April 2, 2007
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Home Properties, Inc. The Annual Meeting will be held on Tuesday, May 1, 2007,
at 2:30 p.m. at the Dryden Theatre of the International Museum of Photography at
George Eastman House, 900 East Avenue, Rochester, New York 14607.
A Notice of Annual Meeting and a Proxy Statement are attached. They
describe the matters to be acted upon at the Annual Meeting.
I hope that you will join us at the meeting. Whether you attend or not,
your vote on all of 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.
I look forward to seeing you at the meeting.
Sincerely,
HOME PROPERTIES, INC.
/s/ Edward J. Pettinella
Edward J. Pettinella
President and Chief Executive Officer
HOME PROPERTIES, INC.
Suite 850
Clinton Square
Rochester, New York 14604
_______________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 1, 2007
_______________________________________
NOTICE IS HEREBY GIVEN that the 2007 Annual Meeting of Stockholders (the
"Annual Meeting") of Home Properties, Inc. (the "Company") will be held on
Tuesday, May 1, 2007 at 2:30 p.m. at the Dryden Theatre of the International
Museum of Photography at George Eastman House, 900 East Avenue, Rochester, New
York 14607 for the following purposes:
1. To elect eleven directors of the Company to serve until the 2008
Annual Meeting of Stockholders and until their respective successors
are elected;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm for 2007; and
3. To consider and act upon any other matters that are properly brought
before the Annual Meeting and at any adjournments or postponements
thereof.
The Board of Directors of the Company (the "Board" or the "Board of
Directors")set the close of business on March 8, 2007 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
for 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 April 30, 2007, 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.
Rochester, New York By Order of the Board of Directors
April 2, 2007
/s/ Ann M. McCormick
Ann M. McCormick
Secretary
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.
HOME PROPERTIES, INC.
Suite 850
Clinton Square
Rochester, New York 14604
_______________________________________
PROXY STATEMENT
_______________________________________
FOR 2007 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 1, 2007
April 2, 2007
GENERAL INFORMATION
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 2007 Annual Meeting of Stockholders of the Company
(the "Annual Meeting"). The Annual Meeting will be held on Tuesday, May 1, 2007
at 2:30 p.m. at the Dryden Theatre of the International Museum of Photography at
George Eastman House, 900 East Avenue, Rochester, New York 14607. The
approximate date on which the enclosed form of proxy and this Proxy Statement
are first being sent to stockholders is April 2, 2007. 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 8, 2007,
may vote.
Outstanding Shares
On March 8, 2007, there were 33,281,018 shares of the Company's Common
Stock outstanding. Each share of Common Stock has one vote.
How to Vote
There are four ways to vote:
1. by completing the enclosed proxy card and returning it in the
enclosed postage prepaid envelope;
2. by internet at http://www.proxyvoting.com/hme;
3. by toll-free telephone at (866) 540-5760; or
4. by written ballot at the Annual Meeting.
How Proxies Work
The Company's Board of Directors is asking for your proxy. By giving us
your proxy, you authorize the proxy holder (Edward J. Pettinella, the Company's
Chief Executive 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" all the enumerated matters
specified in the Notice of Meeting. The proxy holder will also vote shares
according to his discretion on any other matter properly brought before the
meeting.
You may receive more than one proxy card depending on how you hold your
shares. For example, if you hold shares through someone else, such as a
stockbroker, you may get proxy material from them. In order for you to vote
those shares, you must provide instructions to the record holder as provided in
their instructions to you. Even though you have not provided instructions to
your record holder, they may vote your shares "for" the election of the nominees
for director and "for" the ratification of the independent registered public
accounting firm.
Quorum
In order to carry out the business of the Annual Meeting, we must have a
quorum. This means that at least a majority of the outstanding shares eligible
to vote must be represented at the meeting, either by proxy or in person. Votes
withheld and abstentions are deemed "present" at the Annual Meeting and will be
counted for quorum purposes.
Votes Needed
The affirmative vote of a plurality of the votes cast at the Annual Meeting
is required for the election of directors. The ratification of the appointment
of PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm for 2007 and any other matter properly brought before the
meeting requires the favorable vote of a majority of the votes cast. Under
Maryland law, if a stockholder abstains on a vote, the abstention does not
constitute a vote "for" or "against" a matter. Thus, abstentions are disregarded
in determining the "votes cast." Broker non-votes, if any, while counted for
general quorum purposes, are not deemed to be "present" with respect to any
matter for which a broker does not have authority to vote.
Changing Your Vote
You may revoke your proxy before it is voted at the 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.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, eleven individuals will be elected to serve as
directors until the 2008 Annual Meeting and until their successors are elected.
The Board of Directors has nominated Josh E. Fidler, Alan L. Gosule,
Leonard F. Helbig, III, Roger W. Kober, Nelson B. Leenhouts, Norman P.
Leenhouts, Edward J. Pettinella, Clifford W. Smith, Jr., Paul L. Smith, Thomas
S. Summer, 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.
If the Nominees are all elected, the size of the Board of Directors will
decrease from twelve members to eleven members since William Balderston, III is
retiring from the Board and will not stand for re-election pursuant to the Board
of Directors' retirement policy. No successor is currently being nominated to
replace Mr. Balderston.
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
Brief biographical descriptions of the Nominees follow. The information was
furnished to the Company by the Nominees. The information is up to date through
March 8, 2007.
Josh E. Fidler, age 51, has been a director of the Company since August,
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 John Hopkins Medicine and President-elect of the
Board of Trustees of The Park School.
Alan L. Gosule, age 66, has been a director of the Company since 1996. Mr.
Gosule has been a partner in the New York Office of the law firm of Clifford
Chance US LLP since August 1991 and prior to that time was a partner in the law
firm of Gaston and Snow. Mr. Gosule is a graduate of Boston University and its
Law School and received an LLM in Taxation from Georgetown University. Mr.
Gosule also serves on the Board of Directors of MFA Mortgage Investments, Inc.
and is a voting trustee of F.L. Putnam Investment Management Company.
Leonard F. Helbig, III, age 61, has been a director of the Company since
1994. Since September 2002 he has served as a Director of Integra Realty
Advisors in Philadelphia. Between 1980 and 2002 he was employed with Cushman and
Wakefield, Inc. From 1990 until 2002, Mr. Helbig served as President, Financial
Services for Cushman and Wakefield, Inc. Prior to that and since 1984, Mr.
Helbig was the Executive Managing Director of the Asset Services and Financial
Services Groups. He was a member of that firm's Board of Directors and Executive
Committee. Mr. Helbig is a member of the Urban Land Institute, the Pension Real
Estate Association and the International Council of Shopping Centers. Mr. Helbig
is a graduate of LaSalle University and holds the MAI designation of The
Appraisal Institute.
Roger W. Kober, age 73, has been a director of the Company since 1994. He
was employed by Rochester Gas and Electric Corporation from 1965 until his
retirement on January 1, 1998. From March 1996 until January 1, 1998, Mr. Kober
served as Chairman and Chief Executive Officer of Rochester Gas and Electric
Corporation. He is a Trustee Emeritus of Rochester Institute of Technology. Mr.
Kober is a graduate of Clarkson College and holds a Masters Degree in
Engineering from Rochester Institute of Technology.
Nelson B. Leenhouts, age 71, 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 ("HPRS"), for which he also had
served in various officer capacities prior to his retirement. Mr. 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, Nelson Leenhouts 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. Mr. Leenhouts subsequently
entered into an Employment Agreement with a term that expires on December 31,
2007. Pursuant to the current Employment Agreement, Mr. Leenhouts will continue
to lead the Company's development activities. Nelson Leenhouts is the founder,
and a co-owner, together with Norman Leenhouts, of Home Leasing Corporation
("Home Leasing"), and has served as President of Home Leasing since 1967. He is
a member of the Board of Directors of the Genesee Valley Trust Company. 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.
Norman P. Leenhouts, age 71, 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 has also served as a
director of HPRS. Mr. 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 Chair of Broadstone Ventures, LLC and Broadstone Real
Estate, LLC, formed to continue the commercial property management business of
Home Leasing. 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. He is a graduate of the University of Rochester and
is a certified public accountant. He is the twin brother of Nelson Leenhouts and
the father of Amy L. Tait.
Edward J. Pettinella, age 55, has served as President and Chief Executive
Officer of the Company since January 1, 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 (NY Division) 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
United Way of Greater Rochester, Rochester Business Alliance, The Lifetime
Healthcare Companies, National Multi Housing Counsel, Syracuse University School
of Business and the Geneseo Foundation Board. He is also on the Board of
Governors of National Association of Real Estate Investment Trusts and is a
member of Urban Land Institute. Mr. Pettinella is a graduate of the State
University of New York at Geneseo and holds an MBA Degree in finance from
Syracuse University.
Clifford W. Smith, Jr., age 60, 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 various journals. Mr. Smith is a graduate
of Emory University and has a PhD from the University of North Carolina at
Chapel Hill.
Paul L. Smith, age 71, 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
of Constellation Brands, Inc. 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 an MBA Degree in finance from Northwestern
University.
Thomas S. Summer, age 53, has been a director of the Company since August,
2004. Mr. Summer has been the Executive Vice President and Chief Financial
Officer of Constellation Brands, Inc. since 1997. Mr. Summer and Constellation
Brands have announced that Mr. Summer is retiring from that position on or about
May 15, 2007. Pursuant to the Company's Corporate Governance Guidelines, Mr.
Summer offered to resign as a Board member as a result of his anticipated change
of employment. His offer to resign was not accepted by the Board. Prior to his
employment by Constellation Brands, he held various positions in financial
management with Cardinal Health, Inc., PepsiCo, Inc., and Inland Steel
Industries. He is also a member of the Boards of Greatbatch, Inc. and AIDS
Rochester, Inc. Mr. Summer is a graduate of Harvard University and holds an MBA
degree in finance and accounting from the University of Chicago.
