COMPENSATION PLAN
Management and the Board of Directors
believe that the Company’s Director Deferred Compensation Plan assists the
Company in remaining competitive in attracting and retaining its non-employee
Directors because that plan assists those Directors with their individual tax
and financial planning. The Company also believes that it is
important for the non-employee Directors to hold a significant stake in the
Company so that their interests are closely aligned with those of the
stockholders. The Director Deferred Compensation Plan is one method
whereby the non-employee Directors can easily acquire more of the Company’s
Common Stock. The Company contributes 10% of the cash amount each
participant defers in order to encourage Directors to use this
method.
The Director Deferred Compensation Plan
as originally adopted in 1999 provided for the issuance of up to 50,000
shares. It was amended in 2005 to increase the number of shares
available for issuance to 100,000. As of March 15, 2010, 99,734
shares of the Company’s Common Stock have been issued or reserved for issuance
under the plan and only 266 shares remain available for issuance. Of
the shares issued or reserved for issuance only 7,564 shares relate
to the 10% of the deferred amounts contributed by the Company and the dividends
reinvested on those shares.
The
stockholders are being asked to approve an amendment to the Director Deferred
Compensation Plan to increase the total number of shares of Common Stock to be
available for issuance thereunder to 150,000 shares. If the
stockholders do not approve the increase in the number of shares of Common Stock
available for issuance under the plan to 150,000, the Board of Directors may
independently decide to do so. In that case, the 10% Company
contribution would need to be eliminated as it is the only feature of the plan
that constitutes an equity compensation plan requiring stockholder
approval.
The
complete text of the Director Deferred Compensation Plan and the proposed
amendment are attached as Exhibit A. The following description of the
Director Deferred Compensation Plan is a summary of certain provisions and is
qualified entirely by reference to Exhibit A.
A new plan benefits table is not
included because participation in the Director Deferred Compensation Plan is at
the election of the non-employee Directors and there is no way to determine
which Directors will participate and at what level.
Description
of the Director Deferred Compensation Plan
Eligibility. All
non-employee Directors are eligible to participate in the Director Deferred
Compensation Plan. There are currently ten non-employee
Directors.
Administration. The
Director Deferred Compensation Plan is administered by the Compensation
Committee of the Board. The Committee has full authority to
administer this plan and to adopt rules and regulations for carrying out this
plan and to interpret, construe and implement its provisions.
Contributions. Non-employee
Directors can elect to defer up to 100% of their total annual cash compensation
for three, five or ten years and their compensation in the form of restricted
stock for five or ten years. The Company matches 10% of the deferred
cash amount, which amount vests after three years.
Accounts. A
“phantom” stock account is established for each of the Director and Company
contribution amounts. Each deferral and the Company contribution is
reflected by crediting those accounts with the phantom equivalent of the number
of shares of the Company’s Common stock that could be purchased with the amounts
deferred and contributed at the Common Stock’s fair market value (composite
closing price on the New York Stock Exchange) as of the day before the
compensation would otherwise have been paid, or with the number of shares of
restricted stock which has been deferred. Participants' accounts are
also credited with the number of shares of the Company's Common Stock that could
be purchased with hypothetical dividends that would be paid with respect to
shares previously allocated to the accounts on the same date and at the same
price that shares are purchased for participants in the dividend reinvestment
feature of the Company's DRIP.
Payment of Deferred
Amounts. Payments of vested amounts from an account are
normally made in a lump sum or annual installment payments, (at the election of
the participant) commencing on the first quarterly dividend payment date
occurring after the applicable anniversary date of the latest date any
compensation is deferred in any applicable year. Payments out of the
deferred accounts, upon vesting or otherwise, are made by issuance of Common
Stock, except in the event of payment by reason of a change in control in which
event payment may be made in cash or by issuance of Common Stock at the election
of the Compensation Committee.
Transferability of
Award. The rights of a participant under the Director Deferred
Compensation Plan are not transferable other than by will or the laws of descent
and distribution and may be exercised during the participant’s lifetime only by
the participant or by his or her guardian or legal representative.
Adjustments Upon Change in
Capitalization. The number or kind of shares which are
available for stock payments under the Director Deferred Compensation Plan may
be adjusted by the Committee in the event of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination,
exchange of shares or similar transactions.
Change of
Control. In the event of a change of control as defined in the
Director Deferred Compensation Plan, all account balances become fully and
immediately vested and are paid in cash or Common Stock at the discretion of the
Committee.