Amy L. Tait, age 48, has served as a director of the Company since its
inception in 1993. Effective February 15, 2001, Mrs. Tait resigned her full-time
position as Executive Vice President of the Company and as a director of HP
Management. She continued as a consultant to the Company pursuant to a
consulting agreement that terminated on February 15, 2002. She is currently the
Chief Executive Officer and a director of Broadstone Ventures, LLC and
Broadstone Real Estate, LLC, where she also serves as Secretary. Mrs. Tait
joined Home Leasing in 1983 and held several positions with the Company,
including Senior and Executive Vice President and Chief Operating Officer. She
currently serves on the M and T Bank Regional Advisory Board and the boards of
the United Way of Rochester, Princeton Club of Rochester, Al Sigl Center, Center
for Governmental Research, Allendale Columbia School, Monroe County Center for
Civic Entrepreneurship and the Simon School Executive Advisory Committee. Mrs.
Tait is a graduate of Princeton University and holds an MBA 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.
BOARD MATTERS
Board Composition
The Company is managed by its Board of Directors. If all of the Nominees
are elected, the Board will have eleven members. With the retirement of William
Balderston, III, the Board decided, at least for the current time, to reduce the
size of the Board from twelve members to eleven. This decision was based on
various considerations, including efficiency.
Board Meetings
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 2006, the Board of
Directors met nine times, including regular and special meetings. Each director
attended at least 75% of the Board's meetings, except for Josh Fidler, who
attended 66 2/3% of the meetings. The three meetings that Mr. Fidler missed were
special meetings, two of which were called with relatively short notice. Seven
of the twelve directors attended all of the meetings. Four directors each missed
one meeting.
Board Independence
Ten of the Company's twelve Board members are not employed by the Company.
The Board of Directors has determined that eight of the 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: William Balderston, Josh Fidler, Alan
Gosule, Leonard Helbig, Roger Kober, Clifford Smith, Paul Smith and Thomas
Summer. 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 ("UPREIT Units") in Home Properties, L.P.
(the "Operating Partnership"), which are exchangeable on a one-for-one basis for
Common Stock and have customarily received distributions equivalent to
distributions on the Common Stock, does not bar the Board from determining that
a director is independent. Messrs. Balderston, Gosule, Helbig, Kober, C. Smith,
P. Smith and Summer 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 in Home
Properties L.P. Pursuant to the purchase agreement, the Company agreed 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 comparable to 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 three 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.
Norman Leenhouts is not an independent director because he was employed by
the Company until December 31, 2006 and his brother Nelson remains an employee.
As she is Norman Leenhouts' daughter, Amy Tait is not an independent director.
Nelson Leenhouts and Edward Pettinella are not independent as they are currently
employed by the Company.
Board Evaluation
In 2006, each Board member participated in a written self-evaluation of
their 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.
Director Qualifications
The Board has established certain minimum qualifications for prospective
Board members. These include a successful professional career as well as the
potential to contribute to the effectiveness of the Board as a whole. Specific
qualifications or skills that a prospective Board member must possess include
candor, trustworthiness, high ethical standards, dedication and a desire to work
hard. Specific expertise must include one of the following: successful
financial, legal, academic, mergers and acquisitions, technology utilization or
business operating experience.
Identifying and Evaluating Nominees for Directors
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.
Candidates may come to the attention of the Committee through current Board
members, stockholders, management or other persons. 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 interact 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.
Stockholder Nominees
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 2008 Annual
Meeting and inclusion in the Proxy Statement for the 2008 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 2, 2007.
Director Communications
Stockholders and other interested parties may communicate with the Board of
Directors by sending written materials to the Board or any of the directors 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 written communications to the Board of Directors or individual members
designated by the stockholder or other interested party.
Compensation Committee Interlock and Insider Participation
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.
Board Committees
Audit Committee. 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/Corporate
Governance 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 Alan Gosule, Leonard Helbig,
Roger Kober, Paul Smith and Thomas Summer. Paul Smith chairs this Committee.
Following the Annual Meeting and contingent upon their re-election to the Board,
the Audit Committee will consist of Alan Gosule, Roger Kober, Paul Smith and
Thomas Summer with Paul Smith continuing as Chair.
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 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 one other
public company. 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 Roger Kober, Paul Smith
and Thomas Summer 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 five times in 2006. Each of the members of the Audit
Committee attended all of the Committee's meetings. In 2006, the Audit Committee
conducted a self-evaluation.
Compensation Committee. 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/Corporate Governance 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 William Balderston, Roger
Kober and Clifford Smith, each of whom has been determined by the Board to be an
independent director. Clifford Smith chairs this Committee. Following the Annual
Meeting, and contingent upon their re-election to the Board, the Compensation
Committee will consist of Josh Fidler, Leonard Helbig, Roger Kober and Clifford
Smith, with Mr. Helbig serving as Chair. Each of the new members also has been
determined by the Board to be an independent director.
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.
The agenda for meetings of the Compensation Committee is determined by its
Chair with the assistance of the Senior Vice President of 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 of Human Resources 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 of Human Resources, may be delegated authority
by the Compensation Committee to fulfill certain administrative duties regarding
the compensation programs. The Compensation Committee has 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 2006, the Compensation Committee retained the services of FPL Advisory
Group and Mercer Human Resource Consulting. These consultants were engaged
directly by the Compensation Committee. FPL Advisory Group is a human resources
and management firm that specializes in the real estate and related financial
services industries. In 2006, they were retained to provide information on
current market trends and practices relating to Chair of the Board compensation
practices, material provisions of Chief Executive Officer employment agreements,
retirement and long-term incentive programs. In 2006, Mercer Human Resource
Consulting was retained by the Compensation Committee to provide additional data
and advice regarding Chair of the Board compensation, the prevalence of
employment contracts for chief executive officers, the typical severance/change
in control provisions in such contracts and the prevalence of long-term
incentive programs. Mercer Human Resource Consulting was also retained by the
Compensation Committee to assist management with the preparation of the
Compensation Discussion and Analysis included in this Proxy Statement.
The Compensation Committee also consults with senior management and, in
particular, the Chief Executive Officer and Senior Vice President of Human
Resources in making determinations about the executive compensation program and
the compensation of individual executive officers.
The Compensation Committee met five times in 2006. Each of the members of
the Compensation Committee attended all of the Committee's meetings. In 2006,
the Compensation Committee conducted a self-evaluation.
Corporate Governance/Nominating Committee. 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/Corporate
Governance 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 William Balderston, Clifford
Smith and Paul Smith, each of whom has been determined by the Board to be an
independent director. William Balderston chairs the Corporate
Governance/Nominating Committee. Following the Annual Meeting, and contingent
upon their re-election to the Board, the Corporate Governance/Nominating
Committee will consist of Leonard Helbig, Alan Gosule, Clifford Smith and Paul
Smith with Clifford Smith serving as Chair.
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 2006. Each
of the members of this Committee attended all of the Committee's meetings. In
2006, the Corporate Governance/Nominating Committee conducted a self-evaluation.
Real Estate Investment Committee. 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/Corporate Governance 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 consists 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. Following the Annual Meeting, and contingent upon his
re-election to the Board, Thomas Summer will be added as a member of the Real
Estate Investment Committee.
The purpose of the Real Estate Investment Committee is to review potential
acquisitions and dispositions 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 seven times in 2006. Each of the
members of this Committee attended all of the Committee's meetings. In 2006, the
Real Estate Investment Committee conducted a self-evaluation.
BOARD COMPENSATION
In 2006, the Company paid its non-employee directors an annual stipend of
$30,000. An additional annual stipend in the amount of $10,000 was paid to the
Chair of each of the Committees. Non-employee directors were also paid $1,200
per day for attendance (in person or by telephone) at Board and Committee
meetings provided the Committee meetings were held on a different day from the
Board meetings. In addition, in 2006, each of the non-employee directors was
issued 1,000 shares of restricted stock and 4,000 options pursuant to the
Company's Amended and Restated 2003 Stock Benefit Plan (the "Stock Plan"). The
options were issued at an exercise price of $51.06 per share, which was the
closing price of a share of the Company's Common Stock on the date of the 2006
Annual Meeting.
For 2007, the annual stipend will remain at $30,000, the additional stipend
paid to the Committee Chairs will remain at $10,000 and the meeting fees will
increase to $1,400 per day. In addition, beginning in 2007, a meeting fee will
be paid for each meeting attended regardless of the number of meetings held in a
day. This change was made in recognition of the time and effort required to
adequately prepare for each meeting. Norman Leenhouts will be paid an additional
annual stipend of $100,000 for his services as Co-Chair and for additional
services to be rendered in connection with the Company's acquisition and
disposition activities. The Stock Plan provides for the issuance of up to 1,000
shares of restricted stock to each of the non-employee directors in 2007. The
Board authorized a grant equal to the number of shares (not to exceed 1,000)
equal to $55,000 divided by the closing price of a share of the Company's Common
Stock on the date of issuance, which was to be the first dividend payment date
in 2007, February 28, 2007. The closing price that day was $58.51 and, as a
result, each of the non-employee directors, except for Mr. Balderston, was
issued 940 shares of restricted stock. In recognition of his retirement
following the Annual Meeting and the fact that, at retirement, he will have
served as a director for half of the Board's quarterly meetings, Mr. Balderston
was paid in cash the pro-rata share (one-half) of the value of the restricted
stock or $27,500 in lieu of being issued restricted stock. The Stock Plan also
provides for the issuance of up to 4,000 options to each of the non-employee
directors in 2007. The Board has approved the issuance of options for the number
of shares equal to $26,000 divided by 12.5% of the closing price of a share of
the Company's Common Stock on the date of grant, which is to be the date of the
Annual Meeting provided that the number of options to be issued is not to exceed
4,000. The Board determined the 2007 compensation level for non-employee
directors based on an analysis of the amount and type of consideration paid to
the boards of the Company's peer group.
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 as of the day when 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").
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, 2006. 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.
2006 DIRECTOR COMPENSATION TABLE
Fees Earned or All Other
Paid in Cash Stock Awards Option Awards Compensation
Name(1) ($)(2) ($)(3)(4) ($)(5) ($)(6) Total ($)
------- ------ --------- ------ ------ ---------
William Balderston III 65,200 55,880 35,309 6,104 162,493
Josh E. Fidler 49,200 49,360 28,228 4,179 130,967
Alan L. Gosule 52,800 49,360 35,309 7,892 145,361
Leonard F. Helbig III 57,600 55,120 35,309 8,620 156,649
Roger W. Kober 52,800 54,640 35,309 7,597 150,346
Clifford W. Smith Jr. 98,200 59,180 35,309 9,104 201,793
Paul L. Smith 64,000 49,360 35,309 6,551 155,220
Thomas S. Summer 52,800 49,360 28,228 4,179 134,567
Amy L. Tait 64,000 49,360 35,309 5,978 154,647
(1) Nelson Leenhouts and Norman Leenhouts are not listed on this table as
they were employees of the Company until December 31, 2006 pursuant to
Employment Agreements which are described in "Transactions with Related Persons,
Promoters and Certain Control Persons" beginning on page 34. They did not
receive any compensation for their services as directors in 2006.
(2) The amount in this column is inclusive of fees that were deferred
pursuant to the Director Deferred Compensation Plan. Messrs. Balderston, Helbig,
Kober and C. Smith deferred 100% of their 2006 cash compensation.
(3) Each of the listed directors was granted 1,000 shares of restricted
stock in 2006. This column includes the grant date fair value of the restricted
stock award, which was calculated using the closing price ($49.36) of a share of
the Company's Common Stock on the grant date (February 28, 2006). Messrs.
Helbig, Kober and C. Smith deferred receipt of this restricted stock pursuant to
the Director Deferred Compensation Plan.
(4) For those directors who deferred their cash compensation, this column
also includes the value of the Company's 10% contribution made in 2006. Any
amount in excess of $49,360 is the grant date fair value of the 10%
contribution.
(5) Each of the directors was granted options to purchase 4,000 shares of
the Company's Common Stock in 2006. This column represents the dollar amount
recognized for financial statement reporting purposes with respect to 2006 for
the fair value of stock options granted to each of the directors in 2006 as well
as prior years, in accordance with SFAS 123R except, pursuant to SEC rules, the
amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. The grant date fair value of these options was
$6.33 per share or $25,320 in the aggregate per director. This value was
calculated using the Black-Sholes formula. For additional information on the
valuation assumptions with respect to the 2006 grants as well as the grants made
prior to 2006, refer to note 9 of the Company's financial statements in the Form
10-K for the year ended December 31, 2006, as filed with the SEC.
(6) This column represents: (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
2006 on the Company 10% match shares in the listed director's deferred
compensation account.
CORPORATE GOVERNANCE
Code of Ethics
A very 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, 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/Corporate
Governance 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 and
any waivers granted thereunder will be posted on the Company's website under
that heading. The Audit Committee of the Board of Directors monitors the
implementation and enforcement of both Codes.
Corporate Governance Guidelines
The Board of Directors has adopted a set of 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 was changed in February
2006 to 75. Previously, the retirement age of 75 was subject to exceptions if a
determination was made by the other directors, after confidential discussion,
that the over age 75 director was expected to make a significant contribution to
the Company during the following year. As of the 2007 Annual Meeting, no
exceptions will be permitted. As a result, William Balderston, III, is retiring
from the Board of Directors and will not stand for re-election.
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. 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 directors attended the 2006 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/Corporate Governance
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.
Stock Option Restrictions
The Stock Plan approved by the Company's stockholders at the 2005 Annual
Meeting includes some features that are designed to closely align the interests
of management with those of the stockholders. Options may not be repriced.
Options held by the Company's executive officers do not vest automatically upon
retirement but continue to vest as scheduled. Directors and the executive
officers of the Company must hold an equivalent number of shares as were issued
on an option exercise for a one-year period.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
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 markets.
The Company's 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 cost of capital; (iii)
developing new apartment communities on raw 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; and (v) maintaining a strong and
flexible capital structure with cost-effective access to the capital markets.
The Company's executive compensation philosophy is designed to support its
mission of creating long-term value for stockholders and the successful
execution of its vision and business strategies outlined above. The Company
believes that its success in achieving these goals is, in large part,
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:
o Attraction and Retention: The Company seeks to attract and retain
highly capable executives both from within and outside the
multi-family REIT industry by offering a competitive total
compensation package;
o Motivation: The Company endeavors to motivate its executives to
maximize the long-term value of the Company by achieving certain
operational and financial goals; and
o Linkage: The Company's executive compensation program is tied
directly to the operating, financial and stock performance of the
Company. By ensuring that executives are rewarded in step with
the Company's performance, their interests are aligned with the
interests of the Company's stockholders.
Oversight of the Executive Compensation Program
The Compensation Committee (the "Committee") is responsible for, among
other things, establishing, administrating 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 administers the Company's stock option plans
(including reviewing and approving stock option grants and other awards to
executive officers), reviews and approves the Company's goals and objectives
relevant to compensation of the executive officers and considers the structure
of the Company's compensation program as it applies to all employees. 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" beginning on page 7.
Setting Executive Compensation
Guiding Principles
It is the Committee's practice to provide a balanced mix of cash- and
equity-based compensation that the Committee believes appropriate to align the
short- and long-term interests of executives with that of stockholders and to
encourage executives to act in the interest of stockholders. When the Committee
considers any component of the Chief Executive Officer's and the other executive
officers' compensation, the aggregate amounts and mix of all components,
including salary, bonus, equity and the Company's 401(k) Savings Plan match, are
taken into consideration. In addition, when reviewing the Chief Executive
Officer's compensation, the Committee also takes into account his accumulated
option and restricted stock gains. Although the Committee does not target a
specific level of compensation relative to industry peers, it generally seeks to
provide total target compensation (consisting of base salary, annual cash
incentives and equity incentives) that approximates the market median if median
levels of performance are achieved, greater compensation if above-median levels
of performance are achieved and lesser compensation if performance levels are
below expectations.
The Committee believes that appropriately balancing the total package and
ensuring the viability of each component of the package is necessary 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. It
is the Committee's practice to 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 a compensation
tally sheet which details the Chief Executive Officer's total compensation
(salary, bonus, equity and the Company's 401(k) Savings Plan match) for the
current year and the prior year. The Committee also receives an overview of his
equity ownership in addition to an overview of compensation that would be due to
him under various termination scenarios. The Committee recommends to the full
Board for approval the level of the Chief Executive Officer's total
compensation. The full Board also considers written evaluations of the Chief
Executive Officer's performance completed by each member of the Board in
addition to each of his direct reports. The Board meets in executive session to
approve each element of the compensation package for the Chief Executive
Officer.
Role and Responsibilities
The Committee has the authority to engage the services of outside advisors
and experts for assistance in making compensation decisions. In 2006, the
Committee hired FPL Advisory Group, a human resource and management consultancy
specializing in the real estate and related financial services industries, to
provide competitive market data and advice on various executive compensation
issues, including the Chief Executive Officer's employment agreement.
The Committee also worked with Mercer Human Resource Consulting which
served as a compensation consultant for the Committee to provide competitive
market data and advice on various executive compensation issues, including the
Chief Executive Officer's employment agreement and the Company's long-term
incentive practices.
In addition to considering input provided by its outside advisors, the
Committee also considers input from senior management in making determinations
regarding the overall executive compensation program and the individual
compensation of the executive officers. The Company's human resources team
supports the Committee and its work and, in some cases, acts pursuant to
delegated authority to fulfill various functions in administering the Company's
compensation programs.
The Chief Executive Officer annually reviews the performance of each of the
executive officers. The conclusions reached and recommendations based on these
reviews for base salary levels and annual bonus target amounts are presented to
the Committee. The Committee can exercise its discretion in modifying any
recommended base salary levels or annual bonus target amounts.
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
residential sector classification of real estate companies and for executives in
comparably sized companies in the services industry. The primary benchmark used
by the Committee for the Chief Executive Officer's compensation, as well as the
compensation of the other named executives, is the peer group in the
multi-family REIT industry (the "Industry Peer Group"). This is the same peer
group that is used to calculate the bonus payable pursuant to the Company's
Incentive Compensation Plan. See "Annual Incentive Awards" beginning on page 15.
The Industry Peer Group, which is periodically reviewed and updated by the
Committee, consists of companies against which the Committee believes the
Company competes for talent and for stockholder investment. The Committee
recognizes that the members of the Industry Peer Group vary in terms of the size
of their market capitalization and takes this variation into account in its use
of related data. During 2006, the Industry Peer Group was comprised of the
following companies:
o Apartment Investment and Management Company
o Archstone-Smith Trust
o AvalonBay Communities, Inc.
o BRE Properties, Inc.
o Camden Property Trust
o Equity Residential
o Essex Property Trust, Inc.
o Mid-America Apartment Communities, Inc
o Post Properties, Inc.
o UDR, Inc.
Industry Peer Group compensation data is taken from their most recently
available proxy statements and analyzed by the Company's human resources team
under the direction of the Committee. This benchmarking is done with respect to
the key elements of the executive compensation program, as well as the
compensation levels of individual executives where job descriptions are
sufficiently similar. Industry Peer Group compensation data is supplemented by
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 US property and investment markets,
and from Watson Wyatt, a global human resource consulting firm. The compensation
data from NAREIT reflects the residential property sector classification and the
compensation data from Watson Wyatt reflects services industry companies with
comparable revenue within the New York/Northeast and Mid-Atlantic regions.