Amendment or
Termination. The Board of Directors may amend or terminate the
Director Deferred Compensation Plan at any time provided that no such action may
accelerate the time or schedule of payment of any amount under the plan, except
as permitted by the Internal Revenue Code. No amendment or
termination may adversely affect a participant’s account under this plan,
without his or her consent.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE DIRECTOR DEFERRED COMPENSATION PLAN.
RATIFICATION
OF APPOINTMENT OF THE COMPANY’S
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010
The Audit Committee has appointed and
the Board of Directors has ratified the appointment of the accounting firm of
PricewaterhouseCoopers LLP to serve as the Company’s independent registered
public accounting firm for the fiscal year ending December 31,
2010. PricewaterhouseCoopers LLP (and its predecessor, Coopers &
Lybrand, L.L.P.) has served as the Company’s independent registered public
accounting firm since commencement of the Company’s operations and is considered
by the Audit Committee, the Board of Directors and management of the Company to
be well qualified. The stockholders are being asked to ratify the
Audit Committee’s appointment of PricewaterhouseCoopers LLP. If the
stockholders fail to ratify this appointment, the Audit Committee may, but is
not required to, reconsider whether to retain that firm. Even if the
appointment is ratified, the Audit Committee in its discretion may direct the
appointment of a different accounting firm at any time during the year if it
determines that such a change would be in the best interests of the Company and
its stockholders. A representative of PricewaterhouseCoopers LLP will
be present at the Annual Meeting and will be given the opportunity to make a
statement if he or she so desires and will be available to respond to
appropriate questions.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM OF THE COMPANY FOR THE 2010 FISCAL YEAR.
The Audit
Committee of the Board of Directors of the Company is composed entirely of
independent Directors as required by applicable securities laws and the current
listing standards of the NYSE. Its members are identified at the end
of this report. The Audit Committee operates under a written charter
adopted by the Committee and the Board.
As described more fully in its charter,
the Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. Among other matters, the Audit
Committee is responsible for the selection and oversight of the Company’s
independent registered public accounting firm.
The management of the Company is
responsible for the preparation and integrity of the financial reporting
information and related systems of internal controls. The independent
registered public accounting firm is responsible for performing an integrated
audit on the Company’s consolidated financial statements, as well as on the
effectiveness of the Company’s internal control over financial reporting in
accordance with the standards of the Public Accounting Oversight Board (United
States) , and for issuing a report thereon. The Committee, in
carrying out its role, relies on the Company’s senior management and its
independent public accountants.
During
2009, the Committee met four times. The Committee’s meetings include,
no less frequently than quarterly, executive sessions with the Company’s
independent registered public accounting firm without the presence of the
Company’s management and executive sessions with the Company’s management
without the presence of the Company’s independent registered public accounting
firm. The Committee also meets in executive session with the
Company’s Vice President - Internal Audit without the presence of the Company’s
management.
As part
of its oversight responsibility, the Audit Committee reviewed and discussed with
both management and the Company’s independent registered public accounting firm,
all annual and quarterly financial statements prior to their
issuance. Management advised the Committee that each set of the
Company’s financial statements was prepared in accordance with generally
accepted accounting principles and significant accounting and disclosure issues
were reviewed with the Committee. In addition, the Committee
continued to monitor the scope and adequacy of the Company’s internal audit
program.
The
Committee also discussed with the Company’s independent registered public
accounting firm the matters required to be discussed by Statement on Auditing
Standards No. 61, as amended (Communication With Audit
Committees). In addition, the Company’s independent registered public
accounting firm provided to the Committee the written disclosures and the letter
required by applicable requirements of the Public Company Accounting Oversight
Board regarding the independent accountant’s communications with the Audit
Committee concerning independence. The Committee discussed with the
independent registered public accounting firm their independence from management
and the Company.
All audit
and non-audit services provided by PricewaterhouseCoopers LLP and the fees paid
by the Company with respect to such services have been reviewed and pre-approved
by the Audit Committee, which has also considered whether the provision of any
non-audit services is compatible with maintaining the independent registered
public accounting firm’s independence.
In
reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
Company’s audited financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009, for filing with the
Securities and Exchange Commission.
|
Submitted
by the Audit Committee,
|
|
|
Paul
L. Smith, Chair
|
|
|
Stephen
R. Blank
|
|
|
Alan
L. Gosule
|
The Audit Committee’s policy is to
pre-approve all audit and permissible non-audit services provided by the
Company’s independent registered public accounting firm. The
Committee pre-approves on an annual basis the provision of certain audit,
audit-related and tax services specifically described to the
Committee. Any additional engagements require separate
pre-approval. As permitted by the SEC’s rules, the Audit Committee
has authorized its Chair, Paul Smith, to approve any additional non-audit
services to be provided by the independent registered public accounting firm,
provided that such service is permitted under applicable regulations and
reported to the full Audit Committee at its next meeting.