2006 Executive Compensation Components
For 2006, the primary elements of compensation for the Named Executive
Officers were:
o base salary,
o annual incentive awards,
o long-term equity incentive awards,
o deferred compensation, and
o retirement and other benefits.
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,
generally are established based on the individual's job responsibilities,
performance and experience, 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. Annual adjustments
are typically approved at the Committee and Board meetings held in February, are
effective in mid-March and remain effective for twelve months. The Named
Executive Officers' base salary included in the 2006 Summary Compensation Table
on page 22, represents the base salary paid from January 1, 2006 to March 15,
2006 at the level approved in February 2005 and for the period from March 16,
2006 to December 31, 2006 at the level approved in February 2006. In February
2007, the Committee approved increases for the Named Executive Officers (other
than the Chief Executive Officer) for the period from March 16, 2007 to March
15, 2008 as follows: David Gardner - $320,000 (from $300,000); Ann McCormick -
$272,000 (from $260,400); Scott Doyle - $250,000 (from $240,000) and John Smith
$240,000 (from $225,000). In addition, based on a recommendation by the
Compensation Committee, the Board approved an increase in Edward Pettinella's
base salary to $550,000 (from $525,000).
Annual Incentive Awards
The Company's Amended and Restated Annual Incentive Plan (the "Bonus Plan")
was approved by the Board in February of 2005 and is an annual cash incentive
program designed to motivate 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.
Currently under the Bonus Plan participants are eligible to earn a cash
incentive award based upon 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 2006, this was properties owned since January 1,
2005) net operating income ("NOI") from the previous year as compared to the
Industry 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 and is therefore given a 75% weighting in determining incentive
payments. When calculating FFO for the purposes of the Bonus Plan, the Committee
may approve the exclusion of certain non-recurring items from published FFO
results based on extraordinary events such as catastrophic natural disasters or
other events outside of the control of management and the receipt of income
representing a windfall not related to the operations of the Company's business.
No such adjustment to published FFO occurred with respect to the 2006 bonus.
Same store NOI relative to the Industry Peer Group, which is considered by the
Committee to be an important driver of real estate property values and thus
stockholder value, receives a 25% weighting. The Committee periodically reviews
the annual incentive plan metrics and their respective weightings to ensure
consistency with the Company's business objectives.
When designing the Bonus Plan, the Committee identified a range of
financial performance for both FFO and NOI that reflected acquisition targets,
expected revenue growth and economic conditions inherent in the Company's
strategic plan. The Committee has discretion in determining the calculation of
FFO for purposes of this plan. In consideration of the degree of difficulty
associated with that range of expected Company financial performance, the
Committee specified that 4.0-12.0 bonus units could be earned. The Committee
also established a ceiling and a floor of expected financial performance for
both the FFO and NOI metrics. 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 its industry peers and extraordinary events. The
Committee did not need to exercise that discretion in 2005 or in 2006 since the
Company achieved a bonus award payout in excess of the floor and below the
ceiling.
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. Note, by basing the bonus on
year-over-year change in FFO, rather than the more common approach of absolute
FFO, the Company's bonus payments are more sensitive to performance and the
Company's bonus payments are more variable from year to year.
The Committee also assigns at the beginning of each year 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 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 from 35% to
65% of their base salaries and the Chief Executive Officer will earn bonus
payments from 65% to 100% of his base salary.
The bonus factor assigned to each of the Named Executive Officers for 2006
can be found on page 23 in footnote 4 to the 2006 Summary Compensation Table. In
February 2007, the Committee considered the bonus factors assigned to each of
the Named Executive Officers and decided not to change them for 2007.
The Committee has discretion for determining and recommending to the Board
what portion (up to 100%) of the annual incentive otherwise earned should be
paid to the Chief Executive Officer. In making its determination as to what
portion of the 2006 annual incentive (payable in 2007) 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 appraisal completed by
directors and the Chief Executive Officer's direct reports. In addition, the
Committee considered progress on several initiatives led by Mr. Pettinella.
Based on the Committee's consideration of all of these factors, in February
2007, the Committee recommended and the Board approved payment to the Chief
Executive Officer of 100% of his 2006 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 2006 annual incentive.
Awards made to the Named Executive Officers under the Bonus Plan in 2007
for performance in 2006 are reflected in the 2006 Summary Compensation Table on
page 22.
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 enlarge 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
targeted compensation in the form of equity.
Equity incentives for the Named Executive Officers consist of stock option
and restricted stock awards granted under the Company's Amended and Restated
2003 Stock Benefit Plan (the "Stock Plan"). 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.
The Committee believes it is important that executive officers have a
minimum level of personal financial risk if they are expected to promote the
Company's long-term value and thereby advance the interests of the Company's
stockholders. To that end, executive officers must hold an equivalent number of
shares as were issued on an option exercise for at least one year.
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 six months 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 Committee believes that these
vesting provisions enforce the Company's compensation objectives and guiding
principles as outlined above while protecting the key executives from adverse
effects of a change in control. Further detail with respect to treatment of
equity upon certain employment termination events can be found under "Potential
Payments upon Termination of Employment or Change in Control" beginning on page
27.
Stock option grants are made with an exercise price equal to the closing
price of the Company's Common Stock on the date of grant. Under the Stock Plan,
the Committee may grant options to an executive at an exercise price in excess
of the closing price of the Company's Common Stock on the grant date. The
Company's policy is to never grant stock options with an exercise price that is
less than the closing price of the Company's Common Stock on the grant date, and
never to grant options which are priced on a date other than the grant date.
Also, pursuant to the Stock Plan, stock options may not be repriced.
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. Prior to 2006,
restricted stock grants were made in February of each year and option grants
were made in August of each year. In 2006, grants of restricted stock and
options were made on the date of the May Board meeting. Future grants will
similarly be made on the date of the May Board meeting each year. Changing the
timing of these awards enabled the Committee to review more recent Industry Peer
Group data when making its recommendations because the Industry Peer Group proxy
statements reflecting compensation data for the prior year are available. It
also enables the Committee to consider both of these components of equity
compensation at the same time. Additionally, timing these awards with the May
Board meeting each year ensures that the grants are made shortly after earnings
announcements for the year end and the first quarter of the current year so that
the market has fully adjusted for the results before the grants are made.
In determining equity incentive awards for 2006, the Committee reviewed
stock compensation of the Chief Executive Officer and the other executive
officers in light of the other elements of their compensation, their overall
equity interest in the Company and the comparison to the Industry Peer Group.
Stock awards were generally determined based on a fixed number of shares granted
annually. The number of shares was adjusted up or down depending on various
factors including the competitiveness of the executive's overall total
compensation, the executive's performance, and the Company's stock price.
Commencing in 2007, it is expected that the level of shares to be granted will
be based upon the value of the grant rather than a fixed number of shares.
Equity incentive awards made to the Named Executive Officers in 2006 are
described in the 2006 Grants of Plan Based Awards Table on page 23.
Deferred Compensation
Prior to the 2006 bonus, under the Bonus Plan, participants, including the
Named Executive Officers, who were eligible for a bonus factor of 3% or higher
were required to defer their annual incentive award when the combined bonus
units earned based on the pre-established financial targets were in excess of
eight units. The bonus deferral amount plus interest at 6% were paid out in the
following year provided that the Company paid a bonus in that year. This
mandatory deferral provision was terminated in 2007, effective for the 2006
bonus in order to fully reward employees for exceptional performance in closer
proximity to the year in which the performance occurred.
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. Participant amounts and
Company contributions are deferred into a "phantom" stock account which is
credited based on the Company's Common Stock price, further aligning
participants with the interests of the Company's stockholders.
Further details with respect to the Deferred Bonus Plan and voluntary
deferrals under that Plan are provided in the "Introduction to 2006 Summary
Compensation" beginning on page 21 and in the 2006 Nonqualified Deferred
Compensation Table on page 27.
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 matches employee contributions into the 401(k) Savings Plan
seventy-five cents for every dollar up to 3% of gross 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.
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 are also 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 Edward
J. 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 provides that Mr. Pettinella will continue to serve as President and
Chief Executive Officer of the Company until December 31, 2008. This agreement
automatically renews, unless terminated by either party, for an additional
one-year term not to extend beyond December 31, 2009. While Mr. Pettinella
participates in the Company's salary, annual and long-term incentive
compensation programs under the 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 is, therefore, not guaranteed any specific level of
compensation during the term of the Agreement. He is, however, assured of the
payment of a 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 the
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 our 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. 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 employer 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 last
paid bonus, (2) payment of accrued/deferred bonus amounts, and (3) a gross-up
payment should the executive be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code. In addition, all stock options and restricted
stock outstanding become fully vested The Committee and the full Board believe
that the triggering events stipulated in the Executive Retention Plan for equity
acceleration are appropriate so that senior managers remain with the
organization despite the climate of industry consolidation. The Committee and
the full Board have also reviewed the change in control plans of the Industry
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.
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.
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 27.
Bonus Repayment Agreement
The Company has entered into a Bonus Repayment Agreement with each of the
Named Executive Officers, and all other executive officers, which states that
the Company may recover cash incentive compensation in the event of a
restatement of financial results. Under the Agreement, each executive would be
required to return to the Company so much of the incentive compensation paid to
them for services rendered during the period for which the restatement is
required that would not have been paid if the restated financial results had
been originally stated correctly.
Tax and Accounting 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).
Accounting for Stock-Based Compensation
Beginning on January 1, 2006, the Company began accounting for stock-based
payments including awards granted under its 2003 Stock Benefit Plan in
accordance with the requirements of SFAS Statement 123R.
COMPENSATION COMMITTEE REPORT
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,
Clifford W. Smith, Jr., Chair
William Balderston, III
Roger W. Kober
2006 SUMMARY COMPENSATION
Introduction
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.
The Compensation Committee (and in the case of the Chief Executive Officer,
the Board of Directors) approves salary adjustments at their February meetings.