All of the services described below for
2009 and 2008 were pre-approved by the Audit Committee. The Audit
Committee considered whether the provision of non-audit services by
PricewaterhouseCoopers LLP was compatible with maintenance of the firm’s
independence in the conduct of its audit function and determined that such
services were compatible with the maintenance of independence.
Aggregate
fees for professional services rendered to the Company by PricewaterhouseCoopers
LLP as of or for the years ended December 31, 2009 and 2008, were:
|
2009
|
2008
|
|||||||
|
Audit
fees (1)
|
$ | 787,350 | $ | 840,597 | ||||
|
Audit-related
fees (2)
|
65,175 | 9,000 | ||||||
|
Tax
fees (3)
|
152,120 | 161,166 | ||||||
|
All
other fees (4)
|
53,240 | 50,000 | ||||||
|
Total
fees
|
$ | 1,057,885 | $ | 1,060,763 | ||||
(1) Audit
fees consisted of professional services rendered for the audits of the
consolidated financial statements of the Company and the audit
of Internal Controls over Financial Reporting.
(2) Audit-related
fees consisted of assurance and related services related to issuance of comfort
letters, consents and assistance with review of documents filed with the
SEC.
(3) Tax
fees consisted of services related to preparation of tax returns and claims for
refunds, $117,000 for 2009 and $118,176 for 2008, respectively and tax planning
and tax advice of $35,120 for 2009 and $42,990 for 2008.
(4) All
other fees consisted of license fees for software developed by
PricewaterhouseCoopers LLP, including those that assist with partner allocations
for the Operating Partnership.
The cost of solicitation of proxies in
the form enclosed herewith will be paid by the Company. In addition
to the solicitation of proxies by mail, the Directors, officers and employees of
the Company may also solicit proxies personally or by telephone without
additional compensation for such activities. The Company will also
request persons, firms and corporations holding shares in their names or in the
names of their nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners. The
Company will reimburse such holders for their reasonable expenses.
A stockholder proposal submitted
pursuant to Rule 14a-8 under the Exchange Act for inclusion in the Company’s
Proxy Statement and form of proxy for the 2011 Annual Meeting of Stockholders
must be received by the Company by the close of business on December 1,
2010. Any proposal submitted outside the process of Rule 14a-8
received after December 31, 2010 will not, under the rules of the SEC, be
considered timely for presentation at the 2011 Annual Meeting. A
proposal must comply with the requirements as to form and substance established
by the SEC for such a proposal to be included in the Proxy Statement and form of
proxy, and the proponent or a representative of the proponent must attend the
annual meeting to present the proposal.
Copies
of the Form 10-K may be obtained without charge from Shareholder Services, Home
Properties, Inc., 850 Clinton Square, Rochester, New York 14604. A
copy of the Form 10-K is also available through the Company’s Web site at
www.homeproperties.com or from the SEC at its Web site at
www.sec.gov.
The Board
of Directors does not know of any matters other than those described in this
Proxy Statement which will be presented for action at the Annual
Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
REGARDLESS
OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE VOTE
BY INTERNET, TELEPHONE OR COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD TODAY.
Amendment
Number One
to
Home
Properties, Inc.
Director
Deferred Compensation Plan
This
Amendment Number One to the Director Deferred Compensation Plan (the “Plan”) was
duly adopted by the Board of Directors and the Stockholders of Home Properties,
Inc. at meetings duly called and held on May 4, 2010.
1. Defined
Terms. All capitalized terms used herein but not defined shall
have the meaning given to them in the Plan.
2. Amendment to the
Plan. Section 5(f) of the Plan entitled “Authorized Shares”
shall be amended to increase the aggregate number of shares of Company Common
Stock available for stock payments under the Plan (subject to substitution or
adjustment as provided in the Plan) from 100,000 to 150,000.
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HOME
PROPERTIES, INC.
DIRECTOR
DEFERRED COMPENSATION PLAN
(Amended
and Restated as of January 1, 2008)
1. Purpose
Home
Properties, Inc. (the “Company”) adopted its Home Properties, Inc. Director
Deferred Compensation Plan effective January 1, 1999 (the “Plan”) to assist its
independent directors with their individual tax and financial planning and to
permit the Company to remain competitive in attracting and retaining its
independent directors. The Plan permits eligible directors to defer
the receipt of annual compensation which they may be entitled to receive from
the Company and, with respect to cash compensation, the Company to contribute
matching contributions on their behalf.
2. Eligibility
Any
member of the Board of Directors of the Company who is not otherwise an employee
of the Company or any subsidiary is eligible to participate in this
Plan.
3. Contributions
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(a)
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Participant
Contributions.
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(1)
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Amount of
Deferral. A participant may elect to defer receipt of
any whole percent (100 percent maximum) of his or her
annual compensation otherwise payable or, in the case of
restricted stock, granted to the participant by the Company during a
calendar year.
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(2)
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Time for Electing
Deferral. Deferral elections shall be made before the
beginning of the calendar year during which the participant will perform
the services to which the compensations relates. Any election
to defer shall be made in accordance with subsection 3
below.
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Notwithstanding
the foregoing, a newly-eligible participant may make an initial deferral
election within 30 days of the time the participant first becomes eligible to
participate in this Plan, provided that deferrals with respect to this election
may be made only with respect to compensation for services to be performed
subsequent to the election. This initial eligibility rule shall not
apply if the participant is, or ever has been, eligible to participate in
another deferred compensation plan sponsored by the Company that is an “account
balance plan” under the plan aggregation rules of Code Section
409A.
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(3)
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Manner of Electing
Deferral. A participant shall elect a deferral by giving
written notice to the Company in a form prescribed by the Committee
established pursuant to Section 9 (the “Committee”). The notice
shall include (1) the year to which the deferral relates; (2) the
percentage and type of compensation to be deferred; (3)
the period with respect to which the deferral relates; (4) the
length of the deferral period; and (5) for deferrals relating to services
performed in 2008 or thereafter, the form of payment as either a lump sum
payment or annual installment payments over a specified period not to
exceed 10 years. A participant may designate a deferral period
of three, five or ten years for cash deferrals and a deferral period of
five or ten years for restricted stock deferrals. If a
participant elects annual installment payments, the installment payments
shall be substantially equal in amount, provided that any hypothetical
dividends credited to the Participant Account (as described in Section
4(a) below) during the installment payment period shall be paid with the
final installment payment. Payment of cash deferrals and
issuance of stock for restricted stock deferrals will commence on the
first quarterly dividend payment date occurring after the applicable
anniversary date of the latest date any compensation is deferred in any
applicable year.
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For
example, a participant may elect in December 2008 to defer for three years
compensation payable in 2009 with respect to 2009
services. Compensation deferred in 2009 will be paid on the first
Dividend Payment Date occurring after the third anniversary date of the latest
compensation deferred in 2009.
For
deferrals made prior to 2008, notwithstanding the foregoing, in the event the
participant retires or otherwise ceases to be a member of the Board of
Directors, vested benefits payments shall be paid on the Company’s first
quarterly dividend payment date following retirement or such cessation
notwithstanding any later date specified in the participant’s election
form. For deferrals relating to services performed in 2008 or
thereafter, a Participant may elect to receive payment of deferred amounts on
(i) a specified payment date, (ii) termination of directorship, or (iii) the
earlier of a specified payment date or termination of
directorship. For purposes of the Plan, retiring or terminating as a
Director shall mean a separation from service with the Company (within the
meaning of Section 409A).
If a
participant dies before receiving all vested benefits in his or her Participant
Account, the remaining balance shall be paid to the participant’s estate in a
lump sum as soon as administratively practicable following the participant’s
death, and in no event later than March 15th of the calendar year following the
calendar year in which the death occurred, notwithstanding any later date(s)
specified in the participant’s election form(s).
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(b)
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Company Matching
Contributions. The Company shall contribute 10 percent
of the cash amount each participant defers. The Company’s
contribution shall be made as of the same date as the
participant’s deferral to which it relates and shall be deferred to the
same payment date as the related participant deferral. The
Company shall not contribute any additional amounts with respect to any
participant’s election to defer the recognition of income on restricted
stock.
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4. Participant Accounts
For each
participant there shall be established a Participant Account (the
“Account”). The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to make
actual contributions to fund this Plan or to acquire or set aside any particular
assets for the discharge of its obligations, nor is any participant to have any
property rights in any particular assets held by the Company, whether or not
held for the purpose of funding the Company’s obligations
hereunder.