The adjustments are effective in mid-March of each year. The salaries listed
therefore reflect the salary level approved in February 2005 for the period from
January 1, 2006 to March 15, 2006 and the salary level approved in February 2006
for the period from March 16, 2006 to December 31, 2006.
The amounts listed in the table as the value of the stock awards and option
awards reflect the Company's expense recognized for financial statement
reporting purposes as described in footnotes (2) and (3) to the table.
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 2006. Payment of these amounts was approved by the
Compensation Committee (and, in the case of the Chief Executive Officer, the
Board of Directors) at their February 2007 meetings and payment was made on
February 22, 2007.
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 when 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 amount of cash compensation in the form of salary and bonus in
proportion to total compensation for the Named Executive Officers ranges from
63% to 71% in rank order, with the most highly compensated receiving 63% of
total compensation in the form of cash and the least highly compensated
receiving 71% of their total compensation in the form of cash. Similarly, the
most highly compensated individual received a higher percentage of his cash
compensation in the form of bonus rather than salary. This is consistent with
the Compensation 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.
The following table sets forth the compensation paid to or earned by the
Named Executive Officers during 2006. 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.
2006 SUMMARY COMPENSATION TABLE
Non-Equity
Incentive
Stock Option Plan All Other
Name and Principal Salary Awards Awards Compensation Compensation Total
Position Year ($)(1) ($)(2) ($)(3) ($)(4) ($)(5) ($)
-------- ---- ------ ------ ------ ------ ------ ---
Edward J. Pettinella,
President and
Chief Executive Officer 2006 519,792 426,535 187,650 680,459 102,617 1,917,053
David P. Gardner,
Executive Vice
President
and Chief Financial
Officer 2006 292,292 197,487 63,712 264,904 47,651 866,046
Ann M. McCormick,
Executive Vice
President,
General Counsel and
Secretary 2006 257,817 164,859 55,768 233,659 41,208 753,311
Scott A. Doyle,
Senior Vice President 2006 238,542 101,017 41,491 168,148 27,098 576,296
John E. Smith,
Senior Vice President 2006 220,833 80,638 44,076 155,665 23,892 525,104
(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 dollar amount recognized for financial
statement reporting purposes with respect to 2006 for the fair value of
restricted stock granted in 2006 as well as prior years, in accordance with SFAS
123R 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 grant. For additional information, refer to note 9
of the Company's financial statements in the Form 10-K for the year ended
December 31, 2006, as filed with the SEC. See the 2006 Grants of Plan-Based
Awards Table on page 23 for information on restricted stock awards made in 2006.
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 as recorded on the Company's financial statement for 2006. Of the amounts
listed in this column, the following amounts represents that value: David P.
Gardner $2,928; Ann M. McCormick $2,413 and Scott A. Doyle $2,172.
(3) This column represents the dollar amount recognized for financial
statement reporting purposes with respect to 2006 for the fair value of stock
options granted to each of the Named Executive Officers in 2006 as well as prior
years, in accordance with SFAS 123R except, pursuant to SEC rules, the amounts
shown exclude the impact of estimated forfeitures related to service-based
vesting conditions. For additional information on the valuation assumptions with
respect to the 2006 grants as well as the grants made prior to 2006, refer to
note 9 of the Company's financial statements in the Form 10-K for the year ended
December 31, 2006, as filed with the SEC. See the Grants of Plan-Based Awards
Table for information on options granted in 2006.
(4) This column represents the payments received by the Named Executive
Officers for services rendered in calendar year 2006 pursuant to the Company's
Bonus Plan. The bonus factor assigned to the Named Executive Officers for 2006
was as follows: Edward J. Pettinella - 13%; David P. Gardner - 9%; Ann M.
McCormick - 9%; Scott A. Doyle - 7% and John E. Smith - 7%. The following Named
Executive Officers deferred a portion of this payment pursuant to the Company's
Deferred Bonus Plan as follows: Ann M. McCormick $46,732 and Scott A. Doyle
$67,259. The gross payment (before deferral) is listed in this column.
(5) This column represents (a) $6,660 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 2006 on all shares of restricted stock held by each
of the Named Executive Officers as follows: Edward J. Pettinella $96,017; David
P. Gardner $40,171; Ann M. McCormick $33,744; Scott A. Doyle $20,054; and John
E. Smith $17,292 plus (c) the value of all hypothetical dividends paid in 2006
on the 10% Company Match shares in the accounts of the following Named Executive
Officers pursuant to the Company's Deferred Bonus Plan: David P. Gardner $880;
Ann M. McCormick $864; and Scott A. Doyle $444.
2006 GRANTS OF PLAN-BASED AWARDS
Introduction
The following table provides information about plan-based awards granted to
the Named Executive Officers in 2006. These awards consist of stock options and
restricted stock, cash paid pursuant to the Bonus Plan and, if applicable, the
value of the 10% Company Match made pursuant to the Deferred Bonus Plan. There
are no amounts to be reported in the Estimated Future Payouts Under Equity
Incentive Plan Awards column so it has not been included.
All stock options and restricted stock were issued pursuant to the
Company's Stock Plan.
The stock options granted to the Named Executive Officers have the same
term (ten years) and vesting (20% per year) as the options granted to other
employees in 2006. The only criteria to vesting is employment, with some limited
exceptions for termination due to disability, death, retirement or change in
control. Options issued to executive officers of the Company, including the
Named Executive Officers, do not vest upon retirement but continue to vest on
their original terms.
Restricted shares granted to the Named Executive Officers vest on the same
terms as the restricted shares granted to other employees in 2006 (25% per
year). The only criteria to vesting is continued employment, with some limited
exceptions for termination due to disability, death and change in control.
Restricted stock allows the recipient to vote and receive dividends prior to
vesting.
The phantom shares issued in connection with the Company's 10% Match vest
after three years. The only criteria for vesting is continued employment with no
exceptions.
2006 GRANTS OF PLAN-BASED AWARDS TABLE
All Other All Other
Stock Option
Awards: Awards:
Estimated Future Number of Number of Exercise or Grant Date Fair
Payouts Under Non-Equity Shares of Securities Base Price Value of Stock
Incentive Plan Awards(2) Stock or Underlying of Option and Option
Threshold Target Maximum Units Options Awards Awards
Name Plan Name Grant Date ($) ($) ($) (#)(3) (#)(4) ($/Sh)(5) ($)(6)
---- -------------------- --- --- --- ------ ------ --------- ------
Edward J. Bonus
Pettinella Plan 270,292 540,583 810,875
Stock
Plan 5/4/2006 11,000 65,000 51.06 993,094
DBP (1)
Bonus
David P. Gardner Plan 105,225 210,450 315,675
Stock
Plan 5/4/2006 6,000 25,000 51.06 472,296
DBP (1)
Bonus
Ann M. McCormick Plan 92,814 185,628 278,442
Stock
Plan 5/4/2006 5,000 20,000 51.06 388,049
DBP (1) 2/22/2007 75 3,830
Bonus
Scott A. Doyle Plan 66,792 133,583 200,375
Stock
Plan 5/4/2006 3,000 15,000 51.06 252,742
DBP (1) 2/22/2007 108 5,514
Bonus
John E. Smith Plan 61,833 123,667 185,500
Stock
Plan 5/4/2006 3,500 15,000 51.06 278,272
DBP (1)
(1) "DBP" refers to the Deferred Bonus Plan.
(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 2006.
That Plan is described in more detail in the "Compensation Discussion and
Analysis" beginning on page 12 of this Proxy Statement. 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 2007 for
services rendered in 2006 are listed in the 2006 Summary Compensation Table on
page 22.
(3) This column represents restricted stock awarded to each of the Named
Executive Officers in 2006 and shares credited to the deferred bonus accounts of
Mrs. McCormick and Mr. Doyle in connection with the 2006 10% Company Match under
the Deferred Bonus Plan. While the shares were credited in 2007 when the bonus
relating to 2006 service was paid, they are included in this table since they
relate to 2006 compensation.
(4) This column represents options granted to the Named Executive Officers
in 2006.
(5) The exercise price is the closing price ($51.06) on the grant date (May
4, 2006) as provided in the Stock Plan.
(6) For stock options, grant date fair value is calculated using the
Black-Sholes formula. For additional information on the valuation assumptions,
refer to note 9 of the Company's financial statements in the Form 10-K for the
year ended December 31, 2006. For restricted stock, the grant date fair value is
calculated using the closing price ($51.06) of a share of the Company's Common
Stock on the award date (May 4, 2006). The grant date fair value for both the
option grants and restricted stock awards are computed in accordance with SFAS
123R. The value of the phantom shares is equal to the actual amount of the 10%
Company Match.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
The following table provides information about unexercised options and
restricted stock that has not vested, both of which were issued under the Stock
Plan or previous stock benefit plans. It also includes all phantom shares in the
Named Executive Officers' accounts under the Deferred Bonus Plan that were
credited to the accounts as a result of the 10% Company Match but only to the
extent that the phantom shares have not vested. There are no unearned options or
shares under the Company's equity incentive plans so related columns are not
included.