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(a)
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Valuation of
Accounts. A participant’s Account shall be valued as of
each day there occurs a transaction affecting the Account. Each cash
deferral or Company contribution shall be reflected by crediting the
Account with the number of shares of Company Common Stock that could be
purchased at the Common Stock’s then fair market value with the amounts
deferred by the participant, or contributed by the Company on behalf of a
participant. With respect to the deferral of the recognition of
income on restricted stock, a participant’s Account shall be credited with
the same number of shares of the Company Common Stock as the number of
shares of restricted stock the recognition of income on which has been
deferred. For purposes of making these credits: (a)
the participant’s quarterly compensation and meeting fees will be deemed
to have been made on the Dividend Payment Date occurring during the
quarter for which the quarterly payment is made and during which the
meeting date(s) occurred; and (b) restricted stock will be deemed to have
been granted on the date that it is actually granted. In
addition, each Account will be credited with the number of shares of
Company Common Stock that could be purchased with hypothetical dividends
that would be paid with respect to all shares previously allocated to the
Account on the same date and at the same price that shares are purchased
for participants in the dividend reinvestment feature of the Company’s
Dividend Reinvestment and Direct Stock Purchase
Plan. Distributions from, or forfeiture of, the Account shall
be recorded as of the day of such distributions or
forfeitures. The Account shall also be adjusted as of the date
of any transaction requiring additions to or distributions from the
Account to reflect any gains (or losses) in the fair market value of
Company Common Stock held in the Account. Three subaccounts
shall be established within the Account to track separately participant
cash contributions, Company cash contributions and participant restricted
stock contributions and the earnings and distributions on
each. The Common Stock’s fair market value shall be the
composite closing price for a share of the Company’s Common Stock as
listed on the New York Stock Exchange on the date before the transaction
occurs.
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A-4
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(b)
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Vesting. All
amounts credited to participant cash contribution subaccounts shall be
fully vested at all times. Except for the possible claims of
the Company’s general creditors, they shall not be subject to forfeiture
on account of any action by a participant or by the Company, including
termination of the participant’s directorship. Amounts credited
to a participant’s Company cash contribution subaccount shall become fully
vested on the first Dividend Payment Date occurring after the third
anniversary of the date first credited to the subaccount if the
participant has continuously been a director of the Company
through the third anniversary of the contribution date, or if the
participant ceases to be a director on account of disability, death or
retirement or upon a change in control as hereinafter
provided. For this purpose, “disability” shall mean the
participant is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which
can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months. A participant’s
restricted stock subaccount shall become vested in accordance with the
vesting provisions of the restricted stock grant. Amounts
payable under this Plan shall be paid only to the participant provided
that in the event of his or her death payments shall be made to his or her
estate.
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If a
participant’s Company subaccount becomes forfeitable, he or she shall forfeit
both Company contributions and the earnings thereon.’
5. Payment of Deferred
Amounts
No
withdrawal may be made from an Account except as provided in this section
5.
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(a)
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Commencement of
Benefits. Payments of vested amounts from an Account
shall normally be made in a lump sum or annual installment payments,
commencing on the first quarterly dividend payment date occurring after
the applicable anniversary date of the latest date any compensation is
deferred in any applicable year.
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(b)
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Hardship
Withdrawals. Except for earlier payments expressly
authorized by this Plan and Code Section 409A, no benefit may be paid
earlier than the date specified in a deferral
election. Notwithstanding the payment terms set forth in a
participant’s deferral election, however, the Committee may, in its sole
discretion, authorize an in-service withdrawal on account of a
participant’s Unforeseeable Financial Emergency. A distribution
based upon Unforeseeable Financial Emergency shall not exceed the lesser
of the participant’s account balance, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency plus amounts necessary to
pay taxes reasonably anticipated as a result of the payouts, after taking
into account the extent to which the Unforeseeable Financial Emergency is
or may be relieved through reimbursement or compensation by insurance or
otherwise or by liquidation of the participant’s assets (to the extent the
liquidation of assets would not itself cause severe financial
hardship). A distribution based upon Unforeseeable Financial
Emergency shall be permitted only to the extent permitted under Section
409A.
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For
purposes of the Plan, the term “Unforeseeable Financial Emergency” shall mean an
unanticipated emergency that is caused by an event beyond the control of the
participant that would result in severe financial hardship to the participant
resulting from (i) an illness or accident of the participant, the participant’s
spouse or a dependent of the participant, (ii) a loss of the participant’s
property due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
participant, all as determined in the sole discretion of the
Committee.
A-5
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(c)
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Subsequent Deferral
Election. No subsequent deferral election shall be
permitted to extend the payment of benefits beyond the payment date set
forth in the relevant deferral election, except for a subsequent deferral
election that satisfies all of the following
conditions:
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·
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the
subsequent election must be made 12 months or more prior to the
previously-selected payment date;
and
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·
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the
new payment commencement date must be at least five years later than the
previously-selected payment date;
and
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·
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the
subsequent election may not be effective until at least 12 months after
the date on which it is made.
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Only one
such subsequent deferral election may be made after the initial deferral
election.
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(d)
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Form of
Payment. Payments for any reason other than a change in
control shall be made only in stock provided that any fractional shares
from an Account shall be paid in
cash.
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(e)
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Change in
Control. In the event of a change in control, all
account balances shall become fully and immediately vested and shall be
paid, in cash or stock as the Committee in its sole discretion may
determine, within five days of the change in control. For this purpose,
the term “change in control” means a change that is a change in the
ownership, a change in the effective control or a change in the ownership
of a substantial portion of the assets of the Company, all as defined in
IRS regulations under Code Section 409A, provided that such change also
satisfies one of the following:
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i.
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a
change of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A or to Item 5.01 of Form 8-K
promulgated under the Securities Exchange Act of 1934, as
amended;
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ii.
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any
“person” (as such term is used in Sections 13(d) and 14(d)(2) of such Act)
is or becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined voting power of
the Company’s then outstanding securities;
or
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iii.
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during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company’s shareholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
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A-6
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(f)
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Authorized
Shares. An aggregate of 100,000 shares of Company Common
Stock (subject to substitution or adjustment as provided below) shall be
available for stock payments under this Plan. Such shares may
be authorized and unissued shares or may be treasury shares. In the event
of any change in the Common Stock of the Company by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering to
purchase Common Stock at a price substantially below fair market value, or
of any similar change affecting the Common Stock, the number and kind of
shares which thereafter are available for stock payments under the Plan
shall be appropriately adjusted consistent with such change in such manner
as the Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, participants in
the Plan.
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6. Participant’s Rights
Unsecured
The right
of any participant or, if applicable, the participant’s estate, to receive
benefits under the provisions of this Plan shall be an unsecured claim against
the general assets of the Company. Any amounts held in an Account,
including amounts that may be set aside by the Company for the purpose of
meeting its obligations under this Plan, are a part of the Company’s general
assets and shall be reachable by the general creditors of the
Company.
7. Statement of Account
Statements
will be sent to participants no less frequently than annually setting forth the
value of their Accounts.
8. Transferability
The
rights of a participant under this Plan shall not be transferable other than by
will or by the laws of descent and distribution and are exercisable during the
participant’s lifetime only by the participant or by his guardian or legal
representative.
9. Plan Administrator
The
administrator of this Plan shall be a Committee of the Board of Directors of the
Company from time to time designated by the Board. The Committee’s
members shall not be employees of the Company. The Committee shall
have the authority to adopt rules and regulations for carrying out the Plan and
to interpret, construe and implement the provisions of the Plan. The
Committee may delegate some or all of its functions to another person as it may
deem appropriate. The Board of Directors has designated the
Management and Directors Committee of the Board of Directors as administrator of
the Plan until further notice.
A-7
10. Amendment
This Plan
may at any time or from time to time be amended, modified or terminated by the
Company’s Board of Directors, , provided that any such amendment, modification
or termination shall comply with the requirements of Code Section
409A. No amendment, modification or termination shall, without the
consent of a participant, adversely affect such participant’s accruals in his or
her Account.
11. Dividend Payment Date
In the
event that the Company does not pay a dividend on the Common Stock in any
calendar quarter, the Dividend Payment Date in that quarter for purposes of this
Plan shall be deemed to be the last day of February, May, August or November in
the relevant quarter, or if such date is not a business day, the next succeeding
business day.
12. Section 409A
This Plan
shall be governed by and subject to the requirements of Section 409A and shall
be interpreted and administered in accordance with that intent. If
any provision of this Plan would otherwise conflict with or frustrate this
intent, that provision will be interpreted and deemed amended so as to avoid the
conflict. The Committee reserves the right to take any action it
deems appropriate or necessary to comply with the requirements of Section 409A
and may take advantage of such transition rules under Section 409A as it deems
necessary or appropriate.
13. Governing Law
This Plan
and any participant elections hereunder shall be interpreted and enforced in
accordance with the laws of the State of New York.
14. Effective Date
The
effective date of this Amended and Restated Plan is January 1,
2008.
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