Option Awards(1) Stock Awards
---------------- ------------
Number of Number of Number of Market Value
Securities Securities Shares or of Shares or
Underlying Underlying Units of Units of
Unexercised Unexercised Option Stock That Stock That
Options Options Exercise Option Have Not Have Not
(Exercisable) (Unexercisable) Price Expiration Vested Vested
Name (#) (#) ($) Date (#) ($)
---- --- --- --- ---- --- ---
Edward J. Pettinella 100,000 - 27.010 02/07/11 40,100 (2) 2,376,727
50,000 - 30.150 07/31/11
50,000 - 34.650 08/05/12
30,000 20,000 36.850 08/05/13
22,000 33,000 38.830 08/03/14
13,000 52,000 41.950 05/06/15
- 65,000 51.060 05/04/16
David P. Gardner 960 - 27.125 08/03/09 17,370 (3) 1,029,520
15,000 - 31.375 08/01/10
15,000 - 30.150 07/31/11
12,000 3,000 34.650 08/05/12
9,000 6,000 36.850 08/05/13
6,000 9,000 38.830 08/03/14
5,000 20,000 41.950 05/06/15
- 25,000 51.060 05/04/16
Ann M. McCormick 12,599 - 31.375 08/01/10 14,562 (4) 863,090
15,000 - 30.150 07/31/11
12,000 3,000 34.650 08/05/12
9,000 6,000 36.850 08/05/13
6,000 9,000 38.830 08/03/14
4,000 16,000 41.950 05/06/15
- 20,000 51.060 05/04/16
Scott A. Doyle 10,000 - 31.375 08/01/10 8,727 (5) 517,249
10,000 - 30.150 07/31/11
8,000 2,000 34.650 08/05/12
6,000 4,000 36.850 08/05/13
5,000 7,500 38.830 08/03/14
3,000 12,000 41.950 05/06/15
- 15,000 51.060 05/04/16
John E. Smith 5,000 - 31.375 08/01/10 7,600 (6) 450,452
2,240 2,000 34.650 08/05/12
6,000 4,000 36.850 08/05/13
4,000 6,000 38.830 08/03/14
3,000 12,000 41.950 05/06/15
- 15,000 51.060 05/04/16
(1) All option grants have a ten-year term. With the exception of Edward
Pettinella's grant issued on 2/7/01, which vested immediately, all option grants
vest pro rata at the rate of 20% per year beginning on the first anniversary of
grant date. 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: 2,000 shares on
2/4/2007; 3,300 shares on each of 2/5/2007 and 2/5/2008; 2,500 shares on each of
2/16/2007, 2/16/2008 and 2/16/2009; 2,750 shares on each of 5/4/2007, 5/4/2008,
5/4/2009 and 5/4/2010; and 13,000 shares on 2/27/2008.
(3) Mr. Gardner's restricted stock will vest as follows: 1,000 shares on
2/4/2007; 1,500 shares on each of 2/5/2007 and 2/5/2008; 1,375 shares on each of
2/16/2007, 2/16/2008 and 2/16/2009; 1,500 shares on each of 5/4/2007, 5/4/2008,
5/4/2009 and 5/4/2010; and 3,000 shares on 2/27/2008. Shares in Mr. Gardner's
deferred bonus account represent the 10% Company Match shares and hypothetical
dividends on those shares. Both will vest as follows: 81 shares on 2/20/2007;
and 164 shares on 3/5/2008.
(4) Mrs. McCormick's restricted stock will vest as follows: 1,000 shares on
2/4/2007; 1,250 shares on each of 2/5/2007 and 2/5/2008; 1,125 shares on each of
2/16/2007, 2/16/2008 and 2/16/2009; 1,250 shares on each of 5/4/2007, 5/4/2008,
5/4/2009 and 5/4/2010; and 2,500 shares on 2/27/2008. Shares in Mrs. McCormick's
deferred bonus account represent the 10% Company Match shares and hypothetical
dividends on those shares. Both will vest as follows: 52 shares on 2/20/07; 90
shares on 3/5/2008; 45 shares on 2/22/2009; and 75 shares on 2/22/2010.
(5) Mr. Doyle's restricted stock will vest as follows: 800 shares on
2/4/2007; 750 shares on each of 2/5/2007, 2/16/2007, 5/4/2007, 2/5/2008,
2/16/2008, 5/4/2008, 2/16/2009, 5/4/2009 and 5/4/2010; and 1,000 shares on
2/27/2008. Shares in Mr. Doyle's deferred bonus account represent the 10%
Company Match shares and hypothetical dividends on those shares. Both will vest
as follows: 177 shares on 3/5/2008; and 108 shares on 2/22/2010.
(6) Mr. Smith's restricted stock will vest as follows: 800 shares on
2/4/2007; 400 shares on each of 2/5/2007 and 2/5/2008; 500 shares on each of
2/16/2007, 2/16/2008 and 2/16/2009; 875 shares on each of 5/4/2007, 5/4/2008,
5/4/2009 and 5/4/2010; and 1,000 shares on 2/27/2008.
OPTION EXERCISES AND STOCK VESTED IN 2006 TABLE
The following table provides information for each of the Named Executive
Officers concerning the following events that occurred during 2006: 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
------------- ------------
Number of Shares Number of Shares
Acquired on Value Realized on Acquired on Value Realized on
Name Exercise (#) Exercise ($)(1) Vesting (#) Vesting ($)(2)
---- ------------ --------------- ----------- --------------
Edward J. Pettinella - - 7,800 373,742
David P. Gardner - - 3,978 190,988
Ann M. McCormick 15,001 347,530 3,426 164,286
Scott A. Doyle 8,500 198,882 2,300 110,181
John E. Smith 15,760 399,711 1,700 81,302
(1) The dollar amount realized upon exercise was computed by multiplying
the number of shares times the difference between the market price of the
underlying securities at exercise and the exercise price of the options.
(2) The aggregate dollar amount realized upon vesting was computed by
multiplying the number of shares of stock by the market value of the underlying
shares on the vesting date.
PENSION BENEFITS
The Company does not maintain a defined benefit pension plan or
supplemental pension plan.
2006 NONQUALIFIED DEFERRED COMPENSATION TABLE
A description of the Company's Deferred Bonus Plan is included in the
"Introduction to 2006 Summary Compensation" beginning on page 21. There were no
withdrawals or distributions to report in 2006 so the related column has not
been included.
Executive Registrant
Contributions Contributions Aggregate Earnings Aggregate Balance at
Name in 2006 ($)(1) in 2006 ($)(2) in 2006 ($)(3) 12/31/2006 ($)(4)
---- -------------- -------------- -------------- -----------------
Edward J. Pettinella - - - -
David P. Gardner - 880 8,796 229,685
Ann M. McCormick 46,732 5,537 8,639 232,748
Scott A. Doyle 67,259 7,170 4,442 116,003
John E. Smith - - - -
(1) This column represents deferral of a portion of the bonus paid under
the Bonus Plan in February 2007 for services rendered in 2006. The amounts
deferred were 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 2007 relating to the amounts deferred as described in footnote (1)
above and the value of all hypothetical dividends paid in 2006 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: Mr. Gardner $880; Mrs. McCormick
$864; and Mr. Doyle $444.
(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 total includes the following amounts also reported on the Summary
Compensation Table for 2006: Mr. Gardner $3,808; Mrs. McCormick $50,009; and Mr.
Doyle $69,875. It also includes the following amounts that were listed as
"bonus" in prior years' proxy statements: David Gardner $114,641; Ann McCormick
$106,834; and Scott Doyle $65,175.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Other than Edward 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, to varying degrees, are
available to 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) 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 with cause or by
the employee with good reason, 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 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 and two times the amount of the
last paid bonus under the Bonus Plan. The Named Executive Officers, along with
30 other employees, are entitled to the maximum 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" amount necessary to pay any
excise tax due on the severance payment.
Stock Benefit Plans
Under the terms of the Stock Plan, in the event of the termination of
employment by the Company without good cause, any options held for more than six
months 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 two stock
benefit plans, but there are awards still outstanding under both. Under those
plans, options held for more than six months by an individual who had been an
officer of the Company for more than five years become fully exercisable and
remain so for three months 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.
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, trigger
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 upon termination or change in control. 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.
Involuntary or
Good Reason
Involuntary Not Termination
for Cause (Change in Death or
Name/Type of Benefit Termination($) Control)($) Retirement($) Disability($)
-------------------- -------------- ----------- ------------- -------------
Edward J. Pettinella
Severance 2,530,009(1) 2,617,251 - -
Accelerated Vesting of Long-Term
Incentives (2) 2,557,210 4,933,937 1,724,757 4,933,937
Other Benefits and Tax Gross-Up 56,937(3) 770,310 - -
David P. Gardner
Severance - 812,868 - -
Accelerated Vesting of Long-Term
Incentives (2) 943,990 1,958,989 733,239 1,958,989
Other Benefits and Tax Gross-Up - 221,127 - -
Ann M. McCormick
Severance - 730,898 - -
Accelerated Vesting of Long-Term
Incentives (2) 833,660 1,685,666 629,516 1,685,666
Other Benefits and Tax Gross-Up - - - -
Scott A. Doyle
Severance - 654,048 - -
Accelerated Vesting of Long-Term
Incentives (2) 623,210 1,129,969 378,189 1,129,969
Other Benefits and Tax Gross-Up - - - -
John E. Smith
Severance - 597,364 - -
Accelerated Vesting of Long-Term
Incentives (2) 592,550 1,043,002 292,247 1,043,002
Other Benefits and Tax Gross-Up - - - -
(1) This payment would be made pursuant to Mr. Pettinella's employment
agreement and is based on his 2006 salary and 2005 bonus paid in 2006.
(2) The vesting of options and restricted stock upon the occurrence of
certain termination triggers is made in accordance with the terms of the Stock
Plan, the Company's prior stock benefit plan, 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, 2006, using a year-end closing
stock price of $59.27. For restricted stock, the amount listed represents the
number of unvested restricted shares as of December 31, 2006 multiplied by
$59.27.
(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) 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, 2006 until December 31, 2010.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Securities Ownership of Management
The following table sets forth information as of March 8, 2007 regarding
the beneficial ownership of shares of Common Stock by: (i) Nominees and Named
Executives of the Company; and (ii) Nominees 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.
# of Shares % of #of Shares/ % of Shares/
Beneficially Shares UPREIT Units UPREIT Units
Name of Owner Owned (1) Outstanding (1) Owned (2) Outstanding (2)
------------- --------- --------------- --------- ---------------
Edward J. Pettinella (3) 465,204 1.39% 465,204 *
William Balderston, III (4) 28,697 * 28,697 *
Josh E. Fidler (5) 5,215 * 522,322 1.12%
Alan L. Gosule (6) 29,100 * 29,100 *
Leonard F. Helbig, III (7) 60,641 * 60,641 *
Roger W. Kober (8) 22,461 * 22,461 *
Nelson B. Leenhouts (9) 75,897 * 280,121 *
Norman P. Leenhouts (10) 52,597 * 257,069 *
Clifford W. Smith, Jr. (11) 49,701 * 49,701 *
Paul L. Smith (12) 13,337 * 13,337 *
Thomas S. Summer (13) 6,215 * 6,215 *
Amy L. Tait (14) 64,695 * 78,508 *
David P. Gardner (15) 135,557 * 139,063 *
Ann M. McCormick (16) 125,112 * 127,414 *
Scott A. Doyle (17) 64,018 * 64,018 *
John H. Smith (18) 47,484 * 47,484 *
------ ------
All executive officers and
directors as a group (19 persons) 1,395,496 (19) 4.10% (20) 2,340,920 4.93% (21)
*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 and all shares of restricted stock issued to the person have vested.
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. Does not include unvested shares in certain of the listed individuals'
accounts pursuant to the Company's Deferred Bonus Plan and the Director Deferred
Compensation Plan. Shares of Common Stock are issued on a one-for-one basis upon
the expiration of the deferral periods. None of the deferral periods expire
within 60 days.
(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 291,000 shares which may be acquired upon the exercise of
Currently Exercisable Options and 32,300 shares of restricted stock. Of the
shares owned by Mr. Pettinella, 98,004 have been pledged as collateral.
(4) Mr. Balderston is not standing for re-election to the Board of
Directors. Includes 12,200 shares which may be acquired upon the exercise of
Currently Exercisable Options and 2,575 shares of restricted stock. There are
1,383 additional shares in Mr. Balderston's account pursuant to the Director
Deferred Compensation Plan.
(5) Includes 1,600 shares which may be acquired upon the exercise of
Currently Exercisable Options and 2,815 shares of restricted stock. The
Shares/UPREIT Units owned include 101,126 UPREIT Units held by Mr. Fidler's wife
as to which he disclaims beneficial ownership 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.
(6) Includes 19,200 shares which may be acquired upon the exercise of
Currently Exercisable Options and 2,240 shares of restricted stock. There are
7,135 additional shares in Mr. Gosule's account pursuant to the Director
Deferred Compensation Plan.
(7) Includes 8,000 shares which may be acquired upon the exercise of
Currently Exercisable Options and 940 shares of restricted stock. Mr. Helbig is
also the holder of 1,850 shares of the Company's Series F Cumulative Redeemable
Preferred Stock. There are 10,277 additional shares in Mr. Helbig's account
pursuant to the Director Deferred Compensation Plan. Of the shares owned by Mr.
Helbig, 18,000 have been pledged as collateral.
(8) Includes 12,200 shares which may be acquired upon the exercise of
Currently Exercisable Options and 940 shares of restricted stock. There are
8,125 additional shares in Mr. Kober's account pursuant to the Director Deferred
Compensation Plan.
(9) Includes 19,836 shares which may be acquired upon the exercise of
Currently Exercisable Options and 50,348 shares of restricted stock. There are
11,554 additional shares in Mr. Nelson Leenhouts' account pursuant to the
Deferred Bonus Plan. The fourth column also includes 150,000 UPREIT Units owned
by Home Leasing. Nelson Leenhouts is a director, officer and sole stockholder of
Home Leasing. Of the UPREIT Units owned by Home Leasing, 63,000 have been
pledged as collateral. The fourth column also includes 50,000 UPREIT Units owned
by Nelson Leenhouts' spouse as to which he disclaims beneficial ownership.
(10) Includes 18,333 shares which may be acquired upon the exercise of
Currently Exercisable Options, 700 shares in custodial accounts for the benefit
of Mr. Norman Leenhouts' grandchildren (as to which he disclaims beneficial
ownership) and 30,247 shares of restricted stock. There are 20,944 additional
shares in Mr. Leenhouts' account pursuant to the Deferred Bonus Plan. The fourth
column also includes 150,000 UPREIT Units owned by Knollwood Ventures, Inc.
Norman Leenhouts is a director, officer and sole 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 12,200 shares which may be acquired upon the exercise of
Currently Exercisable Options and 940 shares of restricted stock. Also includes
1,400 shares owned by Mr. Clifford Smith's spouse as custodian for their minor
children and 700 shares held in a trust for the benefit of one of Mr. Smith's
minor children as to which he disclaims beneficial ownership. There are 15,814
additional shares in Mr. Smith's account pursuant to the Director Deferred
Compensation Plan.
(12) Includes 5,200 shares which may be acquired upon the exercise of
Currently Exercisable Options and 3,515 shares of restricted stock. There are
1,766 additional shares in Mr. Paul Smith's account pursuant to the Director
Deferred Compensation Plan.
(13) Includes 2,400 shares which may be acquired upon the exercise of
Currently Exercisable Options of 2,815 shares of restricted stock.
(14) Includes 12,200 shares which may be acquired by Mrs. Tait upon the
exercise of Currently Exercisable Options and 3,515 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 owned by Mrs. Tait's spouse and 26,821 shares and 11,195
UPREIT Units that Mrs. Tait owns individually.
(15) Includes 72,960 shares which may be acquired upon the exercise of
Currently Exercisable Options and 13,250 shares of restricted stock. Mr. Gardner
shares voting and dispositive power with his spouse with respect to 10,240
shares. The fourth column also includes 3,506 UPREIT Units owned by Mr. Gardner.
All of the UPREIT Units owned by Mr. Gardner and all of the shares owned jointly
with his spouse have been pledged as collateral as have 23,814 shares that Mr.
Gardner owns individually. There are 3,014 additional shares in Mr. Gardner's
account pursuant to the Deferred Bonus Plan.
(16) Includes 66,599 shares which may be acquired upon the exercise of
Currently Exercisable Options and 11,000 shares of restricted stock. Mrs.
McCormick shares voting and dispositive power with respect to 7,650 shares with
her spouse. The fourth column also includes 565 UPREIT Units that Mrs. McCormick
owns individually and 1,737 UPREIT Units with respect to which she shares voting
and dispositive power with her spouse. All of the jointly owned shares and
UPREIT Units have been pledged as collateral as have 23,536 shares that Mrs.
McCormick owns individually. There are 4,546 additional shares in Mrs.
McCormick's account pursuant to the Deferred Bonus Plan.
(17) Includes 48,000 shares which may be acquired upon exercise of
Currently Exercisable Options, 6,250 shares of restricted stock and 210 shares
held in Mr. Doyle's account under the Company's 401(k) Savings Plan. Of the
shares owned by Mr. Doyle, 6,181 have been pledged as collateral. There are
3,177 additional shares in Mr. Doyle's account pursuant to the Deferred Bonus
Plan.
(18) Includes 26,240 shares which may be acquired upon exercise of
Currently Exercisable Options, 5,900 shares of restricted stock and 514 shares
held in Mr. John Smith's account under the Company's 401(k) Savings Plan. Of the
shares owned by Mr. Smith, 3,484 have been pledged as collateral.
(19) Includes 721,288 shares which may be acquired upon the exercise of
Currently Exercisable Options and 180,090 shares of restricted stock. In
addition to the shares pledged as collateral as indicated in the footnotes
above, 23,908 shares have been pledged as collateral by other executive officers
of the Company.
(20) Assumes that all Currently Exercisable Options issued to all listed
persons have been exercised and all shares of restricted stock issued to such
persons have vested.
(21) Same assumptions as footnote (20) plus assumes that all UPREIT Units
issued to all listed persons have been exchanged for shares of Common Stock.
Security Ownership by Beneficial Owners of More than 5% of The Company's Common
Stock
The following table sets forth information regarding the beneficial
ownership of Common Stock by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock as of December
31, 2006. In preparing this table, the Company has relied on information
contained in filings with the Securities and Exchange Commission.
Amount and Nature of Percentage of Outstanding
Name and Address of Beneficial Owner Beneficial Ownership Common Stock (1)
------------------------------------ -------------------- ----------------
Cohen and Steers, Inc. 4,115,248(2) 12.43%
280 Park Avenue, 10th Floor
New York, NY 10017
ING Groep N.V. 2,628,030(3) 7.94%
Amstelveenseweg 500
1081 KL Amsterdam
The Netherlands
The Vanguard Group, Inc. 2,120,412(4) 6.41%
100 Vanguard Blvd.
Malvern, PA 19355
(1) Percentage is based on actual number of shares outstanding as of
December 31, 2006 and may be different than the percentage referenced in the
reports described below.
(2) Based on a report on Schedule 13G (Amendment No. 3) filed jointly by
Cohen and Steers, Inc., Cohen and Steers Capital Management, Inc. and Houlihan
Rovers SA on February 13, 2007, reflecting that: (a) Cohen and Steers, Inc. and
Cohen and Steers Management, Inc. each beneficially owns 4,115,248 shares, has
sole voting power with respect to 4,013,583 shares, and has sole dispositive
power with respect to 4,115,248 shares, and (b) Houlihan Rovers SA beneficially
owns 4,558 shares and has sole voting and dispositive power with respect to
4,558 shares. Cohen and Steers, Inc. holds a 100% interest in Cohen and Steers
Capital Management, Inc. and a 50% interest in Houlihan Rovers SA.
(3) Based on a report on Schedule 13G filed by ING Groep N.V. on February
14, 2007, reflecting that the ING Groep N.V. beneficially owns 2,628,030 shares,
has sole voting power and has sole dispositive power with respect to 2,628,030
shares. Of those shares, 1,059,330 shares are held by indirect subsidiaries of
ING Groep N.V. in their role as a discretionary manager of client portfolios and
5,700 shares are held by indirect subsidiaries of ING Groep N.V. in their role
as trustee. In addition to the 2,628,030 shares beneficially owned, ING Groep
N.V. also holds 2,300 custodian shares.
(4) Based on a report on Schedule 13G (Amendment No. 1) filed by The
Vanguard Group, Inc. on February 14, 2007, reflecting that The Vanguard Group,
Inc. beneficially owns 2,120,412 shares, has sole voting power with respect to
33,338 shares and has sole dispositive power with respect to 2,120,412 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 2006, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were satisfied, except that
each of the following directors inadvertently failed to report on a timely basis
one transaction involving the sale of common shares as follows: William
Balderston - sale of 666 shares of Common Stock; Norman Leenhouts - sale of 752
shares; and Amy L. Tait - sale of 4,759 shares. The three sales were
subsequently reported on a Form 4.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
The Company's corporate headquarters are located in a building that is
owned by an entity in which Norman and Nelson Leenhouts indirectly have a 75%
interest. The Operating Partnership and the building owner have entered into
various leases for approximately 75,000 square feet. The base rent payable by
the Operating Partnership under the leases for 2006 was approximately $895,000,
which remains unchanged for 2007. The lease also requires the Operating
Partnership to pay its pro-rata portion of property improvements, real estate
taxes and common area maintenance.
On a month-to-month basis, the Operating Partnership subleases 3,379 square
feet of its corporate headquarters to Home Leasing, LLC and Broadstone Real
Estate, LLC, companies currently owned, in part, by Nelson Leenhouts and Norman
Leenhouts, respectively. For 2007, the gross monthly rental payment is $6,164.
In October 2003, Nelson and Norman Leenhouts entered into employment
agreements with the Company providing for a three-year term expiring on December
31, 2006. Under the employment agreements, the Leenhoutses agreed to serve as
Senior Advisors as well as Co-Chairs of the Board. Their obligations to act as
Senior Advisors to the Company were gradually reduced with the portion of their
business time to be spent on those obligations reducing from a maximum of
two-thirds in 2004, to one-half in 2005, to one-third in 2006. Their base salary
was also proportionately reduced under the employment agreements from $300,000
in 2004, to $225,000 in 2005 to $150,000 in 2006. They were entitled to receive
incentive compensation at their pre-retirement bonus level factor of 12% but
since the Bonus Plan provides that the bonus paid is calculated based on base
salary, if the total bonus payout remained the same, the bonus to be paid to the
Leenhoutses was proportionately reduced as well. The bonus paid to each of
Nelson and Norman Leenhouts for services rendered in 2004, 2005 and 2006 was
$273,960, $146,475 and $200,141, respectively.
Pursuant to their employment agreements, each of the Leenhoutses was also
granted 64,935 shares of restricted stock in October 2003 in consideration for
both past and future services to the Company. These shares vest in equal amounts
over the five years following the execution of the employment agreements. In
addition, pursuant to their employment agreements, each of Nelson and Norman
Leenhouts was issued options to purchase 33,330, 25,000 and 16,665 shares of
Common Stock in 2004, 2005 and 2006, respectively. They were also granted
10,166, 5,000 and 3,333 shares of restricted stock in 2004, 2005 and 2006,
respectively.
In March 2006, Nelson Leenhouts entered into a Development Agreement with
the Company, which was retroactive to January 1, 2006. This was in addition to
his Employment Agreement described above. Pursuant to the Development Agreement,
Nelson Leenhouts agreed to assume a leadership role in connection with the
development activities of the Company as more specifically outlined in a
development plan approved by the Board of Directors of the Company. In
consideration for his services, Mr. Leenhouts was paid a base annual salary of
$250,000 in monthly installments. In addition, pursuant to the Agreement, he was
entitled to earn a bonus of $150,000 upon the achievement of certain specified
objectives. At the recommendation of the Chief Executive Officer, the
Compensation Committee determined that Mr. Leenhouts should be paid the full
amount of his bonus and made that recommendation to the full Board, which
approved the payment of a $150,000 bonus under the Development Agreement.
The Development Agreement, by its terms, expired on December 31, 2006, as
did Mr. Leenhouts' Employment Agreement. Management determined that it would
like Nelson Leenhouts to remain an employee of the Company for an additional
year in order to continue to lead the Company's development activities. The
Board of Directors, in February 2007, therefore approved the terms of an
Employment Agreement with Mr. Leenhouts and authorized Mr. Pettinella, as Chief
Executive Officer, and Clifford Smith, as Chair of the Compensation Committee to
execute an Employment Agreement with Mr. Leenhouts. The Employment Agreement is
retroactive to January 1, 2007 as Mr. Leenhouts has been performing the duties
specified in the agreement since that date. The base salary to be paid to Mr.
Leenhouts for the period from January 1, 2007 to December 31, 2007 is $300,000.
In addition, Mr. Leenhouts is to be paid a bonus of up to $350,000 upon the
achievement of certain specified objectives.
POLICIES AND PROCEDURES FOR APPROVAL OF RELATED PARTY TRANSACTIONS
On an annual basis, each employee of the Company and each of the directors
is required to provide a written acknowledgement that they have reviewed the
Company's Code of Business Conduct and Ethics. If an employee or director, or
members 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. 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.
The current policy was finalized and adopted in February 2007. All related
party transactions since January 1, 2006 which were required to be reported in
this Proxy Statement were approved by either the Corporate Governance/Nominating
Committee or the full Board of Directors.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2007
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, 2007. PricewaterhouseCoopers LLP (and its predecessor,
Coopers and 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. A representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting, 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 2007 FISCAL YEAR.
REPORT OF THE AUDIT COMMITTEE
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 Management's Report on Internal Control over Financial
Reporting in accordance with generally accepted auditing standards 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 2006, the Committee met five 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 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 Independence
Standards Board Standard No. 1 (Independence Discussion With Audit Committees).
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, 2006, for filing with the
Securities and Exchange Commission.
Submitted by the Audit Committee,
Paul L. Smith, Chair
Alan L. Gosule
Leonard F. Helbig, III
Roger W. Kober
Thomas S. Summer
Principal Accounting Fees and Services
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 2006 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, 2006 and
2005, were:
2006 2005
---- ----
Audit fees (1) $ 871,000 $1,642,000
Audit-related fees (2) 257,000 37,000
Tax fees (3) 154,500 136,000
All other fees (4) 59,500 51,000
------ ------
Total fees $1,342,000 $1,866,000
(1) Audit fees consisted of professional services rendered for the audits
of the consolidated financial statements of the Company and the audit of
Management's Report on Internal Controls over Financial Reporting.
(2) Audit-related fees consisted of assurance and related services related
to SEC Regulation S-X Rule 3-14 audits performed in connection with property
acquisitions, 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 ($91,500 for 2006 and $89,000 for 2005) and tax planning
and tax advice ($63,000 for 2006 and $47,000 for 2005).
(4) All other fees consisted of license fees for software developed by
PricewaterhouseCoopers LLP that assisted with partner allocations for the
Operating Partnership.
ADDITIONAL INFORMATION
Solicitation of Proxies
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.
Stockholder Proposals
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
2008 Annual Meeting of stockholders must be received by the Company by the close
of business on December 2, 2007. Any proposal received after February 15, 2008
will not, under the rules of the SEC, be considered timely for presentation at
the 2008 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.
Form 10-K
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.
Other Matters
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.
Proxy Card -- Home Properties Inc.
| THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED THEREON. IF NO DIRECTION IS MADE, IT WILL BE
VOTED “FOR” PROPOSALS 1 AND 2. IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. |
Please |
o |
| SEE REVERSE SIDE | ||
| PROPOSAL ONE - | FOR all nominees listed (except as marked to the contrary) | WITHHOLD AUTHORITY to vote for the nominees listed | PROPOSAL TWO - | FOR | AGAINST | ABSTAIN | ||
| To elect the following persons as directors to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. | o | o | To ratify the appointment of
PricewaterhouseCoopers LLP as independent registered public accounting firm for 2007. |
o | o | o | ||
Nominees 01 Josh E. Fidler 02 Alan L. Gosule 03 Leonard F. Helbig, III 04 Roger W. Kober |
05
Norman P. Leenhouts 06 Nelson B. Leenhouts 07 Edward J. Pettinella 08 Clifford W. Smith, Jr. |
09 Paul L. Smith 10 Thomas S. Summer 11 Amy L. Tait |
||||||
| (Instruction:
To withhold authority to vote for any individual nominee, write that nominee’s
name in the space provided below.) |
||||||||
|
|
||||||||
| Please mark, sign, date and return this proxy card using the enclosed envelope. |
| Signature _____________________________ Signature _____________________________ Date ________________ |
| NOTE: (Please sign above exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.) |
| |
| Ù FOLD AND DETACH HERE Ù |
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF
INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet
and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet
or telephone vote authorizes the named proxies to vote your shares in the same
manner
as if you marked, signed and returned your proxy card.
INTERNET http://www.proxyvoting.com/hme Use the internet to vote your proxy. Have your proxy card in hand when you access the web site. |
OR |
TELEPHONE 1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. |
If you vote your proxy by Internet or by
telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope.
| Choose MLinkSM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect® at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment. |
HOME PROPERTIES, INC.
REVOCABLE PROXY SOLICITED BY THE
BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS MAY 1, 2007
| The undersigned hereby appoints Edward J. Pettinella as Proxy with full power of substitution to represent the undersigned and to vote all Common Stock of Home Properties, Inc. which the undersigned would be entitled to vote at the 2007 Annual Meeting of Stockholders of the Company to be held on May 1, 2007 and any adjournment thereof. |
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
| Address Change/Comments (Mark the corresponding box on the reverse side) |
| |
| Ù FOLD AND DETACH HERE Ù |